STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of November 30, 1998 (the
"Agreement"), is between INDIVIDUAL INVESTOR GROUP, INC., a Delaware corporation
with its principal place of business at 1633 Broadway, 38th Floor, New York, New
York 10019 (the "Company"), and GREAT AMERICAN LIFE INSURANCE COMPANY, an Ohio
corporation, having its principal place of business at 250 East Fifth,
Cincinnati, Ohio 45202 (the "Buyer").
1. SALE AND ISSUANCE OF PREFERRED STOCK.
1.1 The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined below) a Certificate of
Designations, Preferences, and Other Rights and Qualifications of Series A
Preferred Stock in the form attached hereto as Exhibit A (the "Certificate").
The Series A Preferred Stock will have the rights, preferences, privileges and
restrictions set forth in the Certificate.
1.2 Subject to the terms and conditions of this Agreement, at the Closing
Buyer agrees to purchase from the Company, and the Company agrees to sell, issue
and deliver to Purchaser, Five Thousand (5,000) shares (the "Shares") of the
Company's Series A Preferred Stock, $200.00 stated value per share (the
"Preferred Stock"), for a total purchase price of One Million Dollars
($1,000,000) or Two Hundred Dollars ($200.00) per share of Preferred Stock.
2. CLOSING. The closing of the transaction contemplated by this Agreement
(the "Closing") will occur within three (3) business days after the filing of
the Certificate with the Delaware Secretary of State, at the offices of the
Company, or at such other time, date, or place as shall be mutually agreed upon
by the parties hereto in writing (the "Closing Date").
3. CLOSING ITEMS.
3.1 At the Closing, the Company shall deliver, or cause to be
delivered, the following items:
3.1.1 certificate(s) in Buyer's name representing the Five
Thousand (5,000) shares of Preferred Stock that Buyer is purchasing;
3.1.2 the Certificate, certified by the Delaware Secretary of
State;
3.1.3 resolutions of the board of directors of the Company
authorizing the execution, delivery and consummation of this
Agreement, the filing of the Certificate, the issuance of the shares
of Preferred Stock and the other matters contemplated hereby,
certified as to their due adoption and continued validity by the
Secretary of the Company;
3.1.4 opinion of Graubard Mollen & Miller, counsel to the
Company, in the form attached hereto as Exhibit 3.1.4; and
3.1.5 such other certificates and documentation as may be
reasonably requested by Buyer.
3.2 At the Closing, Purchaser shall deliver, or cause to be delivered,
One Million Dollars ($1,000,000) in immediately available funds.
4. FURTHER ASSURANCES. Each party shall execute such additional documents
and take such other actions as the other party or parties may reasonably request
to consummate the transactions contemplated hereby and otherwise as may be
necessary to effectively carry out the terms and provisions of this Agreement.
5. REPRESENTATIONS AND COVENANTS OF THE COMPANY. The Company hereby
represents and warrants to and covenants with Buyer as follows:
5.1 Organization. The Company is duly organized, validly existing and
in good standing in the State of Delaware. The Company has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its business as now being conducted and as presently proposed
to be conducted and to execute, deliver and perform this Agreement. The
Company is duly licensed, authorized and qualified to do business and is in
good standing in all jurisdictions (domestic or foreign) in which the
conduct of its business or the ownership or leasing of its properties
requires it to be so licensed, authorized or qualified, except where its
failure to be so licensed, authorized or qualified would not have a
material adverse effect, singularly or in the aggregate, on the condition
(financial or otherwise) of the properties, business, operations or
prospects of the Company.
5.2 Authority; Execution and Delivery, Etc. The execution, delivery,
and performance of this Agreement has been duly authorized by the Company's
Board of Directors and no other corporate proceedings on the part of the
Company or its stockholders are required. This Agreement has been duly
executed and delivered by the Company and constitutes the legal, valid, and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights in general or general principles of equity. The
Certificate has been duly authorized and upon filing of the Certificate
with the Secretary of State of the State of Delaware, the Preferred Stock
will be duly authorized.
5.3 Financial Condition. The consolidated financial statements of the
Company included in the Disclosure Documents (as described in Section 5.11)
fairly present on a consolidated basis the financial position, the results
of operations, the changes in financial position and the changes in
stockholders' equity and the other information purported to be shown
therein of the Company and its consolidated subsidiaries at the respective
dates and for the respective periods to which they apply and such financial
statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of the
results for such periods have been made. The capitalization of the Company
as of September 30, 1998 is as set forth on Schedule 5.3.1.
5.4 Validly Issued Shares. The Shares to be issued, sold and delivered
in accordance with the terms of this Agreement for the consideration set
out herein, will, upon issuance in accordance with the terms hereof, be
duly and validly issued, fully paid and nonassessable, free of restrictions
on transfer other than restrictions on transfer under this Agreement and
under applicable federal and state securities laws. The issuance of the
Shares to Buyer pursuant to this Agreement will comply with all applicable
laws, including federal and state securities laws, and will not violate the
preemptive rights of any person. The common stock issuable upon conversion
of the Shares will be, upon issuance and delivery in accordance with the
terms of the Certificate, duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions
on transfer under this Agreement and under applicable federal and state
securities laws. The issuance of the common stock upon conversion of the
Shares will comply with all applicable laws, including federal and state
securities laws (assuming the accuracy of the representations set forth
herein as of the date of issuance of such common stock), and will not
violate the preemptive rights of any person.
5.5 Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by
or with respect to the Company in connection with the execution and
delivery of this Agreement, or the consummation by the Company of the
transactions contemplated hereby, which has not already been obtained,
except for the filing of the Certificate with the Secretary of State of
Delaware, any notices of sale required to be filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act") or Securities Exchange Act of 1934, as amended or with
the Nasdaq Stock Market, or such post closing filings as may be required
under applicable state securities laws which will be timely filed within
the applicable periods therefor.
