<PAGE>
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 March 31, 2000
--------------
___ 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
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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
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(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 May 5, 2000, registrant
had outstanding 10,384,602 shares of Common Stock, $.01 par value per share.
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CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
ASSETS 2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 4,675,734 $6,437,542
Accounts receivable (net of allowances of
$512,819 in 2000 and $419,048 in 1999) 3,683,576 3,019,710
Investment in discontinued operations 49,302 49,302
Prepaid expenses and other current assets 875,018 864,851
------------ ------------
Total current assets 9,283,630 10,371,405
Investments 4,183,092 2,638,356
Deferred subscription expense 499,454 383,624
Property and equipment - net 1,660,444 1,653,659
Security deposits 378,247 374,527
Other assets 733,036 836,396
------------ ------------
Total assets $16,737,903 $16,257,967
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
Current liabilities:
Accounts payable $ 3,717,423 $3,024,395
Accrued expenses 807,709 716,670
Deferred advertising revenue 1,539,950 1,467,210
Total current liabilities 6,065,082 5,208,275
Deferred advertising revenue 1,573,071 938,164
Deferred subscription revenue 2,994,432 2,448,591
------------ ------------
Total liabilities 10,632,585 8,595,030
Stockholders' Equity:
Preferred stock, $.01 par value, authorized
2,000,000 shares, 10,000 issued and 100 100
outstanding in 2000 and 1999
Common stock, $.01 par value; authorized
18,000,000shares; 10,384,602 issued and
outstanding in 2000 and 10,353,901 103,846 103,539
shares in 1999
Additional paid-in capital 33,462,330 33,421,542
Warrants 742,079 742,079
Deferred compensation (224,169) (272,038)
Accumulated deficit (27,978,868) (26,332,285)
------------ ------------
Total stockholders' equity 6,105,318 7,662,937
------------ ------------
Total liabilities and stockholders' equity $16,737,903 $16,257,967
============ ============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31,
-------------------------------------
2000 1999
------------ ------------
Revenues:
Online Services $1,271,651 $252,969
Print Publications 4,891,683 3,748,847
------------ -----------
Total revenues 6,163,334 4,001,816
Operating expenses:
Editorial, production and distribution 3,420,480 2,755,718
Promotion and selling 2,795,187 1,851,476
General and administrative 1,453,569 1,172,491
Corporate advertising 19,014 -
Depreciation and amortization 139,966 96,830
------------ -----------
Total operating expenses 7,828,216 5,876,515
------------ -----------
Operating loss (1,664,882) (1,874,699)
Investment and other income 68,299 556,567
------------ -----------
Net loss ($1,596,583) ($1,318,132)
============ ============
Basic and dilutive loss per common share ($0.16) ($0.15)
============ ============
Average number of common shares used in 10,363,991 8,786,599
computing basic and dilutive loss
per common share
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
-----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss ($1,596,583) ($1,318,132)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization 139,966 96,830
Stock option and warrant transactions 58,528 81,818
Preferred stock dividends payable (50,000) -
Gain on sale of investments - (503,215)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (663,866) (206,525)
Prepaid expenses and other current assets (14,404) (53,883)
Deferred subscription expense (115,830) 178,065
Other assets 87,477 -
Increase (decrease) in:
Accounts payable and accrued expenses 784,067 421,513
Deferred advertising revenue (837,089) -
Deferred subscription revenue 545,841 101,929
------------ ------------
Net cash used in operating activities (1,661,893) (1,201,600)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (141,010) (1,255,203)
Proceeds from sale of investments - 990,729
Net cash provided by discontinued operations - 139,849
------------ ------------
Net cash used in investing activities (141,010) (124,625)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 41,095 1,559,326
------------ ------------
Net cash (used in) provided by
financing activities 41,095 1,559,326
------------ ------------
Net (decrease) increase in cash and
cash equivalents (1,761,808) 233,101
Cash and cash equivalents, beginning of period 6,437,542 4,752,587
------------ ------------
Cash and cash equivalents, end of period $4,675,734 $4,985,688
============ ============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(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 three
months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999 on Form 10-K.
2. INVESTMENTS
On June 2, 1999, the Company, Kirlin Holding Corp. ("Kirlin")
and VentureHighway.com Inc. ("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 (adjusted
to reflect 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 web sites during the 30 months ending December 31, 2001.
The investment and the deferred advertising revenues were recorded at
the fair market value at the date of the transaction of $2,638,356 (or
$1.595 per share). In December 1999, VentureHighway raised $7.65
million cash, selling 2,142,000 shares at a price of $3.57 per share.
VentureHighway owns and operates VentureHighway.com, a branded
web site 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.
On February 23, 2000, the Company and ReverseAuction.com, Inc.
("ReverseAuction") entered into an agreement pursuant to which the
Company acquired 1,166,667 newly issued shares of common stock of
ReverseAuction, representing a 3.3% stake (on a fully-diluted basis) of
ReverseAuction.com, Inc. (constituting 7.4% of the then-outstanding
shares). The purchase price was paid in the form of a credit for
ReverseAuction to use to purchase advertising in the Company's
magazines and web sites during the 21 months ending December 31, 2001.
