SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
/_/ Confidential, For Use of the Commission Only (as permitted
By Rule 14a-6(e)(2))
RARE MEDIUM GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
/ / Fee Computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
/_/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule O-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount Previously Paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing Party: ___________________________________________________________
4) Date Filed: _____________________________________________________________
<PAGE>
RARE MEDIUM GROUP, INC.
44 W. 18th Street, 6th Floor
New York, New York 10011
July 12, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Rare Medium Group, Inc. (the "Company"), to be held in the
ballroom at the Masonic Hall located at 71 West 23rd Street, New York, NY 10010
on August 19, 1999, at 9:30 a.m., local time.
At the Annual Meeting, you will be asked to consider and act upon the
following matters: (i) the election of five (5) directors; (ii) the approval of
the conversion of 744,000 shares of the Company's Series B Preferred Stock (plus
any additional shares of Series B Preferred Stock issued or issuable in
connection with dividends paid or accrued on such Series B Preferred Stock),
744,000 Series 1-B Warrants (plus any additional Series 1-B Warrants issued or
issuable in connection with dividends paid or accrued on the Series B Preferred
Stock) and 10,345,548 Series 2-B Warrants (collectively, the "Series B
Securities"), that have been issued to Apollo Investment Fund IV, L.P. and
certain other parties (collectively, the "Preferred Stockholders"), into an
equal number of shares or warrants, as the case may be, of the Company's Series
A Convertible Preferred Stock, Series 1-A Warrants and Series 2-A Warrants
(collectively, the "Series A Securities"), respectively, that, at issuance date,
and assuming conversion (along with the Series A Securities previously issued to
the Preferred Stockholders), represented approximately 22.1% of the voting power
of the Company's outstanding securities, after giving effect to such conversion,
and were convertible into, or exercisable for, approximately 39.5% of the
Company's outstanding common stock ("Common Stock"), computed on a fully diluted
basis using the treasury stock method after giving effect to such conversion and
the subsequent full conversion and exercise of all such Series A Securities into
or for Common Stock; (iii) the approval of an amendment to the Company's
Certificate of Incorporation to authorize for issuance a class of non-voting
common stock of the Company; (iv) the ratification of the appointment of KPMG
LLP as the independent auditors of the Company for the year ending December 31,
1999; and (v) the transaction of such other business as may come before the
Annual Meeting.
This is the Company's first Annual Meeting since its transition to an
Internet professional services company and an incubator of emerging Internet
companies. The proposals to be considered and voted upon at the Annual Meeting
are of great importance to your investment and to the future of the Company. In
particular, your Board of Directors believes that the approval of the conversion
of the Series B Securities into Series A Securities and the Company's alliance
with Apollo will increase the Company's ability to grow, enhance its competitive
position and provide it with the capital necessary to enable it to continue to
execute its business plan.
The enclosed proxy statement contains important information concerning the
proposals to be considered at the Annual Meeting. We hope you will take the time
to study it carefully. Your vote is very important, regardless of how many
shares you own. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL
MEETING EITHER IN PERSON OR BY PROXY. EVEN IF YOU PRESENTLY PLAN TO ATTEND THE
ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE ACCOMPANYING SELF-ADDRESSED POSTAGE PREPAID ENVELOPE. If you
attend the Annual Meeting, you may vote in person, even if you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ Glenn S. Meyers
------------------------------------
Glenn S. Meyers
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
RARE MEDIUM GROUP, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 19, 1999
- --------------------------------------------------------------------------------
To the holders of Common Stock and Series A Convertible Preferred Stock
(the "Stockholders") of Rare Medium Group, Inc.:
Please take notice that an Annual Meeting of Stockholders (the "Annual
Meeting") of Rare Medium Group, Inc., a Delaware corporation (the "Company"),
will be held in the ballroom at the Masonic Hall, located at 71 West 23rd
Street, New York NY 10010, on August 19, 1999, at 9:30 a.m., local time, for the
following purposes, all as more fully described in the attached Proxy Statement:
1. To elect two Class 1 Directors, one Class 2 Director and two Class 3
Directors;
2. To approve the conversion of 744,000 shares of the Company's Series B
Preferred Stock (plus any additional shares of Series B Preferred Stock issued
or issuable in connection with dividends paid or accrued on such Series B
Preferred Stock), 744,000 Series 1-B Warrants (plus any additional Series 1-B
Warrants issued or issuable in connection with dividends paid or accrued on the
Series B Preferred Stock) and 10,345,548 Series 2-B Warrants, that have been
issued to Apollo Investment Fund IV, L.P. and certain other parties
(collectively, the "Preferred Stockholders"), into an equal number of shares or
warrants, as the case may be, of the Company's Series A Convertible Preferred
Stock, Series 1-A Warrants and Series 2-A Warrants (collectively, the "Series A
Securities"), respectively, that, at issuance date, and assuming conversion
(along with the Series A Securities previously issued to the Preferred
Stockholders), represented approximately 22.1% of the voting power of the
Company's outstanding securities, after giving effect to such conversion, and
were convertible into, or exercisable for, approximately 39.5% of the Company's
outstanding common stock ("Common Stock"), computed on a fully diluted basis
using the treasury stock method after giving effect to such conversion and the
subsequent full conversion and exercise of all such Series A Securities into or
for Common Stock;
3. To approve an amendment to the Company's Certificate of Incorporation to
authorize for issuance a class of non-voting common stock of the Company;
4. To ratify the appointment of KPMG LLP as the independent auditors of the
Company for the year ending December 31, 1999; and
5. To transact such other business as may come before the Annual Meeting or
any adjournment or postponement thereof.
Stockholders are urged to read carefully the attached Proxy Statement for
additional information concerning the matters to be considered at the Annual
Meeting. The Board of Directors of the Company has fixed the close of business
on July 9, 1999 as the record date for the determination of Stockholders
entitled to vote at the Annual Meeting. Only Stockholders of record at the close
of business on the record date will be entitled to notice of, and to vote at,
the meeting or any postponement or adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, WE RESPECTFULLY URGE
YOU TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED FORM OF PROXY. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN
PERSON, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
By Order of the Board of Directors,
/s/ John S. Gross
----------------------------------------------------
New York, New York John S. Gross, Senior Vice President, Chief
July 12, 1999 Financial Officer, Treasurer and Assistant Secretary
- --------------------------------------------------------------------------------
Important
Please complete, sign, date and promptly mail your proxy card.
- --------------------------------------------------------------------------------
<PAGE>
RARE MEDIUM GROUP, INC.
44 W. 18th Street, 6th Floor
New York, New York 10011
----------------------------------------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 1999
----------------------------------------------------------
This Proxy Statement and the accompanying proxy card are being furnished to
the holders (the "Stockholders") of the common stock (the "Common Stock") and
Series A Convertible Preferred Stock (the "Series A Preferred Stock") of Rare
Medium Group, Inc., formerly known as ICC Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors") for use in
voting at the Annual Meeting of Stockholders to be held at the time and place
and for the purposes set forth in the accompanying Notice of Annual Meeting, and
any and all adjournments or postponements thereof (the "Annual Meeting"). This
Proxy Statement and the accompanying proxy card are first being mailed or
delivered to the Stockholders on or about July 13, 1999.
Only holders of Common Stock and Series A Preferred Stock of record on the
books of the Company at the close of business on July 9, 1999 will be entitled
to notice of, and to vote at, the Annual Meeting; provided, however, that
holders of the Series A Preferred Stock are not entitled to vote in connection
with Proposal II and Proposal III, as further described in this Proxy Statement.
On that date, there were outstanding 39,127,494 shares of Common Stock and
shares of Series A Preferred Stock equal to the 126,000 shares initially issued
on June 4, 1999 plus approximately 683 additional shares of Series A Preferred
Stock issued as a preferred dividend on June 30, 1999. The holders of a majority
of the votes entitled to vote at the Annual Meeting, present in person or
represented by proxy, will constitute a quorum for the transaction of business
at the meeting. Each share of Common Stock outstanding on the record date is
entitled to one vote on each matter which may be brought before the Annual
Meeting. Each share of Series A Preferred Stock outstanding on the record date
is entitled to 0.875 votes for each share of underlying Common Stock into which
the Series A Preferred Stock is then convertible, or, 12.5 votes per share of
Series A Preferred Stock, for an aggregate of approximately 1,583,538 votes as
of such record date. Other than the election of directors, which requires a
plurality of the votes cast, Proposals II and IV submitted to the Stockholders
require the affirmative vote of a majority of the votes cast at the meeting and
Proposal III submitted to the Stockholders requires the affirmative vote of a
majority of the votes entitled to vote at the meeting. For purposes of
determining the number of votes cast with respect to a particular matter, only
those cast "For" or "Against" are included. Abstentions and broker non-votes are
counted only for purposes of determining whether a quorum is present at the
meeting.
<PAGE>
It is expected that the solicitation of proxies will be primarily by mail.
Proxies also may be solicited personally or by telephone, telegraph or teletype
by officers, directors or employees of the Company without additional
compensation. In addition, the Company has engaged the firm of Morrow & Company
to assist in the solicitation of proxies. The total expense of preparing,
assembling and mailing proxy material and the Annual Report to Stockholders will
be borne by the Company. Such expense may also include reimbursement for
out-of-pocket disbursements incurred by brokerage houses and other custodians,
nominees or other fiduciaries for forwarding such documents to the Stockholders.
All proxies delivered pursuant to this solicitation are revocable by giving
written notice to the Secretary of the Company by the person executing the proxy
at any time before the voting thereof. On the accompanying proxy a Stockholder
may substitute the name of another person in place of those persons presently
named as proxies. In order to vote, a substitute must present adequate
identification to the Secretary before the voting occurs. Proxies given in the
form enclosed, unless previously revoked, will be voted at the Annual Meeting in
accordance with the instructions contained therein and, if no choice is
specified, will be voted in favor of the election of the five nominees for
director and for the proposals set forth herein and in the Notice of Annual
Meeting.
(2)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE ANNUAL MEETING....................................................................................................4
ELECTION OF DIRECTORS................................................................................................10
PROPOSAL II-CONVERSION OF PREFERRED STOCK AND WARRANTS...............................................................19
PROPOSAL III-AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO CREATE A CLASS OF NON-VOTING COMMON STOCK...38
PROPOSAL IV-RATIFY THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY............................41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................42
EXECUTIVE COMPENSATION...............................................................................................45
SELECTED FINANCIAL DATA..............................................................................................57
FORWARD-LOOKING STATEMENTS...........................................................................................58
NO OTHER BUSINESS....................................................................................................58
STOCKHOLDER PROPOSALS................................................................................................58
ADDITIONAL INFORMATION...............................................................................................58
ANNUAL REPORT ON FORM 10-K...........................................................................................59
INCORPORATION OF DOCUMENTS BY REFERENCE..............................................................................59
</TABLE>
APPENDICES:
Appendix A - Series A Convertible Preferred Stock Certificate of Designation
Appendix B - Series B Preferred Stock Certificate of Designation
Appendix C - Form of Series 1-A Warrant
Appendix D - Form of Series 2-A Warrant
Appendix E - Form of Series 1-B Warrant
Appendix F - Form of Series 2-B Warrant
Appendix G - Form of Certificate of Amendment to Certificate of Incorporation
relating to authorization of non-voting common stock
(3)
<PAGE>
THE ANNUAL MEETING
Date, Time and Place
This Annual Meeting is scheduled to be held in the ballroom at the Masonic
Hall located at 71 West 23rd Street, New York, NY 10010 on August 19, 1999, at
9:30 a.m., local time.
Purpose
At the Annual Meeting the holders of the Common Stock will be
asked to consider and vote upon each of the following matters, and the holders
of the Series A Preferred Stock will be asked to consider and vote only upon the
matters listed in clauses (1), (4) and (5) below:
1. The election of two Class 1 Directors, one Class 2 Director and two
Class 3 Directors;
2. The approval of the conversion of 744,000 shares of the Company's
Series B Preferred Stock (the "Series B Preferred Stock") (plus any
additional shares of Series B Preferred Stock issued or issuable in
connection with dividends paid or accrued on such Series B Preferred
Stock), 744,000 Series 1-B Warrants (the "Series 1-B Warrants") (plus
any additional Series 1-B Warrants issued or issuable in connection
with dividends paid or accrued on the Series B Preferred Stock) and
10,345,548 Series 2-B Warrants (the "Series 2-B Warrants" and,
collectively with the Series B Preferred Stock and Series 1-B Warrants,
the "Series B Securities"), that have been issued to Apollo Investment
Fund IV, L.P. and certain other parties (collectively, the "Preferred
Stockholders"), into an equal number of shares or warrants, as the case
may be, of Series A Preferred Stock, Series 1-A Warrants (the "Series
1-A Warrants") and Series 2-A Warrants (the "Series 2-A Warrants" and,
collectively with the Series A Preferred Stock and Series 1-A Warrants,
the "Series A Securities"), respectively, that, at issuance date, and
assuming conversion (along with the Series A Securities previously
issued to the Preferred Stockholders), represented approximately 22.1%
of the voting power of the Company's outstanding securities, after
giving effect to such conversion, and were convertible into, or
exercisable for, approximately 39.5% of the outstanding Common Stock,
computed on a fully diluted basis using the treasury stock method after
giving effect to such conversion and the subsequent full conversion and
exercise of all such Series A Securities into or for Common Stock;
3. The amendment to the Company's Certificate of Incorporation to
authorize for issuance a class of non-voting common stock of the
Company (the "Non-Voting Common Stock");
(4)
<PAGE>
4. The approval of a proposal to ratify the appointment of KPMG LLP as the
independent auditors of the Company for the year ending December 31,
1999; and
5. The transaction of such other business as may come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors has unanimously voted for and approved the above
proposals and recommends a vote for approval of the election of the five
nominees for director set forth herein and for each of the above proposals by
the Stockholders entitled to vote at the Annual Meeting.
Effect of Failure to Approve
The failure to obtain Stockholder approval of Proposal II or III above
prior to October 2, 1999 (the "Outside Date") would result in certain negative
consequences to the Company and the holders of the Common Stock, including (i)
the ability of the Preferred Stockholders to have all of the Series B Preferred
Stock redeemed by the Company for the full purchase price of $74,400,000 (plus
accrued dividends), plus a premium of approximately $7,600,000 for which there
can be no assurance that the Company would have sufficient funds available to it
necessary to pay such premium and, consequently, the Company may be required to
obtain such funds through alternative financing sources; (ii) the decrease in
the exercise price of each of the Series 1-A Warrants, Series 2-A Warrants,
Series 1-B Warrants and Series 2-B Warrants to $0.01; (iii) the increase in the
annual dividend rate of the Series B Preferred Stock from 7.50% to 12.50%,
resulting in an increase in the amount of dividends on the Series B Preferred
Stock equal to at least $3,720,000 annually; and (iv) if any holder of Series B
Securities elects to convert such shares into, or exercise such warrants for,
Non-Voting Common Stock, then the Company will be unable to issue such
Non-Voting Common Stock at such time and will be required to use its reasonable
efforts to deliver to such holder, upon the surrender of such holder's Series B
Securities, securities, cash or other property that would provide such holder
with the economic equivalent of a conversion or exercise of such securities into
or for, and an immediate sale of, Non-Voting Common Stock. See "Proposal II -
Conversion of Preferred Stock and Warrants" and "Proposal III - Amendment to the
Company's Certificate of Incorporation to Create a Class of Non-Voting Common
Stock" for a description of these factors.
In addition, if the Preferred Stockholders elect to have all of their
Series B Preferred Stock redeemed as described above, then the Company will have
limited funds available with which to continue to finance its operation and will
be forced to seek additional and alternative financing. There can be no
assurance that any such additional or alternative financing will be available or
that, if available, such additional or alternative financing could be obtained
with terms and conditions that are as favorable to the Company as the Series A
Securities and Series B Securities. Further, such occurrence may result in the
delisting of the Company's Common Stock from the Nasdaq National Market.
See the discussion below under the heading "Nasdaq National Market Listing."
(5)
<PAGE>
Nasdaq National Market Listing
In order to comply with the Nasdaq National Market listing standards, the
Company is required to consummate the equity transaction with Apollo Investment
Fund IV, L.P. and hold its annual meeting of stockholders on or by September 15,
1999. The Company consummated the equity transaction on June 4, 1999, subject to
seeking Stockholder approval for the conversion of Series B Securities issued in
such transaction into Series A Securities. In the event that the Stockholders do
not approve Proposal II of this Proxy Statement and the holders of Series B
---
Securities elect to have all of their Series B Preferred Stock redeemed by the
Company as described above under the heading "Effect of Failure to Approve" and
below under the heading "Proposal II-Conversion of Preferred Stock and
Warrants", Nasdaq may consider to list the Company on the Nasdaq Small Cap
Market or determine to delist the Company. Further, if Proposal II is not
approved and the Preferred Stockholders elect to convert or exercise their
Series B Securities into Non-Voting Common Stock pursuant to the terms of the
Series B Securities in lieu of redemption upon such disapproval, and the Company
---
is unable to issue Non-Voting Common Stock because the Stockholders have not
approved the creation of such class of securities at the Annual Meeting as
proposed in Proposal III of this Proxy Statement, such event may also result in
Nasdaq considering to list the Company on the Nasdaq Small Cap Market or
determining to delist the Company. The Company intends to comply with the Nasdaq
imposed annual meeting requirement by scheduling its Annual Meeting for
August 19, 1999, as described in this Proxy Statement.
In the event that the Company is unable to maintain its listing on the
Nasdaq National Market, it currently meets the standards for, and would seek to
apply for, listing on the Nasdaq Small Cap Market. There can be no assurance,
however, that such an application would be approved. In the event that the
Company was unable to list its Common Stock on the Nasdaq Small Cap Market or
any other exchange at such time, there would be no established trading market
for its Common Stock except as may be established in the National Association of
Securities Dealers Inc.'s OTC Bulletin Board Service or in the "pink sheets",
which would have a material adverse effect on the liquidity and market price of
the Company's Common Stock.
Record Date
The Board of Directors has fixed the close of business on July 9, 1999 as
the record date for the determination of Stockholders entitled to notice of, and
to vote at, the Annual Meeting (the "Record Date"). Only Stockholders of record
at the close of business on the Record Date will be entitled to notice of, and
to vote at, the Annual Meeting. On the Record Date, there were issued and
outstanding 39,127,494 shares of Common Stock and shares of Series A Preferred
Stock equal to the 126,000 shares initially issued on June 4, 1999 plus
approximately 683 additional shares of Series A Preferred Stock issued as a
preferred dividend on June 30, 1999. Each holder of Common Stock entitled to
vote at the Annual Meeting will be entitled to one vote per share, and each
holder of Series A Preferred Stock entitled to vote at the Annual Meeting will
be entitled to 0.875 votes per share of underlying Common Stock into which the
Series A Preferred Stock is then convertible, or, 12.5 votes per share of Series
A Preferred Stock, either in person or by proxy, on each matter presented at the
Annual Meeting; provided, however, that the
(6)
<PAGE>
Series A Preferred Stock is not entitled to vote in connection with Proposal II
and Proposal III, as further described in this Proxy Statement.
Quorum
The holders of a majority of the votes entitled to vote at the Annual
Meeting, present in person or represented by proxy, will constitute a quorum for
the transaction of business at the Annual Meeting. The holders of a majority of
the shares represented at the Annual Meeting shall have the power to adjourn the
Annual Meeting from time to time, without notice, other than by announcement at
the meeting, until a quorum is present or represented. At any such adjourned
meeting at which a quorum is present or represented, any business may be
transacted that might have been transacted at the original meeting. If and when
a quorum is present or represented at the Annual Meeting or any adjournment
thereof, the Stockholders present or represented at the meeting may continue to
transact business until adjournment notwithstanding the withdrawal from the
meeting of Stockholders counted in determining the existence of a quorum.
Required Vote
Other than the election of directors, which requires a plurality of the
votes cast, Proposals II and IV submitted to the Stockholders require the
affirmative vote of a majority of the votes cast at the meeting and Proposal III
submitted to the Stockholders requires the affirmative vote of a majority of the
votes entitled to vote at the meeting. For purposes of determining the number of
votes cast with respect to a particular matter, only those cast "For" or
"Against" are included.
All votes cast by proxy or in person will be counted by a representative of
the American Stock Transfer & Trust Company, transfer agent for the Common
Stock, who will serve as the inspector of elections at the Annual Meeting and
who will separately tabulate affirmative votes, negative votes, abstentions and
broker non-votes for the election of directors and each proposal. Proxies marked
as abstaining will be treated as present for purposes of determining a quorum
for the Annual Meeting, but will not be counted as voting in respect of
any matter as to which abstinence is indicated. Broker non-votes occur where a
broker holding stock in street name votes the shares on some matters but not
others. The missing votes are deemed to be broker non-votes. The inspector of
elections will treat broker non-votes as shares that are present and entitled to
vote for the purpose of determining the presence of a quorum. However, for the
purpose of determining the outcome of any matter as to which the broker or
nominee has indicated on the proxy that it does not have discretionary authority
to vote, those shares will be treated as not present and not entitled to vote
with respect to that matter (even though those shares are considered entitled to
vote for quorum purposes and may be entitled to vote on other matters).
As of the Record Date, directors and executive officers of the Company and
their affiliates had the right to vote approximately 3.8% of all votes entitled
to vote on Proposal II and Proposal III at the Annual Meeting and approximately
7.6% of all votes entitled to vote on the election of directors and Proposal IV.
(7)
<PAGE>
Such directors and executive officers of the Company and their affiliates have
indicated that they intend to vote all of their shares "FOR" the election of
each director nominee and each of the proposals.
Proxies
The enclosed proxy provides that each Stockholder may specify that his or
her shares be voted "For," "Against" or "Abstain" from voting with respect to
the election of directors and each of the proposals. All shares of Common Stock
and Series A Preferred Stock represented by properly executed proxies received
prior to or at the Annual Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. Properly executed proxies that
do not contain voting instructions will be voted "FOR" approval of the election
of each director nominee and "FOR" approval of each of the other proposals.
Stockholders are urged to mark the box on the proxy to indicate how their Common
Stock or Series A Preferred Stock is to be voted.
It is not expected that any matter other than those referred
to herein will be brought before the Annual Meeting. If, however, other matters
are properly presented, the persons named as proxies will vote in accordance
with their own judgment with respect to such matters, unless authority to do so
is withheld in the proxy.
A duly executed proxy is irrevocable if it states that it is irrevocable
and only as long as it is coupled with an interest sufficient in law to support
an irrevocable power.
Any Stockholder who executes and returns a proxy may revoke such proxy in
writing at any time before it is voted at the Annual Meeting by: (i) filing with
the Secretary or Assistant Secretary of the Company, at 44 West 18th Street, 6th
Floor, New York NY 10011, written notice of such revocation bearing a later date
than the proxy or a subsequent, later dated and signed proxy relating to the
same shares; or (ii) attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy).
Proxy Solicitor
The cost of this solicitation of proxies will be borne by the Company.
Directors, officers and regular employees of the Company may solicit proxies in
person, by telephone, by mail or by other means of communication, but such
persons will not be specifically compensated for such services. In addition, the
Company has engaged the firm of Morrow & Company to assist in the solicitation
of proxies, to which the Company has agreed to pay a fee of approximately
$11,000 and to reimburse its reasonable expenses. The Company will reimburse
American Stock Transfer & Trust Company for forwarding proxy materials to
beneficial owners and serving as inspectors of election. The total estimated
cost for this solicitation is approximately $50,000.
(8)
<PAGE>
Availability of Principal Auditors
Representatives of KPMG LLP, principal auditors of the Company, will be
present at the Annual Meeting, will have the opportunity to make a statement
should they desire and are expected to be available to respond to appropriate
questions.
(9)
<PAGE>
ELECTION OF DIRECTORS
At the Special Meeting of Stockholders held on March 16, 1999, the
Stockholders approved an amendment to the Company's Certificate of Incorporation
establishing a classified Board of Directors, divided into three classes having
staggered terms of three years each. Pursuant to Article Ninth of the
Certificate of Incorporation, which was approved by the Stockholders at such
Special Meeting, and Section 3.1 of the By-Laws of the Company, the Board of
Directors may determine, with certain limitations, the total number of directors
and the number of directors to be elected at any Annual Meeting of Stockholders
or special meeting in lieu thereof. The Board of Directors has currently fixed
at six the total number of directors, consisting of two Class 1 directors, two
Class 2 directors and two Class 3 directors. Of the six total number of
directors, five nominees for director are to be elected at the Annual Meeting
and one continuing director has been elected as a director of the Company by
Apollo Investment Fund IV, L.P. and the other Preferred Stockholders prior to
the date hereof, as described below. The number of directors is subject to
increase to eight as contemplated by the Amended and Restated Securities
Purchase Agreement, dated June 4, 1999 (the "Securities Purchase Agreement with
Apollo"), between the Company and the Preferred Stockholders, as discussed under
the headings "Election of Directors - Certain Relationships and Related
Transactions - Securities Purchase Agreement with Apollo" and "Proposal II -
Conversion of Preferred Stock" of this Proxy Statement. The Class 1 directors
will have terms expiring at the 2000 Annual Meeting of Stockholders and until
their successors are duly elected and qualified. The Class 2 directors will have
terms expiring at the 2001 Annual Meeting of Stockholders and until their
successors are duly elected and qualified. The Class 3 directors will have terms
expiring at the 2002 Annual Meeting of Stockholders and until their successors
are duly elected and qualified.
All of the five nominees for director to be elected at the Annual Meeting
are currently members of the Board of Directors. The Company has no reason to
believe that any of the nominees will be unable to serve. In the event that any
nominee should not be available, the persons named in the proxy will vote for
the others and may vote for a substitute for such nominee.
Information With Respect to Director Nominees
Listed below are the nominees for Class 1, Class 2 and Class 3 directors,
with information showing the principal occupation, business experience and
current public directorships, if any, of each, the age of each and the year each
was first elected a director of the Company.
Unless authority is withheld, proxies in the accompanying form will be
voted in favor of electing each of the five individuals identified in the table
below as a director of the Company of the class so indicated next to his
respective name, to hold office until the Annual Meeting of Stockholders in the
year of expiration of his respective term and until his respective successor is
duly elected and qualified. If the proxy is executed in such a manner as to
withhold authority to vote for one or more nominees for director, such
instructions will be followed by the persons named as proxies.
(10)
<PAGE>
<TABLE>
<CAPTION>
Name Age Class Director Since
---- --- ----- --------------
<S> <C> <C> <C>
Glenn S. Meyers 38 3 April 15, 1998
Jeffrey Killeen 46 1 October 28, 1998
Richard T. Liebhaber 64 2 November 2, 1998
Steven Winograd 44 3 October 28, 1998
Marc J. Rowan 36 1 June 4, 1999
</TABLE>
Class 1 Nominees.
Jeffrey Killeen has been a director of the Company since October 28, 1998.
Mr. Killeen most recently was the Chief Operating Officer of barnesandnoble.com,
a leading global e-commerce company. During 1998, Mr. Killeen directed the
growth of barnesandnoble.com to its position as the fourth largest e-commerce
website and as a "Top 30" overall site worldwide as measured by Media Metrix.
Before joining barnesandnoble.com, Mr. Killeen served as President and Chief
Executive Officer of Pacific Bell Interactive Media, where he led the
development of Pacific Bell's Internet content and electronic yellow pages
businesses. Prior to that, Mr. Killeen was President of American Insurance
Services Group, a leading electronic publisher and data services company serving
the U.S. property and casualty insurance industry. From 1975-1992, Mr. Killeen
held a series of executive management positions at The Dun & Bradstreet
Corporation, including as Senior Vice President of Telco Operations at Reuben H.
Donnelley. He has also served on the board of advisors of Hot Wired. Mr. Killeen
has managed the development and application of a wide range of new media
technologies, including the Internet, CD-ROM, audiotex, agent supported voice
services and the integration of print with new media.
Marc J. Rowan is one of the founding principals of Apollo Advisors, L.P.
(which, together with its affiliates, acts as the managing general partner of
several private securities investment funds, including Apollo Investment Fund
IV, L.P.) and of Lion Advisors, L.P. (a financial advisor to, and representative
of institutional investors with respect to, securities investments). Mr. Rowan
is also a director of Vail Resorts, Inc., Quality Distribution, Inc., National
Financial Partners, Inc., Samsonite Corporation and NRT Incorporated. Mr. Rowan
is also a founding member and serves on the executive committee of the Youth
Renewal Fund and is a member of the board of directors of National Jewish
Outreach Program and the Undergraduate Executive Board of The Wharton School.
Class 2 Nominees.
Richard T. Liebhaber has been a director of the Company since November 2,
1998. In addition, Mr. Liebhaber has been a Managing Director of Veronis, Suhler
& Associates, Inc., the New York media merchant banking firm, since June 1, 1995
and a member of the board of directors of Qwest Communications, Inc. from
February 1997 to the present. Mr. Liebhaber has over 40 years of professional
experience including 30 years at IBM where he was the Director of Business
Policy and Development. At IBM, Mr. Liebhaber was responsible for IBM's new
business development activities, the establishment of internal Independent
Business Units and IBM's contractual relationships with customers. From December
1985 to his retirement in May 1995, Mr. Liebhaber served as Executive Vice
President of MCI
(11)
<PAGE>
Communications Corporation and as a member of its Management Committee, and from
July 1992 until May 1995 served as a member of its board of directors. In
addition, Mr. Liebhaber has been a member of the board of directors of Alcatel
Network Systems, Inc. since June 1995, the board of directors of Internet
Communications Corporation since May 1997, and the board of directors of Scholz
Master Builders Inc. since December 1985. Mr. Liebhaber served on the board of
directors of Prodigy, Inc. from its inception, in November, 1983, through
December, 1994.
Class 3 Nominees.
Glenn S. Meyers has been a director and the President and Chief Executive
Officer of the Company since April 15, 1998, when the Company acquired its
wholly-owned subsidiary, Rare Medium, Inc. In addition, Mr. Meyers is a director
and Chief Executive Officer of Rare Medium, Inc. and has served in such
capacities since shortly after the formation of Rare Medium, Inc. in September
1995. Prior to joining Rare Medium, Inc., Mr. Meyers was President of Brookridge
Capital Management, an Internet venture capital firm. After graduating from
college, Mr. Meyers founded his first company, American Cable Products ("ACP"),
in the data communication system integration business. After leading ACP to
national prominence, which resulted in the subsequent sale of ACP to a $2
billion NYSE competitor, Mr. Meyers went on to serve as a principal of several
other entrepreneurial emerging growth companies. Mr. Meyers has spoken at major
industry conferences such as Red Herring's Venture Markets, Internet World, and
Fulcrum. A recipient of major industry awards, including "Digital Media Masters"
by Advertising Age Magazine, Mr. Meyers is also a regular speaker on the
"INTERNET" educational circuit, including engagements at Harvard Business School
and the MIT Business Forum. Mr. Meyers holds a B.S. from the University of
Florida School of Business Administration, where he was a letterman and
scholarship athlete.
Steven Winograd has been a director of the Company since October 28, 1998.
Mr. Winograd has 17 years of experience in a diverse range of investment and
merchant banking disciplines and is currently a Senior Managing Director and
Group Head of the Financial Buyers Group of Bear, Stearns & Co. Inc. ("Bear
Stearns") and is also a member of the Investment Banking Commitment Committee.
Prior to joining Bear Stearns in 1994, Mr. Winograd held a number of positions
that included general partner of the Blackstone Group and Managing Director in
the Mergers and Acquisitions Department of Drexel Burnham Lambert. Mr. Winograd
has successfully closed over 130 investment banking financing and mergers and
acquisitions transactions with an aggregate value in excess of $25 billion. Mr.
Winograd holds an MBA from the Columbia University Graduate School of Business,
where he was elected to the Beta Gamma Sigma honor society.
Information with Respect to the Continuing Director
Listed below is certain information showing the age, principal occupation,
business experience and current public directorships, if any, of the continuing
director, Andrew Africk, who has been elected as a director of the Company by
Apollo Investment Fund IV, L.P. and the other Preferred Stockholders pursuant to
the Securities Purchase Agreement with Apollo.
(12)
<PAGE>
Mr. Africk is not being presented as a nominee for election as a director at the
Annual Meeting, but he will continue to serve as a Class 2 Director following
the Company's Annual Meeting at the discretion of the Preferred Stockholders
pursuant to the terms of the Securities Purchase Agreement with Apollo, as
discussed under the heading "Election of Directors - Certain Relationships and
Related Transactions - Securities Purchase Agreement with Apollo" of this Proxy
Statement.
<TABLE>
<CAPTION>
Name Age Class Director Since
---- --- ----- --------------
<S> <C> <C> <C>
Andrew Africk 33 2 June 4, 1999
</TABLE>
Andrew Africk has served as a director of the Company since June 4, 1999.
Mr. Africk, for more than five years, has been a partner of Apollo Advisors,
L.P. (which, together with its affiliates, acts as the managing general partner
of several private securities investment funds, including Apollo Investment Fund
IV, L.P.) and of Lion Advisors, L.P. (a financial advisor to, and representative
of institutional investors with respect to, securities investments). Mr. Africk
is also a director of Continental Graphics Holdings, Inc. and Building One
Services Corporation.
Board Meetings And Committees
The Board of Directors held six (6) meetings during the year ended December
31, 1998. Each director attended all of the meetings of the Board of Directors.
In addition, one meeting of independent directors was held relating to the
review and approval of the exchange of Common Stock of the Company for
$11,800,000 of the $22,200,000 principal amount, Rare Medium, Inc. Secured
Promissory Note, dated April 15, 1998, pursuant to the Exchange Agreements
between the Company and several former stockholders of Rare Medium, Inc.,
including Glenn Meyers, Chairman of the Board of Directors and President of the
Company, and Steven Winograd, a director of the Company, effective December 31,
1998.
The Board of Directors has an Audit Committee and a Compensation Committee
which meet as the need arises. The Audit Committee and the Compensation
Committee held no meetings in 1998. The Audit Committee met on June 16, 1999
with the Company's auditors to discuss the results of the 1998 audit. The Audit
Committee reviews and makes recommendations with respect to the Company's
internal controls and financial reports and in connection with such reviews and
recommendations, communicates with and receives information independently from
appropriate Company financial personnel regarding the Company's financial
condition. The Audit Committee, with the Company's Chief Financial Officer, also
reviews the scope and results of the annual audit with the Company's auditors
and other activities the auditors perform with the Company. The Audit Committee
is currently composed of Steven Winograd, Richard T. Liebhaber and Andrew
Africk, each of whom is an independent, non-employee director. The Compensation
Committee periodically reviews and evaluates the compensation of the Company's
officers and administers grants of options from the Company's Nonqualified Stock
Option Plan, the Amended and Restated Equity Plan for Directors and the
Company's 1998 Long-Term Incentive Plan. The Compensation Committee is currently
composed of Jeffrey M. Killeen and Andrew Africk.
(13)
<PAGE>
Compensation of Directors
Each non-employee director receives a per meeting fee of $1,000 for each
meeting of the Board of Directors and $500 for each committee meeting attended,
along with expenses incurred in connection with each meeting attended.
Under the Company's 1998 Long-Term Incentive Plan, each new non-employee
director of the Company is automatically granted an option to purchase shares of
Common Stock as of the effective date of the non-employee director's initial
election to the Board of Directors and thereafter at the close of business on
the date of final adjournment of each Annual Meeting of Stockholders. The number
of shares of Common Stock subject to each initial option will be 25,000 shares
and the number of shares subject to each annual option will be 25,000 shares or,
if so determined by the Board of Directors, such other number of shares
specified in the most recent resolution of the Board of Directors adopted on or
prior to the date of the Annual Meeting of Stockholders that coincides with or
most recently precedes the date of grant of the option. In general, the exercise
price per share of Common Stock purchasable upon exercise of a non-employee
director's initial or annual option will be equal to 100% of the fair market
value of a share of Common Stock on the date of grant of the option.
Upon becoming directors of the Company in 1998, each of Steven Winograd and
Jeffrey M. Killeen was granted an option for 75,000 shares of Common Stock on
October 28, 1998 under the Amended and Restated Equity Plan for Directors,
exercisable at $1.9375 per share, the fair market value of the Common Stock on
the date of grant, and Richard T. Liebhaber was granted an option for 75,000
shares on November 2, 1998 under the Amended and Restated Equity Plan for
Directors, exercisable at $2.8125 per share, the fair market value of the Common
Stock on the date of grant, all of which vest ratably over three years. It is
anticipated that future grants of stock options to directors will principally be
made under the Company's 1998 Long-Term Incentive Plan.
Upon becoming directors of the Company on June 4, 1999, each of Andrew
Africk and Marc J. Rowan was granted an option for 75,000 shares of Common Stock
under the 1998 Long-Term Incentive Plan, exercisable at $7.00 per share, both of
which vest ratably over three years.
In connection with the acquisition of Rare Medium, Inc. by the Company's
former Board of Directors in April 1998, and in recognition of such Board of
Directors members' efforts in effecting such acquisition, such Board of
Directors approved an acceleration of vesting of the outstanding stock options
then held by members of the Board of Directors who had determined to resign from
the Board of Directors effective upon consummation of the acquisition of Rare
Medium, Inc. and also approved a repricing of certain of the outstanding stock
options then held by such members of the Board of Directors by resetting the per
share exercise price of such options to equal the fair market value of the
Common Stock following the announcement of the Rare Medium, Inc. transaction,
plus $.25. The table appearing under the heading "Report on Repricing of
Options" appearing in this Proxy Statement contains more specific information
with respect to such stock option repricings.
(14)
<PAGE>
Effective April 16, 1998, Irwin L. Gross, former Chairman of the Board of
Directors, was granted an option to purchase 500,000 shares of Common Stock at a
price of $2.375 per share, exercisable cumulatively in three equal annual
installments with the first installment being exercisable on the first
anniversary of the date of grant. In addition, on such date, Robert O. Aders and
Charles T. Condy, former directors of the Company, were each granted an option
to purchase 25,000 shares of Common Stock at a price of $2.375 per share, all of
which became fully vested and exercisable upon their resignations from the Board
of Directors later in 1998.
Andrew L. Shapiro, a former director of the Company, received approximately
$20,000 in 1998 for services related to a potential acquisition.
Executive Officers
The names of the Company's executive officers, and certain information
about them, is set forth below.
<TABLE>
<CAPTION>
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Glenn S. Meyers 38 President and Chief Executive 1998
Officer
Suresh V. Mathews 45 President and Chief Operating 1999
Officer*
John S. Gross 48 Senior Vice President, Chief 1998
Financial Officer, Treasurer and
Assistant Secretary
Robert C. Lewis 34 Vice President, General Counsel 1998
and Secretary
</TABLE>
- -------------
* Mr. Mathews is the President and Chief Operating Officer of Rare Medium,
Inc., a wholly owned subsidiary of the Company.
Glenn S. Meyers - President and Chief Executive Officer. Please see the
information set forth above under the caption "Class 3 Nominees" above.
Suresh V. Mathews - President and Chief Operating Officer of Rare Medium,
Inc., the Company's wholly owned subsidiary. Prior to joining Rare Medium, Inc.,
Mr. Mathews (45), who has over 22 years of information technology experience,
was Senior Vice President and Chief Information Officer of Quaker State
Corporation. His other recent management positions include Vice President and
General Manager of POS 2000 and Chief Information Officer at KFC, a division of
PepsiCo Inc. as well as the Chief Information Officer of Booz-Allen and
Hamilton, Inc., a leading business consulting firm. In addition, he has served
in various senior technology and management capacities in GTE Corp., Telenet
Corp. and Sprint Corp. Mr. Mathews holds a B.S. in computer science and business
administration from Mankato State University.
(15)
<PAGE>
John S. Gross - Senior Vice President, Chief Financial Officer, Treasurer
and Assistant Secretary. Mr. Gross (48) is responsible for all financial
operations of the Company and its subsidiaries. Mr. Gross previously served as
Vice President/Controller for Reader's Digest (NYSE), as both Controller and
Manager of Strategic Planning at Pepsi USA, a division of PepsiCo (NYSE) and as
Chief Financial Officer for FactSet Research Systems (NYSE), a leading provider
of on-line integrated database services to the financial community. At FactSet,
Mr. Gross served for four years as its first Chief Financial Officer leading up
to their initial public offering. Mr. Gross began his career at Coopers &
Lybrand, is a Certified Public Accountant, has earned a NASD Series 27 and holds
an M.B.A. from New York University.