5.6 Litigation. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the
Company, nor does the Company have any actual knowledge that there is any
basis for the foregoing, except for those disclosed in the Disclosure
Documents or in a separate writing to Buyer; those for which there has been
no manifestation by a potential claimant of an awareness of a possible
claim and for which the Company has not determined that it is probable that
a claim will be asserted; and those which, if adversely determined, would
not reasonably be expected to have a material adverse effect on the results
of operations, financial condition or business of the Company ("Material
Adverse Effect"). The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened involving the
prior employment or engagement of any of the Company's employees or
consultant, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers or their current employers/clients (in the case of consultants),
or their obligations under any agreements with such employers/clients. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by
the Company currently pending or that the Company intends to initiate.
5.7 Compliance with Other Instruments. The Company is not in violation
or default in any material respect of any provision of its Amended
Certificate of Incorporation or bylaws, or in any material respect of any
instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound, or, to the best of its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
the Company; except where such violation or default would not reasonably be
expected to have a Material Adverse Effect. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict
with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract or an event that results in the creation of
any lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any
material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties,
except where such violation, default, event, suspension, revocation,
impairment, forfeiture or nonrenewal would not reasonably be expected to
have a Material Adverse Effect.
5.8 Material Facts. The Company has provided Buyer with all the
information reasonably available to it that Buyer has requested for
deciding whether to purchase the Shares. The representations and warranties
by the Company contained in this Agreement, when taken together with the
Disclosure Documents and other written information furnished to Buyer in
connection with this Agreement, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in
which they are made, not misleading, except, with respect to assumptions,
projections and expressions of opinions or predictions contained in the
documents or written materials furnished by the Company, Company represents
only that such assumptions, projections and expressions of opinions and
predictions were made in good faith and the Company believes that there is
a reasonable basis therefor.
5.9 Compliance with Laws. To the best knowledge of the Company, the
Company is in compliance in all material respects with all applicable
statutes, laws, ordinances, rules, regulations and orders of any
governmental entity, except where non-compliance would not reasonably be
expected to have a Material Adverse Effect, and the Company has not
received any notice or other communication whether oral or written from any
governmental entity, arbitrator or any other person regarding any such
violation or failure.
5.10 Subsequent Events. Subsequent to the respective dates as of which
information is given in the Disclosure Documents, except as described
therein, there has not been any material adverse change in the condition
(financial or otherwise), earnings, businesses, properties or prospects of
the Company and its subsidiaries, whether or not arising from transactions
in the ordinary course of business, the Company and its subsidiaries have
not sustained any material loss or interference with their businesses or
properties from fire, explosion, earthquake, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or any court
or legislative or other governmental action, order or decree, and since the
date of the latest balance sheet included in the Disclosure Documents,
neither the Company nor any of its subsidiaries has incurred or undertaken
any liability or obligation, indirect or contingent, except for liabilities
or obligations incurred or undertaken in the ordinary course of business
and except for any such liabilities or obligations as are reflected in the
Disclosure Documents.
5.11 Disclosure. The Company has provided to Buyer true, correct and
complete copies of its Annual Report on Form 10-KSB for the fiscal year
ended December 31 1997; its Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; and
its Notice of Annual Meeting of Stockholders and Proxy Statement relating
to its annual meeting of stockholders held on June 17, 1998 (collectively,
the "Disclosure Documents").
5.12 Observer Rights. For so long as Buyer owns at least seventy-five
percent (75%) of the Shares being purchased hereunder (adjusted for any
stock dividends, consolidations or splits with respect to such shares), the
Company shall invite a representative of Buyer to attend all meetings of
its board of directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors; provided,
however, that such representative shall agree to hold in confidence and
trust and to act in a fiduciary manner with respect to all information so
provided; and, provided further, that the Company reserves the right to
withhold any information and to exclude such representative from any
meeting or portion thereof if access to such information or attendance at
such meeting could adversely affect the attorney-client privilege between
the Company and its counsel or would result in disclosure of trade secrets
to such representative or if such Buyer or its representative is a direct
competitor of the Company.
6. REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants to
the Company as follows:
6.1 Buyer is aware that its investment in the Company involves a
substantial degree of risk, including, but not limited to the
following: (i) if the Company fails to meet the maintenance criteria
for continued inclusion on the Nasdaq National Market System ("NMS"),
including but not limited to, the requirement that the Company
maintain minimum net tangible assets of at least $4,000,000 and the
requirement that the minimum bid price of the Common Stock is at least
$1.00, it may be delisted from the NMS; (ii) the Company has had
substantial operating losses for the fiscal year ended December 31,
1997 and for the fiscal quarters ended March 31, 1998, June 30, 1998
and September 30, 1998 and expects to continue to incur losses in the
future; (iii) the Company will need additional financing in the future
to fund operating losses and for capital investment in its current and
proposed business operations; (iv) the Company's development of its
internet products is not currently generating sufficient revenue to
cover development and operating expenses, and may not be profitable in
the future; (v) management and the existing principal stockholders of
the Company beneficially own a substantial amount of the outstanding
voting stock of the Company and accordingly are in a position to
substantially influence the election of all directors of the Company
and the vote on matters requiring stockholder approval; and (vi) the
Company's success will to a significant extent rely upon the continued
services and abilities of Jonathan Steinberg. Buyer acknowledges and
is aware that there is no assurance as to the future performance of
the Company.
6.2 Buyer is purchasing the Shares, and upon conversion of the
Preferred Stock will purchase the underlying common stock ("Underlying
Common Stock"), for its own account for investment and not with a view
to or in connection with a distribution of the Shares or the
Underlying Common Stock, nor with any present intention of selling or
otherwise disposing of all or any part of the Shares or the Underlying
Common Stock, except as contemplated in Section 8 below. Subject to
Section 8 below, Buyer agrees that it must bear the economic risk of
its investment because, among other reasons, the Shares and the
Underlying Common Stock have not been registered under the Securities
Act, or under the securities laws of any state and, therefore, cannot
be resold, pledged, assigned, or otherwise disposed of unless and
until they are registered under the Securities Act and under
applicable securities laws of certain states, or an exemption from
such registration is available.
6.3 Buyer has the financial ability to bear the economic risk of
its investment in the Company (including its complete loss), has
adequate means for providing for its current needs and has no need for
liquidity with respect to its investment in the Company.