The investment and the deferred advertising revenues were recorded at
the fair market value at the date of the transaction of $1,544,736.
ReverseAuction owns and operates ReverseAuction.com, an
Internet site that features a declining price auction format that
decreases the price of a product incrementally depending upon the
auction duration. As the price drops, buyers are able to click anytime
to make a purchase. Once a purchase is made, the item is sold and the
auction is over. There currently is no public market for ReverseAuction
securities, and there is no assurance that the Company will realize any
value with respect to its investment in ReverseAuction.
3. DISCONTINUED OPERATIONS
On April 30, 1998 the Company's Board of Directors decided to
discontinue the Company's investment management services business.
The investment management services business was principally
conducted by a wholly-owned subsidiary of the Company, WisdomTree
Capital Management, Inc. ("WTCM"). WTCM serves 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 continuing to dissolve 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 any remaining net operating
losses and related costs associated with these discontinued operations
have been adequately provided for by the provisions established in
1998.
At March 31, 2000, the domestic investment fund had remaining
net assets of approximately $946,853. The Company's net investment in
discontinued operations of $49,302 at March 31, 2000 represents its
share of the net assets of the domestic investment fund, less any
costs associated with discontinuing the investment management
services.
4. STOCK OPTIONS
During the three months ended March 31, 2000, the Company
granted 583,909 options to purchase the Company's Common Stock in
connection with a one time program to heighten internal comparability
and to increase employee retention and motivation (no such options
were awarded to the Company's senior management); 30,701 options were
exercised (providing proceeds of $41,095); and 68,833 options were
canceled. Of the options granted, 5,000 were under the Company's 1993
Stock Option Plan, 7,500 were under the Company's 1996 Performance
Equity Plan, and 571,409 were granted under the Company's 2000
Performance Equity Plan ("2000 Plan). The Board of Directors approved
the 2000 Plan in February, 2000. All of the options granted during the
first quarter of 2000 have an exercise price equal to the fair market
value of the stock at the date of issuance and expire at various dates
through March, 2010.
5. LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing the net loss,
after deducting dividends on cumulative convertible preferred stock,
by the weighted average number of shares of Common Stock outstanding
during the period. Diluted loss per share is computed using the
weighted average number of outstanding shares of Common Stock and
common equivalent shares during the period. Common equivalent shares
consist of the incremental shares of Common Stock issuable upon the
exercise of stock options, warrants and other securities convertible
into shares of Common Stock. The loss per common share for the three
months ended March 31, 2000 and 1999, is computed based on the
weighted average number of shares of Common Stock outstanding during
the period. The exercise of stock options, warrants and other
securities convertible into shares of Common Stock were not assumed in
the computation of dilutive loss per common share, as the effect would
have been antidilutive.
The computation of net loss applicable to common shareholders
is as follows:
Three Months Ended March 31,
2000 1999
---- ----
Net loss ($1,596,583) ($1,318,132)
Preferred stock dividends (50,000) -
------------ ------------
Net loss applicable to common shareholders ($1,646,583) ($1,318,132)
============ ============
6. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," requires the disclosure of
comprehensive income (loss), defined as the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from non-owner sources. Comprehensive income (loss)
is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not
been recognized in the calculation of net income (loss).
Comprehensive income (loss) for the three months ended March
31, 2000 and 1999, respectively, is presented in the following table:
Three Months Ended March 31,
2000 1999
---- ----
Net loss ($1,596,583) ($1,318,132)
Other comprehensive income (loss):
Net unrealized gain on investments - 29,344
------------ ------------
Total comprehensive loss ($1,596,583) ($1,288,788)
============ ============
7. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which changes the
way the Company reports information about its operating segments.
The Company's business segments are focused on providing
research and analysis of investment information to individuals and
investment professionals through two operating segments: Online
Services and Print Publications. The Company's Online Services
operations include individualinvestor.com (www.individualinvestor.com)
and InsiderTrader.com (www.insidertrader.com). The Company's Print
Publications operations publishes and markets Individual Investor
magazine, a personal finance and investment magazine, Ticker, a
magazine for investment professionals, and Individual Investor's
Special Situations Report, a financial investment newsletter.
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. Any
inter-segment revenues included in segment data are not material. 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, 1999. Operating contribution represents the
difference between operating revenues less operating expenses (before
general and administrative ("G&A"), corporate advertising, and
depreciation and amortization expenses).
Three Months Ended March 31,
2000 1999
---- ----
Revenues:
Online Services $1,271,651 $ 252,969
Print Publications 4,891,683 3,748,847
----------- ------------
$6,163,334 $4,001,816
=========== ============
Operating contribution (before G&A,
corporate advertising, and depreciation
amortization expenses:
Online Services ($ 73,288) ($ 482,107)
Print Publications 20,955 (123,271)
----------- ------------
(52,333) (605,378)
G&A, corporate advertising, and depreciation
and amortization expenses (1,612,549) (1,269,321)
Investment and other income 68,299 556,567
----------- ------------
Net loss from continuing operations ($1,596,583) ($1,318,132)
=========== ============
Non-current investments as of March 31, 2000 increased
approximately $1.5 million as compared to December 31, 1999. This was
due to an investment in ReverseAuction.com, Inc. (see Note 2). Net
accounts receivable as of March 31, 2000 increased approximately $0.7
million due to increased advertising sales. Accounts payable as of
March 31, 2000 increased approximately $0.7 million due to the timing
of payments to vendors. Deferred advertising revenue as of March 31,
2000 increased approximately $0.7 million due to an investment in
ReverseAuction.com, Inc. (see Note 2), partially offset by revenue
earned during the period. Additionally, deferred subscription revenue
as of March 31, 2000 increased approximately $0.5 million due to the
timing of direct mail and subscription renewal campaigns. There were no
other material changes from year-end 1999 in total assets, in the basis
of segmentation, or in the basis of measurement of segment profit or
loss.