Robert C. Lewis - Vice President, General Counsel and Secretary. Mr. Lewis
(34) was an associate at the law firm of Fried, Frank, Harris, Shriver &
Jacobson for over five years, where he was involved in complex litigations
involving contracts, real estate, bankruptcy, tort and federal securities law
matters. While at Fried Frank, Mr. Lewis also worked on several public offerings
and mergers. In addition to his legal experience, Mr. Lewis has worked in the
political arena as a congressional campaign manager and aide, and as a political
researcher with ABC News. Mr. Lewis did his undergraduate work at Brown
University and earned his law degree from Brooklyn Law School, where he received
two scholarships and graduated cum laude.
Certain Relationships and Related Transactions
Exchange Agreements.
In connection with the Exchange Agreements effective December 31, 1998,
between the Company and each of Glenn S. Meyers, the President and Chief
Executive Officer and a director of the Company, and Steven Winograd, a director
of the Company, the Company issued 807,259 shares of Common Stock in a private
placement to Mr. Meyers and 24,990 shares of Common Stock to Mr. Winograd in
exchange for their respective beneficial interests in $3,342,053 and $99,678,
respectively, of the original principal amount of the Rare Medium, Inc. Secured
Promissory Note, dated April 15, 1998 (the "Rare Medium Note"), and interest
thereunder accrued and unpaid through December 31, 1998. As a result, Messrs.
Meyers and Winograd no longer hold an interest under the Rare Medium Note.
In connection with an Exchange Agreement effective December 31, 1998,
between the Company and Naomi Bodner/Laura Huberfeld Partnership, a greater than
5% beneficial holder of Common Stock, the Company issued 1,909,647 shares of
Common Stock in a private placement to such holder in exchange for its
beneficial interest in $7,905,937 of the original principal amount of the Rare
Medium Note, dated April 15, 1998, and interest thereunder accrued and unpaid
through December 31, 1998. As a result, the Naomi Bodner/Laura Huberfeld
Partnership no longer holds an interest under the Rare Medium Note.
Securities Purchase Agreement with Apollo.
On June 4, 1999, pursuant to the Securities Purchase Agreement with Apollo,
the Company sold 126,000 shares of Series A Preferred Stock with warrants for
$12,600,000 and
(16)
<PAGE>
744,000 shares of Series B Preferred Stock with warrants for $74,400,000 to
Apollo Investment Fund IV, L.P. and the other Preferred Stockholders. The Series
A Preferred Stock acquired at closing has full voting rights, together with the
common stockholders, equal to approximately 3.4% of the voting power of the
Company's outstanding securities as of June 4, 1999. The Series B Preferred
Stock has no voting rights.
Upon closing, the number of members of the Board of Directors was increased
to six and the Preferred Stockholders, voting as a separate class, obtained the
right to elect one member to the Board of Directors. Such Preferred Stockholders
have elected Andrew Africk to the Board of Directors. Mr. Africk is an affiliate
of Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. and
will continue as a director following the Annual Meeting as a Class 2 director
at the discretion of the Preferred Stockholders in accordance with the terms of
the Securities Purchase Agreement with Apollo. If the Stockholders approve the
conversion of the Series B Securities into Series A Securities as provided in
Proposal II, the Board of Directors will be increased to eight members and the
Preferred Stockholders, voting as a separate class, will have the right to elect
one additional member to the Board of Directors, for a total of two out of eight
members (25% of the number of Board members) to be elected to the Board of
Directors by the Preferred Stockholders. The eighth member of the Board of
Directors will be chosen by the Board of Directors and will serve as a director
for a term which expires at the annual meeting of stockholders at which the term
of office of the class to which he or she has been elected expires. Further, for
so long as Apollo Investment Fund IV, L.P. or any of its affiliates retain at
least 100,000 shares of the Series A Preferred Stock, the Preferred
Stockholders, voting as a separate class, will have the right to maintain their
proportionate representation on the Board of Directors.
At closing, the Board of Directors also determined to elect Marc J. Rowan,
who is an affiliate of Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P., to the Board of Directors, to serve as a director of the
Company subject to election to the Board of Directors by the Stockholders at the
Annual Meeting. The Board of Directors has nominated Mr. Rowan for election as a
Class 1 director by the Stockholders at the Annual Meeting.
Pursuant to the Securities Purchase Agreement with Apollo, Apollo received
a fee in the amount of $870,000. Such amount was paid to Apollo out of the
aggregate purchase price paid by the Preferred Stockholders for the Series A
Securities and Series B Securities.
Steven Winograd, a director of the Company and a Senior Managing Director
at Bear Stearns, invested, indirectly, $250,000 in the securities of the Company
in the transaction consummated with Apollo Investment Fund IV, L.P. and the
other Preferred Stockholders pursuant to the Securities Purchase Agreement with
Apollo.
Agreement with Bear, Stearns & Co. Inc.
Pursuant to an agreement dated April 12, 1999, the Company retained Bear
Stearns as its financial advisor to provide investment banking services,
including advisory services in connection with the investment transaction
consummated pursuant to the Securities Purchase Agreement with Apollo for which
it has received a fee. In addition, as acknowledged
(17)
<PAGE>
by the terms of the agreement with Bear Stearns, an affiliate of Bear Stearns
has invested, indirectly, $10,000,000 in the securities of the Company in the
transaction consummated with Apollo Investment Fund IV, L.P and the other
Preferred Stockholders pursuant to the Securities Purchase Agreement with
Apollo. Steven Winograd, a director of the Company, is a Senior Managing
Director at Bear Stearns.
Employment and Severance Agreements.
For a description of the employment agreements between the Company and
certain executive officers and the severance agreement between the Company and
Irwin L. Gross, the former Chairman and Chief Executive Officer of the Company,
please see the descriptions under the heading "Executive Compensation -
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements."
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater-than-10% stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended December
31, 1998, its officers, directors and greater-than-10% stockholders complied
with all Section 16(a) filing requirements, with the exception of a Form 3 that
was not filed by each of John S. Gross and Robert C. Lewis in 1998. Such forms
were subsequently filed with the SEC.
(18)
<PAGE>
PROPOSAL II
CONVERSION OF PREFERRED STOCK AND WARRANTS
At the Annual Meeting, you are asked to vote in favor of Proposal II to
approve the conversion of 744,000 shares of the Company's Series B Preferred
Stock (plus any additional shares of Series B Preferred Stock issued or issuable
in connection with dividends paid or accrued on such Series B Preferred Stock),
744,000 Series 1-B Warrants (plus any additional Series 1-B Warrants issued or
issuable in connection with dividends paid or accrued on the Series B Preferred
Stock) and 10,345,548 Series 2-B Warrants that have been issued to the Preferred
Stockholders into an equal number of shares or warrants, as the case may be, of
the Company's Series A Preferred Stock, Series 1-A Warrants and Series 2-A
Warrants, respectively, that, at issuance date, and assuming conversion (along
with the Series A Securities previously issued to the Preferred Stockholders),
represented approximately 22.1% of the voting power of the Company's outstanding
securities, after giving effect to such conversion, and were convertible into,
or exercisable for, approximately 39.5% of the outstanding Common Stock,
computed on a fully diluted basis using the treasury stock method after giving
effect to such conversion and the subsequent full conversion and exercise of all
such Series A Securities into or for Common Stock, and (ii) the exercise into
Common Stock of all other currently outstanding exercisable stock options and
warrants of the Company. The treasury stock method is the method used to
calculate the number of shares of common stock that can be purchased on the open
market with the proceeds from the exercise of options, warrants and other
instruments exercisable or convertible for or into common stock in determining
the number of outstanding shares of common stock on a fully diluted basis. As
described below, the Preferred Stockholders are not entitled to vote on this
Proposal II.
As an issuer of securities quoted on the Nasdaq National Market, the
Company must comply with certain rules of the NASD for continued listing on the
Nasdaq National Market. Under Nasdaq Marketplace Rule 4460(i), the Company must
obtain stockholder approval prior to the issuance of common stock, or securities
convertible into or exercisable for common stock, (i) equal to or in excess of
20% of the voting power outstanding prior to such issuance, or (ii) equal to or
in excess of 20% of the number of shares of common stock outstanding prior to
such issuance. Of the Series A Securities and Series B Securities purchased by
the Preferred Stockholders, only the Series A Preferred Stock has voting rights.
If this Proposal II is approved by the Stockholders, and the Series B Securities
are converted into Series A Securities, the Preferred Stockholders will own (i)
Series A Preferred Stock entitled to 9,750,000 votes, representing approximately
22.1% of the voting power of the Company's outstanding securities as of June 4,
1999, after giving effect to such conversion, such number of votes being the
maximum to which the holders of Series A Preferred Stock are entitled, as
described below, and (ii) Series A Securities, which, as of the issuance date of
June 4, 1999, were convertible into or exercisable for 36,436,113 shares of
Common Stock representing approximately 39.5% of the Company's outstanding
Common Stock on such date, computed on a fully diluted basis using the treasury
stock method after giving effect to such conversion and the subsequent full
conversion and exercise of all such Series A Securities into or for Common
Stock, plus any additional shares of Common Stock which may be acquired upon the
conversion or exercise of additional Series A Securities and Series B Securities
issued or issuable in
(19)
<PAGE>
connection with dividends paid or accrued on the Series A Preferred Stock and
Series B Preferred Stock.
Background
In order to finance the planned growth of its Internet solutions business
and to assist the Company in its plan to become a leading incubator of emerging
Internet companies, the Company had sought additional financing. The transaction
with Apollo Investment Fund IV, L.P. and the other Preferred Stockholders
presented the Company with two advantages over the Company's other financing
alternatives. First, the transaction was a single, large financing, resulting in
$87,000,000 of gross proceeds. The Company believes that this cash on the
Company's balance sheet provides the financial strength and credibility which
the Company needs to aggressively pursue its business plan. The Company believes
that clients and business partners consider capital strength and liquidity to be
important success factors in determining whether to select the Company as a
partner or vendor. Second, this transaction allows the Company to gain access to
the strategic relationships of Apollo. Due to its substantial investment in the
Company, Apollo has a strong economic incentive to help the Company build
stockholder value through introductions to companies and individuals who are
potential business partners for the Company. The Company believes that Apollo is
well positioned to contribute to the rapid growth of its Internet solutions
business and to help the Company become a leading incubator of emerging Internet
companies.
Preferred Stockholders
On June 4, 1999, Apollo Investment Fund IV, L.P., Apollo Overseas Partners
IV, L.P. and AIF IV/RRRR LLC (the "LLC"), collectively, purchased 126,000 shares
of Series A Preferred Stock, 126,000 Series 1-A Warrants, 1,916,994 Series 2-A
Warrants, 744,000 shares of Series B Preferred Stock, 744,000 Series 1-B
Warrants and 10,345,548 Series 2-B Warrants, for an aggregate purchase price of
$87,000,000.
Apollo is a private investment firm that specializes in equity investments
in companies that focus on growth, recapitalizations and other principal
investing activities. Since its inception in 1990, Apollo has overseen the
investment of more than $10 billion. Apollo's four corporate private equity
funds have, to date, held interests in more than 80 companies.
The LLC is a special purpose vehicle formed for the purpose of investing in
the Series A Securities and Series B Securities. Bear Stearns is a member of the
LLC and has also acted as financial advisor to the Company in connection with
the sale by the Company of the Series A Securities and Series B Securities to
the LLC and the other Preferred Stockholders. Steven Winograd, a director of the
Company and a Senior Managing Director at Bear Stearns, is also a member of the
LLC.
Certain Risks Associated With Failure To Approve The Conversion
In deciding whether to approve this Proposal II, the Stockholders should
consider the following risks, in addition to the other matters set forth herein.
If the Stockholders do not
(20)
<PAGE>
approve this Proposal II, there are certain negative consequences to the Company
and the holders of the Common Stock further described herein, including, without
limitation:
(i) the Preferred Stockholders may elect to have all of the Series B
Preferred Stock redeemed by the Company for the full purchase price of
$74,400,000 (plus accrued dividends), plus a premium of approximately
$7,600,000; there can be no assurance that the Company would have sufficient
funds available to it necessary to pay such premium and, consequently, the
Company may be required to obtain such funds through alternative financing
sources;
(ii) in addition to the obligations of the Company to redeem the
Series B Preferred Stock set forth in clause (i) above, all of the Series 1-A
Warrants, Series 2-A Warrants, Series 1-B Warrants and Series 2-B Warrants would
remain outstanding and would have their respective exercise prices per share of
Common Stock or Non-Voting Common Stock, as the case may be, decreased to $0.01;
(iii) an increase in the annual dividend rate of the Series B
Preferred Stock, to the extent outstanding, from 7.50% to 12.50%, resulting in
an increase in the amount of dividends on the Series B Preferred Stock equal to
at least $3,720,000 annually;
(iv) unlike the Series A Preferred Stock, the Company does not have
the option to redeem the Series B Preferred Stock;
(v) in the event the Stockholders do not approve this Proposal II and
Proposal III prior to the Outside Date, and on or after the Outside Date any
holder of Series B Preferred Stock, Series 1-B Warrants or Series 2-B Warrants
elects to convert such shares into, or exercise such warrants for, Non-Voting
Common Stock, then the Company will be unable to issue Non-Voting Common Stock
at the time of such election and will be required to use its reasonable efforts
to deliver to such holder, upon the surrender of such holder's Series B
Securities, securities, cash or other property that would provide such holder
with the economic equivalent of a conversion of the Series B Preferred Stock
into, and an exercise of the Series 1-B Warrants and Series 2-B Warrants for,
and an immediate sale of, Non-Voting Common Stock; and
(vi) in addition, if the Preferred Stockholders elect to have all of
their Series B Preferred Stock redeemed as described above, then the Company
will have limited funds available with which to continue to finance its
operation and will be forced to seek additional and alternative financing. There
can be no assurance that any such additional or alternative financing will be
available or that, if available, such additional or alternative financing could
be obtained with terms and conditions that are as favorable to the Company as
the Series A Securities and Series B Securities. Further, such occurrence
may result in the delisting of the Company's Common Stock from the Nasdaq
National Market. See the discussion above under the heading "The Annual
Meeting -- Nasdaq National Market Listing."
(21)
<PAGE>
The Transaction
On June 4, 1999, pursuant to the terms of the Securities Purchase Agreement
with Apollo, the Company issued and sold, and the Preferred Stockholders
purchased, (i) 126,000 shares of the Company's Series A Preferred Stock, each
such share issued with one Series 1-A Warrant entitling the holder thereof to
purchase from the Company 13.5 shares of Common Stock, (ii) 744,000 shares of
the Company's Series B Preferred Stock, each such share issued with one Series
1-B Warrant entitling the holder thereof to purchase from the Company 13.5
shares of Non-Voting Common Stock, and (iii) 1,916,994 Series 2-A Warrants and
10,345,548 Series 2-B Warrants, each of which entitles the holder thereof to
purchase from the Company one share of Common Stock and one share of Non-Voting
Common Stock, respectively.
As described below, the Preferred Stockholders have paid an aggregate of
$87,000,000 for the Series A Securities and Series B Securities. Pursuant to the
terms of the Securities Purchase Agreement with Apollo, the Company deposited
$74,400,000 of the purchase price into an escrow account to secure the Company's
obligation to redeem the Series B Preferred Stock in the event the Stockholders
fail to approve this Proposal II, as described below.
Before Conversion of Series B Securities into Series A Securities.
The following table sets forth, as of June 4, 1999, (i) the number and type
of outstanding Series A Securities and Series B Securities held by the Preferred
Stockholders, (ii) the aggregate voting power associated with the Series A
Preferred Stock and (iii) the aggregate number of underlying shares of Common
Stock and Non-Voting Common Stock associated with the Series A Securities and
Series B Securities, respectively:
<TABLE>
<CAPTION>
Shares of
Fully Diluted
Common Stock
Number of Shares as a
Number Number Percentage of Number of Shares of Non-Voting Percentage of
Outstanding of Votes(1) Outstanding(2) Common Stock(3) Common Stock(4) Outstanding(5)
----------- ----------- -------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Series A Preferred Stock 126,000 1,575,000(6) 3.4% 1,800,000 N/A 3.7%
Series 1-A Warrants 126,000 N/A 0% 1,701,000 N/A 3.5%
Series 2-A Warrants 1,916,994 N/A 0% 1,916,994 N/A 1.6%
Series B Preferred Stock 744,000 N/A 0% N/A 10,628,571 N/A
Series 1-B Warrants 744,000 N/A 0% N/A 10,044,000 N/A
Series 2-B Warrants 10,345,548 N/A 0% N/A 10,345,548 N/A
-------------- ----- ----------- ---------- -----
Total: 1,575,000(6) 3.4% 5,417,994 31,018,119 8.8%
</TABLE>
(1) Only the Series A Preferred Stock has voting rights.
(2) Number of votes attributable to the Series A Preferred Stock, expressed as
a percentage of the total voting power of all the Company's securities as
of June 4, 1999.
(3) Number of shares of Common Stock which may be obtained upon the full
conversion and exercise of all Series A Securities for or into Common
Stock.
(4) Number of shares of Non-Voting Common Stock which may be obtained upon the
full conversion and exercise of all Series B Securities for or into
Non-Voting Common Stock.
(5) Number of shares of Common Stock underlying the respective Series A
Securities, computed on a fully diluted basis in accordance with the
treasury stock method, expressed as a percentage of the total number of
shares of Common Stock outstanding as of June 4, 1999, plus the conversion
and exercise of all Series A Securities into or for Common Stock, both on a
fully diluted basis and in accordance with the treasury stock method.
(22)
<PAGE>
(6) Reflects the total voting power of the Series A Preferred Stock upon
issuance on June 4, 1999, which does not include the voting power of any
additional shares of Series A Preferred Stock issuable in satisfaction of
dividends on such preferred stock prior to obtaining Stockholder approval
of Proposal II.
After Conversion of Series B Securities into Series A Securities.
The following table sets forth, as of June 4, 1999, (i) the number and type
of Series A Securities held by the Preferred Stockholders, (ii) the aggregate
voting power associated with the Series A Preferred Stock and (ii) the aggregate
number of underlying shares of Common Stock associated with the Series A
Securities, in the event the Stockholders approve this Proposal II (including
the Series A Securities previously issued to the Preferred Stockholders):
<TABLE>
<CAPTION>
Shares of Fuly
Diluted Common
Stock as a
Number Number Percentage of Number of Shares Percentage of
Outstanding of Votes(1) Outstanding(2) Common Stock(3) Outstanding(4)
----------- ----------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock 870,000(5) 9,750,000(6) 22.1% 12,428,571 16.8%
Series 1-A Warrants 870,000(5) N/A 0% 11,745,000 15.9%
Series 2-A Warrants 12,262,542 N/A 0% 12,262,542 6.9%
------------- ---- ---------- ----
Total: 9,750,000(6) 22.1% 36,436,113 39.5%
</TABLE>
(1) Number of votes attributable to the Series A Securities upon the conversion
of the Series B Securities into Series A Securities, but prior to the
conversion or exercise of such Series A Securities into or for Common
Stock; of the Series A Securities, only the Series A Preferred Stock has
voting rights.
(2) Number of votes attributable to the Series A Securities, expressed as a
percentage of the total voting power of all the Company's securities as of
June 4, 1999, after giving effect to the conversion of the Series B
Securities into Series A Securities, which does not include any additional
shares of Series A Preferred Stock or Series B Preferred Stock, or Series
1-A Warrants or Series 1-B Warrants, respectively, attached thereto, issued
or issuable as dividends on such preferred stock.
(3) Reflects the number of shares of Common Stock which may be obtained upon
the full conversion or exercise of all Series A Securities into or for
Common Stock, after giving effect to the conversion of the Series B
Securities acquired on June 4, 1999 into Series A Securities.
(4) Number of shares of Common Stock underlying the respective Series A
Securities, computed on a fully diluted basis in accordance with the
treasury stock method, expressed as a percentage of the total number of
shares of Common Stock outstanding after giving effect to the conversion of
the Series B Securities into Series A Securities and the subsequent full
conversion or exercise of such Series A Securities into or for Common
Stock, both on a fully diluted basis and in accordance with the treasury
stock method.
(5) The number of shares of Series A Preferred Stock and the number of Series
1-A Warrants outstanding does not include any additional shares of Series A
Preferred Stock or Series B Preferred Stock, or Series 1-A Warrants or
Series 1-B Warrants, respectively, attached thereto, issued or issuable as
dividends on such preferred stock.
(6) Pursuant to the Series A Certificate of Designation, the total voting power
of the Series A Preferred Stock may not exceed the voting power of
9,750,000 shares of Common Stock in the event the Stockholders approve this
Proposal II.
(23)
<PAGE>
Unaudited Pro Forma Financial Data - Approval of the Conversion of Series B
Securities into Series A Securities
The following pro forma financial data reflect the stockholder approval of
the Conversion of Series B Securities into Series A Securities and is based on
the historical financial statements of the Company for the year ended December
31, 1998 and as of and for the three-month period ended March 31, 1999. The
income statement data for the year ended December 31, 1998 and the three month
period ended March 31, 1999 have been prepared as if the issuance of the Series
A Securities and the Series B Securities and the conversion of the Series B
Securities into Series A Securities had occurred on January 1, 1998. The balance
sheet data have been prepared as if the issuance of the Series A Securities and
the Series B Securities, the conversion of the Series B Securities into Series A
Securities, and the issuance of and the conversion of the Company's 8%
Convertible Debentures and Stock Purchase Warrants had occurred on March 31,
1999. The pro forma financial data has been accounted for in accordance with
FASB Emerging Issues Task Force (EITF) 98-5 regarding "Accounting for
Convertible Securities with Beneficial Conversion Features." The pro forma
financial data does not purport to represent what the Company's financial
condition or results of operations actually would have been for the date or
periods presented had the transactions occurred on the dates indicated or to
indicate the financial results of future periods. The pro forma financial data
does not reflect the conversion or exercise of any Series A Securities before or
after the conversion of the Series B Securities into Series A Securities. The
pro forma financial data should be read in conjunction with the historical
financial statements of the Company incorporated herein by reference.
<TABLE>
<CAPTION>
Income Statement Data ($000s) Year ended December 31, 1998
- ------------------------------------------- -----------------------------------------------------------------------
Historical Adjustments Proforma
-------------- ------------------------------ -------------
<S> <C> <C> <C>
Net Loss (619) (619)
Cumulative dividends and accretion of - (a) (15,505) (39,405)
preferred stock (b) (23,900)
Net loss applicable to common stockholders (619) (a)(b)(39,405) (40,024)
Net loss per share: basic and diluted (0.02) (1.58)
Weighted average number of shares 25,282 25,282
outstanding
<CAPTION>
Three months ended March 31, 1999
-----------------------------------------------------------------------
Historical Adjustments Proforma
-------------- ------------------------------ -------------
<S> <C> <C> <C>
Net Loss (6,851) (6,851)
Cumulative dividends and accretion of - (a)(3,876) (3,876)
preferred stock
Net loss applicable to common stockholders (6,851) (a)(3,876) (10,727)
Net loss per share: basic and diluted (0.22) (0.32)
Weighted average number of shares 31,747 (c) 1,588 33,335
outstanding
</TABLE>
(24)
<PAGE>
- ----------------------
(a) Includes the following effects on the Company's results of operations of
the issuance of 126,000 shares of Series A Securities and 744,000 shares of
Series B Securities and the conversion of the Series B Securities into
Series A Securities, as if such issuance and conversion had occurred on
January 1, 1998.
(i) The recognition of dividends of $11.2 million and $2.8 million
related to 870,000 shares of Series A Securities, for the year ended
December 31, 1998 and March 31, 1999, respectively. The amounts
reflect payment of a 7.5% dividend in preferred shares, adjusted to
reflect the current market price of the common shares in excess of the
conversion price.
(ii) The recognition of $4.3 million and $1.1 million representing the
accretion of the beneficial conversion feature, for the year ended
December 31, 1998 and March 31, 1999, respectively.
(b) The recognition of a one-time deemed dividend of $23.9 million related to
the initial beneficial conversion feature of the Series A and Series B
Securities, representing the difference between the conversion price of $7
and the current market price.
(c) The 1,588,000 shares represent the common shares issued upon conversion of
the 8% Convertible Debentures, which was effected contemporaneously with
the issuance of the Series A and Series B Securities.
<TABLE>
<CAPTION>
Balance Sheet Data ($000s) As of March 31, 1999
- ------------------------------------------- -----------------------------------------------------------------------
Historical Adjustments Proforma
--------------- ---------------------------------- --------------
Issuance of Conversion of B
securities to A
---------------- -----------------
<S> <C> <C> <C> <C>
Cash 3,603 (a)85,500 89,103
Total assets 46,373 (b)85,500 131,873
Convertible Debentures 1,718 (e)(1,718) -
Series "A" Securities - (c) 5,000 (d) 26,500 31,500
Series "B" Securities - (c)26,500 (d)(26,500) -
Stockholder's Equity 28,443 (c)55,718 84,161
</TABLE>
- ----------------------
(a) Reflects the increase in cash as a result of $87 million of proceeds from
the issuance of the Series A Securities and the Series B Securities,
partially offset by approximately $4 million in costs associated with the
issuance of the securities, and the issuance of $2.5 million of 8%
Convertible Debentures.
(b) Reflects an increase in total assets as a result of the net increase in net
cash described in note (a).
(c) Reflects the increase as a result of the issuance the Series A Securities
and the Series B Securities, partially offset by approximately $4 million
in costs associated with the issuance of the securities and the increase as
a result of the automatic conversion of the 8% Convertible Debentures.
(d) Reflects the conversion of $74.4 million Series B Securities into the
Series A Securities.
(e) Reflects the conversion of $1.7 million 8% Convertible Debentures.
(25)
<PAGE>
Unaudited Pro Forma Financial Data - Non-Approval of the Conversion of Series B
Securities into Series A Securities
The following pro forma financial data reflect the stockholder nonapproval
of the Conversion of Series B Securities into Series A Securities and is based
on the historical financial statements of the Company for the year ended
December 31, 1998 and as of and for the three-month period ended March 31, 1999.
The income statement data for the year ended December 31, 1998 and the
three-month period ended March 31, 1999 have been prepared as if the issuance of
the Series A Securities had occurred on January 1, 1998. The income statement
data for the three-month period ended March 31, 1999 also includes the costs
associated with the redemption of all of the Company's Series B Securities at
110% of the face value at the time of redemption and accrued dividends on the
Series B Securities as if this transaction occurred on March 31, 1999. The
balance sheet data have been prepared as if the issuance of the Series A
Securities, the redemption of all of the Company's Series B Securities at 110%
of the face value, including accrued dividends, accrued dividends on the Series
B Securities and the issuance of and the conversion of the Company's 8%
Convertible Debentures and Stock Purchase Warrants had occurred on March 31,
1999. The pro forma financial data has been accounted for in accordance with
FASB Emerging Issues Task Force (EITF) 98-5 regarding "Accounting for
Convertible Securities with Beneficial Conversion Features." The pro forma
financial data does not purport to represent what the Company's financial
condition or results of operations actually would have been for the date or
periods presented had the transactions occurred on the dates indicated or to
indicate the financial results of future periods. The pro forma financial data
does not reflect the conversion or exercise of any Series A Securities or the
exercise of any Series 1-B Warrants or Series 2-B Warrants. The pro forma
financial data should be read in conjunction with the historical financial
statements of the Company incorporated herein by reference.
<TABLE>
<CAPTION>
Income Statement Data ($000s) Year ended December 31, 1998
- ------------------------------------------- -----------------------------------------------------------------------
Historical Adjustments Proforma
-------------- ------------------------------ -------------
<S> <C> <C> <C>
Net Loss (619) (619)
Cumulative dividends and accretion of - (a)(2,205) (7,205)
preferred stock (b)(5,000)
Net loss applicable to common stockholders (619) (a)(b)(7,205) (7,824)
Net loss per share: basic and diluted (0.02) (0.31)
Weighted average number of shares 25,282 25,282
outstanding
Three months ended March 31, 1999
<CAPTION>
-----------------------------------------------------------------------
Historical Adjustments Proforma
-------------- ------------------------------- ------------
Issuance of Redemption of B
Securities
-------------- ----------------
<S> <C> <C> <C>
Net Loss (6,851) (6,851)
Cumulative dividends and accretion of
preferred stock - (a)(c)(1,951) (1,951)
Redemption Premium - (c)(7,600) (7,600)
Net loss applicable to common stockholders (6,851) (a)(c)(1,951) (c)(7,600) (16,402)
Net loss per share: basic and diluted (0.22) (0.49)
Weighted average number of shares 31,747 (d)1,588 33,335
outstanding
</TABLE>
(26)
<PAGE>
- --------------------
(a) Includes the following effects on the Company's results of operations of
the issuance of 126,000 shares of Series A Securities as if the issuance
had occurred on January 1, 1998.
(i) The recognition of dividends of $1.6 million and $0.4 million
related to 126,000 shares of Series A Securities, for the year ended
December 31, 1998 and March 31, 1999, respectively. The amounts
reflect payment of a 7.50% dividend in preferred shares, adjusted to
reflect the current market price of the common shares in excess of the
conversion price.
(ii) The recognition of $0.6 million and $0.4 million representing the
accretion of the beneficial conversion feature, for the year ended
December 31, 1998 and March 31, 1999, respectively.
(b) The recognition of a one-time deemed dividend of $5.0 million related to
the initial beneficial conversion feature of the Series A Securities,
representing the difference between the conversion price of $7 and the
current market price.
(c) Includes the effects on the Company's results of operations relating to the
costs of the redemption of all of the Company's Series B Securities at the
time of redemption, of $7.6 million and accrued dividends of $1.4 million
for the period from issuance to redemption, as if the redemption had
occurred on March 31, 1999.
(d) The 1,588,000 shares represent the common shares issued upon conversion of
the 8% Convertible Debentures, which was effected contemporaneously with
the issuance of the Series A and Series B Securities.
<TABLE>
<CAPTION>
Balance Sheet Data ($000s) As of March 31, 1999
- ------------------------------------------- -------------------------------------------------------------------------
Historical Adjustments Proforma
--------------- -------------------------------------- ------------
Issuance of Redemption of B
securities
------------------ -------------------
<S> <C> <C> <C> <C>
Cash 3,603 (a)85,500 (b)(81,840) 7,263
Total assets 46,373 (a)85,500 (b)(81,840) 50,033
Convertible Debentures 1,718 (f)(1,718) -
Series "A" Securities - (d) 5,000 5,000
Series "B" Securities - (d)26,500 (e)(26,500) -
Stockholder's Equity 28,443 (d)(e)(f)55,718 (d)(e)(f)(55,340) 28,821
</TABLE>
(a) Reflects the increase in cash as a result of $87 million of proceeds from
the issuance of the Series A Securities and the Series B Securities,
partially offset by approximately $4 million in costs associated with the
issuance of the securities, and the issuance of $2.5 million of 8%
Convertible Debentures.
(b) Reflects a decrease in cash as a result of the redemption of the Series B
Securities and associated costs and dividends.
(c) Reflects an increase in total assets as a result of the net increase in net
cash described in notes (a) and (b).
(d) Reflects the increase as a result of the issuance of the Series A
Securities and the Series B Securities, partially offset by approximately
$4 million in costs associated with the issuance of the securities and the
increase as a result of the automatic conversion of the 8% Convertible
Debentures.
(e) Reflects the effects on the Company's balance sheet as a result of the
redemption of the Series B Securities and associated costs and dividends.
(f) Reflects the conversion of $1.7 million 8% Convertible Debentures, which
was effected contemporaneously with the issuance of the Series A and the
Series B Securities.
(27)
<PAGE>
Terms Of The Series A Preferred Stock
A copy of the Certificate of Designation establishing the Series A
Preferred Stock (the "Series A Certificate of Designation"), as filed with the
Secretary of State of Delaware, is included in this Proxy Statement as Appendix
A. The following summary of the provisions of the Series A Preferred Stock is
qualified in its entirety by, and should be read in conjunction with, the Series
A Certificate of Designation.
The Series A Certificate of Designation authorizes 2,000,000 shares of
Series A Preferred Stock, par value $.01 per share, and fixes a purchase price
of $100 per share. The Series A Preferred Stock will rank senior (with respect
to dividends and liquidation payments) to any future preferred stock of the
Company.
Conversion Rights.
Each share of Series A Preferred Stock is convertible into a number of
shares of Common Stock determined by dividing (i) the $100 liquidation
preference of the Series A Preferred Stock, plus the amount of any accrued but
unpaid dividends as of the date the holder of the Series A Preferred Stock
elects to convert, by (ii) the conversion price of $7.00. Currently, the 126,000
shares of Series A Preferred Stock held by the Preferred Stockholders are
convertible into 1,800,000 shares of Common Stock.
The price per share of Common Stock into which the Series A Preferred Stock
is convertible is subject to adjustment pursuant to the following anti-dilution
provisions contained in the Series A Certificate of Designation: (i) below
market issuances and above market repurchases of Common Stock by the Company;
(ii) the issuance of Common Stock as a dividend or distribution on the Common
Stock; (iii) a subdivision, split or combination of the Common Stock; or (iv) a
capital reorganization of the Company, a reclassification of the capital stock
of the Company or a consolidation or merger of the Company with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock).
Dividends and Liquidation Preference.
The Company will pay a preferred cumulative dividend in the amount of 7.50%
per annum on the Series A Preferred Stock for the first three years, and 4.65%
thereafter. For the first three years, dividends on the Series A Preferred Stock
are payable in additional shares of Series A Preferred Stock ("Additional A
Shares"). During the next two years, dividends will be paid in Additional A
Shares or, at the option of the Company or the holders of a majority of the then
outstanding shares of Series A Preferred Stock, in cash. Dividends paid
thereafter will be paid in cash. The dividends will be paid quarterly on March
31, June 30, September 30 and December 31 of each year commencing June 30, 1999.
Any Additional A Shares will be valued at $100 each for purposes of determining
the number of Additional A Shares to be issued in satisfaction of cumulative
accrued dividends, and each such Additional A Share will be issued
(28)
<PAGE>
with one Series 1-A Warrant to purchase 13.5 shares of Common Stock at the same
exercise price as the Series 1-A Warrants originally issued to the Preferred
Stockholders, as described below. No dividends may be paid or declared or set
aside for payment or other distribution upon the Common Stock until full
cumulative dividends on the shares of Series A Preferred Stock have been paid in
full.
The Series A Preferred Stock, and the other Series A Securities, as
described below, is also entitled to share in any dividends the Company may
declare on its Common Stock. In the event the Company declares a dividend on its
Common Stock, the holders of the Series A Preferred Stock will be entitled to
receive an amount equal to the amount of the dividends such holder would have
received had the Series A Preferred Stock been converted into Common Stock as of
the date immediately prior to the record date of such Common Stock dividend.
Each share of Series A Preferred Stock has a liquidation preference in the
amount of $100, plus any accrued and unpaid dividends. In the event of a
liquidation of the Company, no distribution may be made to the holders of Common
Stock until the holders of the Series A Preferred Stock have received such
liquidation preference.
Redemption.
The Series A Preferred Stock is subject to mandatory and optional
redemption. On June 30, 2012, the Company will be required to redeem all shares
of Series A Preferred Stock then outstanding, including any Additional A Shares
then issuable, at a redemption price per share equal to the $100 liquidation
preference for the Series A Preferred Stock, plus the amount of any accrued and
unpaid dividends as of such date.
At the option of the Company, at any time after (i) June 30, 2004 or (ii)
June 30, 2002 if the closing price of the Common Stock quoted on the Nasdaq
National Market (or the primary national securities exchange on which the Common
Stock is then listed) on each of the preceding 30 trading days is greater than
$12 per share, the Company may redeem all of the then outstanding shares of
Series A Preferred Stock, including any Additional A Shares then issuable, at a
redemption price per share equal to 103% of the $100 liquidation preference for
the Series A Preferred Stock, plus the amount of any accrued and unpaid
dividends as of such date.
At the option of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, the Company is required to redeem all or any number
of such holders' shares of Series A Preferred Stock in the event of a "change of
control" at a redemption price per share equal to the $100 liquidation
preference for the Series A Preferred Stock, plus the amount of any accrued and
unpaid dividends as of such date.
The Series A Certificate of Designation provides that the occurrence of any
of the following events constitutes a "change of control:" (i) the acquisition
by a party other than Apollo Management, L.P., any of its affiliates or any of
the Preferred Stockholders of more than 50% of the then outstanding Common Stock
or the combined voting power of the Company's voting securities, with certain
exceptions; (ii) a majority of the individuals who, as of June 4, 1999,
constituted those members of the Board of Directors not elected by the holders
of the
(29)
<PAGE>
Series A Preferred Stock cease to serve on the Board of Directors, with certain
exceptions; or (iii) the approval by the Stockholders of certain fundamental
corporate transactions pursuant to which control and ownership of the Company is
changed.
Voting Rights.
The holders of the Series A Preferred Stock are entitled to vote on all
matters presented to the holders of the Common Stock. Each share of Series A
Preferred Stock entitles the holder thereof to cast 0.875 votes for each share
of underlying Common Stock into which the Series A Preferred Stock is then
convertible, or, 12.5 votes per share of Series A Preferred Stock for an
aggregate of 1,575,000 votes associated with the 126,000 shares of Series A
Preferred Stock issued on June 4, 1999, representing approximately 3.4% of the
voting power of the Company's outstanding securities, which does not include any
additional shares of Series A Preferred Stock issuable in satisfaction of
dividends on such outstanding shares of Series A Preferred Stock; provided,
however, that, pursuant to the Series A Certificate of Designation, the total
voting power of the Series A Preferred Stock may not exceed the voting power of
2,120,000 shares of Common Stock prior to the obtaining of Stockholder approval
of this Proposal II, and may not exceed the voting power of 9,750,000 shares of
Common Stock in the event such approval is obtained. The Series A Certificate of
Designation provides that the holders of the Series A Preferred Stock are not
entitled to vote on this Proposal II. See the table above under "The Transaction
- - After Conversion of Series B Securities into Series A Securities" for a
presentation of the effect of Stockholder approval of this Proposal II.
In addition, so long as any shares of Series A Preferred Stock are
outstanding, the Company may not amend, alter or repeal, in any manner
whatsoever, its Certificate of Incorporation or By-Laws or any provision of the
Series A Certificate of Designation in a manner that would adversely affect the
voting power of the Series A Preferred Stock or any other rights or privileges
of the holders thereof, without the consent of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock.
Preemptive Rights.
The holders of shares of Series A Preferred Stock have the right to
purchase their pro rata portions of any future private placements by the Company
of equity or equity-linked securities, other than (i) securities issued pursuant
to the exercise of options or warrants outstanding as of June 4, 1999, options
awarded to employees or directors of the Company after June 4, 1999 pursuant to
currently existing employee incentive plans, and options issued after June 4,
1999 under new employee incentive plans approved by the Board of Directors and
by Apollo Investment Fund IV, L.P. or any of its affiliates; and (ii) securities
issued as consideration in acquisitions by the Company.
Terms Of The Series B Preferred Stock
A copy of the Certificate of Designation establishing the Series B
Preferred Stock (the "Series B Certificate of Designation"), as filed with the
Secretary of State of Delaware, is included in this Proxy Statement as Appendix
B. The following summary of the provisions of
(30)
<PAGE>
the Series B Preferred Stock is qualified in its entirety by, and should be read
in conjunction with, the Series B Certificate of Designation.
The Series B Certificate of Designation authorizes 1,500,000 shares of
Series B Preferred Stock, par value $.01 per share, and fixes a purchase price
of $100 per share. The Series B Preferred Stock will rank senior (with respect
to dividends and liquidation payments) to any future preferred stock of the
Company. The Series B Preferred Stock is substantially similar to the Series A
Preferred Stock. The principal differences are that the Series B Preferred Stock
is convertible into Non-Voting Common Stock rather than Common Stock, the Series
B Preferred Stock is not entitled to vote and is not redeemable at the option of
the Company.
Conversion Rights.
Upon Stockholder approval of Proposal II prior to the Outside Date, each of
the 744,000 shares of Series B Preferred Stock (plus any additional shares of
Series B Preferred Stock issued or issuable in connection with dividends paid or
accrued on such Series B Preferred Stock), 744,000 Series 1-B Warrants (plus any
additional Series 1-B Warrants issued or issuable in connection with dividends
paid or accrued on the Series B Preferred Stock) and 10,345,548 Series 2-B
Warrants will automatically convert into one fully-paid and non-assessable share
of Series A Preferred Stock, one Series 1-A Warrant and one Series 2-A Warrant,
respectively, without any further action on the part of the Company or the
holders thereof.