6.4 Buyer has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of an investment in the Company and has obtained, in its judgment,
sufficient information from the Company to evaluate the merits and
risks of an investment in the Company. Buyer has had full opportunity
to ask questions and receive satisfactory answers concerning all
matters pertaining to its investment and all such questions have been
answered to its full satisfaction. Buyer has been provided an
opportunity to obtain any additional information concerning the
Company and all other information to the extent the Company possesses
such information or can acquire it without unreasonable effort or
expense. Buyer has received no representation or warranty from the
Company with respect to its investment in the Company, and Buyer has
relied solely upon its own investigation in making a decision to
invest in the Company.
6.5 Buyer is an "accredited investor" as defined in Section 2(15)
of the Securities Act and in Rule 501 promulgated thereunder.
6.6 This Agreement has been duly executed and delivered by Buyer
and constitutes the legal, valid, and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights in general
or general principles of equity.
7. RESTRICTIONS ON TRANSFER.
7.1 Restrictions on Transfer. Buyer agrees that it will not sell,
transfer, or otherwise dispose of any of the Shares or any of the
Underlying Common Stock, except pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act and the Company has received an opinion
of counsel satisfactory to the Company that such exemption is available.
7.2 Legend. Each certificate for the Shares and the Underlying Common
Stock shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY BE SOLD OR OTHERWISE TRANSFERRED
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH EXEMPTION IS AVAILABLE."
8. REGISTRATION RIGHTS.
8.1 Piggyback Registration. From the date of this Agreement until the
second anniversary of the issuance of the Shares to Buyer, if the Company
proposes to file a registration statement under the Securities Act
("Registration Statement") with respect to an offering for its own account
of any class of security (other than a registration statement on Form S-4
or S-8 or successor forms thereto or filed in connection with an exchange
offer or business combination or an offering of securities solely to the
Company's existing stockholders), then the Company shall in each case give
written notice of such proposed filing to Buyer at least thirty (30) days
before the anticipated filing date, and such notice shall offer Buyer the
opportunity to register such number of shares of Underlying Common Stock
(and none of the Shares) of the Company as Buyer may request. Upon the
written request of Buyer made within twenty (20) days of receipt of such
notice, the Company shall use its best efforts to register the Underlying
Common Stock on the Registration Statement, provided however, that if, in
the written opinion of the Company's managing underwriter or underwriters,
if any, for such offering, the inclusion of the Underlying Common Stock,
when added to the securities being registered by the Company or the selling
stockholder(s), will exceed the maximum amount of the Company's securities
which can be marketed (i) at a price reasonably related to their then
current market value, or (ii) without materially and adversely affecting
the entire offering, the Company shall nevertheless register all or any
portion of the Underlying Common Stock required to be so registered but
such Underlying Common Stock shall not be sold by Buyer until one hundred
and eighty (180) days after the registration statement for such offering
has become effective and provided further that, if any securities are
registered for sale on behalf of other stockholders in such offering and
such stockholders have not agreed to defer such sale until the expiration
of such one hundred and eighty (180) day period, the number of securities
to be sold by all stockholders in such public offering during such one
hundred and eighty (180) period shall be apportioned pro rata among all
such selling stockholders, including Buyer, according to the total amount
of securities of the Company owned by said selling stockholders, including
Buyer. Buyer agrees that the Company may withdraw the Registration
Statement at any time before it is declared effective by the Securities and
Exchange Commission.
8.2 Expenses. All expenses in connection with registrations of the
Underlying Common Stock shall be borne by the Company except for
underwriting discounts and commissions, applicable transfer taxes and
expenses of counsel to Buyer, which shall be borne by Buyer.
8.3 Information Relating to Buyer. Buyer agrees that in connection
with any Registration Statement which registers its Underlying Common
Stock, that it will provide to the Company all information and execute and
deliver all documents, agreements, certificates and other items at its
expense, as the Company and/or its counsel reasonably request, and the
failure to provide such information or items shall permit the Company to
exclude the Underlying Common Stock from any Registration Statement, or not
have declared effective any Registration Statement filed by the Company
pursuant to Section 8.1.
8.4 Indemnification.
8.4.1 Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless Buyer and its affiliates and
each of their officers, directors, trustees, agents and employees and
each person, if any, who controls Buyer ("Controlling Person") within
the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act against any and all loss, liability, claim, damage
and expense whatsoever (including but not limited to any and all legal
or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever) to which it may become subject under the Securities
Act, the Securities Exchange Act of 1934, as amended ("Exchange Act")
or any other statute or at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement in which Buyer's
securities shall be included or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Company with respect to Buyer by Buyer or
its agents, in writing, expressly for use in any such Registration
Statement. The Company agrees promptly to notify Buyer of the
commencement of any litigation or proceedings against the Company or
any of its officers, directors or controlling persons in connection
with the issue and sale of the Underlying Common Stock in connection
with any such Registration Statement.
8.4.2 If any action is brought against Buyer in respect of which
indemnity may be sought against the Company pursuant to this Section
8.4, Buyer shall promptly notify the Company in writing of the
institution of such action and the Company shall assume the defense of
such action, including the employment and fees of counsel and payment
of actual expenses. Buyer shall have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of Buyer unless (i) the employment of such
counsel shall have been authorized in writing by the Company in
connection with the defense of such action, or (ii) the Company shall
not have employed counsel to have charge of the defense of such
action, or (iii) Buyer shall have reasonably concluded that there may
be defenses available to it which are different from or additional to
those available to the Company (in which case the Company shall not
have the right to direct the defense of such action on behalf of
Buyer), in any of which events the reasonable fees and expenses of not
more than one additional firm of attorneys selected by Buyer and/or
controlling person shall be borne by the Company. Notwithstanding
anything to the contrary contained herein, if Buyer shall assume the
defense of such action as provided above, the Company shall have the
right to approve the terms of any settlement of such action which
approval shall not be unreasonably withheld.
8.4.3 Buyer agrees to indemnify and hold harmless each of the
Company, its directors, officers and employees and any underwriter (as
defined in the Securities Act) and each Controlling Person of the
Company, against any and all loss, liability, claim, damage and
expense described in the foregoing indemnity from the Company to
Buyer, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions directly relating to Buyer in
any such registration statement furnished to the Company by Buyer or
its agents, in writing, expressly for use in any such registration
statement. In case any action shall be brought against the Company or
any other person so indemnified based on any such registration
statement, and in respect of which indemnity may be sought against
Buyer, Buyer shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall have the
rights and duties given to Buyer by the provisions of paragraph 8.4.2
above.