8. SUBSEQUENT EVENT
By April 14, 2000, the Company had entered into a letter of
intent and completed negotiation of definitive documentation with
respect to a proposed $5.6 million financing (see Note 12 to the
consolidated financial statements included in the Company's Annual
Report for the year ended December 31, 1999 on Form 10-K).
Subsequently, the Company was informed by a representative of the
potential investors that, in light of overall market conditions, the
financing would not be completed. The Company currently is in
negotiations with a potential strategic partner concerning an
investment of approximately $6 million. There can be no assurance that
the negotiations with the potential strategic partner will result in
the Company obtaining financing.
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 months ended
March 31, 2000 and March 31, 1999, 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 March 31, 2000. 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 March
31, 2000, 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. Except to the extent that a
statement in this Report is describing a historical fact, each statement in this
Report 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,
1999, 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 Months Ended March 31, 2000 as Compared to the Three Months Ended March
31, 1999
Operating Loss
The Company's operating loss for the three months ended March 31, 2000
decreased 11%, to $1,664,882, as compared to $1,874,699 in the first quarter of
1999. The decrease is primarily due to increased advertising revenues, partially
offset by increased promotion and selling, editorial production and
distribution, and general and administrative expenses.
Online Services operations provided a negative operating contribution
(before deducting G&A, corporate advertising, and depreciation and amortization
expenses) of $73,288 for the three months ended March 31, 2000, as compared to a
negative operating contribution of $482,107 in the first quarter of 1999. The
change in operating contribution is primarily due to increased advertising
revenues, partially offset by increased editorial, production and development,
and promotion and selling expenses.
Print Publications operations provided a positive operating
contribution (before deducting G&A, corporate advertising, and depreciation and
amortization expenses) of $20,955 for the three months ended March 31, 2000, as
compared to a negative operating contribution of $123,271 in the first quarter
of 1999. The change in operating contribution is primarily due to increased
advertising revenues, partially offset by increased promotion and selling, and
production and distribution expenses.
Revenues
Total revenues from continuing operations for the three months ended
March 31, 2000 increased 54% to $6,163,334, as compared to $4,001,816 in the
first quarter of 1999. Revenues for the Online Services operations for the three
months ended March 31, 2000 increased 403% to $1,271,651, as compared to
$252,969 in the first quarter of 1999. Revenues for the Print Publications
operations for the three months ended March 31, 2000 increased 30% to
$4,891,683, as compared to $3,748,847 in the first quarter of 1999.
Online Services advertising revenues for the three months ended March
31, 2000 increased 478%, to $1,178,665, as compared to $203,992 in the first
quarter of 1999. The increase in advertising revenues is attributable to several
factors, including a growth in page views and advertising impressions. Traffic
to the Company's web sites for the three months ended March 31, 2000 increased
127% to approximately 27.6 million page views, as compared to approximately 12.2
million page views in the first quarter of 1999. In the first quarter of 2000,
the Company had 25 unique advertisers, two of which accounted for 60% of the
advertising revenues, as compared to none in the first quarter of 1999.
Print Publications advertising revenues for the three months ended
March 31, 2000 increased 39%, to $3,577,335, as compared to $2,566,908 in the
first quarter of 1999. Individual Investor advertising revenues for the three
months ended March 31, 2000 increased 40%, to $2,465,045, as compared to
$1,764,391 in the first quarter of 1999. This change relates primarily to a 22%
increase in advertising pages sold, combined with a 14% increase in the net
advertising rate per page, when compared to the first quarter of 1999. Ticker
advertising revenues for the three months ended March 31, 2000 increased 39%, to
$1,112,290, as compared to $802,517 in the first quarter of 1999. This change
relates primarily to a 24% increase in advertising pages sold, combined with a
7% increase in the net advertising rate per page, when compared to the first
quarter of 1999.
Print Publications circulation revenues for the three months ended
March 31, 2000 increased 9%, to $933,180, as compared to $857,554 in the first
quarter of 1999. Subscription revenues for the three months ended March 31, 2000
increased 8%, to $712,372, as compared to $658,685 in the first quarter of 1999.
The increase is primarily attributable to a change in the subscriber mix for
Individual Investor magazine, with more of the subscriber base being obtained
through more lucrative direct-to-publisher methods. This increase was partially
offset by a reduction in the number of subscribers to Individual Investor's
Special Situations Report. Newsstand revenues for the three months ended March
31, 2000 increased 11%, to $220,808, as compared to $198,869 in the first
quarter of 1999.