Each share of Series B Preferred Stock is currently convertible into a
number of shares of Non-Voting Common Stock of the Company determined by
dividing (i) the $100 liquidation preference of the Series B Preferred Stock,
plus the amount of any accrued but unpaid dividends as of the date the holder of
the Series B Preferred Stock elects to convert, by (ii) the conversion price of
$7.00. Currently, the 744,000 shares of Series B Preferred Stock issued to the
Preferred Stockholders are convertible into 10,628,571 shares of Non-Voting
Common Stock.
The price per share of Non-Voting Common Stock into which the Series B
Preferred Stock is convertible is subject to adjustment pursuant to the
anti-dilution provisions contained in the Series B Certificate of Designation.
Such anti-dilution provisions are the same as those provided for in the Series A
Certificate of Designation, as described above.
In the event the Stockholders do not approve this Proposal II and Proposal
III prior to the Outside Date, and on or after the Outside Date any holder of
Series B Preferred Stock elects to convert such shares into Non-Voting Common
Stock, then the Company will be unable to issue Non-Voting Common Stock at the
time of such election and will be required to use its reasonable efforts to
deliver to such holder, upon the surrender of such holder's Series B Preferred
Stock, securities, cash or other property that would provide such holder with
the economic equivalent of a conversion of the Series B Preferred Stock into,
and an immediate sale of, Non-Voting Common Stock.
(31)
<PAGE>
Dividends and Liquidation Preference.
The Company will pay a preferred cumulative dividend in the amount of 7.50%
per annum on the Series B Preferred Stock for the first three years, and 4.65%
thereafter; provided, that, if the Stockholders do not approve this Proposal II
prior to the Outside Date, then, commencing on the Outside Date, the per annum
dividend rate will increase to 12.50% until the Stockholders approve the
conversion. For the first three years, dividends on the Series B Preferred Stock
are payable in additional shares of Series B Preferred Stock ("Additional B
Shares"). During the next two years, dividends will be paid in Additional B
Shares or, at the option of the Company or the holders of a majority of the then
outstanding shares of Series B Preferred Stock, in cash. Dividends paid
thereafter will be paid in cash. The dividends will be paid quarterly on March
31, June 30, September 30 and December 31 of each year commencing June 30, 1999.
Any Additional B Shares will be valued at $100 each for purposes of determining
the number of Additional B Shares to be issued in satisfaction of cumulative
accrued dividends, and each such Additional B Share will be issued with one
Series 1-B Warrant to purchase 13.5 shares of Non-Voting Common Stock at the
same exercise price as the Series 1-B Warrants originally issued to the
Preferred Stockholders, as described above. No dividends may be paid or declared
or set aside for payment or other distribution upon the Common Stock or the
Non-Voting Common Stock until full cumulative dividends on the shares of Series
B Preferred Stock have been paid in full.
The Series B Preferred Stock, and the other Series B Securities, as
described below, is also entitled to share in any dividends the Company may
declare on its Common Stock. In the event the Company declares a dividend on its
Common Stock, the holders of the Series B Preferred Stock, will be entitled to
receive an amount equal to the amount of the dividends such holder would have
received had the Series B Preferred Stock been converted into Common Stock (on
the basis of one share of Common Stock for each share of Non-Voting Common Stock
into which the Series B Preferred Stock is then convertible) as of the date
immediately prior to the record date of such Common Stock dividend.
Each share of Series B Preferred Stock has a liquidation preference in the
amount of $100, plus any accrued and unpaid dividends. The holders of the Series
B Preferred Stock are entitled to receive distributions in liquidation pari
passu with any distributions made to the holders of the Series A Preferred
Stock. In the event of a liquidation of the Company, no distributions may be
made to the holders of Common Stock or Non-Voting Common Stock until the holders
of the Series B Preferred Stock have received such liquidation preference.
Redemption.
The Series B Preferred Stock is subject to mandatory and optional
redemption. On June 30, 2012, the Company will be required to redeem all shares
of Series B Preferred Stock then outstanding, including any Additional B Shares
then issuable, at a redemption price per share equal to the $100 liquidation
preference for the Series B Preferred Stock, plus the amount of any accrued and
unpaid dividends as of such date.
(32)
<PAGE>
In the event the Stockholders do not approve this Proposal II, and as a
result the Series B Preferred Stock will not have been automatically converted
into Series A Preferred Stock on or prior to the Outside Date, the holders of a
majority of the then outstanding shares of Series B Preferred Stock will have
the right to require the Company to redeem all of the then outstanding shares of
Series B Preferred Stock, at a redemption price per share equal to 110% of the
$100 liquidation preference for the Series B Preferred Stock, plus the amount of
any accrued and unpaid dividends as of such date. In the event of such a
redemption, the $74,400,000 of the proceeds from the sale of the Series B
Securities to the Preferred Stockholders currently being held in escrow will be
returned to the Preferred Stockholders in exchange for their shares of Series B
Preferred Stock, and the Company will be required to pay to such holders a
premium of approximately $7,600,000.
The holders of a majority of the then outstanding shares of Series B
Preferred Stock also have the right to require the Company to redeem all or any
number of such holders' shares of Series B Preferred Stock in the event of a
"change of control" at a redemption price per share equal to the $100
liquidation preference for the Series B Preferred Stock, plus the amount of any
accrued and unpaid dividends as of such date. The events constituting a "change
of control" under the Series B Certificate of Designation are the same as those
provided for in the Series A Certificate of Designation, as described above.
Voting Rights.
The Series B Preferred Stock has no voting rights. However, so long as any
shares of Series B Preferred Stock remain outstanding, the Company may not
amend, alter or repeal, in any manner whatsoever, its Certificate of
Incorporation or By-Laws, or any provision of the Series B Certificate of
Designation, in a manner that would adversely affect any rights or privileges of
the holders of the Series B Preferred Stock, without the consent of the holders
of at least a majority of the then outstanding shares of Series B Preferred
Stock.
Preemptive Rights.
The holders of shares of Series B Preferred Stock have the right to
purchase their pro rata portions of any future private placements by the Company
of equity or equity-linked securities, other than (i) securities issued pursuant
to the exercise of options or warrants outstanding as of June 4, 1999, options
awarded to employees or directors of the Company after June 4, 1999 pursuant to
currently existing employee incentive plans, and options issued after June 4,
1999 under new employee incentive plans approved by the Board of Directors and
by Apollo Investment Fund IV, L.P. or any of its affiliates; and (ii) securities
issued as consideration in acquisitions by the Company.
Terms Of The Warrants
A copy of the respective Forms of Series 1-A Warrant, Series 2-A Warrant,
Series 1-B Warrant and Series 2-B Warrant (collectively, the "Warrant
Documents") governing the Series 1-A Warrants, Series 2-A Warrants, Series 1-B
Warrants and Series 2-B Warrants (collectively, the "Warrants"), respectively,
are included in this Proxy Statement as Appendices
(33)
<PAGE>
C, D, E and F. The following summary of the provisions of such securities is
qualified in its entirety by, and should be read in conjunction with, the
Warrant Documents.
Exercise Rights.
The 126,000 Series 1-A Warrants issued with the Series A Preferred Stock
and the 744,000 Series 1-B Warrants issued with the Series B Preferred Stock are
currently exercisable for 1,701,000 shares of Common Stock and 10,044,000 shares
of Non-Voting Common Stock, respectively, at a variable exercise price ranging
from $0.01 to $4.20 per share, based on the then current market price of the
Common Stock, as set forth in the table below (or, if the fair value of one
share of Common Stock on the date of exercise falls between any of the prices in
the left column, then the exercise price will be calculated by linear
interpolation between the corresponding exercise prices in the right column):
Fair Value of one Share of
Common Stock on Date of Exercise Exercise Price
- -------------------------------- --------------
$4.00 or less $4.20
$5.00 $3.59
$6.00 $1.61
$7.00 or more $0.01
The 1,916,994 Series 2-A Warrants and the 10,345,548 Series 2-B Warrants are
currently exercisable for 1,916,994 shares of Common Stock and 10,345,548 shares
of Non-Voting Common Stock, respectively, at an initial exercise price of $7.00
per share. All of the Warrants may be exercised on a cashless exercise basis. In
the event the Stockholders do not approve this Proposal II prior to the Outside
Date, the exercise price of all the Warrants will be reset to $0.01 per share of
Common Stock or Non-Voting Common Stock, as the case may be.
The price per share of Common Stock or Non-Voting Common Stock, as the case
may be, for which the Warrants are exercisable, and the number of shares of
Common Stock or Non-Voting Common Stock, as the case may be, for which the
Warrants are exercisable, are also subject to adjustment pursuant to the
following anti-dilution provisions contained in each of the Warrant Documents:
(i) below market issuances and above market repurchases of Common Stock by the
Company; (ii) the issuance of Common Stock as a dividend or distribution on the
Common Stock; (iii) a subdivision, split or combination of the Common Stock; or
(iv) a capital reorganization of the Company, a reclassification of the capital
stock of the Company or a consolidation or merger of the Company with or into
another corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock).
See the table above under "The Transaction - After Conversion of Series B
Securities into Series A Securities" for a presentation of the effect of
Stockholder approval of this Proposal II.
(34)
<PAGE>
Upon Stockholder approval of this Proposal II prior to the Outside Date,
each of the 744,000 Series 1-B Warrants (plus any additional Series 1-B Warrants
issued or issuable in connection with dividends paid or accrued on the Series B
Preferred Stock) and 10,345,548 Series 2-B Warrants will automatically convert
into one Series 1-A Warrant and one Series 2-A Warrant, respectively, without
any further action on the part of the Company or the holder thereof. In the
event the Stockholders do not approve this Proposal II and Proposal III prior to
the Outside Date, and on or after the Outside Date any holder of Series 1-B
Warrants or Series 2-B Warrants elects to exercise such warrants for Non-Voting
Common Stock, then the Company will be unable to issue Non-Voting Common Stock
at the time of such election and will be required to use its reasonable efforts
to deliver to such holder, upon the surrender of such holder's Series 1-B
Warrants or Series 2-B Warrants, cash or other property that would provide such
holder with the economic equivalent of an exercise of the Series 1-B Warrants or
Series 2-B Warrants for, and an immediate sale of, Non-Voting Common Stock.
Dividends.
The Warrants are entitled to share in any dividends the Company may declare
on its Common Stock. In the event the Company declares a dividend on its Common
Stock, (i) the holders of the Series 1-A Warrants and Series 2-A Warrants will
be entitled to receive an amount equal to the amount of the dividends such
holder would have received had the Series 1-A Warrants and Series 2-A Warrants
been exercised for Common Stock, and (ii) the holders of the Series 1-B Warrants
and Series 2-B Warrants will be entitled to receive an amount equal to the
amount of the dividends such holder would have received had the Series 1-B
Warrants and Series 2-B Warrants been exercised for Common Stock (on the basis
of one share of Common Stock for each share of Non-Voting Common Stock into
which the Series 1-B Warrants and Series 2-B Warrants are then exercisable), as
of the date immediately prior to the record date of such Common Stock dividend.
Voting Rights.
The Warrants do not carry voting rights.
Certain Voting Rights Of The Series A Preferred Stock
Pursuant to the Series A Certificate of Designation, for so
long as Apollo Investment Fund IV, L.P. or any of its affiliates beneficially
own at least 100,000 shares of Series A Preferred Stock, the holders of the
Series A Preferred Stock, voting as a separate class, have the right to elect
one of the members of the Company's Board of Directors (the "Preferred Stock
Director"). In addition, in the event the Stockholders approve this Proposal II,
the Board of Directors will be increased to eight members and the holders of
Series A Preferred Stock will have the right to elect one additional Preferred
Stock Director, for a total of two Preferred Stock Directors out of a total of
eight members of the Board of Directors. If the size of the Board of Directors
is thereafter increased, then the holders of Series A Preferred Stock will have
the right to maintain their proportionate representation on the Board of
Directors. If Proposal II is approved by the Stockholders, the holders of the
Series A Preferred Stock intend to elect Michael Gross (age 37) to the Board of
Directors. Mr. Gross is one of the founding principals of Apollo
(35)
<PAGE>
Advisors, L.P. and of Lion Advisors, L.P. Mr. Gross is also a director of
Alliance Imaging, Inc., Allied Waste Industries, Inc., Breuners Home
Furnishings, Inc., Converse, Inc., Florsheim Group, Inc., United Rentals, Inc.,
Building One Services Corp., and Saks Incorporated.
The holders of Series A Preferred Stock will also have the right, voting
separately as a class, to elect a sufficient number of additional directors such
that the Preferred Stock Directors constitute a majority of the Board of
Directors in the case of any of the following events of non-compliance on the
part of the Company: (i) any breach by the Company of certain of its agreements
and covenants set forth in the Securities Purchase Agreement with Apollo or the
Series A Certificate of Designation, including those relating to (A) the right
to participate in certain future offerings of securities by the Company, (B)
consent rights of the Preferred Stockholders, as described below under "Certain
Consent Rights of the Preferred Stockholders," (C) registration rights, (D) the
payment of dividends, (E) mandatory and optional redemption, (F) voting rights,
(G) conversion rights and (H) preemptive rights; (ii) any acceleration or
default of an obligation of the Company for the payment of indebtedness in
excess of $10,000,000 that is not cured within 15 days from the date of such
acceleration or default; or (iii) the Common Stock is no longer listed for
trading on a United States national securities exchange or the Nasdaq National
Market. Such right will continue until all such events of non-compliance have
been cured, subject to revesting in the event of each and every subsequent event
of non-compliance.
Certain Consent Rights Of The Preferred Stockholders
For so long as the Preferred Stockholders beneficially own at least 100,000
shares of Series A Preferred Stock, the Company may not, and may not permit any
of its subsidiaries to, without the prior written consent of the Preferred
Stockholders: (i) merge, consolidate or amalgamate with any person or entity,
except in connection with certain permitted acquisitions; (ii) effect, approve
or authorize any liquidation of the Company or any recapitalization or
reorganization of the Company or any of its subsidiaries; (iii) directly or
indirectly declare or pay any dividend or make any other distribution in respect
thereof, or directly or indirectly redeem or repurchase any shares of capital
stock of the Company, whether in cash or property or in obligations of the
Company or any of its subsidiaries (other than in connection with any dividend
on, distribution upon or redemption of any Series A Securities or Series B
Securities); (iv) agree to any provision in any agreement that would impose any
restriction on the ability of the Company to honor the exercise of any rights of
the holders of the Series A Securities or Series B Securities; (v) enter into
any transaction with any of its affiliates, unless such transaction is in the
ordinary course of business of the Company and its subsidiaries and upon fair
and reasonable terms no less favorable than would be obtained in a comparable
arm's length transaction with a non-affiliate; (vi) materially alter or change
the business of the Company or any of its subsidiaries as it is currently
conducted or planned to be conducted; (vii) hire or fire, or amend the
employment terms of, the Chief Executive Officer or the Chief Operating Officer
of the Company; (viii) acquire or dispose of any business or assets with an
aggregate value in excess of $2,500,000; (ix) adopt any employee stock option
plans or stock incentive plan, or alter any of the Company's equity incentive
plans for executive officers; (x) take certain actions described in the Series A
Certificate of Designation or the Series B Certificate of Designation; or (xi)
agree or otherwise commit to take any of the foregoing actions.
(36)
<PAGE>
Use Of Proceeds
The Company will use the proceeds from the sale of the Series A Securities
and Series B Securities (including any such proceeds when and if they are
released to the Company from escrow) to provide investment and acquisition
capital, to repay indebtedness and for general corporate purposes.
Validity Of Issuance Of The Series A Preferred Stock
Proposal II is being submitted to the Stockholders for the sole purpose of
complying with the requirements of the Nasdaq National Market. The failure to
approve Proposal II will have no effect on the validity of the Series A
Preferred Stock and Series B Preferred Stock and all shares of such preferred
stock will remain outstanding in such case.
Required Vote
The affirmative vote of the holders of a majority of the
shares of Common Stock voted at the Annual Meeting is required to approve this
Proposal II. The Series A Preferred Stock is not entitled to vote in connection
with this Proposal II.
Recommendation Of The Board Of Directors
THE BOARD OF DIRECTORS HAS APPROVED THE MATTERS SET FORTH IN PROPOSAL II
AND BELIEVE THAT THEY ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF
PROPOSAL II. THE BOARD OF DIRECTORS APPROVED SUCH MATTERS PRIOR TO MESSRS.
AFRICK AND ROWAN BEING ELECTED TO THE BOARD OF DIRECTORS.
(37)
<PAGE>
PROPOSAL III
AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO CREATE A CLASS
OF NON-VOTING COMMON STOCK
At the Annual Meeting, the Board of Directors will submit for consideration
by the Stockholders a proposal to amend the Company's Certificate of
Incorporation to authorize 100,000,000 shares of Non-Voting Common Stock.
Background
As described above under Proposal II, the Company has issued and sold to
the Preferred Stockholders 744,000 shares of Series B Preferred Stock, 744,000
Series 1-B Warrants and 10,345,548 Series 2-B Warrants, convertible into, or
exercisable for, an aggregate of 31,018,119 shares of Non-Voting Common Stock.
If the Stockholders do not approve Proposal II, (i) all of the Series B
Securities would remain outstanding, (ii) the Preferred Stockholders would have
the right to have all of the Series B Preferred Stock redeemed by the Company
for the full purchase price of $74,400,000 (plus accrued dividends), plus a
premium of approximately $7,600,000, and (iii) the exercise price of the Series
1-B Warrants and Series 2-B Warrants, which are not redeemable, would be reset
to $.01 per share of Non-Voting Common Stock. In such event, the Series 1-B
Warrants and the Series 2-B Warrants would continue to be exercisable for
Non-Voting Common Stock and, if the holders of the Series B Securities do not
elect to have their shares of Series B Preferred Stock redeemed by the Company,
all of the Series B Preferred Stock would continue to be convertible into
Non-Voting Common Stock. However, the Company would be unable to issue shares of
Non-Voting Common Stock in either case because the Company's Certificate of
Incorporation does not currently provide for authorized non-voting common stock
of the Company. Therefore, if both Proposals II and III were not approved by the
Stockholders, the Company would be obligated to use its reasonable efforts to
provide such holders with the economic equivalent of a conversion of the Series
B Preferred Stock into, or an exercise of the Series 1-B Warrants or Series 2-B
Warrants for, and an immediate sale of, Non-Voting Common Stock, upon the
surrender of such holders' Series B Securities. See the discussion above
under the heading "The Annual Meeting -- Nasdaq National Market Listing."
If Proposal II is approved by the Stockholders, all of the outstanding
Series B Preferred Stock, Series 1-B Warrants and Series 2-B Warrants will,
without any action on the part of the holders thereof, be converted into Series
A Preferred Stock, Series 1-A Warrants and Series 2-A Warrants, respectively, on
a one-for-one basis, and the Board of Directors would not be required to effect
an amendment to the Company's Certificate of Incorporation to create the class
of Non-Voting Common Stock, as described in this Proposal III, in order to
satisfy the full conversion and exercise rights associated with the Series B
Securities. However, the Board of Directors may deem it advisable and in the
best interests of the Company to issue Non-Voting Common Stock for other
corporate purposes.
(38)
<PAGE>
Therefore, the Board of Directors deems it advisable that the Company's
Certificate of Incorporation be amended to authorize 100,000,000 shares of
Non-Voting Common Stock (i) in the event Proposal II is not approved by the
Stockholders, in order to have a sufficient number of such shares to accommodate
an issuance of Non-Voting Common Stock upon an election to convert or exercise
the Series B Securities, or (ii) in the event Proposal II is approved, to
provide the flexibility to meet the Company's future capital needs, whether as a
result of growth generated internally or generated externally through mergers
and acquisitions. Such newly authorized shares of Non-Voting Common Stock would
be available for possible use in connection with future financings, investment
opportunities, mergers and acquisitions, employee benefit plans, other
distributions such as stock dividends or stock splits or for other corporate
purposes. The Board of Directors does not currently have any definitive plans or
commitments that would require the issuance of any of the Non-Voting Common
Stock, except in connection with the failure to obtain Stockholder approval for
conversion of the Series B Securities into Series A Securities as described in
Proposal II.
In the event this Proposal III is approved by the Stockholders, Article
Fourth of the Company's Certificate of Incorporation would be amended as set
forth in the form of Certificate of Amendment to the Certificate of
Incorporation (the "Certificate of Amendment"), attached to this Proxy Statement
as Appendix G; provided, however, that such form of Certificate of Amendment is
subject to amendment to include such changes as may be required by the office of
the Secretary of State of the State of Delaware and as the Board of Directors
deems necessary and advisable to effect the authorization of Non-Voting Common
Stock.
Terms of Non-Voting Common Stock
The holders of Non-Voting Common Stock will have no voting rights, except
as required by the Delaware General Corporation Law. The Delaware General
Corporation Law requires that the holders of Non-Voting Common Stock have the
right to vote on proposals to change the par value of the Non-Voting Common
Stock or to alter or change the powers, preferences or special rights, if any,
of the Non-Voting Common Stock.
Each share of Common Stock and Non-Voting Common Stock will be equal with
respect to dividends and other distributions in cash, property or shares of
stock of the Company (including distributions in connection with any
recapitalization).
Like the existing Common Stock, the Non-Voting Common Stock will be freely
transferable, and except for federal and state securities law restrictions on
directors, officers and other affiliates of the Company and on persons holding
"restricted" stock, holders of Non-Voting Common Stock will not be restricted in
their ability to sell or transfer any such shares. However, the Company does not
currently anticipate that the Non-Voting Common Stock will be quoted on the
Nasdaq National Market or any other exchange.
Like the existing Common Stock, the Non-Voting Common Stock will not carry
any preemptive rights enabling its holder to subscribe for or receive shares of
any class of stock of the Company (or any other securities convertible into such
shares) which may be issued by the Company.
(39)
<PAGE>
Required Vote
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Annual Meeting is required to approve
this Proposal III. The Series A Preferred Stock is not entitled to vote in
connection with this Proposal III.
Recommendation Of The Board Of Directors
THE BOARD OF DIRECTORS HAS APPROVED THE MATTERS SET FORTH IN PROPOSAL III
AND BELIEVE THAT THEY ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF
PROPOSAL III. THE BOARD OF DIRECTORS APPROVED SUCH MATTERS PRIOR TO MESSRS.
AFRICK AND ROWAN BEING ELECTED TO THE BOARD OF DIRECTORS.
(40)
<PAGE>
PROPOSAL IV
RATIFY THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS
OF THE COMPANY
The firm of KPMG LLP, independent accountants, audited the financial
statements of the Company for the year ended December 31, 1998. The Board of
Directors of the Company has unanimously reappointed, and recommends to the
Stockholders the ratification of the appointment of, KPMG LLP as independent
auditors for the Company for the year ending December 31, 1999. If the
appointment is not ratified by the Stockholders, the Board of Directors may
reconsider its recommendation.
A representative of KPMG LLP is expected to be available at the Annual
Meeting to respond to appropriate questions and will be given the opportunity to
make a statement if he or she so desires. This Proposal IV requires the approval
of at least a majority of the votes represented in person or by proxy and cast
at the Annual Meeting.
Required Vote
The affirmative vote of the holders of a majority of the shares of Common
Stock voted at the Annual Meeting is required to approve this Proposal IV.
Recommendation Of The Board Of Directors
THE BOARD OF DIRECTORS HAS REAPPOINTED, AND RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF, KPMG LLP AS INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 1999.
(41)
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information, as of
June 4, 1999, regarding beneficial ownership of the shares of voting securities
of the Company, consisting of Common Stock and Series A Preferred Stock, by (i)
each person who is known to the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock or Series A Preferred Stock, (ii)
each of the Company's named executive officers under the Summary Compensation
Table under the heading "Executive Compensation," (iii) each director and
nominee for director, and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, the Stockholders listed possess
sole voting and investment power with respect to the shares indicated as owned
by them.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percentage of
Name and Address (1) Position Owned Class
- -------------------- -------- ------------------- -------------
<S> <C> <C> <C>
Glenn S. Meyers Chairman of the Board of 1,954,607(2) 5.0%
Directors, President and CEO
William A. Wilson Former President and CEO 499,300(3) 1.3%
John S. Gross Senior Vice President, Chief 50,000(4) 0.1%
Financial Officer, Treasurer
and Assistant Secretary
Jeffrey M. Killeen Director - (5) 0.0%
Steven Winograd Director 45,030(5)(11) 0.1%
Richard T. Liebhaber Director - (6) 0.0%
Andrew Africk Director - (7) 0.0%
Marc J. Rowan Director - (7) 0.0%
Irwin L. Gross Former Chairman of the Board of 2,489,408(8) 6.4%
Ocean Castle Investments Directors, President and CEO
1811 Chestnut Street, #120
Philadelphia PA 19103
Laura Huberfeld/Naomi Bodner 2,000,000 5.2%
Partnership
152 W. 57th Street
New York, NY 10019
[Table continued]
</TABLE>
(42)
<PAGE>
<TABLE>
<S> <C> <C> <C>
Apollo Investment Fund IV, L.P. 5,417,994(9)(10) 12.5%(9)
c/o Apollo Advisors IV, L.P.
Two Manhattanville Road
Purchase NY 10577
Apollo Overseas Partners IV, L.P. (9)(10) (9)
c/o Apollo Advisors IV, L.P.
Two Manhattanville Road
Purchase NY 10577
AIF IV/RRRR LLC (9)(10) (9)
c/o Apollo Advisors IV, L.P.
Two Manhattanville Road
Purchase NY 10577
All Executive Officers and Directors 2,074,637 5.3%
as a group (7 persons)
</TABLE>
- -----------------
(1) Addresses are included for beneficial owners of more than 5%. Beneficial
ownership has been determined pursuant to Rule 13d-3 of the Exchange Act.
(2) Includes 1,454,607 shares of Common Stock and currently exercisable options
to purchase 500,000 shares of Common Stock. Does not include options to
purchase an additional 1,500,000 shares of Common Stock at $2.375 per share
that will vest through 4/15/03.
(3) Consists of shares of Common Stock which may be acquired pursuant to
options currently exercisable at prices ranging between $2.15 and $3.84 per
share.
(4) Consists of shares of Common Stock which may be acquired pursuant to
options currently exercisable at $2.375 per share. Does not include options
to purchase 100,000 shares of Common Stock at $2.375 per share that will
vest in two equal annual installments through 5/12/01, contingent on
continued employment.
(5) Does not include options to purchase 75,000 shares of Common Stock at
$1.9375 per share that will vest in three equal annual installments through
10/28/01, contingent on continued service as a director (applies to each of
Killeen and Winograd).
(6) Does not include options to purchase 75,000 shares of Common Stock at
$2.8125 per share that will vest in three equal annual installments through
11/2/01, contingent on continued service as a director.
(7) Does not include options to purchase 75,000 shares of Common Stock at $7.00
per share that will vest in three equal annual installments through 6/4/02,
contingent on continued service as a director. Messrs. Africk and Rowan are
affiliates of the Preferred Stockholders discussed in Notes 9 and 10 below.
(8) Includes 864,373 shares of Common Stock, options to purchase 475,000 shares
of Common Stock currently exercisable at $3.84 per share, and options to
purchase 166,667 shares of Common Stock currently exercisable at $2.375 per
share. Also includes 651,692 shares of Common Stock held of record by a
Trust for the benefit of the children of Mr. Irwin Gross, with respect to
which there is an independent Trustee, and 351,676 shares held by a
Charitable Trust for the benefit of Mr. Irwin Gross, with respect to which
Mr. Irwin Gross exercises voting and investment power. Does not include
options to purchase 333,333 shares of Common Stock, exercisable at $2.375
per share, which will vest ratably over a two year period ending April
2001.
(9) Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P. and AIF
IV/RRRR LLC collectively possess the shared voting and dispositive power
(43)
<PAGE>
relating to an aggregate of 5,417,994 shares of Common Stock which may
be acquired upon conversion or exercise of an aggregate of 126,000 shares
of the Company's Series A Convertible Preferred Stock, 126,000 Series 1-A
Warrants and 1,916,994 Series 2-A Warrants acquired by such Preferred
Stockholders on June 4, 1999, pursuant to the Securities Purchase Agreement
with Apollo. Of such aggregate shares of Common Stock, the following sets
forth the number of shares of Common Stock which may be acquired upon
conversion or exercise of such securities as to which each such person
possesses the sole voting and dispositive power: Apollo Investment Fund IV,
L.P.: 4,193,657 shares of Common Stock (9.7%); Apollo Overseas Partners IV,
L.P.: 224,889 shares of Common Stock (0.5%); and AIF IV/RRRR LLC: 999,448
shares of Common Stock (2.3%). Each of the 126,000 shares of Series A
Preferred Stock is entitled to 0.875 votes for each share of underlying
Common Stock into which the Series A Preferred Stock is convertible, or
12.5 votes per share for an aggregate of 1,575,000 votes as of June 4,
1999, and vote as a single class with the holders of Common Stock. The
126,000 shares of Series A Preferred Stock represent 100% of the
outstanding Series A Preferred Stock and were held by the Preferred
Stockholders on June 4, 1999 as follows: Apollo Investment Fund IV, L.P.:
97,527 shares of Series A Preferred Stock (77.4%); Apollo Overseas Fund IV,
L.P.: 5,230 shares of Series A Preferred Stock (4.2%); and AIF IV/RRRR LLC:
23,243 shares of Series A Preferred Stock (18.4%).
(10) On June 4, 1999, the Preferred Stockholders also purchased an aggregate of
744,000 shares of Series B Preferred Stock, 744,000 Series 1-B Warrants
and 10,345,548 Series 2-B Warrants which are convertible into, or
exercisable for, an aggregate of 31,018,119 shares of Non-Voting Common
Stock. The Company's certificate of incorporation does not currently
authorize the issuance of Non-Voting Common Stock, and the Company is
seeking such authorization at the Annual Meeting of Stockholders. Under the
Securities Purchase Agreement with Apollo, the Company is required to seek
Stockholder approval for the conversion (the "Series B-to-A Conversion") of
the Series B Securities into an equal amount of Series A Securities, as
well as the creation of Non-Voting Common Stock, on or prior to October 2,
1999. If the Stockholders approve the Series B-to-A Conversion, then the
Series B Preferred Stock, the Series 1-B Warrants and the Series 2-B
Warrants will automatically be converted into an equal number of shares of
Series A Preferred Stock, Series 1-A Warrants and Series 2-A Warrants,
respectively, which, as of the issuance date of June 4, 1999 (along with
the Series A Securities previously issued to the Preferred Stockholders),
were convertible into or exercisable for an aggregate of 36,436,113 shares
of Common Stock representing approximately 48.7% of the outstanding Common
Stock of the Company as of June 4, 1999, computed as provided in Note (1)
above, plus any additional shares of Common Stock which may be acquired
upon the conversion or exercise of additional Series A Securities and
Series B Securities issued or issuable in connection with dividends paid or
accrued on the Series A Preferred Stock and Series B Preferred Stock.
(11) Steven Winograd invested $250,000 through AIF IV/RRRR LLC, one of the
Preferred Stockholders discussed in Notes (9) and (10) above.
(44)
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth, for the three years
ended December 31, 1998, the compensation for services in all capacities earned
by the Company's Chief Executive Officer and each other named executive officer
whose total annual salary, bonus and other annual compensation exceeded $100,000
in 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
------------------------------------------------------
Other Annual
Name and Principal Salary Bonus Compensation
Position Year ($) ($) ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glenn S. Meyers, 1998 $178,082(1) $35,193(13) $20,000(6)
President and CEO
William A. Wilson, 1998 $107,692(2) - -
former President and CEO 1997 165,972(3) - -
1996 70,833(3) - -
John S. Gross, CFO 1998 $113,750(4) - $3,875(7)
Irwin L. Gross, former 1998 $ 91,400(5) - $3,600(6)
President and CEO 1997 305,000(5) - 7,200(6)
1996 305,000(5) - -
<CAPTION>
Long Term Compensation
-----------------------------------------------------------------
Awards Payouts
Securities
Restricted Underlying LTIP All other
Name and Principal Stock Options/ SARs Payouts Compensation
Position Award(s) ($) (#) ($) ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glenn S. Meyers, - 2,000,000 - -
President and CEO
William A. Wilson, - - - $ 2,154(10)
former President and CEO - 300,000(9) - 1,028(10)
- 100,000(9) - -
John S. Gross, CFO - 150,000(8) - -
Irwin L. Gross, former - 500,000 - $118,001(11)
President and CEO - - - 45,353(12)
- - - 3,100(12)
</TABLE>
- ----------------
(1) Includes Mr. Meyers' annual salary of $250,000 from April 15, 1998.
(2) Includes Mr. Wilson's salary through October 13, 1998, the date of
disposition of the Fresh Air Solutions, L.P. operations.
(3) Includes Mr. Wilson's compensation for consulting services provided to
Engelhard/ICC of $100,000 in 1997, and $20,833 in 1996. Mr. Wilson's
consulting services were covered under a consulting agreement which was
terminated December 31, 1997.
(4) Includes Mr. John Gross' annual salary of $175,000 from 5/13/1998.
(5) Includes Mr. Irwin Gross' annual salary of $155,000 received from
Engelhard/ICC in his capacity as Chief Executive Officer covered under an
employment agreement, which was terminated February 27, 1998, in connection
with the restructuring of Engelhard/ICC.
(6) Represents automobile allowance.
(7) Represents expense allowance.
(8) Stock options granted under the 1998 Incentive Stock Option Plan.
(9) Stock options granted under the Non-Qualified Stock Option Plan.
(10) Represents a Company 401(k) Profit Sharing Plan employer match.
(11) Represents a severance payment of $116,857 pursuant to a letter agreement
dated July 1, 1998 entered into in connection with Mr. Irwin Gross'
resignation as Chairman of the Board of Directors of the Company, and a
Company 401(k) Profit Sharing Plan employer match of $1,144.
(12) Represents loan forgiveness which includes principal and accrued interest
in 1997 and an Engelhard/ICC 401(k) Profit Sharing Plan employer match of
$3,100 in 1997 and 1996.
(13) Represents annual incentive compensation earned in 1998 pursuant to Mr.
Meyers' Employment Agreement, dated effective April 15, 1998.
(45)
<PAGE>
The following table sets forth information concerning grants of stock
options to purchase Common Stock during the year ended December 31, 1998 to the
named executive officers.
Option/SAR Grants in Last Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or Base
Granted (#) (1) Employees in Year Price ($/Sh)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Glenn S. Meyers 2,000,000(2) 39.8% $2.375
William A. Wilson - - -
John S. Gross 150,000(3) 3.0% $2.375
Irwin L. Gross 500,000(4) 10.0% $2.375
<CAPTION>
Potential Realized Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term
------------------------------------------------------------
Expiration Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Glenn S. Meyers 4/15/08 $8,281,157 $15,999,940
William A. Wilson - - -
John S. Gross 9/18/03 $ 98,425 $ 217,494
Irwin L. Gross 4/15/01 $ 328,084 $ 724,981
</TABLE>
- ----------
(1) The number of shares of Common Stock covered by the options are subject to
anti-dilution adjustments in the event of any stock dividend, stock split
or combination of shares, recapitalization or other change in the Company's
capital stock. The vesting of the options is subject to acceleration in the
event of a change in control of the Company, which means, generally, the
consummation of any merger or consolidation involving the Company, any sale
of substantially all of the Company's assets or other transaction or
related transactions as a result of which a single person or several
persons acting in concert own a majority of the shares of Common Stock or a
lower percentage of Common Stock in certain cases (except for certain
transactions that do not involve a change in the holders of a majority of
the outstanding shares of Common Stock and the ownership of a majority of
the outstanding shares of Common Stock by a single person).
(2) Pursuant to the acquisition of Rare Medium, Inc. by the Company, and as an
inducement for him to enter into the agreement for his employment, Mr.
Meyers was granted incentive and nonincentive stock options to acquire an
aggregate of 2,000,000 shares of Common Stock at an exercise price equal to
$2.375 per share, the fair value at the time of agreement, which options
will become exercisable ratably on a monthly basis over a period of 60
months from the date of grant and expire ten years from the date of grant.
(3) These options were granted on September 18, 1998 at an exercise price of
$2.375, the per share fair market value of the Common Stock at that time.
The options have a term of five (5) years. Options are exercisable
cumulatively in three (3) equal annual installments, with the first
installment becoming exercisable on the one-year anniversary of the date of
employment.
(4) Such options were granted at the time of the acquisition by the Company of
Rare Medium, Inc. at an exercise price equal to the fair market value of
the Common Stock at the time, which become exercisable ratably on an annual
basis over a three (3) year period with the first installment becoming
exercisable on the one-year anniversary of the date of grant.
(46)
<PAGE>
The following table sets forth information concerning the exercise of
options to purchase shares of Common Stock by the named executive officers
during the year ended December 31, 1998, as well as the number and potential
value of unexercised options (both options which are presently exercisable and
options which are not presently exercisable) as of December 31, 1998.
Aggregated Option/SAR Exercises in Last Year and
Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Number of Securities Value of Unexercised
Underlying Underlying Unexercised In-the-Money Options/SARs at
Options/ SARs Value Options/SARs at Year End (#) year End ($)
Name Exercised (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glenn S. Meyers - - 333,667 / 1,633,000 583,917 / 2,858,333
William A. Wilson - - 575,000 / 0 834,987 / 0
John S. Gross - - 0 / 150,000 0 / 262,500
Irwin L. Gross - - 1,173,000 / 500,000 1,267,844 / 875,000
</TABLE>
Report on Repricing of Options
In April, 1998, in connection with the Company's acquisition of Rare
Medium, Inc., the Company's former Board of Directors reviewed and approved the
repricing of certain stock options held by such directors and certain executive
officers. The repricing of stock options was effected in recognition of the
effects of such members of the Board of Directors and executive officers in
effecting the change in the focus of the business of the Company from a
desiccant-based climate control system manufacturer to an Internet professional
services provider through the acquisition of Rare Medium, Inc. The table below
sets forth the names of the former directors and executive officers whose stock
options were repriced and certain details pertaining to such option repricings.
<TABLE>
<CAPTION>
10-Year Option Repricings
- --------------------------------------------------------------------------------------------------------------------------------
Market price Length of original
Number of securities of stock at Exercise price New option term
underlying options time of at time of exercise remaining at date
Name Date repriced (#) repricing ($) repricing ($) price ($) of repricing
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William A. Wilson, 4/16/98 30,000 3.59375 5.60 3.84375 6yrs., 3mos.
former President and CEO 4/16/98 100,000 3.59375 6.25 3.84375 8yrs., 6mos.
and director
Irwin L. Gross, former 4/16/98 300,000 3.59375 5.60 3.84375 6yrs., 3mos.
President and CEO and 4/16/98 175,000 3.59375 5.50 3.84375 6yrs., 3mos.
director
Robert O. Aders, 4/16/98 40,000 3.59375 6.25 3.84375 8yrs., 6mos.
former director 4/16/98 30,000 3.59375 5.75 3.84375 9yrs., 2mos.
4/16/98 30,000 3.59375 5.50 3.84375 8yrs., 8mos.
Charles T. Condy, 4/16/98 40,000 3.59375 8.25 3.84375 8yrs., 2mos.
former director 4/16/98 30,000 3.59375 5.50 3.84375 8yrs., 8mos.
(continued)
</TABLE>
(47)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mark S. Hauser, 4/16/98 30,000 3.59375 5.50 3.84375 8yrs., 8mos.
former director 4/16/98 27,000 3.59375 8.125 3.84375 6yrs., 8mos.
Albert Resnick, 4/16/98 200,000 3.59375 5.50 3.84375 6yrs., 3mos.
former director 4/16/98 30,000 3.59375 5.60 3.84375 6yrs., 3mos.
Stephen Schachman, 4/16/98 30,000 3.59375 5.50 3.84375 6yrs., 3mos.
former director 4/16/98 30,000 3.59375 5.60 3.84375 8yrs., 8mos.
Andrew L. Shapiro, 4/16/98 30,000 3.59375 5.50 3.84375 6yrs., 3mos.
former director 4/16/98 30,000 3.59375 5.60 3.84375 8yrs., 8mos.
</TABLE>
By the Compensation Committee
of the Board of Directors,
Jeffrey M. Killeen
Andrew Africk
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Meyers Employment Agreement.