8.5 Contribution.
(a) In order to provide for just and equitable contribution under
the Securities Act in any case in which (i) any person entitled to
indemnification under Section 8.4 makes claim for indemnification
pursuant hereto but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of
appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 8.4 provides for indemnification
in such case, or (ii) contribution under the Securities Act, the
Exchange Act, or otherwise may be required on the part of any such
person in circumstances for which indemnification is provided under
Section 8.4, then, and in each such case, the Company and Buyer shall
contribute, in proportion to their relative fault, to the aggregate
losses, liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement incurred by the Company and
Buyer, as incurred; provided, that, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(b) Within fifteen days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
(the "contributing party"), notify the contributing party of the
commencement thereof, but the omission to so notify the contributing
party will not relieve it from any liability which it may have to any
other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such
party notifies a contributing party or its representative of the
commencement thereof within the aforesaid fifteen days, the
contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified.
Any such contributing party shall not be liable to any party seeking
contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution on account of
any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such
contributing party. The contribution provisions contained in this
Section 8 are intended to supersede, to the extent permitted by law,
any right to contribution under the Securities Act, the Exchange Act
or otherwise available.
9. MISCELLANEOUS.
9.1 Expenses. Each party shall be liable for its own expenses in
connection with the transactions contemplated by this Agreement.
9.2 Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of
the Company and of Buyer, whether so expressed or not.
9.3 Notices, Etc. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered in
person or mailed by certified or registered mail first-class, postage
prepaid:
If to the Company: with a copy to:
Individual Investor Group, Inc. Graubard Mollen & Miller
1633 Broadway, 38th Floor 600 Third Avenue
New York, New York 10019 New York, New York 10016
Attention: General Counsel Attn: Peter M. Ziemba, Esq.
If to Buyer: with a copy to:
Great American Life Insurance Company American Financial Group, Inc.
250 East Fifth Street One East Fourth Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Mark F. Muething, Esq. Attn: Karl J. Grafe, Esq.
Any such notice, request, demand or other communication hereunder shall be
deemed to have been duly given or made and to have become effective (i) if
delivered by hand or overnight courier, at the time of receipt thereof and (ii)
if sent by registered or certified first-class mail, postage prepaid, five
business days thereafter.
Any party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
9.4 Governing Law. This Agreement is being delivered and is intended
to be performed in the State of New York and shall be construed and
enforced in accordance with, and the rights of the parties shall be
governed by, the law of such State.
9.5 Entire Agreement. This Agreement, together with any exhibits
hereto (which exhibits are an integral part hereof), constitutes the entire
agreement between the parties with respect to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations,
representations and proposals, written or oral, with respect to such
subject matter. Each party represents that it is not relying on any
representations, whether written or oral, not set forth in this Agreement,
in determining to execute this Agreement.
9.6 Amendments. This Agreement may not be changed orally, but only by
an agreement in writing signed by the party against whom enforcement is
sought.
9.7 Severability. 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.
9.8 Negotiation. The parties acknowledge that they are entering into
this Agreement after consulting with counsel and based upon equal
bargaining power, with all parties participating in its preparation. The
parties acknowledge and agree that the attorneys for each party have had an
equal opportunity to participate in the negotiation and preparation of this
Agreement. The terms of this Agreement shall not be interpreted in favor of
or against any party on account of the draftsperson, but shall be
interpreted solely for the purpose of fairly effectuating the intent of the
parties hereto.
9.9 Counterparts and Facsimile/Photocopy Signatures; Authority of
Signatories. This Agreement may be executed in counterparts, and when each
Party has signed and delivered at least one such counterpart, each
counterpart shall be deemed an original, and, when taken together with
other signed counterparts, shall constitute one Agreement, which shall be
binding upon and effective as to all parties. A signature received via
facsimile or photocopy shall be deemed an original for all purposes. Each
party represents that the person signing this Agreement on the party's
behalf has been duly authorized to execute this Agreement on behalf of such
party, and all of the signatories hereto signing in a representative
capacity warrant and represent that they have been duly authorized by and
on behalf of their respective principals to execute this Agreement.
9.10 Headings. The Article and 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 Article and Section numbers
refer to Articles and Sections of this Agreement, unless otherwise
indicated.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
INDIVIDUAL INVESTOR GROUP, INC.
By:/s/ Jonathan Steinberg
Jonathan L. Steinberg
Chief Executive Officer
GREAT AMERICAN LIFE INSURANCE COMPANY
By:/s/ Mark F. Muething
Mark F. Muething
Senior Vice President,
General Counsel and Secretary
Exhibit A
INDIVIDUAL INVESTOR GROUP, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
SERIES A PREFERRED STOCK
__________________________________
Pursuant to Section 151 of the
Delaware General Corporation Law
__________________________________
INDIVIDUAL INVESTOR GROUP, INC., a corporation organized and existing under
the Business Corporation Law of the State of Delaware ("Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of Directors of
the Corporation ("Board") by the Certificate of Incorporation, as amended, of
said Corporation, and pursuant to the provisions of Section 151 of the Delaware
General Corporation Law, said Board duly determined that ten thousand (10,000)
shares of Preferred Stock, $0.01 par value per share, shall be designated
"Series A Preferred Stock," and to that end the Board adopted a resolution
providing for the designation, preferences and relative, participating, optional
or other rights, and the qualifications, limitations and restrictions, of the
Series A Preferred Stock, which resolution is as follows:
RESOLVED, that the Board, pursuant to the authority vested in it by the
provisions of the Certificate of Incorporation, as amended, of the Corporation,
hereby creates a series of Preferred Stock of the corporation, par value $0.01
per share, to be designated as "Series A Preferred Stock" and to consist of an
aggregate of ten thousand (10,000) shares. The Series A Preferred Stock shall
have such designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations and restrictions as follows:
1. Designation and Amount. Ten thousand (10,000) shares of the
Preferred Stock of the Corporation, par value $0.01 per share, shall
constitute a class of Preferred Stock designated as "Series A Preferred
Stock" ("Series A Preferred Stock"). The Series A Preferred Stock shall
have a stated value of two hundred dollars ($200.00) per share ("Stated
Value").