Print Publications list rental and other revenues for the three months
ended March 31, 2000 increased 18%, to $381,168, as compared to $324,385 in the
first quarter of 1999. The increase relates primarily to higher list rental
revenues attributable to the Company's improving print subscriber lists,
partially offset by a reduction in the sale of reprint articles from Individual
Investor magazine.
Operating Expenses
Total operating expenses from continuing operations for the three
months ended March 31, 2000 increased 33%, to $7,828,216, as compared to
$5,876,515 in the first quarter of 1999.
Editorial, production and distribution expenses for the three months
ended March 31, 2000 increased 24%, to $3,420,480, as compared to $2,755,718 in
the first quarter of 1999. Online Services production, development and editorial
expenses for the three months ended March 31, 2000 increased 77%, to $956,470,
as compared to $541,591 in the first quarter of 1999. The increase is primarily
related to higher editorial salaries and consulting fees, increased research
costs, and costs associated with enhanced analytical and research tools now
available on the Company's web sites, individualinvestor.com and
InsiderTrader.com. Print Publications editorial, production and distribution
expenses for the three months ended March 31, 2000 increased 11%, to $2,464,010,
as compared to $2,214,127 in the first quarter of 1999. The increase relates
primarily to Individual Investor magazine, which had an increase in the average
number of pages per issue, as well as higher editorial salaries and related
costs.
Promotion and selling expenses for the three months ended March 31,
2000 increased 51%, to $2,795,187, as compared to $1,851,476 in the first
quarter of 1999. Online Services promotion and selling expenses for the three
months ended March 31, 2000 increased 101%, to $388,469, as compared to $193,485
in the first quarter of 1999. The increase is primarily attributable to higher
marketing and promotion expenses. Print Publications promotion and selling
expenses for the three months ended March 31, 2000 increased 45%, to $2,406,718,
as compared to $1,657,991 in the first quarter of 1999. The increase is
primarily due to increased subscription promotion expenses, severance related to
a termination arrangement, and higher recruiting fees as a result of hiring
additional in-house sales personnel.
General and administrative expenses for the three months ended March
31, 2000 increased 24%, to $1,453,569, as compared to $1,172,491 in the first
quarter of 1999. The increase is primarily attributable to higher salaries and
related costs, and increased rent expense related to the relocation of the
Company's corporate office in March 1999, partially offset by moving costs
expended in the first quarter of 1999.
Corporate advertising expenses for the three months ended March 31,
2000 were $19,014, as compared to none in the first quarter of 1999.
Depreciation and amortization expense for the three months ended March
31, 2000 increased 45%, to $139,966, as compared to $96,830 in the first quarter
of 1999. 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 months ended March 31, 2000
decreased to $68,299, as compared to $556,567 in the first quarter of 1999. The
decrease is primarily attributable to realized gains of $502,451 from the sales
of investments in the first quarter of 1999.
Discontinued Operations
There was no net loss from discontinued operations for the three months
ended March 31, 2000 or March 31, 1999. No additional loss amounts were recorded
by the Company 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 $49,302 at
March 31, 2000 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 months ended March 31, 2000
increased 21%, to $1,596,583, as compared to $1,318,132 in the first quarter of
1999. No income taxes were provided in 2000 or 1999 due to the net loss. The
basic and dilutive net loss per weighted average common share for the three
months ended March 31, 2000 was $0.16, as compared to $0.15 in the first quarter
of 1999. Although the Company's operating loss for the three months ended March
31, 2000 decreased 11%, or $209,811, as compared to the first quarter of 1999,
the increase in the net loss over the same periods is attributable to the
absence of the realized gains from the sales of investments of $502,451 in the
first quarter of 1999.
Liquidity and Capital Resources
As of March 31, 2000, the Company had working capital of $3,218,548,
which included cash and cash equivalents totaling $4,675,734.
By April 14, 2000, the Company had entered into a letter of intent and
completed negotiation of definitive documentation with respect to a proposed
$5.6 million financing (see Note 12 to the consolidated financial statements
included in the Company's Annual Report for the year ended December 31, 1999 on
Form 10-K). Subsequently, the Company was informed by a representative of the
potential investors that, in light of overall market conditions, the financing
would not be completed. The Company currently is in negotiations with a
potential strategic partner concerning an investment of approximately $6
million. There can be no assurance that the negotiations with the potential
strategic partner will result in the Company obtaining financing.
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
quarterly losses to continue through the remainder of 2000. Profitability may be
achieved in future periods only if the Company can substantially increase its
revenues and/or realize capital gains on investments while controlling increases
in expenses. There can be no assurance that revenues will be substantially
increased, that capital gains will be realized on investments (instead capital
losses in fact may be realized), or that the increases in expenses can be
controlled adequately to enable the Company to attain profitability.
Management continues to expect that revenues will continue to grow
significantly in the remainder of 2000. 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. There can be no assurance, however, that anticipated
online traffic growth in fact will be realized, or that if realized, it would
result in higher revenues or shareholder value. The Company also expects to
launch additional subscription-based online products in 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 would be successful.