In connection with the transactions consummated pursuant to the acquisition
by the Company of Rare Medium, Inc., the Company entered into an Employment
Agreement effective April 15, 1998 with Glenn S. Meyers (the "Meyers Employment
Agreement"). Pursuant to the Meyers Employment Agreement, Mr. Meyers has been
engaged as the President and Chief Executive Officer of the Company and Rare
Medium, Inc. to serve for a term of five years, expiring April 15, 2003. Mr.
Meyers receives an annual base salary of $250,000, with a minimum annual
increase during the term of not less than 4% per annum. In addition to base
compensation, Mr. Meyers is entitled to receive, for each calendar year during
the term, incentive compensation equal to 2.0% of revenues derived from
activities of Rare Medium, Inc. for such calendar year in excess of the revenues
of Rare Medium, Inc. for the preceding year. Effective June 4, 1999, the Meyers
Employment Agreement has been amended and restated to effect a ceiling of
$150,000,000 on revenues of the Company for determining such annual incentive
compensation payable to Mr. Meyers. In addition, the amended and restated
agreement provides that, in the event gross revenues exceed such revenue
ceiling, the Compensation Committee of the Board of Directors will, with such
assistance as it will deem necessary, establish an incentive bonus program for
Mr. Meyers based on objective and subjective factors to appropriately
incentivize him. Such revised incentive bonus program shall be designed to allow
Mr. Meyers to continue to receive increases in annual bonuses based on, and
subject to, the targets and criteria established by the Compensation Committee,
in amounts similar to the incentive bonuses previously received by Mr. Meyers.
The Meyers Employment Agreement provides Mr. Meyers with a right to terminate
his employment agreement upon a breach of such agreement or upon the occurrence
of certain events constituting a "change in control" of the Company as defined
therein, upon which Mr. Meyers would be entitled to receive a lump sum payment
from the Company which shall be equal to all salary and incentive compensation
for the remaining term
(48)
<PAGE>
and the cash value of all benefits which would have been received by him for the
remaining term. The Meyers Employment Agreement also contains a covenant not to
compete with the Company or any of its affiliates for the term of the agreement,
plus one additional year. Concurrently with the execution of the Meyers
Employment Agreement, the Company granted to Mr. Meyers options to acquire an
aggregate of 2,000,000 shares of Common Stock at exercise prices equal to $2.375
per share, which options become exercisable ratably on a monthly basis over a
period of 60 months from the date of grant and expire ten years from the date of
grant.
Gross Employment Agreement.
The Company entered into an Employment Agreement dated May 13, 1998 with
John S. Gross (the "Gross Employment Agreement"). Pursuant to the Gross
Employment Agreement, Mr. Gross has been engaged as the Senior Vice President
and Chief Financial Officer of the Company to serve for a term of three years.
Mr. Gross receives an annual base salary of $200,000. The Gross Employment
Agreement provides Mr. Gross with a right to terminate his employment agreement
upon a breach of such agreement or upon the occurrence of certain events
constituting a "change in control" of the Company as defined therein, upon which
Mr. Gross would be entitled to receive a lump-sum payment in the amount of his
base salary plus the cash value of all benefits payable for a one-year term, and
all unvested stock options hitherto issued to him would become immediately
exercisable. The Gross Employment Agreement also contains a covenant not to
compete with the Company or any of its affiliates for the term of the agreement,
plus one additional year. In connection with Mr. Gross' employment with the
Company, the Company granted to Mr. Gross options to acquire an aggregate of
150,000 shares of Common Stock, at an exercise price equal to $2.375 per share,
which vest ratably over a three year period.
Mathews Employment Agreement.
The Company entered into an Employment Agreement dated January 29, 1999
with Suresh V. Mathews (the "Mathews Employment Agreement"). Pursuant to the
Mathews Employment Agreement, Mr. Mathews has been engaged as the President and
Chief Operating Officer of Rare Medium, Inc. to serve for a term of three
years. Mr. Mathews receives an annual base salary of $225,000. The Mathews
Employment Agreement provides Mr. Mathews with a right to terminate his
employment agreement upon the occurrence of certain events constituting a
"change in control" of the Company as defined therein, upon which Mr. Mathews
would be entitled to receive all salary and incentive compensation for the
remaining term, the cash value of all benefits which would have been received by
him for the remaining term and the cash value of all unexercised stock options
(whether or not vested) or the cashless exercise value thereof. In the event the
Company discharges Mr. Mathews other than "for cause," Mr. Mathews would be
entitled to receive his base salary for a period of twelve months following such
discharge. The Mathews Employment Agreement also contains a covenant not to
compete with the Company or any of its affiliates for the term of the agreement,
plus one additional year. In connection with Mr. Mathews' employment with the
Company, the Company granted to Mr. Mathews options to acquire an aggregate of
1,000,000 shares of Common Stock, at an exercise price equal to $5.11 per share
(the fair market value at the time of issuance), which vest ratably over a four
year
(49)
<PAGE>
period. In the event the Company terminates Mr. Mathews' employment without
cause, all unvested options will become immediately vested and exercisable.
Irwin L. Gross Severance Agreement.
In connection with his resignation as the Chairman of the Board of
Directors of the Company, Mr. Irwin L. Gross entered into a letter agreement
dated July 1, 1998 with the Company, pursuant to which Mr. Gross received a
severance payment of $145,000, which when netted against offsetting amounts
resulted in a net payment of $116,857.
Stock Option Plans
On May 6, 1998, the Board of Directors adopted the Company's 1998 Long-Term
Incentive Plan (the "1998 Incentive Plan"). The 1998 Incentive Plan was adopted
by the Company's Stockholders on March 16, 1999. The 1998 Incentive Plan
provides for the granting of awards to directors (whether or not employees),
executive officers, key employees and consultants and other service providers in
the form of stock options, stock appreciation rights, restricted stock awards,
deferred stock awards, bonus stock awards, dividend equivalents, and other types
of stock based awards. The variety of awards authorized by the Plan is intended
to give the Company flexibility to adapt the Company's compensation practices as
the business environment in which it operates changes. The maximum aggregate
number of shares of Common Stock that may be delivered for all purposes under
the 1998 Incentive Plan is 8,000,000, subject to adjustment. The 1998 Incentive
Plan is administered generally by the Compensation Committee of the Board of
Directors. On September 18, 1998, the Company's executive officers as a group
were granted options to purchase an aggregate of 182,000 shares of Common Stock
at an exercise price of $2.375, which exercise price was the per share fair
market value of the Common Stock on the date of the grant. These options carry
five-year terms and become exercisable cumulatively in three equal installments,
with the first installment becoming exercisable on the one-year anniversary of
each grantee's date of employment. On September 18, 1998, certain non-executive
employees of the Company as a group were granted options to purchase an
aggregate of 1,910,519 shares of Common Stock at an exercise price of $2.375,
which exercise price was the per share fair market value of the Common Stock on
the date of the grant. These options vest at various rates. Certain of these
options were granted to replace options to purchase stock in Rare Medium, Inc.
and DigitalFacades Corporation, respectively, held by employees prior to the
Company's acquisition of those companies. As of May 26, 1999, 3,086,808 shares
of Common Stock were available for granting awards under the 1998 Long-Term
Incentive Plan.
The Company has a Nonqualified Stock Option Plan ("NQSOP") for directors,
officers and key employees of the Company. The number of options to be granted
thereunder and the exercise prices for such options are determined by the Stock
Option Committee of the Board of Directors in accordance with the terms of the
NQSOP. Under the NQSOP, option prices as determined by the Stock Option
Committee may be greater or less than the fair market value of the Common Stock
as of the date of the grant, and the options are generally exercisable for a
period of ten years and vest ratably over a three to five year period subsequent
to the grant
(50)
<PAGE>
date. The NQSOP authorized 5,100,000 aggregate shares of Common Stock for the
granting of stock options, of which 355,598 shares were available for granting
stock options as of December 31, 1998.
During 1994, the Company adopted an Equity Plan for Directors (the "Equity
Plan for Directors") pursuant to which non-employee directors of the Company
received automatic option grants whose vesting was dependent on the market price
of the Common Stock. Under the Equity Plan for Directors, each non-employee
director of the Company was entitled to receive an option to purchase 50,000
shares of Common Stock on the date such person first became a director and
thereafter was entitled to the automatic grant of an option to purchase an
additional 50,000 shares of Common Stock on each fifth anniversary of the
initial grant, in each case vesting in five equal annual installments commencing
on the first anniversary of the date of grant, with a term of ten years and
providing for accelerated vesting in the event of death or a "change in control"
of the Company as defined therein. The exercise price for the options granted
under the Equity Plan for Directors was the fair market value of the Common
Stock on the date of each grant.
On October 26, 1998, the Board of Directors amended and restated the Equity
Plan for Directors to change the Plan from a formula-based stock option plan as
described above to a discretionary plan (the "Amended and Restated Equity Plan
for Directors"), thereby providing more flexibility in determining incentive
based stock option awards for non-employee directors of the Company. Upon
becoming directors of the Company in 1998, each of Steven Winograd and Jeffrey
M. Killeen was granted an option for 75,000 shares of Common Stock on October
28, 1998 under the Amended and Restated Equity Plan for Directors, exercisable
at $1.9375 per share, the fair market value of the Common Stock on the date of
grant, and Richard T. Liebhaber was granted an option for 75,000 shares on
November 2, 1998 under the Amended and Restated Equity Plan for Directors,
exercisable at $2.8125 per share, the fair market value of the Common Stock on
the date of grant, all of which vest ratably over three years. The Equity Plan
for Directors, amended and restated as described above, authorized 500,000
aggregate shares of Common Stock for the granting of such options under the
Plan, of which 108,000 were available for granting stock options as of December
31, 1998. It is anticipated that future grants of stock options to directors
will principally be made under the Company's 1998 Long-Term Incentive Plan.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The members of the Compensation Committee for the Company during 1998 were
Charles T. Condy, Andrew L. Shapiro and Mark S. Hauser, each of whom was a
non-employee director. Following their respective resignations from the Board of
Directors in 1998, they were succeeded by Jeffrey M. Killeen, also a
non-employee director.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors reviews, recommends
and approves changes to the Company's compensation policies and benefits
programs, administers the Company's stock option plans, including approving
stock option grants, and
(51)
<PAGE>
otherwise seeks to ensure that the Company's compensation philosophy is
consistent with the Company's best interests and is properly implemented. The
members of the Compensation Committee are Jeffrey M. Killeen, a non-employee,
independent member of the Board of Directors, and Andrew Africk, a member of the
Board of Directors since June 4, 1999. Mr. Killeen was originally nominated to
the Compensation Committee by the Board of Directors on November 20, 1998 and
Mr. Africk was elected as a director by Apollo and the other Preferred
Stockholders pursuant to the Securities Purchase Agreement with Apollo. Prior
thereto, such committee was comprised of Charles T. Condy, Andrew L. Shapiro and
Mark S. Hauser, each of whom was a non-employee director of the Company and each
of whom resigned from the Board of Directors in 1998 following the Company's
acquisition of Rare Medium, Inc.
Compensation Philosophy and Review.
The Company's compensation philosophy for its executive officers serves two
principal purposes: (i) to provide a total compensation package for such
officers that is competitive and enables the Company to attract and retain key
executive and employee talent needed to accomplish the Company's business
objectives, and (ii) to directly link compensation to improvements in Company
performance and increases in stockholder value as measured principally by the
trading price of the Common Stock.
The 1998 compensation levels for the Company's executive officers generally
were determined on an individual basis at the time of hiring, in many cases
pursuant to employment agreements entered into between the Company and such
individuals. The Company underwent a significant transformation in 1998 by
acquiring Rare Medium, Inc. and focusing its business on providing Internet
professional services and by disposing of its desiccant-based climate control
systems operations. As a result, the Company experienced a complete change in
management and has continued to build its management team following the
acquisition of Rare Medium, Inc. through the recruitment and hiring of
additional key officers and employees and through acquisitions of additional
Internet professional services firms. For this reason, the Compensation
Committee has not had the opportunity to undertake a general assessment of
executive compensation levels to date.
The Board of Directors reviewed and approved each employment agreement
entered into between the Company and an executive officer in 1998, as well as
stock options granted made to executive officers and key employees in 1998. In
determining compensation levels for 1998, the Company primarily relied upon
publicly available compensation information and informal survey information
obtained by management with respect to cash compensation and stock option grants
to similarly situated officers of Internet business service companies of
comparable size and market capitalization. The Compensation Committee did not
determine it necessary to, and did not attempt to, specifically analyze
compensation levels at companies included in the indexes under the caption,
"Performance Graph."
Elements of Executive Officer Compensation.
The Company's executive compensation consists primarily of
salary, health insurance and similar benefits, and the award of stock options.
The Company emphasizes the
(52)
<PAGE>
award of stock options and to date the Company has made only limited use of cash
incentive bonuses. The Compensation Committee believes that in the highly
competitive, emerging markets in which the Company operates, equity-based
compensation provides the greatest incentive for outstanding executive
performance and the greatest alignment of management and stockholder long-term
interests.
Officer Salaries. The Compensation Committee reviews each senior executive
officer's salary annually. Except to the extent that salary increases are
prescribed by written employment agreements, in determining the appropriate
salary levels, the Compensation Committee considers, among other factors, the
officer's scope of responsibility, prior experience, past accomplishments and
data on prevailing compensation levels in relevant markets for executive talent.
Compensation for the Company's Chief Executive Officer in 1998, Glenn S.
Meyers, was determined pursuant to the Meyers Employment Agreement, dated
effective April 15, 1998, which was negotiated and entered into in connection
with, and as a condition to, the Company's acquisition of its wholly-owned
subsidiary, Rare Medium, Inc., on April 15, 1998. Mr. Meyers was the President
and Chief Executive Officer of Rare Medium, Inc. prior to the acquisition. The
Meyers Employment Agreement provides for an annual base salary of $250,000, with
a minimum annual increase during the term of not less than 4% per annum. In
addition to base compensation, the Meyers Employment Agreement provides for
annual incentive compensation equal to 2% of revenues derived from activities of
Rare Medium, Inc. for such calendar year in excess of the revenues of Rare
Medium, Inc. for the preceding year. In accordance with such formula, Mr. Meyers
received incentive compensation of $35,193 for 1998.
The Compensation Committee believes that the base salary levels of the
executive officers, including Mr. Meyers, are at or below the median of base
salary levels for comparable companies considered in the informal information
reviewed by the Compensation Committee. The Compensation Committee believes this
is appropriate in light of the Company's emphasis on long-term equity
compensation.
Stock Option Grants. As noted above, the Company has relied substantially
on long-term equity compensation as the principal means of compensating and
providing incentives for its executive officers and key employees. It is
generally the Company's practice to set option exercise prices at not less than
100% of fair market value on the date of grant. Thus, the value of the
stockholders' investment in the Company must appreciate before an optionee
receives any financial benefit from the option. Options are generally granted
for a term of five years. Options granted to executive officers and key
employees become exercisable over time and are dependent on continuing
employment with the Company or one of its subsidiaries, thus providing incentive
to remain in the Company's employ.
In determining the size of the stock option grants, the Compensation
Committee considers various subjective factors primarily relating to the
responsibilities of the individual officers and key employees, and also their
current and expected future contributions to the
(53)
<PAGE>
Company, as well as the number of shares owned by the officer or key employee or
which continue to be subject to vesting under outstanding options. In addition,
the Compensation Committee examines the level of equity incentives held by each
officer and key employee relative to the other officers' and key employees'
equity positions and their tenure, responsibilities, experience and value to the
Company. Concurrently with the execution of the Meyers Employment Agreement, and
as an inducement for him to enter into such employment agreement, the Company
granted to Mr. Meyers an option to acquire an aggregate of 2,000,000 shares of
Common Stock at an exercise price equal to $2.375 per share, which was equal to
the fair market value of the Common Stock at the time of grant, which option
becomes exercisable ratably on a monthly basis over a period of 60 months from
the date of grant and expires ten years from the date of grant. The Compensation
Committee believes that such grant is commensurate with Mr. Meyers' level of
responsibility and his contributions to the Company during 1998 and to date. In
addition to Mr. Meyers, during 1998 the Compensation Committee approved grants
of options to purchase an aggregate of 182,000 shares of the Common Stock to
other executive officers as a group.
Policy of Deductibility of Compensation.
Section 162(m) of the U.S. Internal Revenue Code limits the tax
deductibility of a corporation of compensation in excess of $1,000,000 paid to
any of its five most highly compensated executive officers. However,
compensation that qualifies as "performance-based" is excluded from the
$1,000,000 limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by shareholders.
Total cash compensation paid for salaries during 1998 did not exceed the
$1,000,000 limit for any individual executive. With the exception of Mr. Meyers,
the Compensation Committee does not anticipate that total cash compensation paid
for salaries during 1999 will exceed the $1,000,000 limit for any individual
executive. Stock option grants to date do not meet the requirement that such
grants be "performance based" and are, therefore, not exempt from the
limitations on deductibility. The Compensation Committee will continue to
monitor the compensation levels potentially payable under the Company's cash and
stock option compensation programs, but intends to retain the flexibility
necessary to provide total cash and stock option compensation in line with
competitive practice, the Company's compensation philosophy and the Company's
best interests.
In conclusion, the Compensation Committees believes that the policies and
programs described in this report are competitive and effectively align
executive compensation with the Company's goal of maximizing the return to
Stockholders.
By the Compensation Committee
of the Board of Directors,
Jeffrey M. Killeen
Andrew Africk
(54)
<PAGE>
Performance Graph
The following graph shows a five-year comparison of cumulative total
shareholder returns for the Company, the Nasdaq Market Index, the Industrial
Electrical Equipment Industry Index and the Internet Software and Services Index
from December 31, 1993 through December 31, 1998. The cumulative total
shareholder returns on the Company's Common Stock was measured by dividing the
difference between the Company's share price at the end and the beginning of the
measurement period by the share price at the beginning of the measurement
period. The total stockholder return assumes $100 invested at the beginning of
the period in Common Stock, in the Nasdaq Market Index and in each of the two
Industry Indexes. The Company did not pay dividends on its Common Stock during
the measurement period and the calculations of cumulative total stockholders
return on the Common Stock did not include dividends. The Company presents below
the Industrial Electrical Equipment Industry Index as a comparative industry for
the Company's desiccant-based climate control system business, which it operated
prior to October, 1998, and presents the Internet Software and Services Index as
a comparative industry index for the Company's Internet professional services
business, which it commenced upon the acquisition of Rare Medium, Inc. in April
1998.
COMPARISON OF CUMULATIVE 5-YEAR ANNUAL RETURN AMONG RARE
MEDIUM GROUP, INC., NASDAQ MARKET INDEX, INDUSTRIAL ELECTRICAL EQUIPMENT INDEX,
AND INTERNET SOFTWARE AND SERVICES INDEX
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
<TABLE>
<CAPTION>
LEGEND:
Fiscal Year Ending December 31,
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1998
Rare Medium Group, Inc. 100 146.25 220.00 108.75 35.00 82.50
Industrial Electrical Equipment Industry (1) 100 98.18 95.70 127.02 173.12 157.52
Internet Software and Services (2) 100 48.77 65.65 48.37 28.67 75.23
NASDAQ Market Index 100 104.99 136.18 169.23 207.00 291.96
</TABLE>
Assumes $100 invested on January 1, 1993 and reinvestment of dividends
(55)
<PAGE>
- ----------------
(1) The "Industrial Electrical Equipment Index" relates to the business engaged
in by the Company prior to October, 1998, namely, the design, development,
manufacture and marketing of desiccant-based climate control systems. This
Index, issued by an outside firm, includes A.C.S. Electronics Ltd., Acme
Electric Corp., Aerovox, Inc., American Power Conversion, Ametek, Inc.,
Arguss Holdings, Inc., Asia Pacific W&C Corp., ASM Lithography Holdings,
Axsys Technologies, Inc., Baldor Electric Co., Ballard Power Systems, Inc.,
Batteries Batteries, Inc., Belden, Inc., Bolder Technologies Corp., Cable
Design Technologies Corp., CECO Environmental Corp., Control Chief
Holdings, Inc., EFI Electronics, Inc., Energy Research Corp., Exide Corp.,
Franklin Electric Co., Inc., Fuel Tech N.V., General Cable Corp., Infinite
Machines Corp., Kollmorgen Corp., Littelfuse, Inc., Magnetek, Inc., Medar,
Inc., Oryx Technology Corp., Owosso Corp., Powell Industries, Inc., Profile
Technologies, Inc., Rayovac Corp., Servotronics, Inc., SGL Carbon
Aktiengesells, Tava Technologies, Inc., Technology Research, Inc., TII
Industries, Inc., Toolex International N.V., U.S. Energy Systems, Inc.,
Ucar International, Inc., Ultralife Batteries, Inc., Unique Mobility, Inc.,
Waters Instrument, Inc., Westwood Corp., Woodward Governor Co., and Zoltek
Companies, Inc.
(2) The "Internet Software and Services Index" relates to the business
currently engaged in by the Company, which it commenced upon the
acquisition of Rare Medium, Inc. in April 1998. This Index, issued by an
outside firm, includes 24/7 Media, Inc., Amazon.com, Inc., At Home Corp.,
Audiohighway.com, Beyond.com Corp., Broadcast.com, Inc., Broadvision, Inc.,
CDNow, Inc., Checkfree Holdings Corp., Citrix Systems, Inc., CMGI, Inc.,
Connect, Inc., Customtracks Corp., Cybercash, Inc., Cyberian Outpost, Inc.,
Cybershop Internat, Inc., Didax, Inc., Digital Courier Technologies, Inc.,
Doubleclick, Inc., E*Trade, Inc., Ebay, Inc., Edify Corp., Egghead.com,
Inc., Exodux Communications, Inc., Finet Holdings Corp., Harbinger Corp.,
Imaginon, Inc., Imall, Inc., Inktomi Corp., Intranet Solutions, Inc., Iona
Technologies PLC, ISS Group, Inc., K2 Design, Inc., Messagemedia, Inc.,
N2K, Inc., Netgravity, Inc., Netopia, Inc., Network Solutions, Inc., Object
Design, Inc., Online System Services, Inc., Onsale, Inc., Open Market,
Inc., Open Text Corp., Peapod, Inc., Preview Travel, Inc., Primix
Solutions, Inc., Realnetworks, Inc., Security First Technologies Corp.,
Spyglass, Inc., Sterling Commerce, Inc., Ticketmaster Online-Citysearch,
Inc., Ubid, Inc., USWeb Corp., Verisign, Inc., Verity, Inc., Vocaltec
Communications, Ltd., White Pine Software, Inc., Worldtalk Corp., and
Xoom.com Corp.
(56)
<PAGE>
SELECTED FINANCIAL DATA
The following historical selected financial data of the Company at and for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 have been derived
from financial statements that have been audited by the Company's Independent
Accountants, whose reports thereon include an explanatory paragraph regarding
substantial doubt about the Company's ability to continue as a going concern.
The historical selected financial data of the Company at and for the three
months ended March 31, 1999 and 1998 have been derived from the unaudited
financial statements of the Company. The unaudited interim financial data
include adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for
those periods. There were no cash dividends paid to holders of Common Stock in
any of these years or periods. The data should be read in conjunction with the
Company's financial statements and the notes thereto set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, as amended on
Form 10-K/A and on Form 10-K/A2, and the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 which are incorporated by reference herein.
The format of prior year data has been conformed to reflect the accounting for
the Engelhard/ICC partnership as discontinued operations.
(All amounts expressed in dollars except weighted average shares outstanding)
<TABLE>
<CAPTION>
----------------------------- --------------------------------------------------
First Quarter Ended Years ended December 31
--------------------------------- -----------------------------------------------
INCOME STATEMENT DATA March 31, 1999 March 31, 1998 1998 1997 1996
--------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 2,588,907 -- $ 4,688,120 $ -- $ --
Expenses 9,439,609 (22,227,738)(4) 5,307,372 13,484,085
--------------------------------- -----------------------------------------------
Net (Loss)/Gain (6,850,702) 22,227,738 (4) (619,252) (13,484,085) (7,154,609)
Cumulative preferred stock dividend
requirements -- -- 0 0 (49,655)
--------------------------------- -----------------------------------------------
Net loss applicable to common stockholders (6,850,702) 22,227,738 $ (619,252) $(13,484,085) $(7,204,264)
================================= ===============================================
(Loss)/Gain per common share (0.22) 1.01 (.02) (.63) (.35)
Weighted average shares outstanding 31,747,187 21,453,771 25,282,002 21,339,635 20,332,952
<CAPTION>
------------------------------
INCOME STATEMENT DATA 1995 1994 (1)
------------------------------
<S> <C> <C>
Revenues $ -- $ --
Expenses 6,323,373 4,391,082
------------------------------
Net (Loss)/Gain (6,323,373) (4,391,082)
Cumulative preferred stock dividend
requirements (301,413) (227,750)
------------------------------
Net loss applicable to common stockholders $(6,624,786) $ (4,618,832)
==============================
(Loss)/Gain per common share (.47) (.41)
Weighted average shares outstanding 14,072,867 11,390.981
</TABLE>
<TABLE>
<CAPTION>
----------------------------- --------------------------------------------------
First Quarter Ended Years ended December 31
--------------------------------- -----------------------------------------------
BALANCE SHEET DATA March 31, 1999 March 31, 1998 1998 1997 1996
--------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 46,373,164 $ 26,503,951 $ 44,743,122 $ 4,521,656 $ 12,250,865
Working capital 1,564,529 14,270,604 (1,888,272) 1,382,537 9,661,805
Long-term obligations 12,672,378 93,678 10,935,736 0 0
Total Liabilities 17,930,040 7,300,579 14,921,412 7,583,862 2,179,467
Stockholders' equity (deficit) 28,443,124 19,203,372 29,821,710 (3,062,206) 10,071,398
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
-------------------------------
BALANCE SHEET DATA 1995 1994 (1)
-------------------------------
<S> <C> <C>
Total assets $ 4,796,426 $ 2,397,522
Working capital 1,827,797 1,072,485
Long-term obligations 0 150,000
Total Liabilities 3,262,614 426,782
Stockholders' equity (deficit) 1,533,812 1,970,740
</TABLE>
- ------------------
(1) On February 7, 1994, the Company transferred its desiccant climate control
business in exchange for a 50% interest in the Engelhard/ICC partnership.
(2) Includes interest income and other income.
(3) Expenses consists of discontinued operations, general and administrative
expense and interest expense.
(4) Includes approximately $24.3 million gain in the restructuring of the
Engelhard/ICC Partnership in February 1998.
(57)
<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements regarding the
consummation of the equity transaction contemplated by the Securities Purchase
Agreement with Apollo. The words "believe," "anticipate," "expect," "estimate,"
"intent" and similar expressions identify forward-looking statements.
Forward-looking statements necessarily involve risks and uncertainties, and our
actual results could differ materially from those anticipated in the
forward-looking statements. Factors that would cause actual results to differ
materially from the Company's current expectations include but are not limited
to those factors set forth in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, as amended on Form 10-K/A and on Form 10-K/A-2,
and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 filed with the SEC.
NO OTHER BUSINESS
The Board of Directors knows of no business other than the matters set
forth herein which will be presented at the Annual Meeting. Inasmuch as matters
not known at this time may come before the meeting, the enclosed proxy confers
discretionary authority with respect to such matters as may properly come before
the meeting and it is the intention of the persons named in the proxy to vote in
accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Stockholders who wish to submit proposals for inclusion in the Proxy
Statement for the Company's 2000 Annual Meeting of Stockholders must submit the
same to the Secretary of the Company on or before December 31, 1999 at the
Company's principal executive office, 44 West 18th Street, 6th Floor, New York
NY 10011.
ADDITIONAL INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC public reference
rooms in Washington, DC, New York, NY or Chicago, IL. You can request copies of
these documents by writing to the SEC and paying a fee for the copying costs.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
Web site at "http://www.sec.gov." In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, Washington, DC 20006.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE
(58)
<PAGE>
INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
OF JOHN S. GROSS, SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND
ASSISTANT SECRETARY, RARE MEDIUM GROUP, INC., 44 WEST 18TH STREET, 6TH FLOOR,
NEW YORK NY 10011, TELEPHONE: (212) 634-6950, [email protected]. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE ANNUAL MEETING, ANY SUCH
REQUEST SHOULD BE MADE BY AUGUST 10, 1999.
ANNUAL REPORT ON FORM 10-K
THE COMPANY IS REQUIRED TO FILE AN ANNUAL REPORT ON FORM 10-K WITH THE SEC.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1998, AS AMENDED ON FORM 10-K/A AND ON FORM 10-K/A-2, FILED WITH THE SEC IS
AVAILABLE WITHOUT CHARGE BY WRITING TO JOHN S. GROSS, SENIOR VICE PRESIDENT,
RARE MEDIUM GROUP, INC., 44 WEST 18TH STREET, 6TH FLOOR, NEW YORK NY 10011.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by the Company are
incorporated by reference into this Proxy Statement:
o Annual Report on Form 10-K for the year ended December 31, 1998, as
amended on Form 10-K/A and on Form 10-K/A-2;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
o Current Reports on Form 8-K filed with the SEC on February 4, 1999,
February 10, 1999, April 29, 1999, May 28, 1999 and June 21, 1999;
o Definitive Proxy Statement for a Special Meeting of Stockholders held
on March 16, 1999, filed with the SEC on February 17, 1999; and
o The description of the Common Stock contained in our Registration
Statement on Form 10 dated September 15, 1985 filed with the SEC under
the Securities Exchange Act of 1934, as amended (Commission File No.
0-12865).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Proxy Statement and prior to the Annual Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained in this Proxy Statement, or
in any other subsequently filed document which is also incorporated herein by
reference, modifies or supersedes such statement. Any such
(59)
<PAGE>
statement so modified or superseded shall not be deemed to constitute a part of
this Proxy Statement except as so modified or superseded.
IMPORTANT - MAIL YOUR SIGNED PROXY CARD
Please complete, sign, date and mail your Proxy Card.
By Order of the Board of Directors.
/s/ John S. Gross
----------------------------------------
July 12, 1999 John S. Gross, Senior Vice President,
New York, New York Chief Financial Officer, Treasurer
and Assistant Secretary
(60)
<PAGE>
Appendix A
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE
PREFERRED STOCK
OF
RARE MEDIUM GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"),
-------
hereby certifies that the following resolution was adopted by the Board of
Directors of the Company:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company (the "Board of Directors") by
------------------
the provisions of the Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), there is hereby created, out of the 10,000,000
----------------------------
shares of Preferred Stock, par value $0.01 per share, of the Company authorized
and unissued in Article Fourth of the Certificate of Incorporation (the
"Preferred Stock"), a series of the Preferred Stock consisting of 2,000,000
---------------
shares, which series shall have the following powers, designations, preferences
and relative, participating, optional or other rights, and the following
qualifications, limitations and restrictions (in addition to any powers,
designations, preferences and relative, participating, optional or other rights,
and any qualifications, limitations and restrictions, set forth in the
Certificate of Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount. The 2,000,000 shares of Preferred
---------------------
Stock shall be designated the "Series A Convertible Preferred Stock" (the
"Series A Preferred Stock") and the authorized number of shares constituting
------------------------
such series shall be 2,000,000.
Section 2. Dividends.
---------
(a) The holders of the then outstanding shares of Series A Preferred
Stock will be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Company legally available therefor, cumulative
dividends, accruing on a daily basis from the Original Issuance Date through and
including the date on which such dividends are paid at the annual rate of (A)
7.50% from the Original Issuance Date through June 30, 2002 and (B) thereafter,
4.65% (in either case, the "Applicable Rate"), of the Liquidation Preference (as
---------------
hereinafter defined) per share of the Series A Preferred Stock, payable in
arrears on the last day of
<PAGE>
each of December, March, June and September, commencing on June 30, 1999;
provided that: (i) if any such payment date is not a Business Day then such
- --------
dividend shall be payable on the next Business Day, and (ii) accumulated and
unpaid dividends for any prior quarterly period may be paid at any time. Such
dividends shall be deemed to accrue on the Series A Preferred Stock from the
Original Issuance Date and be cumulative whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. The term "Business Day" means a day
------------
other than a Saturday, Sunday or day on which banking institutions in New York
are authorized or required to remain closed. The term "Original Issuance Date"
----------------------
means, with respect to the Series A Preferred Stock, the first date of issuance,
i.e., June 4, 1999, and, with respect to any Additional Securities (as
hereinafter defined), the date upon which they are issued or, if not issued, the
applicable dividend payment date on which the Additional Securities were to have
been issued.
(b) On any dividend payment date occurring on or prior to June 30,
2002, the Company shall pay a dividend on such Series A Preferred Stock through
the issuance of additional shares of Series A Preferred Stock ("Additional
----------
Securities"). On any dividend payment date occurring after June 30, 2002 and on
- ----------
or prior to June 30, 2004, the Company shall pay a dividend on such Series A
Preferred Stock through the issuance of Additional Securities, provided that at
the option of either the holders of a majority of the then outstanding shares of
Series A Preferred Stock (the "Requisite Holders") or the Company, the Company
-----------------
shall pay the dividends in whole in cash. In the event the Company or the
Requisite Holders, as the case may be, elect to have such dividends paid in
cash, they shall provide the other party written notice of such election not
less than ten days prior to the applicable dividend payment date. On any
dividend payment date occurring after June 30, 2004, all dividends on such
Series A Preferred Stock shall be paid in cash. Shares of Series A Preferred
Stock issued in payment of dividends shall be valued at all times at $100 per
share and each such share shall be issued with a detachable ten-year warrant
(each a "Series 1-A Warrant") that entitles its holder to purchase from the
------------------
Company thirteen and one-half (13.5) shares of the Company's common stock, par
value $0.01 per share (the "Common Stock"). The number of Additional Securities
------------
that are issued to the holders of the Series A Preferred Stock under this
paragraph (b) will be the number obtained by dividing (i) the total dollar
amount of cumulative dividends due and payable on the applicable dividend
payment date by (ii) the Liquidation Preference, provided, that the Company
--------
shall not be required to issue fractional shares of Series A Preferred Stock,
but in lieu thereof shall pay in cash the portion of any dividend payable in
shares of Series A Preferred Stock that would otherwise require the issuance of
a fractional share, provided further, that in any such case, the Company shall
-------- -------
issue the holders fractional Series 1-A Warrants in an amount appropriate to
reflect the fractional share of Series A Preferred Stock.
(c) Holders of shares of the Series A Preferred Stock shall be
entitled full cumulative dividends, as herein provided, on the Series A
Preferred Stock and no additional amounts. Except as set forth in paragraph (f)
below, no interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock that
may be in arrears.
-2-
<PAGE>
(d) If dividends are not paid in full, or declared in full and sums
set apart for the payment thereof, upon the shares of Series A Preferred Stock
and the shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Series A Preferred Stock ("Parity Stock"), all dividends
------------
declared upon shares of Series A Preferred Stock and upon all Parity Stock shall
be paid or declared pro rata so that in all cases the amount of dividends paid
or declared per share on the Series A Preferred Stock and such Parity Stock
shall bear to each other the same ratio that unpaid accumulated dividends per
share, including dividends accrued or in arrears, if any, on the shares of
Series A Preferred Stock and such other shares of Parity Stock, bear to each
other. Unless and until full cumulative dividends on the shares of Series A
Preferred Stock in respect of all past quarterly dividend periods have been
paid, and the full amount of dividends on the shares of Series A Preferred Stock
in respect of the then current quarterly dividend period shall have been or are
contemporaneously declared in full and sums set aside for the payment thereof,
(i) no dividends shall be paid or declared or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to the Series A Preferred Stock as to dividends (together with
the Common Stock, "Junior Stock"), other than in shares of, or warrants or
------------
rights to acquire, Junior Stock; and (ii) no shares of Junior Stock or Parity
Stock shall be redeemed, retired, purchased or otherwise acquired for any
consideration (or any payment made to or available for a sinking fund for the
redemption of any such shares) by the Company or any Subsidiary of the Company
(except by conversion into or exchange for shares of Junior Stock). For the
purposes hereof, a "Subsidiary" shall mean any corporation, association or other
----------
business entity (i) at least 50% of the outstanding voting securities of which
are at the time owned or controlled by the Company; or (ii) with respect to
which the Company possesses, directly or indirectly, the power to direct or
cause the direction of the affairs or management of such person. Holders of
shares of Series A Preferred Stock shall not be entitled to any dividends,
whether payable in cash, property or shares of capital stock, in excess of full
accrued and cumulative dividends as herein provided.
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used herein with reference to shares of Series A Preferred
Stock shall be deemed to mean an amount which shall be equal to dividends
thereon at the Applicable Rate per share for the respective series from the date
or dates on which such dividends commence to accrue to the end of the then
current quarterly dividend period for such Preferred Stock (or, in the case of
redemption, to the date of redemption), whether or not earned or declared and
whether or not assets for the Company are legally available therefor, and if
full dividends are not declared or paid (whether in cash or in Additional
Securities), then such dividends shall cumulate, with additional dividends
thereon, compounded quarterly, at the Applicable Rate, for each quarterly period
during which such dividends remain unpaid, less the amount of all such dividends
paid, or declared in full and sums set aside for the payment thereof, upon such
shares of Preferred Stock.
(e) The amount of any dividends per share of Series A Preferred Stock
for any full quarterly period shall be computed by multiplying the Applicable
Rate for such quarterly dividend period by the Liquidation Preference per share
and dividing the result by four. Dividends payable on the shares of Series A
Preferred Stock for any period less than a full quarterly dividend
-3-
<PAGE>
period shall be computed on the basis of a 360-day year of twelve 30-day months
and the actual number of days elapsed for any period less than one month.
(f) In the event any dividends are declared with respect to the Common
Stock, the holders of the Series A Preferred Stock as of the record date
established by the Board of Directors for such dividend shall be entitled to
receive as additional dividends (the "Additional Dividends") an amount (whether
--------------------
in the form of cash, securities or other property) equal to the amount (and in
the form) of the dividends that such holder would have received had the Series A
Preferred Stock been converted into Common Stock as of the date immediately
prior to the record date of such dividend, such Additional Dividends to be
payable on the payment date of the dividend established by the Board of
Directors (the "Additional Dividend Payment Date"). The record date for any
--------------------------------
such Additional Dividends shall be the record date for the applicable dividend,
and any such Additional Dividends shall be payable to the persons in whose name
this Series A Preferred Stock is registered at the close of business on the
applicable record date.
Section 3. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Series A Preferred Stock then outstanding shall be entitled to
receive out of the available assets of the Company, whether such assets are
stated capital or surplus of any nature, an amount on such date equal to $100
per share of Series A Preferred Stock (the "Liquidation Preference") plus the
----------------------
amount of any accrued and unpaid dividends as of such date, calculated pursuant
to Section 2 hereinabove. Such payment shall be made before any payment shall
be made or any assets distributed to the holders of any class or series of the
Common Stock or any other class or series of the Company's capital stock ranking
junior as to liquidation rights to the Series A Preferred Stock. If upon any
such liquidation, dissolution or winding up of the Company the assets available
for payment of the Liquidation Preference are insufficient to permit the payment
to the holders of the Series A Preferred Stock of the full preferential amounts
described in this paragraph, then all the remaining available assets shall be
distributed among the holders of the then outstanding Series A Preferred Stock
pro rata according to the number of then outstanding shares of Series A
Preferred Stock held by each holder thereof. No event that constitutes a Change
of Control (as defined in Section 5(b) below) shall be considered a liquidation,
dissolution or winding up of the Company for purposes of this Section 3 (unless
in connection therewith the liquidation of the Company is specifically
approved).
Section 4. Mandatory Redemption. On June 30, 2012 (the "Redemption
-------------------- ----------
Date"), the Company shall redeem for cash all shares of Series A Preferred Stock
- ----
that are then outstanding and any shares of Series A Preferred Stock then
issuable in respect of accrued but unpaid dividends, in each case, at a
redemption price per share equal to the Liquidation Preference thereof plus the
amount of any accrued and unpaid dividends as of such date ("Redemption Price").
----------------
Not more than sixty (60) nor less than thirty (30) days prior to the Redemption
Date, notice by first class mail, postage prepaid, shall be given to each holder
of record of the Series A Preferred Stock, at such holder's address as it shall
appear upon the stock transfer books of the Company on such date. Each such
notice of redemption shall be irrevocable and shall specify the
-4-
<PAGE>
date that is the Redemption Date, the Redemption Price, the identification of
the shares to be redeemed, the place or places of payment and that payment will
be made upon presentation and surrender of the certificate(s) evidencing the
shares of Series A Preferred Stock to be redeemed and that dividends on the
shares of the Series A Preferred Stock cease to accrue on the Redemption Date.