2. Redemption Rights. The Series A Preferred Stock shall not be
subject to any right of redemption by the Corporation or by the holder
thereof.
3. Dividends. The holders of shares of Series A Preferred Stock shall
be entitled to receive out of any assets legally available therefore
cumulative dividends at the per share rate of ten percent (10%) of the
Stated Value (or twenty dollars ($20.00) per share) for each share of
Series A Preferred Stock, per annum, payable annually on December 31, of
each year, commencing December 31, 1999 (each a "Dividend Payment Date"),
or, if earlier, upon conversion of the shares of Series A Preferred Stock.
Dividends will accrue from the date of issue of the Series A Preferred
Stock and thereafter from the most recent date on which a dividend has been
paid with respect to such share, or if no dividends have been paid, from
the date of issue, and dividends shall accrue from day to day whether or
not declared, based on the actual number of days elapsed. If at any time
accrued dividends on the Series A Preferred Stock are not paid or declared
and set aside for payment with respect to all preceding periods, the amount
of the deficiency will be paid or declared and set aside for payment, but
without interest on such dividend amount, before any distribution by
dividend or otherwise will be paid or set apart for any shares of Common
Stock, $0.01 par value of the Corporation ("Common Stock").
4. Rights on Liquidation, Dissolution or Winding Up, Etc. In the event
of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, as a result of which the assets of the Corporation,
whether from capital, surplus or earnings, shall be distributed to the
stockholders of the Corporation (a "Liquidation"), the holders of the
Series A Preferred Stock shall be entitled to receive, subject to the
rights of any other class of stock which ranks senior to the Series A
Preferred Stock as to the payment of dividends or distribution of assets on
a Liquidation, but before any distribution is made on any class of stock
ranking junior to the Series A Preferred Stock as to the payment of
dividends or the distribution of assets, the sum of two hundred dollars
($200.00) per share, plus any arrearages in dividends thereon.
5. Voting Rights. The holders of Series A Preferred Stock shall not be
entitled to vote on any matter, except as may be required by law.
6. Conversion of Series A Preferred Stock.
(a) Right to Convert. The holders of Series A Preferred Stock
shall have the right, at such holders' option, at any time or from
time to time, to convert all or any part of such shares into shares of
Common Stock at any time on and subject to terms and conditions set
forth in this Paragraph 6.
(b) Initial Conversion Price; No Fractional Shares. The shares of
Series A Preferred Stock shall be convertible at the office of the
transfer agent for the Series A Preferred Stock (the "Transfer
Agent"), and at such other place or places, if any, as the Board of
Directors of the Corporation may designate, into fully paid and
non-assessable shares (calculated as to each conversion to the nearest
one-hundredth (1/100) of a share) of Common Stock. The number of
shares of Common Stock issuable upon conversion of each share of
Series A Preferred Stock shall be equal to two hundred dollars
($200.00) divided by the conversion price in effect at the time of
conversion determined as hereinafter provided (the "Conversion
Price"). The Conversion Price shall be initially two dollars and
twelve cents ($2.12) per share of Common Stock; provided, however,
that such Conversion Price shall be subject to adjustment from time to
time in certain instances as hereinafter provided. No fractional
shares of Common Stock will be issued; and a cash payment will be paid
in lieu of any fractional shares in an amount equal to the same
fraction of the last sale price of Common Stock (determined as
provided in Paragraph 6(d)(iv)) at the close of business on the
business day which immediately precedes the day of conversion.
(c) Delivery of Certificates. Before any holder of shares of
Series A Preferred Stock shall be entitled to convert the same into
Common Stock, he shall surrender the certificate or certificates
therefor, duly endorsed to the Corporation or in blank, at the office
of the Transfer Agent or at such other place or places, if any, as the
Board of Directors of the Corporation has designated, and shall give
written notice to the Corporation at said office or place that he
elects to convey the same and shall state in writing therein the name
or names (with addresses) in which he wishes the certificate or
certificates for Common Stock to be issued. The Corporation will, as
soon as practicable thereafter, issue and deliver at said office or
place to such holder of shares of Series A Preferred Stock, or to his
nominee or nominees, certificates for the number of full shares of
Common Stock to which he shall be entitled as aforesaid, together with
cash in lieu of any fraction of a share. Shares of Series A Preferred
Stock shall be deemed to have been converted as of the close of
business on the date of the surrender of such shares for conversion as
provided above, and the person or persons entitled to receive Common
Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such Common Stock as of the close of
business on such date.
(d) Adjustment of Conversion Price. The Conversion Price in
effect at any time shall be subject to adjustment as follows:
(i) In case the Corporation shall (A) declare a dividend on
its Common stock in shares of its capital stock, (B) subdivide
its outstanding shares of Common Stock, (C) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (D) issue by reclassification of its Common Stock
(including any such reclassification in connection with a
consolidation or merger in which the Corporation is the
continuing corporation, but excluding a change in par value, or
from par value to no par value, or from no par value to par value
of Common Stock) any shares of its capital stock, the Conversion
Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the
holder of any share of Series A Preferred Stock surrendered for
conversion after such time shall be entitled to receive the kind
and amount of shares which he would have owned or have been
entitled to receive had such share of Series A Preferred Stock
been converted immediately prior to such time. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(ii) In case the Corporation shall issue rights or warrants
to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less
than the Current Market Price (as defined in Paragraph 6(d)(iv)
below) on the date fixed for the determination of stockholders
entitled to receive such rights or warrants, the Conversion Price
shall be reduced by multiplying the Conversion Price by fraction
of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchaser
would purchase at such Current Market Price and the denominator
shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus
the number of shares of Common Stock so offered for subscription
or purchase, such reduction to become effective immediately after
the opening of business on the date following the date fixed for
such determination.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock (including any such distribution made
in connection with a consolidation or merger in which the
Corporation is the continuing corporation) evidences of its
indebtedness or assets (excluding dividends or other
distributions paid out of earned surplus) or subscription rights
or warrants (excluding those referred to in Paragraph 6(d)(ii)
above), the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator
shall be the Current Market Price per share of Common Stock on
the date fixed for such determination less the then fair market
value (as determined by the Board of Directors of the
Corporation, whose determination shall be conclusive and
described in a Board Resolution of the Corporation filed with the
Transfer Agent) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common
Stock and the denominator shall be such Current Market Price per
share of Common Stock, such adjustment to become effective
immediately prior to the opening of business of the day following
the date fixed for the determination of stockholders entitled to
receive such distribution.