Print Publications advertising sales are expected to continue to
increase year-over-year due to the addition of new sales personnel and the
effect of the increased awareness in the marketplace due in part to a trade and
consumer brand awareness advertising campaign 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 decline for Individual Investor magazine, circulation may drop at either or
both Individual Investor and Ticker, and the advertising mix may change.
Although the Company has recently added new 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 could adversely affect its ability to sell advertising, particularly to
the financial advertiser categories.
Based on the Company's current outlook, the Company believes that its
working capital will be insufficient to fund its operations and capital
requirements beyond the middle of the third quarter of 2000 unless the Company
is able to obtain additional equity or debt financing. The Company is currently
exploring its ability to obtain additional equity or debt financing. No
assurance can be given as to the availability of additional equity or debt
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. If the Company is unable to obtain additional equity or debt
financing on favorable terms, or at all, the Company would be unable to sustain
its current operations.
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. In April 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. WTA
subsequently answered the complaint and discovery was commenced. In February
2000, plaintiffs moved to amend their complaint to add Messrs. Schmidt and
Steinberg as defendants, and defendants moved for summary judgment. Both motions
are currently pending. 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 comprised the entire Board of Directors of the Company at that time, 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. In March 2000, the Court of Chancery granted defendants' motion and
the amended complaint was dismissed for failure to state a claim. The period
during which plaintiff may have requested the court to reconsider its ruling or
file an appeal has now expired and plaintiff has made no such request. 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.
In addition to the foregoing matters, the Company from time to time is
involved in ordinary and routine litigation incidental to its business; the
Company currently believes that there is no such pending legal proceeding that
would have a material adverse effect on the consolidated financial statements of
the Company.
ITEM 2. Changes in Securities
Sales of Unregistered Securities
<TABLE>
<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 price registration of exercise or conversion
afforded to purchasers claimed
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
1/00 - 3/00 Options to purchase 583,909 Exercise price would be Section 4(2) Vesting over a period of two
common stock received upon exercise to four years from date of
granted to employees grant, subject to certain
conditions of continued
service; exercisable for a
period lasting ten years
from date of grant at
exercise prices ranging from
$3.34375 to $5.75 per share.
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
</TABLE>
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C> <C>
Exhibit Description Method of Filing
No.
3.1 Amended and Restated Certificate of Incorporated by reference to Exhibit 3.2 to the
Incorporation of Registrant, as amended Form 10-Q for the quarter ended June 30, 1999
through June 22, 1999
3.2 By-laws of Registrant amended through April 27, Incorporated by reference to Exhibit 3.3 to the Form
10-Q for the quarter ended June 30, 1999
4.1 Specimen Certificate for Common Stock of Incorporated by reference to Exhibit 4.1 to the
Registrant Registrant's Registration Statement on Form S-18
(File No. 33-43551-NY)
10.1+ Stock Option Agreement between Registrant and E. Filed herewith
Drake Mosier dated December 15, 1999
10.2+ Indemnification Agreement between Registrant and Filed herewith
E. Drake Mosier dated December 15, 1999
10.3+ 2000 Performance Equity Plan of Registrant. Incorporated by reference to Appendix A to
definitive Proxy Statement dated May 17, 2000
27 Financial Data Schedule March 31, 2000 Filed only with the electronic submission of Form 10-Q
in accordance with the EDGAR requirement
99 Certain Risk Factors Filed herewith
</TABLE>
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-Q.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the Quarter Ended March
31, 2000.
<PAGE>
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: May 22, 2000
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
By: /s/ Henry G. Clark
Henry G. Clark, Vice President Finance
(Principal Accounting Officer)
EXHIBIT 10.1
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (the "Agreement") is entered into
as of December 15, 1999, by and between INDIVIDUAL INVESTOR GROUP, INC., a
Delaware corporation (the "Company"), and E. DRAKE MOSIER (the "Optionee").
WHEREAS, on December 15, 1999 (the "Grant Date"), the Board of
Directors of the Company (the "Board") authorized the grant to the Optionee of
an option (the "Option") to purchase an aggregate of 30,000 shares of the
authorized but unissued Common Stock of the Company, $.01 par value (the "Common
Stock") in connection with Optionee's appointment as a Director of the Company,
conditioned upon the Optionee's acceptance of the grant of the Option upon the
terms and conditions set forth in this Agreement; and
WHEREAS, the Optionee 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 Optionee
the Option to purchase all or any part of an aggregate of 30,000 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 $4.4375
per share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option shall be exercisable as to
10,000 shares on December 15, 2000 and as to an additional 10,000 shares on
December 15, 2001 and as to an additional 10,000 shares on December 15, 2002.
After a portion of the Option becomes exercisable, such portion shall remain
exercisable, except as otherwise provided herein, until the close of business on
December 14, 2009 ("Exercise Period").
5. Effect of Termination of Status as Director.
5.1. Termination Due to Death. If Optionee's status as a
Director of 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
Optionee under the will of the Optionee, 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 Optionee's status as
a Director of the Company terminates by reason of disability, the portion of the
Option, if any, that was exercisable as of the date of termination may
thereafter be exercised by the Optionee for a period of one (1) year from the
date of the termination 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 termination shall immediately expire on the date
of termination.