On or after the Redemption Date, each holder of shares of Series A Preferred
Stock shall surrender the certificate evidencing such shares to the Company at
the place designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price in the manner set forth in the notice. If, on
the Redemption Date, funds in cash in an amount sufficient to pay the aggregate
Redemption Price for all outstanding shares of Series A Preferred Stock shall be
available therefor and shall have been irrevocably set aside and deposited with
a bank or trust company in trust for purposes of payment of such Redemption
Price, then, notwithstanding that the certificates evidencing any shares so
called for redemption shall not have been surrendered, the shares shall no
longer be deemed outstanding, the holders thereof shall cease to be
stockholders, and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price upon
surrender of their certificates therefor) shall terminate. If at the Redemption
Date, the Company does not have sufficient funds legally available to redeem all
the outstanding shares of Series A Preferred Stock, the Company shall take all
measures permitted under the Delaware General Corporation Law to increase the
amount of its capital and surplus legally available, and the Company shall
purchase as many shares of Series A Preferred Stock as it may legally redeem,
ratably from the holders thereof in proportion to the number of shares held by
them, and shall thereafter from time to time, as soon as it shall have funds
available therefor, redeem as many shares of Series A Preferred Stock as it
legally may until it has redeemed all of the outstanding shares of Series A
Preferred Stock.
Section 5. Optional Redemption.
-------------------
(a) Change of Control. In the event that any Change of Control (as
-----------------
hereinafter defined) shall occur at any time while any shares of Series A
Preferred Stock are outstanding, the Requisite Holders shall have the right to
give notice that they are exercising a Change of Control election (a "Change of
---------
Control Election"), with respect to all or any number of such holders' shares of
- ----------------
Series A Preferred Stock, during the period (the "Exercise Period") beginning on
---------------
the 20th day and ending on the 90th day after the date of such Change of
Control. Upon any such election, the Company shall redeem for cash each of such
holders' shares (including any shares then issuable in respect of accrued but
unpaid dividends) for which such an election is made, to the extent permitted by
applicable law, at the Redemption Price.
(b) As used herein, "Change of Control" means the occurrence of any
-----------------
of the following events:
(1) the acquisition by any individual, entity or group other
than Apollo Management, L.P. or its affiliates (a "Person"), or any
------
Holder (as such term is defined in the Amended and Restated Securities
Purchase Agreement (the "Agreement") dated as of June 4, 1999 among
---------
the Company, Apollo Investment
-5-
<PAGE>
Fund IV, L.P., Apollo Overseas Partners IV, L.P. and AIF IV/RRRR LLC),
including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of beneficial ownership within the meaning of Rule
------------
13d-3 promulgated under the Exchange Act, of more than 50% of either
(i) the then outstanding shares of Common Stock (the "Outstanding
-----------
Company Common Stock") or (ii) the combined voting power of the then
--------------------
outstanding securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting
--------------------------
Securities"); excluding, however, the following: (A) any acquisition
----------
directly from the Company of Common Stock (excluding any acquisition
resulting from an exercise, conversion or exchange privilege unless
the security being so exercised, converted or exchanged was acquired
directly from the Company), (B) any acquisition of Common Stock by the
Company, (C) any acquisition of Common Stock by an employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition of Common
Stock by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) of this Section 5(b);
(2) a majority of the individuals who, as of the Original
Issuance Date of the Series A Preferred Stock, constitute the members
of the Board of Directors not elected by the holders of Series A
Preferred Stock (the "Incumbent Board") cease for any reason to serve
---------------
on such Board of Directors; provided that any individual who becomes a
director of the Company subsequent to such Original Issuance Date,
whose election, or nomination for election by the Company's
stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a member
of the Incumbent Board; and provided further, that any individual who
-------- -------
was initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or
on behalf of any Person other than the Board of Directors shall not be
deemed a member of the Incumbent Board; or
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation of the Company or sale or
other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"); excluding, however, a Corporate
---------------------
Transaction pursuant to which (i) the individuals or entities who are
the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior
to such Corporate Transaction will beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the outstanding
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation
-6-
<PAGE>
resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns
100% of the Outstanding Company Common Stock or all or substantially
all of the Company's assets either directly or indirectly) in
substantially the same proportions relative to each other as their
ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (other than: the
Company; any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company; the corporation resulting from such Corporate Transaction;
and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 30% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) will beneficially own, directly or
indirectly, 30% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the outstanding securities
of such corporation entitled to vote generally in the election of
directors and (iii) individuals who were members of the Incumbent
Board will continue to serve as members of the board of directors of
the corporation resulting from such Corporate Transaction.
(c) On or before the tenth (10th) day after a Change of Control, the
Company shall mail to all holders of record of the Series A Preferred Stock at
their respective addresses as the same shall appear on the books of the Company
as of such date, a notice disclosing (i) the Change of Control, (ii) the
Redemption Price per share of the Series A Preferred Stock applicable hereunder,
(iii) the determination of the Requisite Holders to exercise a Change of
Control Election (or the date on which such a determination is scheduled to be
made) and (iv) the procedure which the holder must follow to exercise the
redemption right provided above. To exercise the Change of Control Election, if
applicable, a holder of the Series A Preferred Stock must deliver during the
Exercise Period written notice to the Company (or an agent designated by the
Company for such purpose) of the holder's exercise of the Change of Control
Election, accompanied by each certificate evidencing shares of the Series A
Preferred Stock with respect to which the Change of Control Election is being
exercised, duly endorsed for transfer. On or prior to the fifth (5th) business
day after receipt of delivery of such written notice, the Company shall accept
for payment all shares of Series A Preferred Stock properly surrendered to the
Company (or an agent designated by the Company for such purpose) during the
Exercise Period for redemption in connection with the exercise of the Change of
Control Election and shall cause payment to be made in cash for such shares of
Series A Preferred Stock. If at the time of any Change of Control, the Company
does not have sufficient capital and surplus legally available to purchase all
of the outstanding shares of Series A Preferred Stock, the Company shall take
all measures permitted under the Delaware General Corporation Law to increase
the amount of its capital and surplus legally available, and the Company shall
offer in its written notice of such Change of Control to purchase as many shares
of Series A Preferred Stock as it has capital and surplus legally available
therefor, ratably from the holders thereof in proportion to the total
-7-
<PAGE>
number of shares tendered, and shall thereafter from time to time, as soon as it
shall have capital and surplus legally available therefor, offer to purchase as
many shares of Series A Preferred Stock as it has capital and surplus available
therefor until it has offered to purchase all of the outstanding shares of
Series A Preferred Stock.
(d) Optional Redemption by Company. (A) At any time (i) after June
------------------------------
30, 2004 or (ii) after June 30, 2002 if the closing price of the Common Stock
quoted on the NASDAQ National Market System (or the primary national securities
exchange on which the Common Stock is then listed) on each of the preceding
thirty (30) trading days is greater than $12.00 per share (the "Redemption
----------
Threshold"), the Company may, upon sixty (60) days notice, redeem all, but not
- ---------
less than all, of the then outstanding shares of Series A Preferred Stock
(including shares issuable in respect of accrued but unpaid dividends) for cash
in an amount per share equal to 103% of the Redemption Price.
(B) The Redemption Threshold is subject to adjustment from time to
time, in the event of any increase or decrease by way of a subdivision or split-
up of the outstanding shares of Common Stock or any decrease by way of a
combination of the outstanding shares of Common Stock into a smaller number of
shares of Common Stock. In any such case, an appropriate adjustment shall be
made to the Redemption Threshold in a manner and on terms that effect the intent
of paragraph (A) above.
(e) Status of Redeemed Shares. Any shares of Series A Preferred Stock
-------------------------
which shall at any time have been redeemed pursuant to Section 4 or 5 hereof
shall, after such redemption, have the status of authorized but unissued shares
of Preferred Stock, without designation as to series.
Section 6. Voting Rights. (a) Except as otherwise provided by
-------------
applicable law and in addition to any voting rights provided by law, the holders
of Series A Preferred Stock:
(i) shall be entitled to vote together with the holders of the
Common Stock as a single class on all matters submitted for a vote of
holders of Common Stock (except for matters submitted to the holders
of Common Stock in connection with the transaction contemplated by the
Agreement);
(ii) shall have such other voting rights as are specified in the
Certificate of Incorporation or as otherwise provided by Delaware law;
and
(iii) shall be entitled to receive notice of any stockholders'
meeting in accordance with the Certificate of Incorporation and By-
laws of the Company.
Each share of Series A Preferred Stock shall entitle the holder
thereof to cast 0.875 votes for each whole vote that such holder would be
entitled to cast had such holder converted its Series A Preferred Stock into
shares of Common Stock as of the date immediately
-8-
<PAGE>
prior to the record date for determining the stockholders of the Company
eligible to vote on any such matter; provided that the total voting power of the
--------
holders of the Series A Preferred Stock shall in no event exceed the voting
power of 2,120,000 shares of Common Stock prior to the obtaining of stockholder
approval (the "Stockholder Approval") for the transactions pursuant to which the
--------------------
Series A Preferred Stock was issued, as contemplated by the Agreement, and shall
in no event exceed the voting power of 9,750,000 shares of Common Stock in the
event Stockholder Approval is obtained.
(b) In addition to the other voting rights set forth herein, for so
long as the Apollo Stockholders (as such term is defined below) beneficially own
not less than 100,000 shares of Series A Preferred Stock, the following
provisions shall apply:
The holders of Series A Preferred Stock shall have the exclusive
right, voting separately as a single class, to elect one person to
serve on the Board of Directors (such director is referred to as a
"Preferred Stock Director"); provided, that if the size of the Board
------------------------ --------
of Directors shall be increased, then the holders of Series A
Preferred Stock shall have the right to elect that number of Preferred
Stock Directors such that the number of Preferred Stock Directors
divided by the total number of members of the Board of Directors (the
"Preferred Director Percentage") is at least equal to the Preferred
-----------------------------
Director Percentage immediately prior to the increase in the size of
the Board of Directors (without regard to any vacancy that shall exist
from time to time). On or after the date of Stockholder Approval (if
such approval is obtained), the holders of Series A Preferred Stock
shall have the right to elect two Preferred Stock Directors. In any
such election the holders of Series A Preferred Stock shall be
entitled to cast one vote per share of Series A Preferred Stock held
of record on the record date for the determination of the holders of
Series A Preferred Stock entitled to vote on such election. The
initial Preferred Stock Director shall be appointed by the Board of
Directors on the Original Issuance Date to serve until his or her
successor is duly elected; in the event Stockholder Approval is
obtained, the second Preferred Stock Director shall be appointed
immediately after Stockholder Approval to serve until his or her
successor is duly elected; and thereafter the Preferred Stock
Directors shall be elected at the same time as other members of the
Board of Directors. A Preferred Stock Director may only be removed by
the vote of the Requisite Holders, at a vote of the then outstanding
shares of Series A Preferred Stock, voting as a single class, at a
meeting called for such purpose. If for any reason a Preferred Stock
Director shall resign or otherwise be removed from the Board of
Directors, then his or her replacement shall be a person elected by
the holders of the Series A Preferred Stock, in accordance with the
voting procedures set forth in this Section 6(b). The Preferred Stock
Directors shall be appointed by the Board of Directors to serve on
each committee of the Board of Directors in the same proportions that
the number of Preferred Stock Directors bears to the total number of
directors then comprising the Board of Directors.
-9-
<PAGE>
(c) So long as any Series A Preferred Stock remains outstanding,
the Company shall not, without the written consent or affirmative vote of
the Requisite Holders, at a meeting of the holders called for that purpose,
amend, alter or repeal, whether by merger, consolidation, combination,
reclassification or otherwise, the Certificate of Incorporation, By-Laws of
the Company or any provision thereof (including the adoption of a new
provision thereof) which would adversely affect the voting power of the
Series A Preferred Stock or any other rights or privileges of the holders
of the Series A Preferred Stock hereunder.
Section 7. Conversion Rights.
-----------------
(a) General. Subject to and upon compliance with the provisions of
-------
this Section 7, the holders of the shares of Series A Preferred Stock shall be
entitled, at their option, at any time prior to the date fixed for redemption of
such shares, to convert all or any such shares of Series A Preferred Stock into
a number of fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock. The number of
shares of Common Stock to which a holder of Series A Preferred Stock shall be
entitled upon conversion shall be determined by dividing (x) the Liquidation
Preference of such Series A Preferred Stock (including shares issuable in
respect of accrued but unpaid dividends), plus the amount of any accrued but
----
unpaid dividends as of the Conversion Date by (y) the Conversion Price in effect
at the close of business on the Conversion Date (determined as provided in this
Section 7).
(b) Conversion Price. The conversion price (the "Conversion Price")
---------------- ----------------
shall initially be $7.00 per share of Common Stock, subject to adjustment from
time to time in accordance with Section 7(d).
(c) Fractions of Shares. No fractional share of Common Stock shall be
-------------------
issued upon conversion of shares of Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares of Common Stock to be issued
and which shall be computed on the basis of the aggregate number of shares of
Series A Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
Series A Preferred Stock, the Company shall pay a cash adjustment in respect of
such fractional share in an amount equal to the product of such fraction
multiplied by the Fair Market Value (as hereinafter defined) of one share of
Common Stock on the Conversion Date (as hereinafter defined).
(d) Adjustments to Conversion Price. The Conversion Price shall be
--------------------------------
subject to adjustment from time to time as follows:
(i) Upon Issuance of Common Stock. If the Company shall, at any
-----------------------------
time or from time to time after the Original Issuance Date, issue any shares of
Common Stock,
-10-
<PAGE>
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock, or options to purchase
or rights to subscribe for such convertible or exchangeable securities, other
than Additional Securities, Series B Preferred Stock or Excluded Stock, without
consideration or for consideration per share less than either (x) the Conversion
Price or (y) the Fair Market Value of the Common Stock, in effect immediately
prior to the issuance of such Common Stock or securities, then such Conversion
Price shall forthwith be lowered to a price equal to the price obtained by
multiplying:
(A) the Conversion Price in effect immediately prior to the
issuance of such Common Stock or securities by
(B) a fraction of which (x) the denominator shall be the number
of shares of Common Stock outstanding on a fully-diluted basis
immediately after such issuance and (y) the numerator shall be the sum
of (i) the number of shares of Common Stock outstanding on a fully-
diluted basis immediately prior to the date of such issuance and (ii)
the number of additional shares of Common Stock which the aggregate
consideration for the number of shares of Common Stock so offered
would purchase at the greater of the Conversion Price or the Fair
Market Value per share of Common Stock.
For purposes of this Section 7(d), "fully diluted basis" shall be
determined in accordance with the treasury method of GAAP.
(ii) Upon Acquisition of Common Stock. If the Company or any
--------------------------------
Subsidiary shall, at any time or from time to time after the Original
Issuance Date, directly or indirectly, redeem, purchase or otherwise
acquire any shares of Common Stock, options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock (other than shares of Series A Preferred
Stock or Series B Preferred Stock that are redeemed according to their
terms), or options to purchase or rights to subscribe for such convertible
or exchangeable securities, for a consideration per share greater than the
Fair Market Value (plus, in the case of such options, rights, or
securities, the additional consideration required to be paid to the Company
upon exercise, conversion or exchange) for shares of Common Stock in effect
immediately prior to such event, then the Conversion Price shall forthwith
be lowered to a price equal to the price obtained by multiplying:
(A) the Conversion Price in effect immediately prior to such
event by
(B) a fraction of which (x) the denominator shall be the Fair
Market Value per share of Common Stock immediately prior to such event
and (y) the numerator shall be the result of dividing:
-11-
<PAGE>
a) (1) the product of (A) the number of shares of Common
Stock outstanding on a fully-diluted basis and (B)
the Fair Market Value per share of Common Stock, in
each case immediately prior to such event, minus (2)
the aggregate consideration paid by the Company in
such event (plus, in the case of such options,
rights, or convertible or exchangeable securities,
the aggregate additional consideration to be paid by
the Company upon exercise, conversion or exchange),
by
b) the number of shares of Common Stock outstanding on a
fully-diluted basis immediately after such event.
(iii) For the purposes of any adjustment of a Conversion Price
pursuant to paragraphs (i) and (ii) of this Section 7(d), the following
provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash in a
public offering or private placement, the consideration shall be
deemed to be the amount of cash paid therefor before deducting
therefrom any discounts, commissions or placement fees payable by the
Company to any underwriter or placement agent in connection with the
issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the Fair Market Value thereof as
determined in accordance with the Appraisal Procedure.
(3) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, except for Additional Securities, Shares of Series B
Preferred Stock or options to acquire Excluded Stock:
(a) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such
options or rights were issued and for a consideration
equal to the consideration (determined in the manner
provided in subparagraphs (1) and (2) above), if any,
received by the Company upon the issuance of such
options or rights plus the minimum purchase price
provided in such options or rights for the Common
Stock covered thereby;
-12-
<PAGE>
(b) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange
of any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities, options, or rights were issued
and for a consideration equal to the consideration
received by the Company for any such securities and
related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the additional consideration, if
any, to be received by the Company upon the
conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in paragraphs (1) and (2) above) and
(c) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of
any such options or rights or conversions of or
exchanges for such securities, other than a change
resulting from the anti-dilution provisions thereof,
the applicable Conversion Price shall forthwith be
readjusted to such Conversion Price as would have
been obtained had the adjustment made upon the
issuance of such options, rights or securities not
converted prior to such change or options or rights
related to such securities not converted prior to
such change been made upon the basis of such change.
(d) No further adjustment of the Conversion Price
adjusted upon the issuance of any such options,
rights, convertible securities or exchangeable
securities shall be made as a result of the actual
issuance of Common Stock on the exercise of any such
rights or options or any conversion or exchange of
any such securities.
(iv) Upon Stock Dividends, Subdivisions or Splits. If, at any
--------------------------------------------
time after the Original Issuance Date, the number of shares of Common Stock
outstanding is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then,
following the record date for the determination of holders of Common Stock
entitled to receive such stock dividend, or to be affected by such
subdivision or split-up, the Conversion Price shall be appropriately
decreased so that
-13-
<PAGE>
the number of shares of Common Stock issuable on conversion of Series A
Preferred Stock shall be increased in proportion to such increase in
outstanding shares.
(v) Upon Combinations. If, at any time after the Original
-----------------
Issuance Date, the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then, following the record date
to determine shares affected by such combination, the Conversion Price
shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of Series A Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
(vi) Upon Reclassifications, Reorganizations, Consolidations or
----------------------------------------------------------
Mergers. In the event of any capital reorganization of the Company, any
-------
reclassification of the stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or combination
of shares), or any consolidation or merger of the Company with or into
another corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common
Stock), each share of Series A Preferred Stock shall after such
reorganization, reclassification, consolidation, or merger be convertible
into the kind and number of shares of stock or other securities or property
of the Company or of the successor corporation resulting from such
consolidation or surviving such merger, if any, to which the holder of the
number of shares of Common Stock deliverable (immediately prior to the time
of such reorganization, reclassification, consolidation or merger) upon
conversion of such Series A Preferred Stock would have been entitled upon
such reorganization, reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations, or mergers.
(viii) Deferral in Certain Circumstances. In any case in which
---------------------------------
the provisions of this Section 7(d) shall require that an adjustment shall
become effective immediately after a record date of an event, the Company
may defer until the occurrence of such event (1) issuing to the holder of
any Series A Preferred Stock converted after such record date and before
the occurrence of such event the shares of capital stock issuable upon such
conversion by reason of the adjustment required by such event and issuing
to such holder only the shares of capital stock issuable upon such
conversion before giving effect to such adjustments, and (2) paying to such
holder any amount in cash in lieu of fractional share of capital stock
pursuant to Section 7(c) above; provided, however, that the Company shall
-------- -------
deliver to such holder an appropriate instrument or due bills evidencing
such holder's right to receive such additional shares and such cash.
(viii) Other Anti-Dilution Provisions. If the Company has issued
------------------------------
or issues any securities on or after the Original Issuance Date containing
provisions protecting the holder or holders thereof against dilution in any
manner more favorable to
-14-
<PAGE>
such holder or holders thereof than those set forth in this Section 7(d),
such provisions (or any more favorable portion thereof) shall be deemed to
be incorporated herein as if fully set forth in this Certificate of
Designation and, to the extent inconsistent with any provision of this
Certificate of Designation, shall be deemed to be substituted therefor.
(ix) Appraisal Procedure. In any case in which the provisions of
-------------------
this Section 7(d) shall necessitate that the Appraisal Procedure be
utilized for purposes of determining an adjustment to the Conversion Price,
the Company may defer until the completion of the Appraisal Procedure and
the determination of the adjustment (1) issuing to the holder of any share
of Series A Preferred Stock converted after the date of the event that
requires the adjustment and before completion of the Appraisal Procedure
and the determination of the adjustment, the shares of capital stock
issuable upon such conversion by reason of the adjustment required by such
event and issuing to such holder only the shares of capital stock issuable
upon such conversion before giving effect to such adjustment and (2) paying
to such holder any amount in cash in lieu of a fractional share of capital
stock pursuant to Section 7(c) above; provided, however, that the Company
-------- -------
shall deliver to such holder an appropriate instrument or due bills
evidencing such holder's right to receive such additional shares and such
cash.
(x) Exceptions. Section 7(d) shall not apply to (i) any
----------
issuance of Common Stock upon exercise of any warrants or options (A)
outstanding on the Original Issuance Date of the Series A Preferred Stock
or (B) awarded to employees or directors of the Company pursuant to an
employee stock option plan or stock incentive plan approved by the Board of
Directors; (ii) any issuance of securities by the Company in underwritten
public offerings; and (iii) repurchases by the Company of Common Stock
approved by the Board of Directors (collectively, the "Excluded Stock").
--------------
Notwithstanding the foregoing, in the case of shares of Series A
Preferred Stock called for redemption, conversion rights will expire at the
close of business on the last Business Day preceding any redemption date unless
the Company defaults in making the payment due upon redemption.
(e) Exercise of Conversion Privilege. In order to exercise the
--------------------------------
conversion privilege, the holder of any share of Series A Preferred Stock shall
surrender such Series A Preferred Stock, duly endorsed or assigned to the
Company in blank, at any office or agency of the Company maintained for such
purpose, accompanied by written notice to the Company at such office or agency
that the holder elects to convert such Series A Preferred Stock or, if less than
the entire amount thereof is to be converted, the portion thereof to be
converted.
Series A Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day (the "Conversion Date") of
---------------
surrender of such shares of Series A Preferred Stock for conversion in
accordance with the foregoing provisions, and at such time the rights of the
holders of such shares of Series A Preferred Stock as holder shall cease, and
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<PAGE>
the Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock as and after such time. As promptly as practicable on or after
the Conversion Date, the Company shall issue and shall deliver at any office or
agency of the Company maintained for the surrender of Series A Preferred Stock a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 7(c).
In the case of any Series A Preferred Stock which is converted in part
only, upon such conversion the Company shall execute and deliver a new share of
Series A Preferred Stock of authorized denomination in aggregate principal
amount equal to the unconverted portion of the principal amount of such share of
Series A Preferred Stock.
(f) Notice of Adjustment of Conversion Price. Whenever the Conversion
----------------------------------------
Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Conversion Price in
accordance with Section 7(d) and shall prepare a certificate signed by
the Treasurer or Chief Financial Officer of the Company setting forth
the adjusted Conversion Price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall
forthwith be filed at each office or agency maintained for such
purpose or conversion of shares of Series A Preferred Stock; and
(ii) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith be
prepared by the Company, and as soon as practicable after it is
prepared, such notice shall be mailed by the Company at its expense to
all holders at their last addresses as they shall appear in the stock
register.
(g) Notice of Certain Corporate Action.
----------------------------------
In case:
(a) the Company shall take an action or an event shall occur,
that would require a Conversion Price adjustment pursuant to Section
7(d); or
(b) the Company shall grant to the holders of its Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class;
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock),
or of any consolidation, merger or share exchange to which the Company
is a party and for
-16-
<PAGE>
which approval of any stockholders of the Company is required, or of
the sale or transfer of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the outstanding shares of Common Stock (or
shall amend any such tender offer to change the maximum number of
shares being sought or the amount or type of consideration being
offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
such purpose, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the stock register, at least 30 days prior to
the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend, distribution, rights or warrants are to
be determined, (y) the date on which such reclassification, consolidation,
merger, share exchange, 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 shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of the amendment thereto). Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Conversion Price and the number, kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion of
the Series A Preferred Stock. Neither the failure to give any such notice nor
any defect therein shall affect the legality or validity of any action described
in clauses (a) through (e) of this Section 7(g).
(h) Company to Reserve Common Stock.
-------------------------------
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Common Stock or out of the
Common Stock held in treasury, for the purpose of effecting the conversion of
Series A Preferred Stock, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding shares of Series A Preferred
Stock.
Before taking any action that would cause an adjustment reducing the
conversion price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Series A Preferred Stock, the Company will
take any corporate action that, in
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<PAGE>
the opinion of its counsel, is necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of Common Stock at such
adjusted conversion price.
(i) Taxes on Conversions.
--------------------
The Company will pay any and all original issuance, transfer, stamp
and other similar taxes that may be payable in respect of the issue or delivery
of shares of Common Stock on conversion of Series A Preferred Stock pursuant
hereto. The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that of the holder of the share(s) of
Series A Preferred Stock to be converted, and no such issue or delivery shall be
made unless and until the Person requesting such issue has paid to the Company
the amount of any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
(j) Cancellation of Converted Series A Preferred Stock.
--------------------------------------------------
All Series A Preferred Stock delivered for conversion shall be
delivered to the Company to be canceled.
(k) Certain Definitions.
-------------------
As used in this Section 7, the following terms shall have the
following respective meanings:
"Appraisal Procedure" if applicable, shall mean the following
-------------------
procedure to determine the fair market value, as to any security, for purposes
of the definition of "Fair Market Value" or the fair market value, as to any
other property (in either case, the "valuation amount"). So long as Apollo
Investment Fund IV, L.P. or any of its affiliates (the "Apollo Stockholders")
-------------------
beneficially own sufficient shares of Series A Preferred Stock to constitute the
Requisite Holders, the valuation amount shall be determined in good faith
jointly by the Board of Directors and the Requisite Holders; provided, however,
-------- -------
that if such parties are not able to agree on the valuation amount within a
reasonable period of time (not to exceed twenty (20) days), the valuation amount
shall be determined by an investment banking firm of national recognition, which
firm shall be reasonably acceptable to the Board of Directors and the Requisite
Holders. If the Board of Directors and the Requisite Holders are unable to
agree upon an acceptable investment banking firm within ten (10) days after the
date either party proposed that one be selected, the investment banking firm
will be selected by an arbitrator located in New York City, New York, selected
by the American Arbitration Association (or if such organization ceases to
exist, the arbitrator shall be chosen by a court of competent jurisdiction).
The arbitrator shall select the investment banking firm (within ten (10) days of
his appointment) from a list, jointly prepared by the Board of Directors and the
Requisite Holders, of not more than six investment banking firms of national
standing in the United States, of which no more than three may be named by the
Board of Directors and no more than three may be named by the Requisite Holders.
The arbitrator may
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<PAGE>
consider, within the ten-day period allotted, arguments from the parties
regarding which investment banking firm to choose, but the selection by the
arbitrator shall be made in its sole discretion from the list of six. The Board
of Directors and the Requisite Holders shall submit their respective valuations
and other relevant data to the investment banking firm, and the investment
banking firm shall as soon as practicable thereafter make its own determination
of the valuation amount. The final valuation amount for purposes hereof shall be
the average of the two valuation amounts closest together, as determined by the
investment banking firm, from among the valuation amounts submitted by the
Company and the Requisite Holders and the valuation amount calculated by the
investment banking firm. The determination of the final valuation amount by such
investment-banking firm shall be final and binding upon the parties. The Company
shall pay the fees and expenses of the investment banking firm and arbitrator
(if any) used to determine the valuation amount. If required by any such
investment banking firm or arbitrator, the Company shall execute a retainer and
engagement letter containing reasonable terms and conditions, including, without
limitation, customary provisions concerning the rights of indemnification and
contribution by the Company in favor of such investment banking firm or
arbitrator and its officers, directors, partners, employees, agents and
affiliates. If the Apollo Stockholders no longer constitute the Requisite
Holders, the valuation amount shall be determined in good faith by the Board of
Directors.
"Fair Market Value" means, as to any security, the Twenty Day Average
-----------------
of the average closing prices of such security's sales on all domestic
securities exchanges on which such security may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ National Market System
as of 4:00 P.M., New York City time, on such day, or, if on any day such
security is not quoted in the NASDAQ National Market System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar or successor organization (and in each such case excluding any trades
that are not bona fide, arm's length transactions). If at any time such
security is not listed on any domestic securities exchange or quoted in the
NASDAQ National Market System or the domestic over-the-counter market, the "Fair
Market Value" of such security shall be the fair market value thereof as
determined in accordance with the Appraisal Procedure, using any appropriate
valuation method, assuming an arms-length sale to an independent party. In
determining the fair market value of any class or series of Common Stock, a sale
of all of the issued and outstanding Common Stock will be assumed, without
giving regard to the lack of liquidity of such stock due to any restrictions
(contractual or otherwise) applicable thereto or any discount for minority
interests and assuming the conversion or exchange of all securities then
outstanding that are convertible into or exchangeable for Common Stock and the
exercise of all rights and warrants then outstanding and exercisable to purchase
shares of such stock or securities convertible into or exchangeable for shares
of such stock; provided, however that such assumption will not include those
-------- -------
securities, rights and warrants convertible into Common Stock where the
conversion, exchange or exercise price per share is greater than the fair market
value; provided, further, however, that fair market
-------- ------- -------
-19-
<PAGE>
value shall be determined with regard to the relative priority of each class or
series of Common Stock (if more than one class or series exists.) "Fair Market
Value" means with respect to property other than securities, the "fair market
value" determined in accordance with the Appraisal Procedure.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, which are in effect from time to time.
"Twenty Day Average" means, with respect to any prices and in
------------------
connection with the calculation of Fair Market Value, the average of such prices
over the twenty Business Days ending on the Business Day immediately prior to
the day as of which "Fair Market Value" is being determined.
Section 8. Preemptive Rights. Holders of shares of Series A Preferred
-----------------
Stock will have the right to purchase their pro rata portions of any future
private placements by the Company of equity or equity-linked securities, other
than (i) securities issued pursuant to the exercise of options or warrants
currently outstanding, options awarded to employees or directors of the Company
after the date hereof pursuant to currently existing employee incentive plans,
and options hereinafter issued under new employee incentive plans approved by
the Board of Directors and by the Apollo Stockholders and (ii) securities issued
as consideration in acquisitions by the Company.
Section 9. Limitations. In addition to any other rights provided by
-----------
applicable law, so long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without the affirmative vote, or the written
consent as provided by law, of the Requisite Holders, at a vote of the holders
of Series A Preferred Stock, voting separately as a class,
(a) create, authorize or issue any class, series or shares of
Preferred Stock (other than Additional Securities issued pursuant to
Section 2(b) hereof and Series B Preferred Stock issued as dividends)
or any other class of capital stock ranking either as to payment of
dividends or distribution of assets upon liquidation (i) prior to the
Series A Preferred Stock, or (ii) on a parity with the Series A
Preferred Stock, or (iii) junior to the Series A Preferred Stock, if
such junior securities may be redeemed, in any circumstance, on or
prior to the Redemption Date; or
(b) change the preferences, rights or powers with respect to the
Series A Preferred Stock so as to affect the Series A Preferred Stock
adversely.
Section 10. Dividend Received Deduction. For federal income tax
---------------------------
purposes, the Company shall report distributions on the Series A Preferred Stock
as dividends, to the extent of
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<PAGE>
the Company's current and accumulated earnings and profits (as determined for
federal income tax purposes).
Section 11. Event of Non-Compliance. Whenever an Event of Non-
-----------------------
Compliance (as hereinafter defined) shall have occurred and be continuing, the
holders of Series A Preferred Stock shall have the exclusive right, voting
separately as a class, to elect a sufficient number of additional directors such
that the Preferred Stock Directors constitute a majority of the Board of
Directors, at the Company's next annual meeting of stockholders and at each
subsequent annual meeting of stockholders; provided, however, that if such
-------- -------
voting rights shall become vested more than 90 days or less than 20 days before
the date prescribed for such meeting of stockholders, thereupon the holders of
the shares of Series A Preferred Stock shall be entitled to exercise their
voting rights at a special meeting of the holders of Series A Preferred Stock as
hereinafter set forth. At elections for Preferred Stock Directors, each holder
of Series A Preferred Stock shall be entitled to one vote for each share of
Series A Preferred Stock held. Upon the vesting of such right of the holders of
Series A Preferred Stock, the maximum authorized number of members of the Board
of Directors shall automatically be increased by such number as is required for
the Preferred Stock Directors to constitute a majority of the Board of Directors
and the vacancies so created shall be filled by vote of the holders of
outstanding Series A Preferred Stock as hereinabove set forth. The right of
holders of Series A Preferred Stock, voting separately as a class, to elect
members of the Board of Directors as aforesaid shall continue until such time as
all Events of Non-Compliance shall have been cured, at which time such rights
shall terminate, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent Event of Non-Compliance.
Whenever such voting right shall have vested, such right may be exercised
initially either, as provided above, at a special meeting of the holders of
Series A Preferred Stock called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at such meetings or by the written consent of such holders pursuant
to Section 228 of the Delaware General Corporation Law. The Preferred Stock
Directors elected pursuant to Section 11 shall serve until the next annual
meeting of stockholders of the Company or until their respective successors
shall be elected and shall qualify. Any director elected by the holders of
Series A Preferred Stock may be removed by, and shall not be removed otherwise
than by, the vote of the Requisite Holders, at a vote of the then outstanding
shares of Series A Preferred Stock, voting as a separate class, at a meeting
called for such purpose or by written consent as permitted by law and the
Certificate of Incorporation and By-Laws of the Company. If the office of any
Preferred Stock Director becomes vacant by reason of death, resignation,
retirement, disqualification or removal from office or otherwise, such vacancy
shall be filled by the holders of Series A Preferred Stock voting as a class as
herein provided. Upon any termination of the right of the holders of Series A
Preferred Stock to vote for directors as herein provided, the term of office of
the Preferred Stock Director then in office shall terminate immediately.
Whenever the terms of office of a Preferred Stock Director shall so terminate
and the special voting powers vested in the holders of Series A Preferred Stock
shall have expired, the number of directors shall be such number as may be
provided for pursuant to the By-Laws of the Company irrespective of any increase
made pursuant to the provisions of this Section 11, and such Preferred Stock
Director or Directors shall forthwith resign or the holders of Series A
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<PAGE>
Preferred Stock shall promptly vote, or act by written consent, to remove such
Preferred Stock Director or Directors pursuant to the procedures set forth
above.
The term "Event of Non-Compliance" shall mean (A) any breach by the
-----------------------
Company of any of its agreements and covenants set forth (i) in Section 7.12,
Section 8.2 or Article 9 of the Agreement, (ii) in Sections 2, 4, 5, 6, 7 or 8
of this Certificate of Designation, or (B) any obligation of the Company,
whether as principal, guarantor, surety or other obligor, for the payment of
indebtedness for borrowed money in excess of $10,000,000 (i) shall become or
shall be declared due and payable prior to the expressed maturity thereof, or
(ii) shall not be paid when due or within any grace period for the payment
thereof, and such default shall remain uncured for 15 days, or (C) the Common
Stock shall no longer be listed for trading on a United States national
securities exchange or the NASDAQ National Market (provided, that such Event of
--------
Non-Compliance shall be deemed to be cured immediately on the date upon which
the Common Stock is again listed for trading on a United States national
securities exchange or the NASDAQ National Market).
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed by __________________, its _________, and attested by
________________, its Secretary, this ____ day of __________, 1999.
By:_____________________________________
Name:
Title:
Attested:
By:_________________________
Secretary
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<PAGE>
Appendix B
CERTIFICATE OF DESIGNATION
OF
SERIES B
PREFERRED STOCK
OF
RARE MEDIUM GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"),
-------
hereby certifies that the following resolution was adopted by the Board of
Directors of the Company:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company (the "Board of Directors") by
------------------
the provisions of the Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), there is hereby created, out of the 10,000,000
----------------------------
shares of Preferred Stock, par value $0.01 per share, of the Company authorized
and unissued in Article Fourth of the Certificate of Incorporation (the
"Preferred Stock"), a series of the Preferred Stock consisting of 1,500,000
---------------
shares, which series shall have the following powers, designations, preferences
and relative, participating, optional or other rights, and the following
qualifications, limitations and restrictions (in addition to any powers,
designations, preferences and relative, participating, optional or other rights,
and any qualifications, limitations and restrictions, set forth in the
Certificate of Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount. The 1,500,000 shares of Preferred
---------------------
Stock shall be designated the "Series B Preferred Stock" (the "Series B
--------
Preferred Stock") and the authorized number of shares constituting such series
- ---------------
shall be 1,500,000.
Section 2. Dividends.
---------
(a) The holders of the then outstanding shares of Series B Preferred
Stock will be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Company legally available therefor, cumulative
dividends, accruing on a daily basis from the Original Issuance Date through and
including the date on which such dividends are paid at the annual rate of (A)
7.50% from the Original Issuance Date through June 30, 2002 and (B) thereafter,
4.65% (in either case, the "Applicable Rate"), of the Liquidation Preference (as
---------------
<PAGE>
hereinafter defined) per share of the Series B Preferred Stock, payable in
arrears on the last day of each of December, March, June and September,
commencing on June 30, 1999; provided that: (i) the Applicable Rate shall be
--------
12.50% of the Liquidation Preference beginning on the Outside Date and
continuing until the stockholders of the Company shall have approved the matters
described in Section 7(a) hereof, (ii) if any such payment date is not a
Business Day then such dividend shall be payable on the next Business Day, and
(iii) accumulated and unpaid dividends for any prior quarterly period may be
paid at any time. Such dividends shall be deemed to accrue on the Series B
Preferred Stock from the Original Issuance Date and be cumulative whether or not
earned or declared and whether or not there are profits, surplus or other funds
of the Company legally available for the payment of dividends. The term
"Business Day" means a day other than a Saturday, Sunday or day on which banking
------------
institutions in New York are authorized or required to remain closed. The term
"Original Issuance Date" means, with respect to the Series B Preferred Stock,
----------------------
the first date of issuance, i.e., June 4, 1999, and, with respect to any
Additional Securities (as hereinafter defined), the date upon which they are
issued. The term "Outside Date" means October 2, 1999.
------------
(b) On any dividend payment date occurring on or prior to June 30,
2002, the Company shall pay a dividend on such Series B Preferred Stock through
the issuance of additional shares of Series B Preferred Stock ("Additional
----------
Securities"). On any dividend payment date occurring after June 30, 2002 and on
- ----------
or prior to June 30, 2004, the Company shall pay a dividend on such Series B
Preferred Stock through the issuance of Additional Securities, provided that at
the option of either the holders of a majority of the then outstanding shares of
Series B Preferred Stock (the "Requisite Holders") or the Company, the Company
-----------------
shall pay the dividends in whole in cash. In the event the Company or the
Requisite Holders, as the case may be, elect to have such dividends paid in
cash, they shall provide the other party written notice of such election not
less than ten days prior to the applicable dividend payment date. On any
dividend payment date occurring after June 30, 2004, all dividends on such
Series B Preferred Stock shall be paid in cash. Shares of Series B Preferred
Stock issued in payment of dividends shall be valued at all times at $100 per
share and each such share shall be issued with a detachable ten-year warrant
(each a "Series 1-B Warrant") that entitles its holder to purchase from the
------------------
Company thirteen and one-half (13.5) shares of the Company's non-voting common
stock, par value $0.01 par share (the "Non-Voting Common Stock"). The number of
-----------------------
Additional Securities that are issued to the holders of the Series B Preferred
Stock under this paragraph (b) will be the number obtained by dividing (i) the
total dollar amount of cumulative dividends due and payable on the applicable
dividend payment date by (ii) the Liquidation Preference, provided, that the
--------
Company shall not be required to issue fractional shares of Series B Preferred
Stock, but in lieu thereof shall pay in cash the portion of any dividend payable
in shares of Series B Preferred Stock that would otherwise require the issuance
of a fractional share, provided further, that in any such case, the Company
-------- -------
shall issue to the holders fractional Series 1-B Warrants in an amount
appropriate to reflect the fractional share of Series 1-B Preferred Stock.