(iv) For the purpose of any computation under Paragraphs
6(d)(ii) and 6(d)(iii) above, the "Current Market Price" on any
date shall be deemed to be the average of the daily closing
prices per share of Common Stock for twenty (20) consecutive
business days selected by the Corporation commencing thirty-five
(35) business days before such date. The closing price for each
day shall be the last sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the New York Stock
Exchange, or, if Common Stock is not listed or admitted to
trading on such Exchange, on the principal national securities
exchange on which Common Stock is listed or admitted to trading
or, if it is not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked
prices as furnished by any member of the National Association of
Securities Dealers, Inc., selected from time to time by the
Corporation for that purpose.
(v) All calculations under this Paragraph 6 shall be made to
the nearest cent or the nearest one-hundredth (1/100) of a share,
as the case may be.
(vi) In case of any consolidation or merger of the
Corporation with or into any other corporation (other than a
consolidation or merger in which the Corporation is the
continuing corporation), or in case of any sale or transfer of
all or substantially all of the assets of the Corporation, the
holder of each share of Series A Preferred Stock shall after such
consolidation, merger, sale or transfer have the right to convert
such share of Series A Preferred Stock into the kind and amount
of shares of stock and other securities and property which such
holder would have been entitled to receive upon such
consolidation, merger, sale, or transfer if he had held the
Common Stock issuable upon the conversion of such share of Series
A Preferred Stock immediately prior to such consolidation,
merger, sale or transfer.
(vii) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 6(d)(i) above, the holder
of any share of Series A Preferred Stock surrendered for
conversation shall become entitled to receive any securities
other than shares of Common Stock, thereafter the amount of such
other securities so receivable upon conversion of any share of
Series A Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock
contained in Paragraphs 6(d)(i)-6(d)(vi), inclusive, above, and
the provisions of this Paragraph 6 with respect to Common Stock
shall apply on like terms to any such other securities.
(viii) No adjustment in the Conversion Price shall be
required unless such adjustment would require a change of at
least one percent (1%) in such price; provided, however, that any
adjustments which by reason of this Paragraph 6(d)(viii) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(e) Certificate as to Adjustments. Whenever the Conversion Price
is adjusted as herein provided:
(i) the Corporation shall promptly file with the Transfer
Agent for the Series A Preferred Stock a certificate of the
treasurer of the Corporation setting forth the adjusted
Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, including a statement of the
consideration received or to be received by the Corporation for
any shares of Common Stock issued or deemed to have been issued;
and
(ii) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall
forthwith be required, and as soon as practicable after it is
required, such additional notice shall be deemed to be required
pursuant to this Paragraph 6(e)(ii) as of the opening of business
on the tenth (10th) business day after such mailing and shall set
forth the Conversion Price as adjusted at such opening of
business, and upon the mailing of such additional notice no other
notice need be given of any adjustment in the Conversion Price
occurring at or prior to such opening of business and after the
time that the next preceding notice given by mailing became
required.
(f) Notification of Certain Events. In case:
(i) the Corporation shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or
assets (other than dividends or other distributions paid out of
earned surplus); or
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders
of the Corporation is required, or of the sale or transfer of all
or substantially all of the assets of the Corporation; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in each case, the Corporation shall cause to be filed with
the Transfer Agent and shall cause to be mailed, first class postage
prepaid, to the holders of record of the outstanding shares of Series
A Preferred Stock, at least ten (10) calendar days prior to the
applicable record date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such
distribution or rights, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to
such distribution or rights are to be determined, or (y) the date on
which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
(g) Reservation of Shares. The Corporation will at all times
reserve, keep available and be prepared to issue, free from any
preemptive rights, out of its authorized but unissued Common Stock,
solely for the purpose of effecting conversion of the Series A
Preferred Stock, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Series A Preferred
Stock. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, endeavor to amend its Articles of
Incorporation to increase the authorized amount of its Common Stock if
at any time the authorized amount of its Common Stock remaining
unissued shall be not sufficient to permit the conversion of all
Series A Preferred Stock.
(h) Issuance Taxes. The Corporation will pay any and all taxes
that may be payable in respect of the issue or delivery of shares of
Common Stock on conversion of shares of Series A Preferred Stock
pursuant hereto. The Corporation shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved
in the issue or transfer and delivery of shares of Common Stock in a
name other than that in which the share of Series A Preferred Stock so
converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
(j) Mandatory Conversion. If any Series A Preferred Stock is
issued and outstanding on December 31, 2003, such Series A Preferred
Stock, without any action on the part of the holder thereof, will be
automatically converted into Common Stock on that date at the
Conversion Rate on the above terms.
(k) Cancellation. In the event any shares of Series A Preferred
Stock shall be converted pursuant to this Paragraph 6 hereof, the
shares of Series A Preferred Stock so converted shall be canceled and
returned to the status of authorized and unissued shares of preferred
stock, without any class designation.
(l) Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this
Certificate of Designation for the Series A Preferred Stock and in the
taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of the Series A
Preferred Stock against impairment.
(m) Notices. Any notice to be given to the holders of shares of
Series A Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed
to each holder of record at his address appearing on the books of this
Corporation.
Such resolution was signed by the Chairman of the Board and Chief Executive
Officer and Secretary of the
Corporation.
IN WITNESS WHEREOF, we have executed this Certificate of Designation this
____ day of _______________, 1998.
INDIVIDUAL INVESTOR GROUP, INC.