5.3. Other Termination.
(a) If Optionee's status as a Director is terminated by
the Company or the Optionee 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 may thereafter be
exercised by the Optionee for a period of thirty (30) days from termination 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 termination
shall immediately expire on the date of termination.
(b) In the event the Optionee's status as a Director is
terminated for cause, (i) this Option, whether or not exercisable, shall
immediately expire and (ii) the Company may require the Optionee to return to
the Company the economic value of any Option Shares purchased hereunder by the
Optionee within the six (6) month period prior to the date of termination. In
such event, the Optionee 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 termination (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. "Status as a Director." Optionee has the status as a
Director of the Company if Optionee is a duly appointed (or elected, as the case
may be) member of the Company's Board of Directors.
5.5. No Right to Status as a Director. Nothing in this
Agreement shall confer on the Optionee any right to continue his status as a
Director of, or to have any other relationship with, the Company (or with any
parent, subsidiary or affiliate of the Company), or limit in any way the right
of the Board or stockholders of the Company to terminate the Optionee's status
as a Director or other relationship with the Company (or with any parent,
subsidiary or affiliate of the Company) at any time, with or without cause.
6. Withholding Tax. Not later than the date as of which an amount
first becomes includible in the gross income of the Optionee for Federal income
tax purposes with respect to the Option, the Optionee 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 Optionee 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 Optionee's proportionate interest in the Company and Optionee's rights
hereunder, provided that the number of Option Shares shall always be a whole
number.
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 Optionee as soon as practicable after
payment therefor.
8.3. Payment of Purchase Price. The Optionee 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 Optionee 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 Optionee 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 Optionee may, in his or
her sole discretion, use shares of Common Stock of the Company that were owned
by the Optionee 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 Optionee 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 Optionee hereby grants the Company a security interest in the Option Shares
as follows: in the event that the Optionee owes the Company any sum (including
without limitation amounts owed pursuant to a loan made by the Company to the
Optionee), and such sum is past due (the "Past Due Amount"), the Company shall
have a security interest in the Option Shares. The Optionee 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 Optionee 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 Optionee 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
Optionee shareholders generally. The Optionee 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 Optionee herein is an ISO, and if the Optionee 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 Optionee shall immediately notify the
Company in writing of such sale or disposition. The Optionee acknowledges and
agrees that the Optionee may be subject to income and other tax withholding by
the Company on the compensation income recognized by the Optionee 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 Optionee. The Optionee 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 Optionee's account(s) with
such broker(s), as the Company may request. The Optionee agrees that this
authorization may not be revoked or modified in any manner except pursuant to a
writing signed by both the Optionee 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 Optionee. No transfer of the Option by the Optionee 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 Optionee 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 Optionee in accordance with the terms and conditions hereof, will
be duly and validly issued and fully paid and non-assessable.
15. Optionee Representations. The Optionee 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 set forth 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 November 1,
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 Optionee 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
Optionee 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 Optionee 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 Optionee.
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 Optionee and the Optionee'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 Optionee 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, Optionee,
agent or permitted successor or assign of any party may bring against any other
party, or against any officer, director, Optionee, 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 Optionee acknowledges and agrees
that, except for the information provided to the Optionee 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,
Optionees, agents or representatives has any duty or obligation to disclose to
the Optionee 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 Optionee 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
Optionee 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, Optionees, agents or representatives related
to the failure to have disclosed such information prior to the Optionee'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 Optionee and the Company
recognize that differences may arise between them during or following the
Optionee's status as a Director with the Company, and that those differences may
or may not be related to the grant of the Option herein or to the Optionee's
status as a Director. The Optionee understands and agrees that by entering into
this Agreement, the Optionee 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 OPTIONEE (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 OPTIONEE'S STATUS AS A DIRECTOR 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 Status as a Director Act, of the Americans with
Disabilities Act, of state statute, or otherwise), excepting only claims under
applicable workers' compensation law and unstatus as a Director 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 Status as a Director 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 Optionee 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 status as a
Director 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, Optionee 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 Optionee strikes a name as set forth in the
preceding sentence, there is still two or more unstricken names, the Company and
the Optionee 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
Optionee 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 Optionee 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 Optionee 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.
1633 Broadway, 38th Floor
New York, New York 10019
By:
Jonathan L. Steinberg
Chief Executive Officer
Acceptance
The Optionee 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 Optionee accepts this Option subject to all the terms
and conditions of this Agreement.
The Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Option Shares and
that the Optionee should consult a tax adviser prior to such exercise
or disposition.
December 15, 1999
- -------------------------- --------------------------
Date The Optionee
Print Name: E. Drake Mosier
Address: 140 Presidio Avenue
San Francisco, CA 94115
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
DATE
Individual Investor Group, Inc.
1633 Broadway, 38th Floor
New York, New York 10019
Attention: Stock Option Committee of the Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of November 1, 1999
("Agreement") with Individual Investor Group, Inc. (the "Company"), I hereby
irrevocably elect to exercise the right to purchase _________ shares of the
Company's common stock, par value $.01 per share ("Common Stock"), which are
being purchased for investment and not for resale.