(c) Holders of shares of the Series B Preferred Stock shall be
entitled to full cumulative dividends, as herein provided, on the Series B
Preferred Stock and no additional
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<PAGE>
amounts. Except as set forth in paragraph (f) below, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series B Preferred Stock that may be in arrears.
(d) If dividends are not paid in full, or declared in full and sums
set apart for the payment thereof, upon the shares of Series B Preferred Stock
and the shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Series B Preferred Stock ("Parity Stock"), all dividends
------------
declared upon shares of Series B Preferred Stock and upon all Parity Stock shall
be paid or declared pro rata so that in all cases the amount of dividends paid
or declared per share on the Series B Preferred Stock and such Parity Stock
shall bear to each other the same ratio that unpaid accumulated dividends per
share, including dividends accrued or in arrears, if any, on the shares of
Series B Preferred Stock and such other shares of Parity Stock, bear to each
other. Unless and until full cumulative dividends on the shares of Series B
Preferred Stock in respect of all past quarterly dividend periods have been
paid, and the full amount of dividends on the shares of Series B Preferred Stock
in respect of the then current quarterly dividend period shall have been or are
contemporaneously declared in full and sums set aside for the payment thereof,
(i) no dividends shall be paid or declared or set aside for payment or other
distribution upon the Company's common stock, par value $0.01 per share (the
"Common Stock"), the Non-Voting Common Stock or any other capital stock of the
------------
Company ranking junior to the Series B Preferred Stock as to dividends (together
with the Common Stock and the Non-Voting Common Stock, "Junior Stock"), other
------------
than in shares of, or warrants or rights to acquire, Junior Stock; and (ii) no
shares of Junior Stock or Parity Stock shall be redeemed, retired, purchased or
otherwise acquired for any consideration (or any payment made to or available
for a sinking fund for the redemption of any such shares) by the Company or any
Subsidiary of the Company (except by conversion into or exchange for shares of
Junior Stock). For the purposes hereof, a "Subsidiary" shall mean any
----------
corporation, association or other business entity (i) at least 50% of the
outstanding voting securities of which are at the time owned or controlled by
the Company; or (ii) with respect to which the Company possesses, directly or
indirectly, the power to direct or cause the direction of the affairs or
management of such person. Holders of shares of Series B Preferred Stock shall
not be entitled to any dividends, whether payable in cash, property or shares of
capital stock, in excess of full accrued and cumulative dividends as herein
provided.
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used herein with reference to shares of Series B Preferred
Stock shall be deemed to mean an amount which shall be equal to dividends
thereon at the Applicable Rate per share for the respective series from the date
or dates on which such dividends commence to accrue to the end of the then
current quarterly dividend period for such Preferred Stock (or, in the case of
redemption, to the date of redemption), whether or not earned or declared and
whether or not assets for the Company are legally available therefor, and if
full dividends are not declared or paid (whether in cash or in Additional
Securities), then such dividends shall cumulate, with additional dividends
thereon, compounded quarterly, at the Applicable Rate, for each quarterly period
during
-3-
<PAGE>
which such dividends remain unpaid, less the amount of all such dividends paid,
or declared in full and sums set aside for the payment thereof, upon such shares
of Preferred Stock.
(e) The amount of any dividends per share of Series B Preferred Stock
for any full quarterly period shall be computed by multiplying the Applicable
Rate for such quarterly dividend period by the Liquidation Preference per share
and dividing the result by four. Dividends payable on the shares of Series B
Preferred Stock for any period less than a full quarterly dividend period shall
be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed for any period less than one month.
(f) In the event any dividends are declared with respect to the Common
Stock, the holders of the Series B Preferred Stock as of the record date
established by the Board of Directors for such dividend shall be entitled to
receive as additional dividends (the "Additional Dividends") an amount (whether
--------------------
in the form of cash, securities or other property) equal to the amount (and in
the form) of the dividends that such holder would have received had the Series B
Preferred Stock been converted into Common Stock (on the basis of one share of
Common Stock for each share of Non-Voting Common Stock into which the Series B
Preferred Stock is then convertible) as of the date immediately prior to the
record date of such dividend (whether or not the Series B Preferred Stock may be
converted into Non-Voting Common Stock on such date), such Additional Dividends
to be payable on the payment date of the dividend established by the Board of
Directors (the "Additional Dividend Payment Date"). The record date for any
--------------------------------
such Additional Dividends shall be the record date for the applicable dividend,
and any such Additional Dividends shall be payable to the persons in whose name
this Series B Preferred Stock is registered at the close of business on the
applicable record date.
Section 3. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Series B Preferred Stock then outstanding shall be entitled to
receive out of the available assets of the Company, whether such assets are
stated capital or surplus of any nature, an amount on such date equal to $100
per share of Series B Preferred Stock (the "Liquidation Preference") plus the
----------------------
amount of any accrued and unpaid dividends as of such date, calculated pursuant
to Section 2 hereinabove. Such payment shall be made before any payment shall
be made or any assets distributed to the holders of any class or series of the
Common Stock or the Non-Voting Common Stock or any other class or series of the
Company's capital stock ranking junior as to liquidation rights to the Series B
Preferred Stock. If upon any such liquidation, dissolution or winding up of the
Company the assets available for payment of the Liquidation Preference are
insufficient to permit the payment to the holders of the Series B Preferred
Stock of the full preferential amounts described in this paragraph, then all the
remaining available assets shall be distributed among the holders of the then
outstanding Series B Preferred Stock pro rata according to the number of then
outstanding shares of Series B Preferred Stock held by each holder thereof. No
event that constitutes a Change in Control (as defined in Section 5(b) below)
shall be considered a liquidation, dissolution or winding up of the Company for
purposes of this Section 3 (unless in connection therewith the liquidation of
the Company is specifically approved).
-4-
<PAGE>
Section 4. Mandatory Redemption. (a) On June 30, 2012 (the
--------------------
"Redemption Date"), the Company shall redeem for cash all shares of Series B
---------------
Preferred Stock that are then outstanding and any shares of Series B Preferred
Stock then issuable in respect of accrued but unpaid dividends, in each case, at
a redemption price per share equal to the Liquidation Preference thereof plus
the amount of any accrued and unpaid dividends as of such date (the "Redemption
----------
Price"). Not more than sixty (60) nor less than thirty (30) days prior to the
- -----
Redemption Date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Series B Preferred Stock, at such holder's address
as it shall appear upon the stock transfer books of the Company on such date.
Each such notice of redemption shall be irrevocable and shall specify the date
that is the Redemption Date, the Redemption Price, the identification of the
shares to be redeemed, the place or places of payment and that payment will be
made upon presentation and surrender of the certificate(s) evidencing the shares
of Series B Preferred Stock to be redeemed and that dividends on the shares of
the Series B Preferred Stock cease to accrue on the Redemption Date. On or
after the Redemption Date, each holder of shares of Series B Preferred Stock
shall surrender the certificate evidencing such shares to the Company at the
place designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price in the manner set forth in the notice. If, on
the Redemption Date, funds in cash in an amount sufficient to pay the aggregate
Redemption Price for all outstanding shares of Series B Preferred Stock shall be
available therefor and shall have been irrevocably set aside and deposited with
a bank or trust company in trust for purposes of payment of such Redemption
Price, then, notwithstanding that the certificates evidencing any shares so
called for redemption shall not have been surrendered, the shares shall no
longer be deemed outstanding, the holders thereof shall cease to be
stockholders, and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price upon
surrender of their certificates therefor) shall terminate. If at the Redemption
Date, the Company does not have sufficient funds legally available to redeem all
the outstanding shares of Series B Preferred Stock, the Company shall take all
measures permitted under the Delaware General Corporation Law to increase the
amount of its capital and surplus legally available, and the Company shall
purchase as many shares of Series B Preferred Stock as it may legally redeem,
ratably from the holders thereof in proportion to the number of shares held by
them, and shall thereafter from time to time, as soon as it shall have funds
available therefor, redeem as many shares of Series B Preferred Stock as it
legally may until it has redeemed all of the outstanding shares of Series B
Preferred Stock.
(b)(i) Right to Require Redemption. If the Series B Preferred Stock
---------------------------
shall not have been automatically converted into Series A Preferred Stock on or
prior to the Outside Date (such failure, a "Redemption Event") and upon the
----------------
delivery to the Company of a written request executed by the Requisite Holders,
the Company shall be required to redeem all outstanding Series B Preferred
Stock, on the date (the "Repurchase Date") that is 30 days after the date of the
---------------
Company Notice (as defined below). The redemption price per share (the
"Repurchase Price") shall be 110% of the Liquidation Preference thereof plus the
---------------- ----
amount of any accrued and unpaid dividends thereon through the Repurchase Date.
-5-
<PAGE>
(ii) Notices; Method of Exercising Redemption Right, etc.
(A) Not later than 15 days following the Outside Date, the Company
shall mail to all holders of record of the Series B Preferred Stock a
notice (the "Company Notice") stating that the Redemption Event has
--------------
occurred and describing the redemption right set forth herein arising as a
result thereof. Each Company Notice of a redemption right shall also set
forth: (I) the Repurchase Date (assuming that the notice of the Requisite
Holders is delivered in accordance with paragraph (B) below); (II) the date
by which the redemption right must be exercised; (III) the Repurchase
Price; (IV) a description of the procedure which a holder must follow to
exercise a redemption right including a form of the irrevocable written
notice referred to in Section 4(b)(ii)(B) hereof; and (V) the place or
places where such shares of Series B Preferred Stock may be surrendered for
repurchase.
No failure of the Company to give the foregoing notices or any defect therein
shall limit any holder's right to exercise a redemption right or affect the
validity of the proceedings for the redemption of Series B Preferred Stock.
(B) To exercise a redemption right, the Requisite Holders must deliver
to the Company on or before the Series B-to-A Conversion Date (as defined
in Section 7) (i) irrevocable written notice of the Requisite Holders'
exercise of such rights, which notice shall include a statement that an
election to exercise the redemption right is being made thereby, and (ii)
the certificates representing the Series B Preferred Stock with respect to
which the redemption right is being exercised, duly endorsed for transfer
to the Company. Such written notice shall be irrevocable. Subject to the
provisions of Section 4(b)(ii)(D) below, Series B Preferred Stock
surrendered for redemption together with such irrevocable written notice
shall cease to be convertible from the date of delivery of such notice.
(C) In the event a redemption right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid the
Repurchase Price in cash, to the holder of the Series B Preferred Stock
being redeemed on the Repurchase Date. The source of such payment will be
(i) first, from the Escrow Account established pursuant to the Amended and
Restated Securities Purchase Agreement dated as of June 4, 1999 among the
Company, Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P.
and AIF IV/RRRR LLC (the "Agreement"), and (ii) thereafter, from the
---------
Company out of funds legally available therefor.
(D) If any Series B Preferred Stock surrendered for redemption shall
not be so redeemed on the Repurchase Date, such Series B Preferred Stock
shall be convertible at any time from the Repurchase Date until redeemed
and, until
-6-
<PAGE>
such shares are redeemed by the Company, continue to accrue dividends to
the extent permitted by applicable law from the Repurchase Date at the same
rate borne by such Series B Preferred Stock. The Company shall pay to the
holder of such Series B Preferred Stock the additional amounts arising from
this Section 4(b)(ii)(D) at the same time that it pays the Repurchase
Price, and if applicable such Series B Preferred Stock shall remain
convertible into Series A Preferred Stock or Non-Voting Common Stock until
the Repurchase Price plus any additional amounts owing on such Series B
Preferred Stock shall have been paid or duly provided for.
(E) Any Series B Preferred Stock which is to be redeemed only in part
shall be surrendered at any office or agency of the Company designated for
that purpose pursuant to Section 4(b)(ii)(A)(V) and the Company shall
execute and deliver to the holder of such Series B Preferred Stock without
service charge, a new certificate or certificates representing the Series B
Preferred Stock, of any authorized denomination as requested by such
holder, in aggregate amount equal to and in exchange for the unredeemed
portion of the Series B Preferred Stock so surrendered.
Section 5. Optional Redemption.
-------------------
(a) Change of Control. In the event that any Change of Control (as
-----------------
hereinafter defined) shall occur at any time while any shares of Series B
Preferred Stock are outstanding, the Requisite Holders shall have the right to
give notice that they are exercising a Change of Control election (a "Change of
---------
Control Election"), with respect to all or any number of such holders' shares of
- ----------------
Series B Preferred Stock, during the period (the "Exercise Period") beginning on
---------------
the 20th day and ending on the 90th day after the date of such Change of
Control. Upon any such election, the Company shall redeem for cash each of such
holders' shares (including any shares then issuable in respect of accrued but
unpaid dividends) for which such an election is made, to the extent permitted by
applicable law, at the Redemption Price.
(b) As used herein, "Change of Control" means the occurrence of any of
-----------------
the following events:
(1) the acquisition by any individual, entity or group other than
Apollo Management, L.P. or its affiliates (a "Person"), or any
------
Holder (as such term is defined in the Agreement), including any
"person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
------------
beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of more than 50% of either (i) the then
outstanding shares of Common Stock (the "Outstanding Company Common
--------------------------
Stock") or (ii) the combined voting power of the then outstanding
-----
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding
-----------
-7-
<PAGE>
Company Voting Securities"); excluding, however, the following: (A)
-------------------------
any acquisition directly from the Company of Common Stock (excluding
any acquisition resulting from an exercise, conversion or exchange
privilege unless the security being so exercised, converted or
exchanged was acquired directly from the Company), (B) any acquisition
of Common Stock by the Company, (C) any acquisition of Common Stock by
an employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company or (D) any
acquisition of Common Stock by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (3) of this Section 5(b);
(2) a majority of the individuals who, as of the Original
Issuance Date of the Series B Preferred Stock, constitute the members
of the Board of Directors not elected by the holders of Series A
Preferred Stock (the "Incumbent Board") cease for any reason to serve
---------------
on such Board of Directors; provided that any individual who becomes a
director of the Company subsequent to such Original Issuance Date
whose election, or nomination for election by the Company's
stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a member
of the Incumbent Board; and provided further, that any individual who
----------------
was initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or
on behalf of any Person other than the Board of Directors shall not be
deemed a member of the Incumbent Board; or
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation of the Company or sale or
other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"); excluding, however, a Corporate
---------------------
Transaction pursuant to which (i) the individuals or entities who are
the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior
to such Corporate Transaction will beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the outstanding
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation which as a
result of such transaction owns 100% of the Outstanding Company Common
Stock or all or substantially all of the Company's assets either
directly or indirectly) in substantially the same proportions relative
to each other as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than: the Company; any
-8-
<PAGE>
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company; the
corporation resulting from such Corporate Transaction; and any Person
which beneficially owned, immediately prior to such Corporate
Transaction, directly or indirectly, 30% or more of the Outstanding
Company Common Stock or the Outstanding Company Voting Securities, as
the case may be) will beneficially own, directly or indirectly, 30% or
more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation
entitled to vote generally in the election of directors and (iii)
individuals who were members of the Incumbent Board will continue to
serve as members of the board of directors of the corporation
resulting from such Corporate Transaction.
(c) On or before the tenth (10th) day after a Change of Control, the
Company shall mail to all holders of record of the Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the Company
as of such date, a notice disclosing (i) the Change of Control, (ii) the
Redemption Price per share of the Series B Preferred Stock applicable hereunder,
(iii) the determination of the Requisite Holders to exercise a Change of
Control Election (or the date on which such a determination is scheduled to be
made) and (iv) the procedure which the holder must follow to exercise the
redemption right provided above. To exercise the Change of Control Election, if
applicable, a holder of the Series B Preferred Stock must deliver during the
Exercise Period written notice to the Company (or an agent designated by the
Company for such purpose) of the holder's exercise of the Change of Control
Election, accompanied by each certificate evidencing shares of the Series B
Preferred Stock with respect to which the Change of Control Election is being
exercised, duly endorsed for transfer. On or prior to the fifth (5th) business
day after receipt of delivery of such written notice, the Company shall accept
for payment all shares of Series B Preferred Stock properly surrendered to the
Company (or an agent designated by the Company for such purpose) during the
Exercise Period for redemption in connection with the exercise of the Change of
Control Election and shall cause payment to be made in cash for such shares of
Series B Preferred Stock. If at the time of any Change of Control, the Company
does not have sufficient capital and surplus legally available to purchase all
of the outstanding shares of Series B Preferred Stock, the Company shall take
all measures permitted under the Delaware General Corporation Law to increase
the amount of its capital and surplus legally available, and the Company shall
offer in its written notice of such Change of Control to purchase as many shares
of Series B Preferred Stock as it has capital and surplus legally available
therefor, ratably from the holders thereof in proportion to the total number of
shares tendered, and shall thereafter from time to time, as soon as it shall
have capital and surplus legally available therefor, offer to purchase as many
shares of Series B Preferred Stock as it has capital and surplus available
therefor until it has offered to purchase all of the outstanding shares of
Series B Preferred Stock.
(d) Status of Redeemed Shares. Any shares of Series B Preferred Stock
-------------------------
which shall at any time have been redeemed pursuant to Section 4 or 5 hereof
shall, after such
-9-
<PAGE>
redemption, have the status of authorized but unissued shares of Preferred
Stock, without designation as to series.
Section 6. Consent Rights. So long as any Series B Preferred Stock
--------------
remains outstanding, the Company shall not, without the written consent or
affirmative vote of the Requisite Holders, at a meeting of the holders called
for that purpose, amend, alter or repeal, whether by merger, consolidation,
combination, reclassification or otherwise, the Certificate of Incorporation,
By-Laws of the Company or any provision thereof (including the adoption of a new
provision thereof) which would adversely affect the voting power of the Series B
Preferred Stock or any other rights or privileges of the holders of the Series B
Preferred Stock hereunder.
Section 7. Conversion to Series A Preferred Stock.
--------------------------------------
(a) The Company will, as soon as practicable, duly call, give notice
of, convene and hold a meeting of its stockholders for the purpose of approving,
among other things, the conversion of the Series B Preferred Stock into Series A
Preferred Stock (the "Series B-to-A Conversion") and the creation of the Non-
------------- ----------
Voting Common Stock. The Company shall use its best efforts to secure such
approval on or prior to the Outside Date. Upon stockholder approval of the
Series B-to-A Conversion, whenever obtained, each outstanding share of Series B
Preferred Stock shall, without any action on the part of the holder thereof or
the Company, be automatically converted into one fully-paid and non-assessable
share of Series A Preferred Stock. Any accrued and unpaid dividends shall be
credited and transferred so that a holder is in the same economic position
following such conversion.
(b) Promptly following any Series B-to-A Conversion, the holder of the
Series B Preferred Stock shall (i) surrender the certificates or certificates
evidencing the shares of Series B Preferred Stock, duly endorsed in a form
reasonably satisfactory to the Company, at the office of the Company or of the
transfer agent for the Series B Preferred Stock and (ii) state in writing the
name or names in which the certificate or certificates for shares of Series A
Preferred Stock are to be issued. As soon as practical following receipt of the
foregoing, the Company shall deliver to such former holder of Series B Preferred
Stock, a certificate or certificates in denominations acceptable to such holder
representing the shares of Series A Preferred Stock. Such conversion shall be
deemed to have been effected as of the close of business on the date on which
the stockholders of the Company approve the Series B-to-A Conversion.
Section 8. Conversion Rights.
-----------------
(a) General. Subject to and upon compliance with the provisions of
-------
this Section 8, the holders of the shares of Series B Preferred Stock shall be
entitled, at their option, at any time prior to the date fixed for redemption of
such shares to convert all or any such shares of Series B Preferred Stock into a
number of fully paid and non-assessable shares (calculated as to each conversion
to the nearest 1/100th of a share) of Non-Voting Common Stock. The number of
shares of Non-Voting Common Stock to which a holder of Series B Preferred Stock
shall be
-10-
<PAGE>
entitled upon conversion shall be determined by dividing (x) the Liquidation
Preference of such Series B Preferred Stock (including shares issuable in
respect of accrued but unpaid dividends), plus the amount of any accrued but
----
unpaid dividends as of the Conversion Date by (y) the Conversion Price in effect
at the close of business on the Conversion Date (determined as provided in this
Section 8); provided, however, if after the Outside Date any holder of Series B
--------
Preferred Stock elects to convert such shares to Non-Voting Common Stock
pursuant to this Section 8 and it is determined that the Company cannot issue
Non-Voting Common Stock, the Company shall use its reasonable efforts to deliver
to such holders securities, cash or other property that would provide such
investors with the economic equivalent of a conversion of the Series B Preferred
Stock into, and an immediate sale of, the Non-Voting Common Stock.
(b) Conversion Price. The conversion price (the "Conversion Price")
---------------- ----------------
shall initially be $7.00 per share of Non-Voting Common Stock, subject to
adjustment from time to time in accordance with Section 8(d).
(c) Fractions of Shares. No fractional share of Non-Voting Common
-------------------
Stock shall be issued upon conversion of shares of Series B Preferred Stock. If
more than one share of Series B Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Non-
Voting Common Stock to be issued and which shall be computed on the basis of the
aggregate number of shares of Series B Preferred Stock so surrendered. Instead
of any fractional shares of Non-Voting Common Stock which would otherwise be
issuable upon conversion of any shares of Series B Preferred Stock, the Company
shall pay a cash adjustment in respect of such fractional share in an amount
equal to the product of such fraction multiplied by the Fair Market Value (as
hereinafter defined) of one share of Non-Voting Common Stock on the Conversion
Date (as hereinafter defined).
(d) Adjustments to Conversion Price. In order to prevent dilution of
--------------------------------
the conversion rights granted hereunder, the number of shares of Non-Voting
Common Stock issuable upon conversion and the Conversion Price shall each be
adjusted from time to time in the same manner as the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and the
"Conversion Price" as set forth in the Certificate of Designation of Series A
Preferred Stock are adjusted pursuant to the Series A Certificate of
Designation.
(e) Exercise of Conversion Privilege. In order to exercise the
--------------------------------
conversion privilege, the holder of any share of Series B Preferred Stock shall
surrender such Series B Preferred Stock, duly endorsed or assigned to the
Company in blank, at any office or agency of the Company maintained for such
purpose, accompanied by written notice to the Company at such office or agency
that the holder elects to convert such Series B Preferred Stock or, if less than
the entire amount thereof is to be converted, the portion thereof to be
converted.
Series B Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day (the "Conversion Date") of
---------------
surrender of such shares of Series B Preferred Stock for conversion in
accordance with the foregoing provisions, and at such
-11-
<PAGE>
time the rights of the holders of such shares of Series B Preferred Stock as
holder shall cease, and the Person or Persons entitled to receive the Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such Common Stock as and after such time. As promptly as
practicable on or after the Conversion Date, the Company shall issue and shall
deliver at any office or agency of the Company maintained for the surrender of
Series B Preferred Stock a certificate or certificates for the number of full
shares of Non-Voting Common Stock issuable upon conversion, together with
payment in lieu of any fraction of a share, as provided in Section 8(c).
In the case of any Series B Preferred Stock which is converted in part
only, upon such conversion the Company shall execute and deliver a new share of
Series B Preferred Stock of authorized denomination in aggregate principal
amount equal to the unconverted portion of the principal amount of such share of
Series B Preferred Stock.
(f) Notice of Adjustment of Conversion Price. Whenever the Conversion
----------------------------------------
Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Conversion Price in
accordance with Section 8(d) and shall prepare a certificate signed by the
Treasurer or Chief Financial Officer of the Company setting forth the
adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be
filed at each office or agency maintained for such purpose or conversion of
shares of Series B Preferred Stock; and
(ii) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith be prepared
by the Company, and as soon as practicable after it is prepared, such
notice shall be mailed by the Company at its expense to all holders at
their last addresses as they shall appear in the stock register.
(g) Notice of Certain Corporate Action.
----------------------------------
In case:
(a) the Company shall take an action or an event shall occur,
that would require a Conversion Price adjustment pursuant to Section 8(d);
or
(b) the Company shall grant to the holders of its Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock
of any class;
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock), or
of any
-12-
<PAGE>
consolidation, merger or share exchange to which the Company is a party and
for which approval of any stockholders of the Company is required, or of
the sale or transfer of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the outstanding shares of Common Stock (or shall
amend any such tender offer to change the maximum number of shares being
sought or the amount or type of consideration being offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
such purpose, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the stock register, at least 30 days prior to
the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend, distribution, rights or warrants are to
be determined, (y) the date on which such reclassification, consolidation,
merger, share exchange, 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 shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of the amendment thereto). Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Conversion Price and the number, kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion of
the Series B Preferred Stock. Neither the failure to give any such notice nor
any defect therein shall affect the legality or validity of any action described
in clauses (a) through (e) of this Section 8(g).
(h) Company to Reserve Common Stock.
-------------------------------
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Non-Voting Common Stock or
out of the Non-Voting Common Stock held in treasury, for the purpose of
effecting the conversion of Series B Preferred Stock, the full number of shares
of Non-Voting Common Stock then issuable upon the conversion of all outstanding
shares of Series B Preferred Stock.
Before taking any action that would cause an adjustment reducing the
conversion price below the then par value (if any) of the shares of Non-Voting
Common Stock deliverable
-13-
<PAGE>
upon conversion of the Series B Preferred Stock, the Company will take any
corporate action that, in the opinion of its counsel, is necessary in order that
the Company may validly and legally issue fully paid and non-assessable shares
of Non-Voting Common Stock at such adjusted conversion price.
(i) Taxes on Conversions.
--------------------
The Company will pay any and all original issuance, transfer, stamp
and other similar taxes that may be payable in respect of the issue or delivery
of shares of Non-Voting Common Stock on conversion of Series B Preferred Stock
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Non-Voting Common Stock in a name other than that of the
holder of the share(s) of Series B Preferred Stock to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established to
the satisfaction of the Company that such tax has been paid.
(j) Cancellation of Converted Series B Preferred Stock.
--------------------------------------------------
All Series B Preferred Stock delivered for conversion shall be
delivered to the Company to be canceled.
(k) Certain Definitions.
-------------------
As used in this Section 8, the following terms shall have the
following respective meanings:
"Appraisal Procedure" if applicable, shall mean the following
-------------------
procedure to determine the fair market value, as to any security, for purposes
of the definition of "Fair Market Value" or the fair market value, as to any
other property (in either case, the "valuation amount"). So long as Apollo
Investment Fund IV, L.P. or any of its affiliates (the "Apollo Stockholders")
-------------------
beneficially own sufficient shares of Series B Preferred Stock to constitute the
Requisite Holders, the valuation amount shall be determined in good faith
jointly by the Board of Directors and the Requisite Holders; provided, however,
-------- -------
that if such parties are not able to agree on the valuation amount within a
reasonable period of time (not to exceed twenty (20) days), the valuation amount
shall be determined by an investment banking firm of national recognition, which
firm shall be reasonably acceptable to the Board of Directors and the Requisite
Holders. If the Board of Directors and the Requisite Holders are unable to
agree upon an acceptable investment banking firm within ten (10) days after the
date either party proposed that one be selected, the investment banking firm
will be selected by an arbitrator located in New York City, New York, selected
by the American Arbitration Association (or if such organization ceases to
exist, the arbitrator shall be chosen by a court of competent jurisdiction).
The arbitrator shall select the investment banking firm (within ten (10) days of
his appointment) from a list, jointly prepared by the Board of
-14-
<PAGE>
Directors and the Requisite Holders, of not more than six investment banking
firms of national standing in the United States, of which no more than three may
be named by the Board of Directors and no more than three may be named by the
Requisite Holders. The arbitrator may consider, within the ten-day period
allotted, arguments from the parties regarding which investment banking firm to
choose, but the selection by the arbitrator shall be made in its sole discretion
from the list of six. The Board of Directors and the Requisite Holders shall
submit their respective valuations and other relevant data to the investment
banking firm, and the investment banking firm shall as soon as practicable
thereafter make its own determination of the valuation amount. The final
valuation amount for purposes hereof shall be the average of the two valuation
amounts closest together, as determined by the investment banking firm, from
among the valuation amounts submitted by the Company and the Requisite Holders
and the valuation amount calculated by the investment banking firm. The
determination of the final valuation amount by such investment-banking firm
shall be final and binding upon the parties. The Company shall pay the fees and
expenses of the investment banking firm and arbitrator (if any) used to
determine the valuation amount. If required by any such investment banking firm
or arbitrator, the Company shall execute a retainer and engagement letter
containing reasonable terms and conditions, including, without limitation,
customary provisions concerning the rights of indemnification and contribution
by the Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and affiliates. If the Apollo
Stockholders no longer constitute the Requisite Holders, the valuation amount
shall be determined in good faith by the Board of Directors.
"Fair Market Value" means, as to any security, the Twenty Day Average
-----------------
of the average closing prices of such security's sales on all domestic
securities exchanges on which such security may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York City time, on such day, or, if on any day such security is not quoted
in the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar or successor organization (and in
each such case excluding any trades that are not bona fide, arm's length
transactions). If at any time such security is not listed on any domestic
securities exchange or quoted in the NASDAQ System or the domestic over-the-
counter market, the "Fair Market Value" of such security shall be the fair
market value thereof as determined in accordance with the Appraisal Procedure,
using any appropriate valuation method, assuming an arms-length sale to an
independent party. In determining the fair market value of any class or series
of Common Stock, a sale of all of the issued and outstanding Common Stock will
be assumed, without giving regard to the lack of liquidity of such stock due to
any restrictions (contractual or otherwise) applicable thereto or any discount
for minority interests and assuming the conversion or exchange of all securities
then outstanding that are convertible into or exchangeable for Common Stock and
the exercise of all rights and warrants then outstanding and exercisable to
purchase shares of such stock or securities convertible into or exchangeable for
shares of such stock; provided, however that such
-------- -------
-15-
<PAGE>
assumption will not include those securities, rights and warrants convertible
into Common Stock where the conversion, exchange or exercise price per share is
greater than the fair market value; provided, further, however, that fair market
-------- ------- -------
value shall be determined with regard to the relative priority of each class or
series of Common Stock (if more than one class or series exists.) "Fair Market
Value" means with respect to property other than securities, the "fair market
value" determined in accordance with the Appraisal Procedure.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, which are in effect from time to time.
"Twenty Day Average" means, with respect to any prices and in
------------------
connection with the calculation of Fair Market Value, the average of such prices
over the twenty Business Days ending on the Business Day immediately prior to
the day as of which "Fair Market Value" is being determined.
Section 9. Preemptive Rights. Holders of shares of Series B
-----------------
Preferred Stock will have the right to purchase their pro rata portions of any
future private placements by the Company of equity or equity-linked securities,
other than (i) securities issued pursuant to the exercise of options or warrants
currently outstanding, options awarded to employees or directors of the Company
after the date hereof pursuant to currently existing employee incentive plans,
and options hereinafter issued under new employee incentive plans approved by
the Board of Directors and by the Apollo Stockholders and (ii) securities issued
as consideration in acquisitions by the Company.
Section 10. Limitations. In addition to any other rights provided by
-----------
applicable law, so long as any shares of Series B Preferred Stock are
outstanding, the Company shall not, without the affirmative vote, or the written
consent as provided by law, of the Requisite Holders, at a vote of the holders
of Series B Preferred Stock, voting separately as a class,
(a) create, authorize or issue any class, series or shares of
Preferred Stock (other than Additional Securities issued pursuant to
Section 2(b) hereof and Series B Preferred Stock issued as dividends)
or any other class of capital stock ranking either as to payment of
dividends or distribution of assets upon liquidation (i) prior to the
Series B Preferred Stock, or (ii) on a parity with the Series B
Preferred Stock, or (iii) junior to the Series B Preferred Stock, if
such junior securities may be redeemed, in any circumstance, on or
prior to the Redemption Date; or
(b) change the preferences, rights or powers with respect to the
Series B Preferred Stock so as to affect the Series B Preferred Stock
adversely.
-16-
<PAGE>
Section 11. Dividend Received Deduction. For federal income tax
---------------------------
purposes, the Company shall report distributions on the Series B Preferred Stock
as dividends, to the extent of the Company's current and accumulated earnings
and profits (as determined for federal income tax purposes).
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed by __________________, its _________, and attested by
________________, its Secretary, this ____ day of __________, 1999.
By:_________________________________
Name:
Title:
Attested:
By:_________________________
Secretary
-18-
<PAGE>
Appendix C
================================================================================
SERIES 1-A
WARRANT
to Purchase Common Stock of
RARE MEDIUM GROUP, INC.
================================================================================
Warrant No. [___]
Original Issue
Date: June 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS.............................................................. 2
2. EXERCISE OF WARRANT...................................................... 7
2.1 Manner of Exercise................................................. 7
2.2 Payment of Taxes................................................... 8
2.3 Fractional Shares.................................................. 9
2.4 Reduced Exercise Price............................................. 9
3. TRANSFER, DIVISION AND COMBINATION....................................... 9
3.1 Transfer........................................................... 9
3.2 Division and Combination........................................... 9
3.3 Expenses........................................................... 10
3.4 Maintenance of Books............................................... 10
4. ANTIDILUTION PROVISIONS.................................................. 10
4.1 Upon Issuance of Common Stock...................................... 10
4.2 Upon Acquisition of Common Stock................................... 11
4.3 Provisions Applicable to Adjustments............................... 11
4.4 Upon Stock Dividends or Splits..................................... 13
4.5 Upon Combinations.................................................. 13
4.6 Upon Reclassifications, Reorganizations, Consolidations or Mergers. 13
4.7 Deferral in Certain Circumstances ................................. 14
4.8 Other Anti-Dilution Provisions..................................... 14
4.9 Appraisal Procedure ............................................... 14
4.10 Adjustment of Number of Shares Purchasable ........................ 14
4.11 Exceptions......................................................... 14
4.12 Notice of Adjustment of Exercise Price ............................ 15
5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND
COOPERATION; NOTICE OF EXPIRATION........................................ 15
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY ............................................................... 16
7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD;
TRANSFER BOOKS .......................................................... 16
7.2 Taking of Record .................................................... 17
7.3 Closing of Transfer Books ........................................... 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
8. TRANSFER RESTRICTIONS..................................................... 17
8.1 Restrictions on Transfers............................................. 17
8.2 Restrictive Legends................................................... 18
8.3 Termination of Securities Law Restrictions............................ 19
9. LOSS OR MUTILATION........................................................ 19
10. OFFICE OF THE COMPANY..................................................... 20
11. FINANCIAL AND BUSINESS INFORMATION........................................ 20
12. DILUTION FEE.............................................................. 22
13. MISCELLANEOUS............................................................. 22
13.1 Nonwaiver........................................................... 22
13.2 Notice Generally.................................................... 22
13.3 Indemnification..................................................... 23
13.4 Limitation of Liability............................................. 23
13.5 Remedies............................................................ 23
13.6 Successors and Assigns.............................................. 23
13.7 Amendment........................................................... 23
13.8 Severability........................................................ 24
13.9 Headings............................................................ 24
13.10 GOVERNING LAW; JURISDICTION......................................... 24
ANNEX A
SUBSCRIPTION FORM......................................................... 26
ANNEX B
ASSIGNMENT FORM........................................................... 27
</TABLE>
-ii-
<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS
CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS
OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES
AND REGULATIONS THEREUNDER AND THIS WARRANT.
Warrant No. [___]
SERIES 1-A
WARRANT
TO PURCHASE ____ SHARES OF COMMON STOCK
(SUBJECT TO ADJUSTMENT) OF
RARE MEDIUM GROUP, INC.
THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its
registered assigns, is entitled, at any time prior to the Expiration Date (such
term, and certain other capitalized terms used herein being hereinafter
defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the
"Company"), thirteen and one-half (13.5) shares of the Common Stock of the
-------
Company (subject to adjustment as provided herein), at a purchase price per
share (the initial "Exercise Price", subject to adjustment as provided herein)
--------------
set forth in the table below (or, if the Fair Value falls between any of the
prices in the left column, then the Exercise Price will be calculated by linear
interpolation between the corresponding prices in the right column):
FAIR VALUE OF ONE
SHARE OF COMMON
STOCK ON EXERCISE DATE EXERCISE PRICE
---------------------- --------------
$4.00 or less $4.20
$5.00 $3.59
$6.00 $1.61
$7.00 or more $0.01
<PAGE>
1. DEFINITIONS
-----------
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Affiliate" of any Person means any other Person (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such Person. The term "control" (including the
terms "controlled by" and "under common control with") as used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"After-Tax Basis" when referring to a payment that is required
hereunder (the "target amount"), shall mean a total payment (the "total amount")
that, after deduction of all federal, state and local taxes that are required to
be paid by the recipient in respect of the receipt or accrual of such total
amount, is equal to the target amount.
"Agreed Rate" shall mean the rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s
base rate.
"Appraisal Procedure" if applicable, shall mean the following
procedure to determine the fair market value, as to any security, for purposes
of the definition of "Fair Value" or the fair market value, as to any other
property (in either case, the "valuation amount"). So long as Apollo Investment
Fund IV, L.P. or any of its Affiliates (the "Apollo Stockholders") beneficially
-------------------
own sufficient Warrants to constitute the Majority Warrant Holders, the
valuation amount shall be determined in good faith jointly by the Board of
Directors and the Majority Warrant Holders; provided, however, that if such
-------- -------
parties are not able to agree on the valuation amount within a reasonable period
of time (not to exceed twenty (20) days) the valuation amount shall be
determined by an investment banking firm of national recognition, which firm
shall be reasonably acceptable to the Board of Directors and the Majority
Warrant Holders. If the Board of Directors and the Majority Warrant Holders are
unable to agree upon an acceptable investment banking firm within ten (10) days
after the date either party proposed that one be selected, the investment
banking firm will be selected by an arbitrator located in New York City, New
York, selected by the American Arbitration Association (or if such organization
ceases to exist, the arbitrator shall be chosen by a court of competent
jurisdiction). The arbitrator shall select the investment banking firm (within
ten (10) days of his appointment) from a list, jointly prepared by the Board of
Directors and the Majority Warrant Holders, of not more than six investment
banking firms of national standing in the United States, of which no more than
three may be named by the Board of Directors and no more than three may be named
by the Majority Warrant Holders. The arbitrator may consider, within the ten-
day period allotted, arguments from the parties regarding which investment
banking firm to choose, but the selection by the arbitrator shall be made in its
sole discretion from the list of six. The Board of Directors and the Majority
Warrant Holders shall submit their respective valuations and other relevant data
to the investment
2
<PAGE>
banking firm, and the investment banking firm shall as soon as practicable
thereafter make its own determination of the valuation amount. The final
valuation amount for purposes hereof shall be the average of the two valuation
amounts closest together, as determined by the investment banking firm, from
among the valuation amounts submitted by the Company and the Majority Warrant
Holders and the valuation amount calculated by the investment banking firm. The
determination of the final valuation amount by such investment-banking firm
shall be final and binding upon the parties. The Company shall pay the fees and
expenses of the investment banking firm and arbitrator (if any) used to
determine the valuation amount. If required by any such investment banking firm
or arbitrator, the Company shall execute a retainer and engagement letter
containing reasonable terms and conditions, including, without limitation,
customary provisions concerning the rights of indemnification and contribution
by the Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and Affiliates. If the Apollo
Stockholders no longer constitute the Majority Warranty Holders, the valuation
amount shall be determined in good faith by the Board of Directors.
"Appraised Value" per share of Common Stock as of a date specified
herein shall mean the value of such a share as of such date as determined by an
investment bank of nationally recognized standing selected by the Majority
Warrant Holders and reasonably acceptable to the Company. If the investment
bank selected by the Majority Warrant Holders is not reasonably acceptable to
the Company, and the Company and the Majority Warrant Holders cannot agree on a
mutually acceptable investment bank, then the Company and the Majority Warrant
Holders shall each choose one such investment bank and the respective chosen
firms shall jointly select a third investment bank, which shall make the
determination. The Company shall pay the costs and fees of each such investment
bank (including any such investment bank selected by the Majority Warrant
Holders), and the decision of the investment bank making such determination of
Appraised Value shall be final and binding on the Company and all affected
holders of Warrants or Warrant Stock. Such Appraised Value shall be determined
as a pro rata portion of the value of the Company taken as a whole, based on the
higher of (A) the value derived from a hypothetical sale of the entire Company
as a going concern by a willing seller to a willing buyer (neither acting under
any compulsion) and (B) the liquidation value of the entire Company. No
discount shall be applied on account of (i) any Warrants or Warrant Stock
representing a minority interest, (ii) any lack of liquidity of the Common Stock
or the Warrants, (iii) the fact that the Warrants or Warrant Stock may
constitute "restricted securities" for securities law purposes, (iv) the
existence of any call option or (v) any other grounds.