By:
Jonathan L. Steinberg,
Chairman of the Board and Chief Executive Officer
By:
Henry Clark, Secretary
Exhibit 3.1.4
November __, 1998
Great American Insurance Company
Great American Life Insurance Company
580 Walnut Street
Cincinnati, Ohio 45202
Re: Individual Investor Group, Inc.
Gentlemen:
We have acted as counsel for Individual Investor Group, Inc., a Delaware
corporation ("Company"), in connection with the Company's issuance and sale of
5,000 shares of Series A Preferred Stock, par value $.01 per share, of the
Company ("Preferred Stock") to each of Great American Insurance Company ("GAIC")
and Great American Life Insurance Company ("GALIC"), upon the terms and subject
to the conditions set forth in the Stock Purchase Agreement, dated November 30,
1998 ("Stock Purchase Agreement") between the Company, GAIC AND GALIC. All
capitalized terms not otherwise defined herein shall have the meanings given to
them in the Stock Purchase Agreement. For purposes of the opinion expressed
herein, we have examined, among other documents, the following documents:
(1) executed copies of the Stock Purchase Agreement;
(2) the Certificate of Incorporation of the Company as amended by the
Certificate of Amendment, which includes the terms of the Preferred Stock
("Certificate");
(3) the By-laws of the Company; and
(4) the Certificate of Good Standing issued by the Secretary of State
of the State of Delaware for the Company, dated ___________, 1998.
We have also examined such other documents, and made such examinations of
law, as we deem necessary as a basis for the opinions hereafter expressed. With
respect to such examination, we have assumed the genuineness of all signatures,
the authenticity and completeness of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
photostatic or certified copies of original documents, and the authenticity and
completeness of those latter documents. As to all questions of fact material to
this opinion that have not been independently established, except as otherwise
stated herein, we have relied upon certificates and inquiries of appropriate
public officials, the officers of the Company, and upon the representations and
warranties of the Company set forth in the Stock Purchase Agreement.
We are members of the Bar of the State of New York and we do not purport to
be experts on, or to express any opinion herein concerning, any laws other than
the law of the State of New York, the General Corporation law of the State of
Delaware and the Federal law of the United States of America. Please be advised
that when in the following opinion we have made statements as to "the best of
our knowledge", it is intended to mean the actual knowledge of attorneys within
our firm based on: (i) work performed on substantive aspects of this transaction
or other matters which have come to their attention in the course of the
representation of the Company and (ii) inquiries of, and consultations with,
officers of the Company, and does not include matters as to which such attorneys
could be deemed to have constructive knowledge. Nothing has come to our
attention which leads us to question the accuracy of any information provided to
us by the Company.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
2. The execution, delivery and performance of the Stock Purchase
Agreement has been duly authorized by the Company's Board of Directors and
no other corporate proceedings on the part of the Company or its
stockholders are required. The Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
in general or general principles of equity. The Certificate has been duly
authorized and upon filing of the Certificate with the Secretary of State
of the State of Delaware, the Preferred Stock will be duly authorized.
3. The shares to be issued, sold and delivered in accordance with the
terms of the Stock Purchase Agreement for the consideration set out
therein, will, upon issuance in accordance with the terms thereof, be duly
and validly issued, fully paid and nonassessable, free of restrictions on
transfer other than restrictions on transfer under the Stock Purchase
Agreement and under applicable federal and state securities laws. The
issuance of the shares of Preferred Stock to GAIC and GALIC pursuant to the
Stock Purchase Agreement will comply with all applicable laws, including
federal and state securities laws, and will not violate statutory
preemptive rights or, to the best of our knowledge, similar contractual
rights of any person. The common stock issuable upon conversion of the
shares of Preferred Stock will be, upon issuance and delivery in accordance
with the terms of the Certificate, duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions
on transfer under the Stock Purchase Agreement and under applicable federal
and state securities laws. The issuance of the common stock upon conversion
of the shares of Preferred Stock will comply with all applicable laws,
including federal and state securities laws (assuming the accuracy of the
representations of GAIC and GALIC set forth in the Stock Purchase Agreement
as of the date of issuance of such common stock) and will not violate
statutory preemptive rights, or to the best of our knowledge, similar
contractual rights of any person.
4. To the best of our knowledge, no consent, approval, qualification,
order of authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign, or other third party is required
by or with respect to the Company in connection with the execution and
delivery of the Stock Purchase Agreement, or the consummation by the
Company of the transactions contemplated thereby, which has not already
been obtained, except for filing an application for listing of additional
shares with the NASDAQ Stock Market, any notices of sale required to be
filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended or the Securities Exchange Act of 1934, as amended, and
such post closing filings as may be required under applicable state
securities laws which will be timely filed within the applicable periods
therefor.
This opinion is being delivered to you pursuant to Section 3.1.4 of the
Stock Purchase Agreement and may not be relied upon by any Person without this
firm's prior written consent.
Very truly yours,
Schedule 5.1.4
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1998 1997
--------------- ----------------
Current assets:
Cash and cash equivalents $4,657,987 $3,533,622
Marketable securities (Note 6) 518,392 -
Accounts receivable (net of allowances of $336,964 in 2,511,571 2,993,299
1998 and $533,693 in 1997)
Investment in discontinued operations (Note 2) 816,580 4,037,432
Prepaid expenses and other current assets 223,832 224,801
--------------- ----------------
Total current assets 8,728,362 10,789,154
Deferred subscription expense 623,180 426,826
Property and equipment - net 419,529 556,070
Other assets 385,727 384,917
=============== ================
Total assets $10,156,798 $12,156,967
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,256,689 $2,093,987
Accrued expenses 778,230 803,502
Deferred revenue 167,034 343,250
--------------- ----------------
Total current liabilities 3,201,953 3,240,739
Deferred subscription revenue 2,248,562 2,661,129
--------------- ----------------
Total liabilities 5,450,515 5,901,868
--------------- ----------------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares - -
Common stock, $.01 par value; authorized
18,000,000 shares; issued and outstanding 8,490,851 84,908 71,461
shares in 1998 and 7,146,071 shares in 1997
Additional paid-in capital 24,899,068 19,514,363
Accumulated deficit (19,946,257) (13,330,725)
Accumulated other comprehensive loss (Note 6) (331,436) -
--------------- ----------------
Total stockholders' equity 4,706,283 6,255,099
=============== ================
Total liabilities and stockholders' equity $10,156,798 $12,156,967
=============== ================
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of
Individual Investor Group, Inc. and its subsidiaries (the "Company"). Such
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the instructions
to Form 10-Q. Accordingly, they do not include all of the information and
footnotes as required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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, 1997 on Form 10-KSB.