As payment for my shares, enclosed is (check and complete
applicable box[es]):
( ) a [personal check] [certified check] [bank check] payable to
the order of "Individual Investor Group, Inc." in the sum of
$_________;
( ) confirmation of wire transfer in the amount of
$_____________; and/or
( ) certificate for shares of the Company's Common Stock, free
and clear of any encumbrances, duly endorsed, having a Fair
Market Value (as such term is defined in the Agreement) of
$_________.
I hereby represent, warrant to, and agree with, the Company
that:
(i) I have acquired the Option and shall acquire the Option
Shares for my own account and not with a view towards the
distribution thereof;
(ii) I have received a copy of all reports and documents
required to be filed by the Company with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, within the last twenty-four (24) months and all
reports issued by the Company to its stockholders;
(iii)I understand that I must bear the economic risk of the
investment in the Option Shares, which cannot be sold by me
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;
(iv) in my position with the Company, I have 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 (ii) above;
(v) I am 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;
(vi )my rights with respect to the Option Shares shall, in
all respects, be subject to the terms and conditions of the
Agreement; and
(vii)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 November 15, 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."
Kindly forward to me my certificate at your earliest
convenience.
Very truly yours,
- ------------------------------ ------------------------------
(Signature) (Address)
- ------------------------------ ------------------------------
(Print Name) (Address)
------------------------------
(Social Security Number)
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into effective as of the 15th
day of December, 1999 ("Agreement"), by and between Individual Investor Group,
Inc., a Delaware corporation ("Corporation"), and E. Drake Mosier
("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 a director 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 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 a
director 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:
E. Drake Mosier
140 Presidio Avenue
San Francisco, CA 94115
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
____________________________
E. Drake Mosier
EXHIBIT 99
CERTAIN RISK FACTORS
Dated May 19, 2000
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, the word "web," refers 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 March 31, 2000, we had an accumulated deficit of $28.0
million. Since inception, the only calendar year during which we were profitable
was 1995. We expect to continue to incur net losses in the remainder of 2000 and
in subsequent fiscal periods. We expect to continue to incur significant
operating losses. 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. We believe that our
working capital, will be sufficient to fund our operations and capital
requirements at least through the middle of the third quarter of 2000. Because
we expect continuing net losses, we will need to raise additional capital in the
future. The availability and the cost of financing will depend on 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. Because we
commenced our online services operations in May 1997, 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 an early stage business in this new and
rapidly evolving market of web-based financial news and information companies.
We may not be able to grow our online business. We intend to introduce new
and/or enhanced products, content and services to retain the current users of
our online services and to attract new users. During 2000, we plan to introduce
three or four new destinations to drive traffic, including Ticker.com,
SHORTInterest.com, BioStock.com, and possibly InvestorUniversity.com, but we
could fail to introduce such products in 2000 or at all. If we introduce a new
or enhanced product, content, or service that is not favorably received or fail
to introduce certain new or enhanced products, content, or services, our current
users may choose a competitive service over our service. Our business could be
materially adversely affected if we experience difficulties and/or delays in
introducing new products, content or services or if these new products, content
or services are not favorably received by our users.
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 sites. 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 sites must accommodate a high volume of traffic,
often at unexpected times. Our web sites have 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 users to perceive our web
sites as not functioning properly and, therefore, cause them to use other
methods to obtain the financial information they desire. In such a case, our
business, results of operations, and financial condition could be materially
adversely affected.
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. These competitors include:
o online services or web sites focused on business, finance and investing,
such as CBS MarketWatch.com; The Wall Street Journal Interactive Edition;
CNBC.com; CNNfn.com; TheStreet.com; Briefing.com; The Motley Fool; Yahoo!
Finance; Silicon Investor; Microsoft Investor; SmartMoney.com; Money.com;
and Multex.com;
o 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;
o publishers and distributors of radio and television programs focused on
business, finance and investing, such as Bloomberg Business Radio and CNBC;
o web "portal" companies, such as Yahoo!; Excite; Lycos; Snap!; Go Network;
and America Online; and
o 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 and that of
our competitors.
Many of our 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, as well as adapting to rapid technological changes with regard to
the Internet. In particular, future changes may evolve (for example, a rapid
move to broadband or wireless technologies) which we may not be able to cope
with in a timely manner. These competitors may also engage in more extensive
research and development, undertake far-reaching marketing campaigns, adopt more
aggressive pricing policies to attract Internet users, print readers,
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 our content or that achieves
greater market acceptance than our content. 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, Internet users, print readers,
staff, outside contributors or strategic partners. Increased competition could
result in price reductions, reduced margins or loss of ours market share. Any of
these could materially adversely affect our business.
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, Magic25(TM) and the INDI
SmallCap 500(TM)) is an important aspect of our efforts to continue to attract
print subscribers, magazine readers and Internet users. 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 Internet users and print readers, which could materially adversely
affect our business, results of operations and financial condition.
For us to enhance our web brand awareness, it is important for us to continue 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 may
be required to pay fees in order to establish or maintain relationships with
these sites. 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.