"Book Value" per share of Common Stock as of a date specified herein
shall mean the consolidated book value of the Company and its Subsidiaries as of
such date divided by the number of shares of Common Stock Outstanding on such
date. Such book value shall be determined in accordance with GAAP, except that
there shall be no reduction in such book value by reason of any amount that may
be required either as an offset to or reserve against retained earnings or as a
deduction from book value as a result of the issuance, existence, anticipated
exercise of, or anticipated cost to the Company of the repurchase of, any of the
Warrants.
3
<PAGE>
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean the Common Stock of the Company, par value
$0.01 per share, as constituted on the Original Issue Date, and any capital
stock into which such Common Stock may thereafter be changed, and shall also
include (i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of any Common Stock upon any
reclassification thereof which is also not preferred as to dividends or
liquidation over any other class of stock of the Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.6 hereof) received by or
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.6 hereof.
"Company" means Rare Medium Group, Inc., a Delaware corporation, and
any successor corporation.
"Current Market Price" shall mean as of any specified date the average
of the daily market price of one share of the Common Stock for the shorter of
(x) the twenty (20) consecutive Business Days immediately preceding such date or
(y) the period commencing on the Business Day next following the first public
announcement by the Company of any event giving rise to an adjustment of the
Exercise Price pursuant to Section 4 below and ending on such date. The "daily
market price" of one share of Common Stock for each such Business Day shall be:
(i) if the Common Stock is then listed on a national securities exchange or is
listed on NASDAQ and is designated as a National Market System security, the
last sale price of one share of Common Stock, regular way, on such day on the
principal stock exchange or market system on which such Common Stock is then
listed or admitted to trading, or, if no such sale takes place on such day, the
average of the closing bid and asked prices for one share of Common Stock on
such day as reported on such stock exchange or market system or (ii) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or designated as a National Market System security on NASDAQ
but is traded over-the-counter, the average of the closing bid and asked prices
for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin
Board or in the National Daily Quotation Sheets, as applicable.
"Designated Office" shall have the meaning set forth in Section 10
hereof.
"Dilution Fee" shall have the meaning set forth in Section 14 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
4
<PAGE>
"Excluded Stock" shall have the meaning set forth in Section 4.11
hereof.
"Exercise Date" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Notice" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1 hereof.
"Exercise Price" shall mean, in respect of a share of Common Stock at
any date herein specified, the initial Exercise Price set forth in the preamble
of this Warrant as adjusted from time to time pursuant to Sections 2.4 and 4
hereof.
"Expiration Date" shall mean the tenth anniversary of the Original
Issue Date.
"Fair Value" per share of Common Stock as of any specified date shall
mean (A) if the Common Stock is publicly traded on such date, the Current Market
Price per share or (B) if the Common Stock is not publicly traded on such date,
(1) the fair market value per share of Common Stock as determined in good faith
by the Board of Directors of the Company and set forth in a written notice to
each Holder or (2) if the Majority Warrant Holders object in writing to such
price as determined by the Board of Directors within thirty (30) days after
receiving notice of same, the Appraised Value per share as of such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean (a) with respect to this Warrant, the Person in
whose name the Warrant set forth herein is registered on the books of the
Company maintained for such purpose and (b) with respect to any other Warrant or
shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock
is registered on the books of the Company maintained for such purpose.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or comparable
law of any jurisdiction).
"Majority Warrant Holders", with respect to a given determination,
shall mean the Holders of Warrants representing more than fifty percent (50%) of
all then outstanding Warrants.
5
<PAGE>
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"NASDAQ" shall mean the NASDAQ quotation system, or any successor
reporting system.
"Opinion of Counsel" means a written opinion of outside counsel
experienced in Securities Act matters chosen by the Holder of this Warrant or
Warrant Stock issued upon the exercise hereof and reasonably acceptable to the
Company.
"Original Issue Date" shall mean the date on which this Warrant was
issued, as set forth on the cover page of this Warrant.
"Original Warrants" shall mean the Warrants originally issued by the
Company on June 4, 1999 to the Apollo Stockholders.
"Outside Date" shall mean the date which is 120 days after the
Original Issue Date.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any Subsidiary, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 8.2(a)
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock of the Company.
"Series B Preferred Stock" shall mean the Series B Preferred Stock of
the Company.
6
<PAGE>
"Share Withholding Option" has the meaning set forth in Section 2.1
hereof.
"Subsidiary" shall mean any corporation, association or other business
entity (i) at least 50% of the outstanding voting securities of which are at the
time owned or controlled directly or indirectly by the Company; or (ii) with
respect to which the Company possesses, directly or indirectly, the power to
direct or cause the direction of the affairs or management of such person.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest therein, which would constitute a "sale" thereof or a
transfer of a beneficial interest therein within the meaning of the Securities
Act.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such
exercise.
"Warrants" shall mean the Original Warrants and all warrants issued
upon transfer, division or combination of, or in substitution for, such Original
Warrants, and any additional Warrants issued together with shares of Series A
Preferred Stock paid as dividends, or any other such Warrant. All Warrants
shall at all times be identical as to terms and conditions, except as to the
number of shares of Common Stock for which they may be exercised and their date
of issuance.
"Warrant Stock" generally shall mean the shares of Common Stock
issued, issuable or both (as the context may require) upon the exercise of
Warrants.
2. EXERCISE OF WARRANT
-------------------
2.1 Manner of Exercise. (a) From and after the Original Issue Date
------------------
and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this
Warrant may from time to time exercise this Warrant, on any Business Day, for
all or any part of the number of shares of Common Stock purchasable hereunder
(as determined pursuant to Section 2.2 below). In order to exercise this
Warrant, in whole or in part, the Holder shall (i) deliver to the Company at its
Designated Office a written notice of the Holder's election to exercise this
Warrant (an "Exercise Notice"), which Exercise Notice shall be irrevocable and
---------------
specify the number of shares of Common Stock to be purchased, together with this
Warrant and (ii) pay to the Company the Warrant Price (the date on which both
such delivery and payment shall have first taken place being hereinafter
sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in
-------------
the form of the subscription form appearing at the end of this Warrant as Annex
-----
A, duly executed by the Holder or its duly authorized agent or attorney.
- -
7
<PAGE>
(b) Upon receipt by the Company of such Exercise Notice, Warrant and
payment, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute (or cause to be executed) and deliver
(or cause to be delivered) to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the
exercising Holder shall reasonably request in the Exercise Notice and shall be
registered in the name of the Holder or, subject to Section 8 below, such other
name as shall be designated in the Exercise Notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and the Holder or any other Person so designated to
be named therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of the
Holder by one or more of the following methods: (i) by delivery of a certified
or official bank check in the amount of such Warrant Price payable to the order
of the Company, (ii) by instructing the Company to withhold a number of shares
of Warrant Stock then issuable upon exercise of this Warrant with an aggregate
Fair Value equal to such Warrant Price (the "Share Withholding Option"), or
------------------------
(iii) by surrendering to the Company shares of Common Stock previously acquired
by the Holder with an aggregate Fair Value equal to such Warrant Price. In the
event of any withholding of Warrant Stock or surrender of Common Stock pursuant
to clause (ii) or (iii) above where the number of shares whose Fair Value is
equal to the Warrant Price is not a whole number, the number of shares withheld
by or surrendered to the Company shall be rounded up to the nearest whole share
and the Company shall make a cash payment to the Holder based on the incremental
fraction of a share being so withheld by or surrendered to the Company in an
amount determined in accordance with Section 2.3 hereof.
(d) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the shares of Common Stock being issued, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant. Such new Warrant shall in all other respects
be identical to this Warrant. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares of Common Stock
in the name of any Person who acquired this Warrant (or part hereof) or any
shares of Warrant Stock otherwise than in accordance with this Warrant.
(e) All Warrants delivered for exercise shall be canceled by the
Company.
2.2 Payment of Taxes. All shares of Common Stock issuable upon the
----------------
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable, issued without violation of any preemptive rights
and free and clear of all Liens (other than any created by actions of the
Holder). The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue or
delivery
8
<PAGE>
thereof, unless such tax or charge is imposed by law upon the Holder, in which
case such taxes or charges shall be paid by the Holder and the Company shall
reimburse the Holder therefor on an After-Tax Basis. The Company shall not,
however, be required to pay any tax or governmental charge which may be issuable
upon exercise of this Warrant payable in respect of any Transfer involved in the
issue and delivery of shares of Common Stock in a name other than that of the
holder of the Warrants to be exercised, and no such issue or delivery shall be
made unless and until the Person requesting such issue has paid to the Company
the amount of any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
2.3 Fractional Shares. The Company shall not be required to issue a
-----------------
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share that the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay to such Holder an amount in
cash equal to such fraction multiplied by (i) the Current Market Price of one
share of Common Stock on the Exercise Date, if the Common Stock is then publicly
traded, or (ii) the Book Value per share of Common Stock based on the most
recent available consolidated balance sheet of the Company, if the Common Stock
is not then publicly traded.
2.4 Reduced Exercise Price. On the Outside Date, in the event that
----------------------
the Company shall not have obtained the approval of its stockholders of the
conversion of the Series B Preferred Stock to Series A Preferred Stock, the
Exercise Price herein shall be reduced to $0.01.
3. TRANSFER, DIVISION AND COMBINATION
----------------------------------
3.1 Transfer. Subject to compliance with Section 8 hereof, each
--------
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the Designated Office, together with a written
assignment of this Warrant in the form of Annex B hereto duly executed by the
-------
Holder or its agent or attorney and funds sufficient to pay any transfer taxes
described in Section 2.2 in connection with the making of such transfer. Upon
such surrender and delivery and, if required, such payment, the Company shall,
subject to Section 8, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned in compliance with
Section 8, may be exercised by the new Holder for the purchase of shares of
Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to compliance with the
------------------------
applicable provisions of this Warrant including, without limitation, Section 8,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the Designated Office, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with the applicable
9
<PAGE>
provisions of this Warrant as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its
--------
own expense (other than pursuant to Section 2.2 hereof) any new Warrant or
Warrants required to be issued under this Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at the
--------------------
Designated Office, books for the registration and transfer of the Warrants.
4. ANTIDILUTION PROVISIONS
-----------------------
The number of shares of Common Stock for which this Warrant is
exercisable and the Exercise Price shall be subject to adjustment from time to
time as set forth in this Section 4.
4.1 Upon Issuance of Common Stock. If the Company shall, at any time
-----------------------------
or from time to time after the Original Issuance Date, issue any shares of
Common Stock, options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock, or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, other than shares of Series A Preferred Stock, Series B Preferred
Stock or Excluded Stock, without consideration or for consideration per share
less than either (x) the Exercise Price or (y) the Fair Value of the Common
Stock, in effect immediately prior to the issuance of such Common Stock or
securities, then such Exercise Price shall forthwith be lowered to a price equal
to the price obtained by multiplying:
(i) the Exercise Price in effect immediately prior to the
issuance of such Common Stock or securities by
(ii) a fraction of which (x) the denominator shall be the
number of shares of Common Stock outstanding on a fully-diluted basis
immediately after such issuance and (y) the numerator shall be the sum of
(i) the number of shares of Common Stock outstanding on a fully-diluted
basis immediately prior to the date of such issuance and (ii) the number of
additional shares of Common Stock which the aggregate consideration for the
number of shares of Common Stock so offered would purchase at the greater
of the Exercise Price or the Fair Value per share of Common Stock.
For purposes of this Section 4, "fully diluted basis" shall be
determined in accordance with the treasury method of GAAP.
10
<PAGE>
4.2 Upon Acquisition of Common Stock. If the Company or any
--------------------------------
Subsidiary shall, at any time or from time to time after the Original Issuance
Date, directly or indirectly, redeem, purchase or otherwise acquire any shares
of Common Stock, options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock
(other than shares of Series A Preferred Stock or Series B Preferred Stock that
are redeemed according to their terms), or options to purchase or rights to
subscribe for such convertible or exchangeable securities, for a consideration
per share greater than the Fair Value (plus, in the case of such options,
rights, or securities, the additional consideration required to be paid to the
Company upon exercise, conversion or exchange) for shares of Common Stock in
effect immediately prior to such event, then the Exercise Price shall forthwith
be lowered to a price equal to the price obtained by multiplying:
(i) the Exercise Price in effect immediately prior to such
event by
(ii) a fraction of which (x) the denominator shall be the
Fair Value per share of Common Stock immediately prior to such event and
(y) the numerator shall be the result of dividing:
(A) (1) the product of (a) the number of shares of
Common Stock outstanding on a fully-diluted basis
and (b) the Fair Value per share of Common Stock,
in each case immediately prior to such event,
minus (2) the aggregate consideration paid by the
Company in such event (plus, in the case of such
options, rights, or convertible or exchangeable
securities, the aggregate additional consideration
to be paid by the Company upon exercise,
conversion or exchange), by
(B) the number of shares of Common Stock outstanding
on a fully-diluted basis immediately after such
event.
4.3 Provisions Applicable to Adjustments. For the purposes of any
------------------------------------
adjustment of an Exercise Price pursuant to Sections 4.1 and 4.2, the following
provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash in
a public offering or private placement, the consideration shall be
deemed to be the amount of cash paid therefor before deducting
therefrom any discounts, commissions or placement fees payable by the
Company to any underwriter or placement agent in connection with the
issuance and sale thereof.
(ii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed
11
<PAGE>
to be the Fair Value thereof as determined in accordance with the
Appraisal Procedure.
(iii) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, except for shares of Series A Preferred Stock, shares of
Series B Preferred Stock and options to acquire Excluded Stock:
(A) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in
subparagraphs (i) and (ii) above), if any,
received by the Company upon the issuance of such
options or rights plus the minimum purchase price
provided in such options or rights for the Common
Stock covered thereby;
(B) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in
exchange of any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
securities, options, or rights were issued and for
a consideration equal to the consideration
received by the Company for any such securities
and related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the additional consideration, if
any, to be received by the Company upon the
conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in paragraphs (i) and (ii) above)
and
(C) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of
any such options or rights or conversions of or
exchanges for such securities, other than a change
resulting from the antidilution provisions
thereof, the applicable Exercise Price
12
<PAGE>
shall forthwith be readjusted to such Exercise
Price as would have been obtained had the
adjustment made upon the issuance of such options,
rights or securities not converted prior to such
change or options or rights related to such
securities not converted prior to such change been
made upon the basis of such change.
(D) No further adjustment of the Exercise Price
adjusted upon the issuance of any such options,
rights, convertible securities or exchangeable
securities shall be made as a result of the actual
issuance of Common Stock on the exercise of any
such rights or options or any conversion or
exchange of any such securities.
4.4 Upon Stock Dividends or Splits. If, at any time after the
------------------------------
Original Issuance Date, the number of shares of Common Stock outstanding is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the record
date for the determination of holders of Common Stock entitled to receive such
stock dividend, or to be affected by such subdivision or split-up, the Exercise
Price shall be appropriately decreased so that the number of shares of Common
Stock purchasable on exercise of the Warrants shall be increased in proportion
to such increase in outstanding shares.
4.5 Upon Combinations. If, at any time after the Original Issuance
-----------------
Date, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, following the record date to determine shares
affected by such combination, the Exercise Price shall be appropriately
increased so that the number of shares of Common Stock purchasable on exercise
of each of the Warrants shall be decreased in proportion to such decrease in
outstanding shares.
4.6 Upon Reclassifications, Reorganizations, Consolidations or
----------------------------------------------------------
Mergers. In the event of any capital reorganization of the Company, any
- -------
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
or any consolidation or merger of the Company with or into another corporation
(where the Company is not the surviving corporation or where there is a change
in or distribution with respect to the Common Stock), each Warrant shall after
such reorganization, reclassification, consolidation, or merger be exercisable
for the kind and number of shares of stock or other securities or property of
the Company or of the successor corporation resulting from such consolidation or
surviving such merger, if any, to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon exercise of such Warrant would
have been entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations, or mergers.
13
<PAGE>
4.7 Deferral in Certain Circumstances. In any case in which the
---------------------------------
provisions of this Section 4 shall require that an adjustment shall become
effective immediately after a record date of an event, the Company may defer
until the occurrence of such event issuing to the holder of any Warrant
exercised after such record date and before the occurrence of such event the
shares of capital stock issuable upon such exercise by reason of the adjustment
required by such event and issuing to such holder only the shares of capital
stock issuable upon such exercise before giving effect to such adjustments;
provided, however, that the Company shall deliver to such holder an appropriate
- -------- -------
instrument or due bills evidencing such holder's right to receive such
additional shares.
4.8 Other Anti-Dilution Provisions. If the Company has issued or
------------------------------
issues any securities on or after the Original Issuance Date containing
provisions protecting the holder or holders thereof against dilution in any
manner more favorable to such holder or holders thereof than those set forth in
this Section 4, such provisions (or any more favorable portion thereof) shall be
deemed to be incorporated herein as if fully set forth in this Warrant and, to
the extent inconsistent with any provision of this Warrant, shall be deemed to
be substituted therefor.
4.9 Appraisal Procedure. In any case in which the provisions of this
-------------------
Section 4 shall necessitate that the Appraisal Procedure be utilized for
purposes of determining an adjustment to the Exercise Price, the Company may
defer until the completion of the Appraisal Procedure and the determination of
the adjustment (1) issuing to the holder of any Warrant exercised after the date
of the event that requires the adjustment and before completion of the Appraisal
Procedure and the determination of the adjustment, the shares of capital stock
issuable upon such exercise by reason of the adjustment required by such event
and issuing to such holder only the shares of capital stock issuable upon such
exercise before giving effect to such adjustment and (2) paying to such holder
any amount in cash in lieu of a fractional share of capital stock pursuant to
Section 2.3 above; provided, however, that the Company shall deliver to such
-------- -------
holder an appropriate instrument or due bills evidencing such holder's right to
receive such additional shares or cash.
4.10 Adjustment of Number of Shares Purchasable. Upon any adjustment
------------------------------------------
of the Exercise Price as provided in Section 4.1, 4.2, 4.4, 4.5 or 4.6, the
holders of the Warrants shall thereafter be entitled to purchase upon the
exercise thereof, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable on the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment.
4.11 Exceptions. Section 4 shall not apply to (i) any issuance of
----------
Common Stock upon exercise of any warrants or options (A) outstanding on the
Original Issuance Date or (B) awarded to employees or directors of the Company
pursuant to an employee stock option plan or stock incentive plan approved by
the Board of Directors; (ii) any issuance of securities by
14
<PAGE>
the Company in underwritten public offerings; and (iii) repurchases by the
Company of Common Stock approved by the Board of Directors (collectively, the
"Excluded Stock").
--------------
4.12 Notice of Adjustment of Exercise Price. Whenever the Exercise
--------------------------------------
Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Exercise Price in
accordance with this Section 4 and shall prepare a certificate signed
by the Treasurer or Chief Financial Officer of the Company setting
forth the adjusted Exercise Price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall
forthwith be filed at each office or agency maintained for such
purpose or exercise of Warrants; and
(ii) a notice stating that the Exercise Price has been adjusted
and setting forth the adjusted Exercise Price shall forthwith be
prepared by the Company, and as soon as practicable after it is
prepared, such notice shall be mailed by the Company at its expense to
all Holders at their last addresses as they shall appear in the stock
register.
5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION
--------------------------------------------------------------------------
(a) The Company shall not by any action, including, without
limitation, amending its charter documents or through any reorganization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all Liens, and shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
(b) The Company shall deliver to each Holder of Warrants on or before
six months prior to the tenth anniversary of the Original Issue Date, but no
earlier than nine months prior to the tenth anniversary of the Original Issue
Date, advance notice of such tenth anniversary and of the anticipated Expiration
Date. If the Company fails to fulfill in a timely manner the notice obligation
set forth in the prior sentence, it shall provide such notice as soon as
possible thereafter.
15
<PAGE>
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGIS TRATION WITH OR
--------------------------------------------------------------------
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
--------------------------------------
From and after the Original Issue Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of the Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock issuable pursuant to the terms hereof, when issued upon
exercise of this Warrant with payment therefor in accordance with the terms
hereof, shall be duly and validly issued and fully paid and nonassessable, not
subject to preemptive rights and shall be free and clear of all Liens. Before
taking any action that would result in an adjustment in the number of shares of
Common Stock for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction over such action. If any shares of Common Stock required to be
reserved for issuance upon exercise of Warrants require registration or
qualification with any governmental authority under any federal or state law
(other than under the Securities Act or any state securities law) before such
shares may be so issued, the Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered.
7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS
-------------------------------------------------------------
7.1 Notices of Corporate Actions.
----------------------------
In case:
(a) the Company shall take an action or an event shall occur,
that would require an Exercise Price adjustment pursuant to Section 4;
or
(b) the Company shall grant to the holders of its Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class; or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock),
or of any consolidation, merger or share exchange to which the Company
is a party and for which approval of any stockholders of the Company
is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the outstanding shares of Common Stock (or
shall amend any
16
<PAGE>
such tender offer to change the maximum number of shares being sought
or the amount or type of consideration being offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
such purpose, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the stock register, at least 30 days prior to
the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend, distribution, rights or warrants are to
be determined, (y) the date on which such reclassification, consolidation,
merger, share exchange, 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 shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of the amendment thereto). Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Exercise Price and the number and kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon exercise of
the Warrants. Neither the failure to give any such notice nor any defect therein
shall affect the legality or validity of any action described in clauses (a)
through (e) of this Section 7.1.
7.2 Taking of Record. In the case of all dividends or other
----------------
distributions by the Company to the holders of its Common Stock with respect to
which any provision of any Section hereof refers to the taking of a record of
such holders, the Company will in each such case take such a record and will
take such record as of the close of business on a Business Day.
7.3 Closing of Transfer Books. The Company shall not at any time,
-------------------------
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
8. TRANSFER RESTRICTIONS
---------------------
The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 8.
8.1 Restrictions on Transfers. Neither this Warrant nor any shares
-------------------------
of Restricted Common Stock issued upon the exercise hereof shall be transferred,
sold, assigned, exchanged, mortgaged, pledged, hypothecated or otherwise
disposed of or encumbered without compliance with the provisions of, and are
otherwise restricted by the provisions of, the Securities Act, the
17
<PAGE>
rules and regulations thereunder and this Warrant. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon any such Transfer,
other than in a public offering pursuant to an effective registration statement,
shall bear the restrictive legend set forth in Section 8.2(a), and each Warrant
issued upon such Transfer shall bear the restrictive legend set forth in Section
8.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the
effect that such legend is not required for the purposes of compliance with the
Securities Act. Holders of the Warrants or the Restricted Common Stock, as the
case may be, shall not be entitled to Transfer such Warrants or such Restricted
Common Stock except in accordance with this Section 8.1.
8.2 Restrictive Legends. (a) Except as otherwise provided in this
-------------------
Section 8, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
two legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE
DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND
ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND
REGULATIONS THEREUNDER."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF
AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 1-A
WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC.
(THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED.
A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF THE RARE
MEDIUM GROUP, INC."
(b) Except as otherwise provided in this Section 8, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"NEITHER THIS SERIES 1-A WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 1-A WARRANTS
REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OF
18
<PAGE>
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS
OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES
AND REGULATIONS THEREUNDER AND THIS WARRANT."
8.3 Termination of Securities Law Restrictions. Notwithstanding the
------------------------------------------
foregoing provisions of this Section 8, the restrictions imposed by Section
8.1(b) upon the transferability of the Warrants and the Restricted Common Stock
and the legend requirements of Section 8.2 shall terminate as to any particular
Warrant or shares of Restricted Common Stock when the Company shall have
received from the Holder thereof an Opinion of Counsel to the effect that such
legend is not required in order to ensure compliance with the Securities Act.
Whenever the restrictions imposed by Sections 8.1(b) and 8.2 shall terminate as
to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to
receive from the Company, at the expense of the Company, a new Warrant bearing
the following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 1-A WARRANT
CONTAINED IN SECTIONS 8.1(b) AND 8.2 HEREOF TERMINATED ON ______________,
20__, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 8.2(a).
9. LOSS OR MUTILATION
------------------
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and an indemnity reasonably satisfactory to it (it
being understood that the written indemnification agreement of or affidavit of
loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case
of mutilation, upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided,
--------
however, that, in the case of mutilation, no indemnity shall be required if this
- -------
Warrant in identifiable form is surrendered to the Company for cancellation.
19
<PAGE>
10. OFFICE OF THE COMPANY
---------------------
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency, which may be the principal executive offices of
the Company (the "Designated Office"), where the Warrants may be presented for
-----------------
exercise, registration of transfer, division or combination as provided in this
Warrant. Such Designated Office shall initially be the office of the Company at
44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from
time to time change the Designated Office to another office of the Company or
its agent within the United States by notice given to all registered Holders at
least ten (10) Business Days prior to the effective date of such change.
11. FINANCIAL AND BUSINESS INFORMATION
----------------------------------
(a) Financial Reports.
-----------------
Until (i) the Company shall no longer be required to deliver financial
reports in connection with the Series A Preferred Stock, or (ii) the Expiration
Date, whichever first occurs, the Company shall furnish to Apollo Investment
Fund IV, L.P. the following:
(i) Monthly Reports. As soon as available, but not later than
---------------
30 days after the end of each fiscal month, a consolidated balance sheet of
the Company as of the end of such period and consolidated statements of
income of the Company for such period and for the period commencing at the
end of the previous fiscal year and ending with the end of such period,
setting forth in each case in comparative form the corresponding figures
for the corresponding period of the preceding fiscal year, and including
comparisons to the budget or business plan and an analysis of the variances
from the budget or plan, all prepared in accordance with generally accepted
accounting principals consistently applied (except for the absence of
footnotes and year-end adjustments).
(ii) Quarterly Reports. As soon as available, but not later than
-----------------
45 days after the end of each quarterly accounting period, (A) a
consolidated balance sheet of the Company as of the end of such period and
consolidated statements of income, cash flows and changes in shareholders'
equity for such quarterly accounting period and for the period commencing
at the end of the previous fiscal year and ending with the end of such
period, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, and
including comparisons to the budget or business plan and an analysis of the
variances from the budget or plan, all prepared in accordance with
generally accepted accounting principals consistently applied, subject to
normal year-end adjustments and the absence of footnote disclosure, and (B)
a report by management of the Company of the operating and financial
highlights of the Company and its Subsidiaries for such period, which shall
include (x) a comparison
20
<PAGE>
between operating and financial results and budget and (y) an analysis of
the operations of the Company and its Subsidiaries for such period.
(iii) Annual Audit. As soon as available, but not later than 90
------------
days after the end of each fiscal year of the Company, audited consolidated
financial statements of the Company, which shall include statements of
income, cash flows and changes in shareholders' equity for such fiscal year
and a balance sheet as of the last day thereof, each prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by the report of a "Big 5" firm of independent certified public
accountants selected by the Company's Board of Directors (the
"Accountants"). The Company and its Subsidiaries shall maintain a system
-----------
of accounting sufficient to enable its Accountants to render the report
referred to in this Section 11(a)(iii).
(iv) Miscellaneous. Promptly upon becoming available, each of
-------------
the following:
(A) copies of all financial statements, reports, press
releases, notices, proxy statements and other documents sent by the Company
or its Subsidiaries to its shareholders generally or released to the public
and copies of all regular and periodic reports, if any, filed by the
Company or its Subsidiaries with the SEC, any securities exchange or the
NASD;
(B) notification in writing of the existence of any default
under any material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of their assets are bound;
(C) upon request, copies of all reports prepared for or
delivered to the management of the Company or its Subsidiaries by its
accountants; and
(D) upon request, any other routinely collected financial or
other information available to management of the Company or its
Subsidiaries (including, without limitation, routinely collected
statistical data).
(b) Other Holders. Without duplication of any document or information
-------------
provided pursuant to this Section 11, the Company shall provide to each Holder
of Warrants or Warrant Stock the following:
(i) as soon as available, but not later than 45 days after the
end of each quarterly accounting period, a Form 10-Q or, if the Company
does not then file quarterly reports with the SEC, the documents referred
to in Section 11(a)(ii).
21
<PAGE>
(ii) as soon as available, but not later than 90 days after the
end of each fiscal year, a Form 10-K or, if the Company does not then file
annual reports with the SEC, the audited consolidated financial statements
referred to in Section 11(a)(iii).
(iii) simultaneously with any distribution of any document to
the stockholders of the Company generally, any such document so
distributed.
12. DILUTION FEE
------------
In the event any dividends are declared with respect to the Common
Stock, the holder of this Warrant as of the record date established by the Board
of Directors for such dividend shall be entitled to receive as a dilution fee
(the "Dilution Fee") an amount (whether in the form of cash, securities or other
------------
property) equal to the amount (and in the form) of the dividends that such
holder would have received had this Warrant been exercised for purchase of
Common Stock as of the record date of such dividend, such Dilution Fee to be
payable on the payment date of the dividend established by the Board of
Directors (the "Dilution Fee Payment Date"). The record date for any such
-------------------------
Dilution Fee shall be the record date for the applicable dividend, and any such
Dilution Fee shall be payable to the persons in whose name this Warrant is
registered at the close of business on the applicable record date.
13. MISCELLANEOUS
-------------
13.1 Nonwaiver. No course of dealing or any delay or failure to
---------
exercise any right hereunder on the part of the Company or the Holder shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of such Person.
13.2 Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or communication hereunder to be made pursuant
to the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) if to any Holder of this Warrant or of Warrant Stock issued upon
the exercise hereof, at its last known address appearing on the books of
the Company maintained for such purpose;
(b) if to the Company, at the Designated Office;
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other
22
<PAGE>
communication hereunder shall be deemed to have been duly given or served on the
date on which personally delivered, with receipt acknowledged, or three (3)
Business Days after the same shall have been deposited in the United States
mail, or one (1) Business Day after the same shall have been sent by Federal
Express or another recognized overnight courier service.
13.3 Indemnification. If the Company fails to make, when due, any
---------------
payments provided for in this Warrant, the Company shall pay to the Holder
hereof (a) interest at the Agreed Rate on any amounts due and owing to such
Holder and (b) such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees and
expenses incurred by such Holder in collecting any amounts due hereunder. The
Company shall indemnify, save and hold harmless the Holder hereof and the
Holders of any Warrant Stock issued upon the exercise hereof from and against
any and all liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and all other out-of-pocket expenses
incurred in connection with or arising from any default hereunder by the
Company. This indemnification provision shall be in addition to the rights of
such Holder or Holders to bring an action against the Company for breach of
contract based on such default hereunder.
13.4 Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder to pay the Exercise Price for any Warrant
Stock other than pursuant to an exercise of this Warrant or any liability as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in
--------
addition to being entitled to exercise its rights granted by law, including
recovery of damages, shall be entitled to specific performance of its rights
provided under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Warrant and hereby agrees, in an action for specific
performance, to waive the defense that a remedy at law would be adequate.
13.6 Successors and Assigns. Subject to the provisions of Sections
----------------------
3.1, 8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and to the extent applicable, all Holders of shares of Warrant
Stock issued upon the exercise hereof (including transferees), and shall be
enforceable by any such Holder.
13.7 Amendment. This Warrant and all other Warrants may be modified
---------
or amended or the provisions hereof waived with the written consent of the
Company and the Majority Warrant Holders, provided that no such Warrant may be
--------
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the
23
<PAGE>
price at which such shares may be purchased upon exercise of such Warrant
(before giving effect to any adjustment as provided therein) without the written
consent of the Holder thereof.
13.8 Severability. Wherever possible, each provision of this Warrant
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.9 Headings. The headings used in this Warrant are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
13.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL
---------------------------
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS
WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND
DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE
GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH
BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR
TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS
--------
ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK.
24
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
RARE MEDIUM GROUP, INC.
By:_________________________________
Name:
Title:
[SEAL]
Attest:
By:_____________________________
Name:
Title:
25
<PAGE>
ANNEX A
-------
SUBSCRIPTION FORM
-----------------
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of ______ shares Common Stock of Rare Medium
Group, Inc. and herewith makes payment therefor in __________, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _________________ whose address is
___________________________________________________ and, if such shares of
Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
___________________________________
(Name of Registered Owner)
___________________________________
(Signature of Registered Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
ANNEX B
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the under signed under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint ________ _____________
attorney-in-fact to register such transfer onto the books of Rare Medium Group,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:___________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
================================================================================
<PAGE>
Appendix D
================================================================================
SERIES 2-A
WARRANT
to Purchase Common Stock of
RARE MEDIUM GROUP, INC.
================================================================================
Warrant No. [___]
Original Issue
Date: June 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS ........................................................... 1
2. EXERCISE OF WARRANT ................................................... 7
2.1 Manner of Exercise ................................................ 7
2.2 Payment of Taxes .................................................. 8
2.3 Fractional Shares ................................................. 8
2.4 Reduced Exercise Price ............................................ 8
3. TRANSFER, DIVISION AND COMBINATION .................................... 9
3.1 Transfer .......................................................... 9
3.2 Division and Combination .......................................... 9
3.3 Expenses .......................................................... 9
3.4 Maintenance of Books .............................................. 9
4. ANTIDILUTION PROVISIONS ............................................... 9
4.1 Upon Issuance of Common Stock ..................................... 9
4.2 Upon Acquisition of Common Stock .................................. 10
4.3 Provisions Applicable to Adjustments .............................. 11
4.4 Upon Stock Dividends or Splits12
4.5 Upon Combinations ................................................. 12
4.6 Upon Reclassifications, Reorganizations, Consolidations or Mergers 13
4.7 Deferral in Certain Circumstances ................................. 13
4.8 Other Anti-Dilution Provisions13
4.9 Appraisal Procedure ............................................... 13
4.10 Adjustment of Number of Shares Purchasable ....................... 14
4.11 Exceptions. 14
4.12 Notice of Adjustment of Exercise Price ........................... 14
5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION;
NOTICE OF EXPIRATION .................................................. 14
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY ............................................................. 15
7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD;
TRANSFER BOOKS ........................................................ 15
7.1 Notices of Corporate Actions....................................... 15
7.2 Taking of Record .................................................. 16
7.3 Closing of Transfer Books ......................................... 16
8. TRANSFER RESTRICTIONS ................................................. 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
8.1 Restrictions on Transfers ......................................... 17
8.2 Restrictive Legends ............................................... 17
8.3 Termination of Securities Law Restrictions ........................ 18
9. LOSS OR MUTILATION .................................................... 18
10. OFFICE OF THE COMPANY ................................................. 19
11. FINANCIAL AND BUSINESS INFORMATION .................................... 19
12. DILUTION FEE .......................................................... 21
13. MISCELLANEOUS ......................................................... 21
13.1 Nonwaiver ........................................................ 21
13.2 Notice Generally ................................................. 21
13.3 Indemnification .................................................. 21
13.4 Limitation of Liability .......................................... 22
13.5 Remedies ......................................................... 22
13.6 Successors and Assigns ........................................... 22
13.7 Amendment ........................................................ 22
13.8 Severability ..................................................... 22
13.9 Headings ......................................................... 22
13.10 GOVERNING LAW; JURISDICTION ..................................... 23
ANNEX A
SUBSCRIPTION FORM ..................................................... 25
ANNEX B
ASSIGNMENT FORM ....................................................... 26
</TABLE>
-ii-
<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS
REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR
ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE
OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND
REGULATIONS THEREUNDER AND THIS WARRANT.
Warrant No. [___]
SERIES 2-A
WARRANT
TO PURCHASE ____ SHARES OF COMMON STOCK
(SUBJECT TO ADJUSTMENT) OF
RARE MEDIUM GROUP, INC.
THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its
registered assigns, is entitled, at any time prior to the Expiration Date (such
term, and certain other capitalized terms used herein being hereinafter
defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the
"Company"), one (1) share of the Common Stock of the Company (subject to
-------
adjustment as provided herein), at a purchase price per share (the initial
"Exercise Price", subject to adjustment as provided herein) equal to $7.00.
--------------
1. DEFINITIONS
-----------
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Affiliate" of any Person means any other Person (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such Person. The term "control" (including the
terms "controlled by" and "under common control with") as used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
<PAGE>
"After-Tax Basis" when referring to a payment that is required
hereunder (the "target amount"), shall mean a total payment (the "total amount")
that, after deduction of all federal, state and local taxes that are required to
be paid by the recipient in respect of the receipt or accrual of such total
amount, is equal to the target amount.
"Agreed Rate" shall mean the rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s
base rate.
"Appraisal Procedure" if applicable, shall mean the following
procedure to determine the fair market value, as to any security, for purposes
of the definition of "Fair Value" or the fair market value, as to any other
property (in either case, the "valuation amount"). So long as Apollo Investment
Fund IV, L.P. or any of its Affiliates (the "Apollo Stockholders") beneficially
-------------------
own sufficient Warrants to constitute the Majority Warrant Holders, the
valuation amount shall be determined in good faith jointly by the Board of
Directors and the Majority Warrant Holders; provided, however, that if such
-------- -------
parties are not able to agree on the valuation amount within a reasonable period
of time (not to exceed twenty (20) days) the valuation amount shall be
determined by an investment banking firm of national recognition, which firm
shall be reasonably acceptable to the Board of Directors and the Majority
Warrant Holders. If the Board of Directors and the Majority Warrant Holders are
unable to agree upon an acceptable investment banking firm within ten (10) days
after the date either party proposed that one be selected, the investment
banking firm will be selected by an arbitrator located in New York City, New
York, selected by the American Arbitration Association (or if such organization
ceases to exist, the arbitrator shall be chosen by a court of competent
jurisdiction). The arbitrator shall select the investment banking firm (within
ten (10) days of his appointment) from a list, jointly prepared by the Board of
Directors and the Majority Warrant Holders, of not more than six investment
banking firms of national standing in the United States, of which no more than
three may be named by the Board of Directors and no more than three may be named
by the Majority Warrant Holders. The arbitrator may consider, within the ten-
day period allotted, arguments from the parties regarding which investment
banking firm to choose, but the selection by the arbitrator shall be made in its
sole discretion from the list of six. The Board of Directors and the Majority
Warrant Holders shall submit their respective valuations and other relevant data
to the investment banking firm, and the investment banking firm shall as soon as
practicable thereafter make its own determination of the valuation amount. The
final valuation amount for purposes hereof shall be the average of the two
valuation amounts closest together, as determined by the investment banking
firm, from among the valuation amounts submitted by the Company and the Majority
Warrant Holders and the valuation amount calculated by the investment banking
firm. The determination of the final valuation amount by such investment-
banking firm shall be final and binding upon the parties. The Company shall pay
the fees and expenses of the investment banking firm and arbitrator (if any)
used to determine the valuation amount. If required by any such investment
banking firm or arbitrator, the Company shall execute a retainer and engagement
letter containing reasonable terms and conditions, including, without
limitation, customary provisions concerning the rights of indemnification and
contribution by the Company in favor of such investment banking firm or
arbitrator and its officers, directors, partners, employees, agents and
Affiliates. If the Apollo Stockholders no longer constitute the Majority
Warranty Holders, the valuation amount shall be determined in good faith by the
Board of Directors.
2
<PAGE>
"Appraised Value" per share of Common Stock as of a date specified
herein shall mean the value of such a share as of such date as determined by an
investment bank of nationally recognized standing selected by the Majority
Warrant Holders and reasonably acceptable to the Company. If the investment
bank selected by the Majority Warrant Holders is not reasonably acceptable to
the Company, and the Company and the Majority Warrant Holders cannot agree on a
mutually acceptable investment bank, then the Company and the Majority Warrant
Holders shall each choose one such investment bank and the respective chosen
firms shall jointly select a third investment bank, which shall make the
determination. The Company shall pay the costs and fees of each such investment
bank (including any such investment bank selected by the Majority Warrant
Holders), and the decision of the investment bank making such determination of
Appraised Value shall be final and binding on the Company and all affected
holders of Warrants or Warrant Stock. Such Appraised Value shall be determined
as a pro rata portion of the value of the Company taken as a whole, based on the
higher of (A) the value derived from a hypothetical sale of the entire Company
as a going concern by a willing seller to a willing buyer (neither acting under
any compulsion) and (B) the liquidation value of the entire Company. No
discount shall be applied on account of (i) any Warrants or Warrant Stock
representing a minority interest, (ii) any lack of liquidity of the Common Stock
or the Warrants, (iii) the fact that the Warrants or Warrant Stock may
constitute "restricted securities" for securities law purposes, (iv) the
existence of any call option or (v) any other grounds.