2. DISCONTINUED OPERATIONS
On April 30, 1998 the Company's Board of Directors decided to discontinue
the Company's investment management services business. A wholly owned subsidiary
of the Company, WisdomTree Capital Management, Inc. ("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, WTCM is dissolving the domestic investment fund, liquidating its
investments and distributing the net assets to all investors as promptly as
possible. In July 1998 the fund distributed $19,682,415 to its partners in cash
and securities. In October 1998 the fund distributed additional funds totaling
approximately $4,500,000 in cash to its partners. The remainder of the net
assets will be distributed as soon as the investments held by the fund are
liquidated. The operating results relating to investment management services
have been segregated from continuing operations and reported as a separate line
item on the statement of operations. As a result the Company has restated its
financial statements for the corresponding periods of the prior year.
Operating results from discontinued operations are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Investment management services revenues $ - $ 141,999 $ 137,183 $ 439,191
Net (depreciation) appreciation in fund - 1,371,887 (276,497) (159,283)
Operating expenses - (40,662) (50,315) (194,580)
============== ================ ============== ===============
(Loss) income from discontinued operations - $1,473,224 ($ 189,629) $ 85,328
============== ================ ============== ===============
Loss on disposal of discontinued operations totaled $145,291 and $591,741
for the three and nine months ended September 30, 1998, respectively. Under
generally accepted accounting principles, loss on disposal of discontinued
operations includes actual losses from the date the Board resolved to
discontinue the investment management services operations plus a provision for
additional losses based on management's best estimate of the amount to be
realized on dissolution of the fund, including applicable severance and legal
fees. Additional losses were incurred in the third quarter as a result of
changes in the market value of the fund's investments.
The fair market value of the Company's investment in the discontinued
operations decreased from $4,037,432 at December 31, 1997 to $816,580 at
September 30, 1998. The net depreciation in the Company's investment for the
three and nine months ended September 30, 1998 was $168,799 and $927,054,
respectively. In July 1998 the Company received $2,293,799 of its investment,
including cash of $1,443,997 and securities of $849,822 (valued as of June 30,
1998). In October 1998 the Company received an additional $524,432 in cash from
the fund. No assurance can be given that the Company will realize any further
amount with respect to its investment in the domestic fund. Moreover, the
securities received by the Company in July 1998 suffered a material decline in
value between June 30, 1998 and September 30, 1998, and subsequently through the
date of this Report. There can be no assurance that such securities will not
suffer further material declines in value.
Selected unaudited financial information for the fund as of September 30,
1998 and December 31, 1997 is as follows:
September 30, December 31,
1998 1997
Assets (at fair value) $ 7,195,281 $71,245,441
Liabilities 188,459 32,104,302
Partners' capital 7,006,822 39,141,139
The net losses for the fund for the three and nine months ended September
30, 1998 totaled $1,448,415 and $7,954,776, respectively, as compared to a net
gain of $16,544,302 and $3,242,622 for the corresponding periods in 1997.
The Company, through WTCM, also provides investment management services to
an offshore private investment fund. On May 21, 1998 the sole voting shareholder
of the offshore fund, in consultation with WTCM, resolved to wind up the fund
and appointed a liquidator to distribute the assets of the fund to its investors
in accordance with Cayman Islands law. In July 1998 approximately 55% of the net
assets of the offshore fund were distributed in cash to its investors. The
remainder of the net assets will be distributed promptly following the
liquidation of the investments held by the fund. The Company has no investment
in the offshore fund.
WTCM is also entitled to receive a special allocation equal to 20% of the
net income, if any, of each of the funds (not including income earned on its own
investment with respect to the domestic fund), subject to certain limitations,
calculated at each funds' year-end, which is December 31st for the domestic fund
and June 30th for the offshore fund. The amount of the special allocation for
the offshore fund for the year ended June 30, 1998 was $109,319. The Company
does not expect to receive a special allocation during 1998 from the domestic
fund based on the negative performance of that fund to date.
3. STOCK OPTIONS
During the three and nine months ended September 30, 1998, the Company
granted 563,000 and 751,000 options, respectively, to purchase the Company's
Common Stock; 84,938 options were exercised year to date providing proceeds of
$398,152 (none were exercised in the third quarter); and 112,500 and 534,310
options were canceled, respectively. Of the total options granted in the third
quarter, 250,500 were under the Company's stock option plans and 312,500 were
outside the Company's plans, all of which expire at various dates through
September 2008.
4. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three and nine month
periods ended September 30, 1998 and 1997, respectively, were computed using the
weighted average number of common shares outstanding during each period. The
exercise of stock options and warrants were not assumed in the computation of
loss per common share, as the effect would have been antidilutive. Previously
reported net loss per share amounts are the same as required by the adoption of
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share," which became effective in the fourth quarter of 1997.
5. SALE OF COMMON STOCK
On June 26, 1998 the Company entered into a Stock Purchase Agreement with
Wise Partners, L.P. providing for the sale of 1,259,842 shares of Common Stock
for an aggregate purchase price of $5,000,000, which was based on the closing
"ask" price of the common stock on June 25, 1998. Wise Partners; L.P. is a
limited partnership of which the Chief Executive Officer of the Company,
Jonathan L. Steinberg, is the General Partner.
6. OTHER COMPREHENSIVE INCOME
During the year, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires the disclosure of comprehensive income, 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 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.
Comprehensive loss for the three and nine months ended September 30, 1998
and 1997, respectively, is presented in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net loss $(1,476,271) $(34,507) $(6,615,532) $(3,769,195)
Accumulated other comprehensive loss:
Unrealized loss on securities (331,436) - (331,436) -
=========== ========== ========== ===========
Total comprehensive loss $(1,807,707) $(34,507) $(6,946,968) (3,769,195)
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