We depend on certain advertisers to generate revenue. In 1998 and 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 first quarter of 2000, approximately 64% of the online services
advertising revenue came from a combination of VentureHighway.com (a company in
which we have acquired a 15.5% equity interest through an equity-for-advertising
barter transaction) and two 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 and companies in which we
obtain equity stakes in exchange for advertising. 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) or we do not enter into additional
equity-for-advertising transactions, our online services business could be
materially adversely affected.
We need to manage our growth. Our online services, which commenced in May 1997,
have experienced rapid growth and our print publications business recently has
grown at rates above the industry norm. 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 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 sites 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 sites 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 depend on the continued growth in use and efficient operation of the web. Our
business will 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:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and
o 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 sites. 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 Internet
users to perceive the web in general or our web sites 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 sites
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.
We may not be able to enter into any further barter (equity-for-advertising)
relationships. We anticipate entering into additional equity-for-advertising
relationships, such as the transactions we entered into with Wit Capital,
VentureHighway.com, and ReverseAuction.com, as we believe that these
transactions can result in significant gains. However, we may not be able to
enter into any additional transactions of this type, and even if we do, we may
not realize any gains, and may in fact incur losses, in connection with these
investments.
We may not realize the value of our investments in VentureHighway.com and
ReverseAuction.com. We currently record on our balance sheet investments in
VentureHighway.com, at the historical value of approximately $2.6 million
(1,654,344 shares at approximately $1.59 per share), and ReverseAuction.com at
the historical value of approximately $1.5 million. There currently is no public
market for either VentureHighway.com or ReverseAuction.com securities, and there
is no assurance that we will realize any value with respect to our investments
in VentureHighway.com or ReverseAuction.com.
Our quarterly financial results are subject to significant fluctuations. Our
quarterly operating results may fluctuate significantly as a result of a variety
of factors, many of which are outside our control. For example, revenues in our
print publications business tend to reflect seasonal patterns. 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 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.
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. If this occurs, fewer people might be
interested in subscribing to our print publications and 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 materially
adversely affect our business.
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. If our opinions prove to be wrong, our customers may be
less interested in subscribing to our print publications and in using our online
services and our business could suffer materially.
We 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. We may be perceived by 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.
We 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
personnel interested in online-related jobs that pure Internet companies offer a
more attractive work environment for a youthful workforce. 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. Since
we are also in the print publication business, people may perceive us 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 outside contributors. To some extent we depend upon the efforts
of our outside contributors to produce original, timely, comprehensive and
trustworthy content. Our outside contributors 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 contributors in the
future. If we lose the services of our outside contributors or are unable to
attract additional outside contributors 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 its business.
Moreover, the costs that may arise in connection with executive departures and
replacements can be significant, as they were during 1998 and 1999.
We rely on several third party sole providers to conduct many of our operations.
Our strategy is to enter into relationships with various third party sole
providers in order to obtain their technological expertise and capabilities as
well as to achieve economies of scale. If the business of these providers is
disrupted for any reason, our operating results could suffer materially. Some of
these providers are listed as follows:
1. We depend on Quebecor to publish our print publications. We depend upon an
independent party, Quebecor, to print our monthly magazines. If Quebecor'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 and may lose
subscribers and newsstand sales.
2. 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 may not be able to distribute Individual
Investor magazine to newsstands in a timely manner and may lose newsstand
sales.
3. We depend on an independent party 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 business could suffer materially.
4. 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 NewSub services, American Family Publishers and
Publishers Clearing House. These agencies obtain subscribers primarily
through use of subscription offers in credit card statements and direct
mail campaigns. If the positive response to the promotion of Individual
Investor magazine by these agencies is not great enough, 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.
5. We depend on WinStar Interactive Media Sales, Inc. to sell advertising,
sponsorships and e-commerce partnerships on our web sites. We depend on an
independent party, WinStar Interactive Media Sales, Inc.("WinStar"), to
sell advertising, sponsorships and e-commerce partnerships on our web
sites. If WinStar's business is disrupted for any reason, such as fire or
other natural disaster, or labor strife, the revenues generated from our
web sites could be materially adversely affected.
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 Steinberg'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
trusts), beneficially own approximately 42.1% of the outstanding shares of
common stock of the Company. As a result of their ownership of common stock,
they will be able to significantly influence all matters requiring approval by
the Company's stockholders, including the election of its directors. Because it
would be very difficult for another company to acquire us without the approval
of the Steinbergs, other companies might not view us as an attractive takeover
candidate. Our stockholders, therefore, may have less of a chance to benefit
from any possible takeover of the 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 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,
Magic25(TM) and the INDI SmallCap 500(TM). 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, The
Individual Investor, 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.
Claims of our infringement of the intellectual property rights of others could
be costly and disruptive to our business operations. Other parties may assert
claims against us that we have infringed a copyright, trademark or other
proprietary right belonging to them. Defending against any such claim could be
costly and divert the attention of management from the operation of our
business. In addition, the inability to obtain or maintain the use of copyrights
or trademarks could adversely affect our business operations, as could the award
of damages against us. Our insurance may not adequately protect us against such
claims
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, invasion of privacy 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 sites through links to other web sites. Defending
against any such claim could be costly and divert the attention of management
from the operation of our business, and the award of damages against us could
adversely affect our financial condition. Our insurance may not adequately
protect us against such claims.
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