"Book Value" per share of Common Stock as of a date specified herein
shall mean the consolidated book value of the Company and its Subsidiaries as of
such date divided by the number of shares of Common Stock Outstanding on such
date. Such book value shall be determined in accordance with GAAP, except that
there shall be no reduction in such book value by reason of any amount that may
be required either as an offset to or reserve against retained earnings or as a
deduction from book value as a result of the issuance, existence, anticipated
exercise of, or anticipated cost to the Company of the repurchase of, any of the
Warrants.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean the Common Stock of the Company, par value
$0.01 per share, as constituted on the Original Issue Date, and any capital
stock into which such Common Stock may thereafter be changed, and shall also
include (i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of any Common Stock upon any
reclassification thereof which is also not preferred as to dividends or
liquidation over any other class of stock of the Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.6 hereof) received by or
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.6 hereof.
3
<PAGE>
"Company" means Rare Medium Group, Inc., a Delaware corporation, and
any successor corporation.
"Current Market Price" shall mean as of any specified date the average
of the daily market price of one share of the Common Stock for the shorter of
(x) the twenty (20) consecutive Business Days immediately preceding such date or
(y) the period commencing on the Business Day next following the first public
announcement by the Company of any event giving rise to an adjustment of the
Exercise Price pursuant to Section 4 below and ending on such date. The "daily
market price" of one share of Common Stock for each such Business Day shall be:
(i) if the Common Stock is then listed on a national securities exchange or is
listed on NASDAQ and is designated as a National Market System security, the
last sale price of one share of Common Stock, regular way, on such day on the
principal stock exchange or market system on which such Common Stock is then
listed or admitted to trading, or, if no such sale takes place on such day, the
average of the closing bid and asked prices for one share of Common Stock on
such day as reported on such stock exchange or market system or (ii) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or designated as a National Market System security on NASDAQ
but is traded over-the-counter, the average of the closing bid and asked prices
for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin
Board or in the National Daily Quotation Sheets, as applicable.
"Designated Office" shall have the meaning set forth in Section 10
hereof.
"Dilution Fee" shall have the meaning set forth in Section 12 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Excluded Stock" shall have the meaning set forth in Section 4.11
hereof.
"Exercise Date" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Notice" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1 hereof.
"Exercise Price" shall mean, in respect of a share of Common Stock at
any date herein specified, the initial Exercise Price set forth in the preamble
of this Warrant as adjusted from time to time pursuant to Sections 2.4 and 4
hereof.
"Expiration Date" shall mean the tenth anniversary of the Original
Issue Date.
"Fair Value" per share of Common Stock as of any specified date shall
mean (A) if the Common Stock is publicly traded on such date, the Current Market
Price per share or (B) if
4
<PAGE>
the Common Stock is not publicly traded on such date, (1) the fair market value
per share of Common Stock as determined in good faith by the Board of Directors
of the Company and set forth in a written notice to each Holder or (2) if the
Majority Warrant Holders object in writing to such price as determined by the
Board of Directors within thirty (30) days after receiving notice of same, the
Appraised Value per share as of such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean (a) with respect to this Warrant, the Person in
whose name the Warrant set forth herein is registered on the books of the
Company maintained for such purpose and (b) with respect to any other Warrant or
shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock
is registered on the books of the Company maintained for such purpose.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or comparable
law of any jurisdiction).
"Majority Warrant Holders", with respect to a given determination,
shall mean the Holders of Warrants representing more than fifty percent (50%) of
all then outstanding Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"NASDAQ" shall mean the NASDAQ quotation system, or any successor
reporting system.
"Opinion of Counsel" means a written opinion of outside counsel
experienced in Securities Act matters chosen by the Holder of this Warrant or
Warrant Stock issued upon the exercise hereof and reasonably acceptable to the
Company.
"Original Issue Date" shall mean the date on which this Warrant was
issued, as set forth on the cover page of this Warrant.
"Original Warrants" shall mean the Warrants originally issued by the
Company on June 4, 1999 to the Apollo Stockholders.
"Outside Date" shall mean the date that is 120 days after the Original
Issue Date.
5
<PAGE>
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any Subsidiary, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 8.2(a)
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock of the Company.
"Series B Preferred Stock" shall mean the Series B Preferred Stock of
the Company.
"Share Withholding Option" has the meaning set forth in Section 2.1
hereof.
"Subsidiary" shall mean any corporation, association or other business
entity (i) at least 50% of the outstanding voting securities of which are at the
time owned or controlled directly or indirectly by the Company; or (ii) with
respect to which the Company possesses, directly or indirectly, the power to
direct or cause the direction of the affairs or management of such person.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest therein, which would constitute a "sale" thereof or a
transfer of a beneficial interest therein within the meaning of the Securities
Act.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such
exercise.
"Warrants" shall mean the Original Warrants and all warrants issued
upon transfer, division or combination of, or in substitution for, such Original
Warrants, and any additional Warrants issued together with shares of Series A
Preferred Stock paid as dividends, or any other such Warrant. All Warrants
shall at all times be identical as to terms and conditions, except as to
6
<PAGE>
the number of shares of Common Stock for which they may be exercised and their
date of issuance.
"Warrant Stock" generally shall mean the shares of Common Stock
issued, issuable or both (as the context may require) upon the exercise of
Warrants.
2. EXERCISE OF WARRANT
-------------------
2.1 Manner of Exercise. (a) From and after the Original Issue Date
------------------
and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this
Warrant may from time to time exercise this Warrant, on any Business Day, for
all or any part of the number of shares of Common Stock purchasable hereunder
(as determined pursuant to Section 2.2 below). In order to exercise this
Warrant, in whole or in part, the Holder shall (i) deliver to the Company at its
Designated Office a written notice of the Holder's election to exercise this
Warrant (an "Exercise Notice"), which Exercise Notice shall be irrevocable and
---------------
specify the number of shares of Common Stock to be purchased, together with this
Warrant and (ii) pay to the Company the Warrant Price (the date on which both
such delivery and payment shall have first taken place being hereinafter
sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in
-------------
the form of the subscription form appearing at the end of this Warrant as Annex
-----
A, duly executed by the Holder or its duly authorized agent or attorney.
- -
(b) Upon receipt by the Company of such Exercise Notice, Warrant and
payment, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute (or cause to be executed) and deliver
(or cause to be delivered) to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the
exercising Holder shall reasonably request in the Exercise Notice and shall be
registered in the name of the Holder or, subject to Section 8 below, such other
name as shall be designated in the Exercise Notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and the Holder or any other Person so designated to
be named therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of the
Holder by one or more of the following methods: (i) by delivery of a certified
or official bank check in the amount of such Warrant Price payable to the order
of the Company, (ii) by instructing the Company to withhold a number of shares
of Warrant Stock then issuable upon exercise of this Warrant with an aggregate
Fair Value equal to such Warrant Price (the "Share Withholding Option"), or
------------------------
(iii) by surrendering to the Company shares of Common Stock previously acquired
by the Holder with an aggregate Fair Value equal to such Warrant Price. In the
event of any withholding of Warrant Stock or surrender of Common Stock pursuant
to clause (ii) or (iii) above where the number of shares whose Fair Value is
equal to the Warrant Price is not a whole number, the number of shares withheld
by or surrendered to the Company shall be rounded up to
7
<PAGE>
the nearest whole share and the Company shall make a cash payment to the Holder
based on the incremental fraction of a share being so withheld by or surrendered
to the Company in an amount determined in accordance with Section 2.3 hereof.
(d) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the shares of Common Stock being issued, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant. Such new Warrant shall in all other respects
be identical to this Warrant. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares of Common Stock
in the name of any Person who acquired this Warrant (or part hereof) or any
shares of Warrant Stock otherwise than in accordance with this Warrant.
(e) All Warrants delivered for exercise shall be canceled by the
Company.
2.2 Payment of Taxes. All shares of Common Stock issuable upon the
----------------
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable, issued without violation of any preemptive rights
and free and clear of all Liens (other than any created by actions of the
Holder). The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue or
delivery thereof, unless such tax or charge is imposed by law upon the Holder,
in which case such taxes or charges shall be paid by the Holder and the Company
shall reimburse the Holder therefor on an After-Tax Basis. The Company shall
not, however, be required to pay any tax or governmental charge which may be
payable in respect of any Transfer involved in the issue and delivery of shares
of Common Stock issuable upon exercise of the Warrant in a name other than that
of the holder of the Warrants to be exercised, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
2.3 Fractional Shares. The Company shall not be required to issue a
-----------------
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share that the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay to such Holder an amount in
cash equal to such fraction multiplied by (i) the Current Market Price of one
share of Common Stock on the Exercise Date, if the Common Stock is then publicly
traded, or (ii) the Book Value per share of Common Stock based on the most
recent available consolidated balance sheet of the Company, if the Common Stock
is not then publicly traded.
2.4 Reduced Exercise Price. On the Outside Date, in the event that
----------------------
the Company shall not have obtained the approval of its stockholders of the
conversion of the Series B Preferred Stock to Series A Preferred Stock, the
Exercise Price herein shall be reduced to $0.01.
8
<PAGE>
3. TRANSFER, DIVISION AND COMBINATION
----------------------------------
3.1 Transfer. Subject to compliance with Section 8 hereof, each
--------
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the Designated Office, together with a written
assignment of this Warrant in the form of Annex B hereto duly executed by the
-------
Holder or its agent or attorney and funds sufficient to pay any transfer taxes
described in Section 2.2 in connection with the making of such transfer. Upon
such surrender and delivery and, if required, such payment, the Company shall,
subject to Section 8, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned in compliance with
Section 8, may be exercised by the new Holder for the purchase of shares of
Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to compliance with the
------------------------
applicable provisions of this Warrant including, without limitation, Section 8,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the Designated Office, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with the applicable
provisions of this Warrant as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its
--------
own expense any new Warrant or Warrants required to be issued under this Section
3.
3.4 Maintenance of Books. The Company agrees to maintain, at the
--------------------
Designated Office, books for the registration and transfer of the Warrants
(other than pursuant to Section 2.2 hereof).
4. ANTIDILUTION PROVISIONS
-----------------------
The number of shares of Common Stock for which this Warrant is
exercisable and the Exercise Price shall be subject to adjustment from time to
time as set forth in this Section 4.
4.1 Upon Issuance of Common Stock. If the Company shall, at any time
-----------------------------
or from time to time after the Original Issuance Date, issue any shares of
Common Stock, options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock, or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, other than shares of Series A Preferred Stock, Series B Preferred
Stock or Excluded Stock, without consideration or for consideration per share
less than either (x) the Exercise Price or (y) the Fair Value of the Common
Stock, in effect immediately
9
<PAGE>
prior to the issuance of such Common Stock or securities, then such Exercise
Price shall forthwith be lowered to a price equal to the price obtained by
multiplying:
(i) the Exercise Price in effect immediately prior to the
issuance of such Common Stock or securities by
(ii) a fraction of which (x) the denominator shall be the
number of shares of Common Stock outstanding on a fully-diluted basis
immediately after such issuance and (y) the numerator shall be the sum
of (i) the number of shares of Common Stock outstanding on a fully-
diluted basis immediately prior to the date of such issuance and (ii)
the number of additional shares of Common Stock which the aggregate
consideration for the number of shares of Common Stock so offered
would purchase at the greater of the Exercise Price or the Fair Value
per share of Common Stock.
For purposes of this Section 4, "fully diluted basis" shall be
determined in accordance with the treasury method of GAAP.
4.2 Upon Acquisition of Common Stock. If the Company or any
--------------------------------
Subsidiary shall, at any time or from time to time after the Original Issuance
Date, directly or indirectly, redeem, purchase or otherwise acquire any shares
of Common Stock, options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock
(other than shares of Series A Preferred Stock or Series B Preferred Stock that
are redeemed according to their terms), or options to purchase or rights to
subscribe for such convertible or exchangeable securities, for a consideration
per share greater than the Fair Value (plus, in the case of such options,
rights, or securities, the additional consideration required to be paid to the
Company upon exercise, conversion or exchange) for shares of Common Stock in
effect immediately prior to such event, then the Exercise Price shall forthwith
be lowered to a price equal to the price obtained by multiplying:
(i) the Exercise Price in effect immediately prior to such
event by
(ii) a fraction of which (x) the denominator shall be the
Fair Value per share of Common Stock immediately prior to such event
and (y) the numerator shall be the result of dividing:
(A) (1) the product of (a) the number of shares of
Common Stock outstanding on a fully-diluted basis
and (b) the Fair Value per share of Common Stock,
in each case immediately prior to such event,
minus (2) the aggregate consideration paid by the
Company in such event (plus, in the case of such
options, rights, or convertible or exchangeable
securities, the aggregate additional
10
<PAGE>
consideration to be paid by the Company upon
exercise, conversion or exchange), by
(B) the number of shares of Common Stock outstanding
on a fully-diluted basis immediately after such
event.
4.3 Provisions Applicable to Adjustments. For the purposes of any
------------------------------------
adjustment of an Exercise Price pursuant to Sections 4.1 and 4.2, the following
provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash
in a public offering or private placement, the consideration shall be
deemed to be the amount of cash paid therefor before deducting
therefrom any discounts, commissions or placement fees payable by the
Company to any underwriter or placement agent in connection with the
issuance and sale thereof.
(ii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the Fair Value thereof as
determined in accordance with the Appraisal Procedure.
(iii) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock, or options to purchase or rights to
subscribe for such convertible or exchangeable securities, except for
shares of Series A Preferred Stock, shares of Series B Preferred Stock and
options to acquire Excluded Stock:
(A) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options
to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the
time such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in
subparagraphs (i) and (ii) above), if any,
received by the Company upon the issuance of such
options or rights plus the minimum purchase price
provided in such options or rights for the Common
Stock covered thereby;
(B) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in
exchange of any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof shall
be deemed to have been issued at the time such
securities, options, or rights
11
<PAGE>
were issued and for a consideration equal to the
consideration received by the Company for any
such securities and related options or rights
(excluding any cash received on account of
accrued interest or accrued dividends), plus the
additional consideration, if any, to be received
by the Company upon the conversion or exchange of
such securities or the exercise of any related
options or rights (the consideration in each case
to be determined in the manner provided in
paragraphs (i) and (ii) above) and
(C) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise
of any such options or rights or conversions of
or exchanges for such securities, other than a
change resulting from the antidilution provisions
thereof, the applicable Exercise Price shall
forthwith be readjusted to such Exercise Price as
would have been obtained had the adjustment made
upon the issuance of such options, rights or
securities not converted prior to such change or
options or rights related to such securities not
converted prior to such change been made upon the
basis of such change.
(D) No further adjustment of the Exercise Price
adjusted upon the issuance of any such options,
rights, convertible securities or exchangeable
securities shall be made as a result of the
actual issuance of Common Stock on the exercise
of any such rights or options or any conversion
or exchange of any such securities.
4.4 Upon Stock Dividends or Splits. If, at any time after the
------------------------------
Original Issuance Date, the number of shares of Common Stock outstanding is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the record
date for the determination of holders of Common Stock entitled to receive such
stock dividend, or to be affected by such subdivision or split-up, the Exercise
Price shall be appropriately decreased so that the number of shares of Common
Stock purchasable on exercise of the Warrants shall be increased in proportion
to such increase in outstanding shares.
4.5 Upon Combinations. If, at any time after the Original Issuance
-----------------
Date, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, following the record date to determine shares
affected by such combination, the Exercise Price shall be appropriately
increased so that the number of shares of Common Stock purchasable on exercise
of each of the Warrants shall be decreased in proportion to such decrease in
outstanding shares.
12
<PAGE>
4.6 Upon Reclassifications, Reorganizations, Consolidations or
----------------------------------------------------------
Mergers. In the event of any capital reorganization of the Company, any
- -------
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
or any consolidation or merger of the Company with or into another corporation
(where the Company is not the surviving corporation or where there is a change
in or distribution with respect to the Common Stock), each Warrant shall after
such reorganization, reclassification, consolidation, or merger be exercisable
for the kind and number of shares of stock or other securities or property of
the Company or of the successor corporation resulting from such consolidation or
surviving such merger, if any, to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon exercise of such Warrant would
have been entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations, or mergers.
4.7 Deferral in Certain Circumstances. In any case in which the
---------------------------------
provisions of this Section 4 shall require that an adjustment shall become
effective immediately after a record date of an event, the Company may defer
until the occurrence of such event issuing to the holder of any Warrant
exercised after such record date and before the occurrence of such event the
shares of capital stock issuable upon such exercise by reason of the adjustment
required by such event and issuing to such holder only the shares of capital
stock issuable upon such exercise before giving effect to such adjustments;
provided, however, that the Company shall deliver to such holder an appropriate
- -------- -------
instrument or due bills evidencing such holder's right to receive such
additional shares.
4.8 Other Anti-Dilution Provisions. If the Company has issued or
------------------------------
issues any securities on or after the Original Issuance Date containing
provisions protecting the holder or holders thereof against dilution in any
manner more favorable to such holder or holders thereof than those set forth in
this Section 4, such provisions (or any more favorable portion thereof) shall be
deemed to be incorporated herein as if fully set forth in this Warrant and, to
the extent inconsistent with any provision of this Warrant, shall be deemed to
be substituted therefor.
4.9 Appraisal Procedure. In any case in which the provisions of this
-------------------
Section 4 shall necessitate that the Appraisal Procedure be utilized for
purposes of determining an adjustment to the Exercise Price, the Company may
defer until the completion of the Appraisal Procedure and the determination of
the adjustment (1) issuing to the holder of any Warrant exercised after the date
of the event that requires the adjustment and before completion of the Appraisal
Procedure and the determination of the adjustment, the shares of capital stock
issuable upon such exercise by reason of the adjustment required by such event
and issuing to such holder only the shares of capital stock issuable upon such
exercise before giving effect to such adjustment and (2) paying to such holder
any amount in cash in lieu of a fractional share of capital stock pursuant to
Section 2.3 above; provided, however, that the Company shall deliver to such
-------- -------
holder an appropriate instrument or due bills evidencing such holder's right to
receive such additional shares or cash.
13
<PAGE>
4.10 Adjustment of Number of Shares Purchasable. Upon any adjustment
------------------------------------------
of the Exercise Price as provided in Section 4.1, 4.2, 4.4, 4.5 or 4.6, the
holders of the Warrants shall thereafter be entitled to purchase upon the
exercise thereof, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable on the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment.
4.11 Exceptions. Section 4 shall not apply to (i) any issuance of
----------
Common Stock upon exercise of any warrants or options (A) outstanding on the
Original Issuance Date or (B) awarded to employees or directors of the Company
pursuant to an employee stock option plan or stock incentive plan approved by
the Board of Directors; (ii) any issuance of securities by the Company in
underwritten public offerings; and (iii) repurchases by the Company of Common
Stock approved by the Board of Directors (collectively, the "Excluded Stock").
--------------
4.12 Notice of Adjustment of Exercise Price. Whenever the Exercise
--------------------------------------
Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Exercise Price
in accordance with this Section 4 and shall prepare a certificate
signed by the Treasurer or Chief Financial Officer of the Company
setting forth the adjusted Exercise Price and showing in reasonable
detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed at each office or agency
maintained for such purpose or exercise of Warrants; and
(ii) a notice stating that the Exercise Price has been
adjusted and setting forth the adjusted Exercise Price shall forthwith
be prepared by the Company, and as soon as practicable after it is
prepared, such notice shall be mailed by the Company at its expense to
all Holders at their last addresses as they shall appear in the stock
register.
5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION
--------------------------------------------------------------------------
(a) The Company shall not by any action, including, without
limitation, amending its charter documents or through any reorganization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all Liens, and shall use its best efforts to obtain all such
authorizations, exemptions or consents from
14
<PAGE>
any public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
(b) The Company shall deliver to each Holder of Warrants on or before
six months prior to the tenth anniversary of the Original Issue Date, but no
earlier than nine months prior to the tenth anniversary of the Original Issue
Date, advance notice of such tenth anniversary and of the anticipated Expiration
Date. If the Company fails to fulfill in a timely manner the notice obligation
set forth in the prior sentence, it shall provide such notice as soon as
possible thereafter.
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGIS TRATION WITH OR
--------------------------------------------------------------------
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
--------------------------------------
From and after the Original Issue Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of the Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock issuable pursuant to the terms hereof, when issued upon
exercise of this Warrant with payment therefor in accordance with the terms
hereof, shall be duly and validly issued and fully paid and nonassessable, not
subject to preemptive rights and shall be free and clear of all Liens. Before
taking any action that would result in an adjustment in the number of shares of
Common Stock for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction over such action. If any shares of Common Stock required to be
reserved for issuance upon exercise of Warrants require registration or
qualification with any governmental authority under any federal or state law
(other than under the Securities Act or any state securities law) before such
shares may be so issued, the Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered.
7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS
-------------------------------------------------------------
7.1 Notices of Corporate Actions.
----------------------------
In case:
(a) the Company shall take an action or an event shall occur,
that would require an Exercise Price adjustment pursuant to Section 4;
or
(b) the Company shall grant to the holders of its Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class; or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock),
or of any
15
<PAGE>
consolidation, merger or share exchange to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the outstanding shares of Common Stock (or
shall amend any such tender offer to change the maximum number of
shares being sought or the amount or type of consideration being
offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
such purpose, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the stock register, at least 30 days prior to
the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend, distribution, rights or warrants are to
be determined, (y) the date on which such reclassification, consolidation,
merger, share exchange, 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 shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of the amendment thereto). Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Exercise Price and the number and kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon exercise of
the Warrants. Neither the failure to give any such notice nor any defect therein
shall affect the legality or validity of any action described in clauses (a)
through (e) of this Section 7.1.
7.2 Taking of Record. In the case of all dividends or other
----------------
distributions by the Company to the holders of its Common Stock with respect to
which any provision of any Section hereof refers to the taking of a record of
such holders, the Company will in each such case take such a record and will
take such record as of the close of business on a Business Day.
7.3 Closing of Transfer Books. The Company shall not at any time,
-------------------------
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
16
<PAGE>
8. TRANSFER RESTRICTIONS
---------------------
The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 8.
8.1 Restrictions on Transfers. Neither this Warrant nor any shares
-------------------------
of Restricted Common Stock issued upon the exercise hereof shall be transferred,
sold, assigned, exchanged, mortgaged, pledged, hypothecated or otherwise
disposed of or encumbered without compliance with the provisions of, and are
otherwise restricted by the provisions of, the Securities Act, the rules and
regulations thereunder and this Warrant. Each certificate, if any, evidencing
such shares of Restricted Common Stock issued upon any such Transfer, other than
in a public offering pursuant to an effective registration statement, shall bear
the restrictive legend set forth in Section 8.2(a), and each Warrant issued upon
such Transfer shall bear the restrictive legend set forth in Section 8.2(b),
unless the Holder delivers to the Company an Opinion of Counsel to the effect
that such legend is not required for the purposes of compliance with the
Securities Act. Holders of the Warrants or the Restricted Common Stock, as the
case may be, shall not be entitled to Transfer such Warrants or such Restricted
Common Stock except in accordance with this Section 8.1.
8.2 Restrictive Legends. (a) Except as otherwise provided in this
-------------------
Section 8, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
two legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED,
HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT
COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY
THE PROVISIONS OF, THE ACT AND THE RULES AND REGULATIONS
THEREUNDER."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE
BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A
CERTAIN SERIES 2-A WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY
RARE MEDIUM GROUP, INC. (THE "WARRANT") PURSUANT TO THE EXERCISE OF
WHICH SUCH SHARES WERE ISSUED. A COPY OF THE WARRANT IS AVAILABLE AT
THE EXECUTIVE OFFICES OF RARE MEDIUM GROUP, INC."
(b) Except as otherwise provided in this Section 8, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
17
<PAGE>
"NEITHER THIS SERIES 2-A WARRANT NOR ANY OF THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE
SERIES 2-A WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE STOCK
ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OF OTHERWISE
DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF,
AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE
RULES AND REGULATIONS THEREUNDER AND THIS WARRANT."
8.3 Termination of Securities Law Restrictions. Notwithstanding the
------------------------------------------
foregoing provisions of this Section 8, the restrictions imposed by Section
8.1(b) upon the transferability of the Warrants and the Restricted Common Stock
and the legend requirements of Section 8.2 shall terminate as to any particular
Warrant or shares of Restricted Common Stock when the Company shall have
received from the Holder thereof an Opinion of Counsel to the effect that such
legend is not required in order to ensure compliance with the Securities Act.
Whenever the restrictions imposed by Sections 8.1(b) and 8.2 shall terminate as
to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to
receive from the Company, at the expense of the Company, a new Warrant bearing
the following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 2-A
WARRANT CONTAINED IN SECTIONS 8.1(b) AND 8.2 HEREOF TERMINATED ON
______________, 20__, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 8.2(a).
9. LOSS OR MUTILATION
------------------
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and an indemnity reasonably satisfactory to it (it
being understood that the written indemnification agreement of or affidavit of
loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case
of mutilation, upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided,
--------
however, that, in the case of mutilation, no indemnity shall be required if this
- -------
Warrant in identifiable form is surrendered to the Company for cancellation.
18
<PAGE>
10. OFFICE OF THE COMPANY
---------------------
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency, which may be the principal executive offices of
the Company (the "Designated Office"), where the Warrants may be presented for
-----------------
exercise, registration of transfer, division or combination as provided in this
Warrant. Such Designated Office shall initially be the office of the Company at
44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from
time to time change the Designated Office to another office of the Company or
its agent within the United States by notice given to all registered Holders at
least ten (10) Business Days prior to the effective date of such change.
11. FINANCIAL AND BUSINESS INFORMATION
----------------------------------
(a) Financial Reports.
-----------------
Until (i) the Company shall no longer be required to deliver financial
reports in connection with the Series A Preferred Stock, or (ii) the Expiration
Date, whichever first occurs, the Company shall furnish to Apollo Investment
Fund IV, L.P. the following:
(i) Monthly Reports. As soon as available, but not later than
---------------
30 days after the end of each fiscal month, a consolidated balance sheet
of the Company as of the end of such period and consolidated statements of
income of the Company for such period and for the period commencing at the
end of the previous fiscal year and ending with the end of such period,
setting forth in each case in comparative form the corresponding figures
for the corresponding period of the preceding fiscal year, and including
comparisons to the budget or business plan and an analysis of the variances
from the budget or plan, all prepared in accordance with generally accepted
accounting principals consistently applied (except for the absence of
footnotes and year-end adjustments).
(ii) Quarterly Reports. As soon as available, but not later than
-----------------
45 days after the end of each quarterly accounting period, (A) a
consolidated balance sheet of the Company as of the end of such period and
consolidated statements of income, cash flows and changes in shareholders'
equity for such quarterly accounting period and for the period commencing
at the end of the previous fiscal year and ending with the end of such
period, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, and
including comparisons to the budget or business plan and an analysis of the
variances from the budget or plan, all prepared in accordance with
generally accepted accounting principals consistently applied, subject to
normal year-end adjustments and the absence of footnote disclosure, and (B)
a report by management of the Company of the operating and financial
highlights of the Company and its Subsidiaries for such period, which shall
include (x) a comparison between operating and financial results and budget
and (y) an analysis of the operations of the Company and its Subsidiaries
for such period.
19
<PAGE>
(iii) Annual Audit. As soon as available, but not later than 90
------------
days after the end of each fiscal year of the Company, audited consolidated
financial statements of the Company, which shall include statements of
income, cash flows and changes in shareholders' equity for such fiscal year
and a balance sheet as of the last day thereof, each prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by the report of a "Big 5" firm of independent certified public
accountants selected by the Company's Board of Directors (the
"Accountants"). The Company and its Subsidiaries shall maintain a system
-----------
of accounting sufficient to enable its Accountants to render the report
referred to in this Section 11(b)(iii).
(iv) Miscellaneous. Promptly upon becoming available, each of
-------------
the following:
(A) copies of all financial statements, reports, press
releases, notices, proxy statements and other documents sent by the Company
or its Subsidiaries to its shareholders generally or released to the public
and copies of all regular and periodic reports, if any, filed by the
Company or its Subsidiaries with the SEC, any securities exchange or the
NASD;
(B) notification in writing of the existence of any default
under any material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of their assets are bound;
(C) upon request, copies of all reports prepared for or
delivered to the management of the Company or its Subsidiaries by its
accountants; and
(D) upon request, any other routinely collected financial or
other information available to management of the Company or its
Subsidiaries (including, without limitation, routinely collected
statistical data).
(b) Other Holders. Without duplication of any document or information
-------------
provided pursuant to this Section 12, the Company shall provide to each Holder
of Warrants or Warrant Stock the following:
(i) as soon as available, but not later than 45 days after the
end of each quarterly accounting period, a Form 10-Q or, if the Company
does not then file quarterly reports with the SEC, the documents referred
to in Section 11(a)(ii).
(ii) as soon as available, but not later than 90 days after the
end of each fiscal year, a Form 10-K or, if the Company does not then file
annual reports with the SEC, the audited consolidated financial statements
referred to in Section 11(a)(iii).
(iii) simultaneously with any distribution of any document to
the stockholders of the Company generally, any such document so
distributed.
20
<PAGE>
12. DILUTION FEE
------------
In the event any dividends are declared with respect to the Common
Stock, the holder of this Warrant as of the record date established by the Board
of Directors for such dividend shall be entitled to receive as a dilution fee
(the "Dilution Fee") an amount (whether in the form of cash, securities or other
------------
property) equal to the amount (and in the form) of the dividends that such
holder would have received had this Warrant been exercised for purchase of
Common Stock as of the record date of such dividend, such Dilution Fee to be
payable on the payment date of the dividend established by the Board of
Directors (the "Dilution Fee Payment Date"). The record date for any such
-------------------------
Dilution Fee shall be the record date for the applicable dividend, and any such
Dilution Fee shall be payable to the persons in whose name this Warrant is
registered at the close of business on the applicable record date.
13. MISCELLANEOUS
-------------
13.1 Nonwaiver. No course of dealing or any delay or failure to
---------
exercise any right hereunder on the part of the Company or the Holder shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of such Person.
13.2 Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or communication hereunder to be made pursuant
to the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) if to any Holder of this Warrant or of Warrant Stock issued
upon the exercise hereof, at its last known address appearing on the books
of the Company maintained for such purpose;
(b) if to the Company, at the Designated Office;
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, or one (1) Business Day
after the same shall have been sent by Federal Express or another recognized
overnight courier service.
13.3 Indemnification. If the Company fails to make, when due, any
---------------
payments provided for in this Warrant, the Company shall pay to the Holder
hereof (a) interest at the Agreed Rate on any amounts due and owing to such
Holder and (b) such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees and
expenses incurred by such Holder in collecting any amounts due hereunder. The
21
<PAGE>
Company shall indemnify, save and hold harmless the Holder hereof and the
Holders of any Warrant Stock issued upon the exercise hereof from and against
any and all liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and all other out-of-pocket expenses
incurred in connection with or arising from any default hereunder by the
Company. This indemnification provision shall be in addition to the rights of
such Holder or Holders to bring an action against the Company for breach of
contract based on such default hereunder.
13.4 Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder to pay the Exercise Price for any Warrant
Stock other than pursuant to an exercise of this Warrant or any liability as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in
--------
addition to being entitled to exercise its rights granted by law, including
recovery of damages, shall be entitled to specific performance of its rights
provided under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Warrant and hereby agrees, in an action for specific
performance, to waive the defense that a remedy at law would be adequate.
13.6 Successors and Assigns. Subject to the provisions of Sections
----------------------
3.1, 8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and to the extent applicable, all Holders of shares of Warrant
Stock issued upon the exercise hereof (including transferees), and shall be
enforceable by any such Holder.
13.7 Amendment. This Warrant and all other Warrants may be modified
---------
or amended or the provisions hereof waived with the written consent of the
Company and the Majority Warrant Holders, provided that no such Warrant may be
--------
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the written consent of the Holder thereof.
13.8 Severability. Wherever possible, each provision of this Warrant
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.9 Headings. The headings used in this Warrant are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
22
<PAGE>
13.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL
---------------------------
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS
WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND
DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE
GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH
BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR
TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS
--------
ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK.
23
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
RARE MEDIUM GROUP, INC.
By:_________________________________
Name:
Title:
[SEAL]
Attest:
By:_____________________________
Name:
Title:
24
<PAGE>
ANNEX A
--------
SUBSCRIPTION FORM
-----------------
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of ______ shares Common Stock of Rare Medium
Group, Inc. and herewith makes payment therefor in ______________, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _________________ whose address is
___________________________________________________ and, if such shares of
Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
_______________________________
(Name of Registered Owner)
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
ANNEX B
--------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the under signed under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint ________ _____________
attorney-in-fact to register such transfer onto the books of Rare Medium Group,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:___________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
Appendix E
================================================================================
SERIES 1-B
WARRANT
to Purchase Non-Voting Common Stock of
RARE MEDIUM GROUP, INC.
================================================================================
Warrant No. [___]
Original Issue
Date: June 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS ............................................................. 2
2. EXERCISE OF WARRANT ..................................................... 7
2.1 Manner of Exercise ................................................ 7
2.2 Payment of Taxes .................................................. 8
2.3 Fractional Shares ................................................. 8
2.4 Reduced Exercise Price ............................................ 9
3 TRANSFER, DIVISION AND COMBINATION....................................... 9
3.1 Transfer .......................................................... 9
3.2 Division and Combination .......................................... 9
3.3 Expenses .......................................................... 9
3.4 Maintenance of Books .............................................. 9
4. CONVERSION TO SERIES 1-A WARRANTS ....................................... 10
4.1 Conversion ........................................................ 10
5. ANTIDILUTION PROVISIONS ................................................. 10
5.1 General ........................................................... 10
5.2 Notice of Adjustment of Exercise Price ............................ 10
6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION;
NOTICE OF EXPIRATION .................................................... 11
7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON
STOCK; REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY .................................................. 11
8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD;
TRANSFER BOOKS .......................................................... 12
8.1 Notices of Corporate Actions....................................... 12
8.2 Taking of Record .................................................. 13
8.3 Closing of Transfer Books ......................................... 13
9. TRANSFER RESTRICTIONS ................................................... 13
9.1 Restrictions on Transfers ......................................... 13
9.2 Restrictive Legends ............................................... 14
9.3 Termination of Securities Law Restrictions ........................ 14
10. LOSS OR MUTILATION ...................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
11. OFFICE OF THE COMPANY ................................................... 15
12. FINANCIAL AND BUSINESS INFORMATION....................................... 16
13. DILUTION FEE ............................................................ 17
14. MISCELLANEOUS ........................................................... 18
14.1 Nonwaiver ....................................................... 18
14.2 Notice Generally ................................................ 18
14.3 Indemnification ................................................. 18
14.4 Limitation of Liability ......................................... 19
14.5 Remedies ........................................................ 19
14.6 Successors and Assigns .......................................... 19
14.7 Amendment ....................................................... 19
14.8 Severability .................................................... 19
14.9 Headings ........................................................ 19
14.10 GOVERNING LAW; JURISDICTION ..................................... 20
ANNEX A
SUBSCRIPTION FORM........................................................ 22
ANNEX B
ASSIGNMENT FORM ......................................................... 23
</TABLE>
-ii-
<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS
CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS
OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES
AND REGULATIONS THEREUNDER AND THIS WARRANT.
Warrant No. [___]
SERIES 1-B
WARRANT
TO PURCHASE ____ SHARES OF NON-VOTING COMMON STOCK
(SUBJECT TO ADJUSTMENT) OF
RARE MEDIUM GROUP, INC.
THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its
registered assigns, is entitled, at any time prior to the Expiration Date (such
term, and certain other capitalized terms used herein being hereinafter
defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the
"Company"), thirteen and one-half (13.5) shares of the Non-Voting Common Stock
-------
of the Company (subject to adjustment as provided herein), at a purchase price
per share (the initial "Exercise Price", subject to adjustment as provided
--------------
herein) set forth in the table below (or, if the Fair Value falls between any of
the prices in the left column, then the Exercise Price will be calculated by
linear interpolation between the corresponding prices in the right column):
<PAGE>
FAIR VALUE OF ONE
SHARE OF COMMON
STOCK ON EXERCISE DATE EXERCISE PRICE
---------------------- --------------
$4.00 or less $4.20
$5.00 $3.59
$6.00 $1.61
$7.00 or more $0.01
1. DEFINITIONS
-----------
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Affiliate" of any Person means any other Person (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such Person. The term "control" (including the
terms "controlled by" and "under common control with") as used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"After-Tax Basis" when referring to a payment that is required
hereunder (the "target amount"), shall mean a total payment (the "total amount")
that, after deduction of all federal, state and local taxes that are required to
be paid by the recipient in respect of the receipt or accrual of such total
amount, is equal to the target amount.
"Agreed Rate" shall mean the rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s
base rate.
Apollo Stockholders" shall mean Apollo Investment Fund IV, L.P. or any
of its Affiliates.
"Appraised Value" per share of Common Stock as of a date specified
herein shall mean the value of such a share as of such date as determined by an
investment bank of nationally recognized standing selected by the Majority
Warrant Holders and reasonably acceptable to the Company. If the investment
bank selected by the Majority Warrant Holders is not reasonably acceptable to
the Company, and the Company and the Majority Warrant Holders cannot agree on a
mutually acceptable investment bank, then the Company and the Majority Warrant
Holders shall each choose one such investment bank and the respective chosen
firms shall jointly select a third investment bank, which shall make the
determination. The Company shall pay the costs and fees of each such investment
bank (including any such investment bank selected by the Majority Warrant
Holders), and the decision of the investment bank making such determination of
Appraised Value shall be final and binding on the Company and all affected
holders of Warrants
2
<PAGE>
or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion
of the value of the Company taken as a whole, based on the higher of (A) the
value derived from a hypothetical sale of the entire Company as a going concern
by a willing seller to a willing buyer (neither acting under any compulsion) and
(B) the liquidation value of the entire Company. No discount shall be applied on
account of (i) any Warrants or Warrant Stock representing a minority interest,
(ii) any lack of liquidity of the Common Stock or the Warrants, (iii) the fact
that the Warrants or Warrant Stock may constitute "restricted securities" for
securities law purposes, (iv) the existence of any call option or (v) any other
grounds.
"Book Value" per share of Common Stock as of a date specified herein
shall mean the consolidated book value of the Company and its Subsidiaries as of
such date divided by the number of shares of Common Stock Outstanding on such
date. Such book value shall be determined in accordance with GAAP, except that
there shall be no reduction in such book value by reason of any amount that may
be required either as an offset to or reserve against retained earnings or as a
deduction from book value as a result of the issuance, existence, anticipated
exercise of, or anticipated cost to the Company of the repurchase of, any of the
Warrants.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean the Common Stock of the Company, par value
$0.01 per share, as constituted on the Original Issue Date, and any capital
stock into which such Common Stock may thereafter be changed, and shall also
include (i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of any Common Stock upon any
reclassification thereof which is also not preferred as to dividends or
liquidation over any other class of stock of the Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by Section 5 hereof.
"Company" means Rare Medium Group, Inc., a Delaware corporation, and
any successor corporation.
"Current Market Price" shall mean as of any specified date the average
of the daily market price of one share of the Common Stock for the shorter of
(x) the twenty (20) consecutive Business Days immediately preceding such date or
(y) the period commencing on the Business Day next following the first public
announcement by the Company of any event giving rise to an adjustment of the
Exercise Price pursuant to Section 5 below and ending on such date. The "daily
market price" of one share of Common Stock for each such Business Day shall be:
(i) if the Common Stock is then listed on a national securities exchange or is
listed on NASDAQ and is
3
<PAGE>
designated as a National Market System security, the last sale price of one
share of Common Stock, regular way, on such day on the principal stock exchange
or market system on which such Common Stock is then listed or admitted to
trading, or, if no such sale takes place on such day, the average of the closing
bid and asked prices for one share of Common Stock on such day as reported on
such stock exchange or market system or (ii) if the Common Stock is not then
listed or admitted to trading on any national securities exchange or designated
as a National Market System security on NASDAQ but is traded over-the-counter,
the average of the closing bid and asked prices for one share of Common Stock as
reported on NASDAQ or the Electronic Bulletin Board or in the National Daily
Quotation Sheets, as applicable.
"Designated Office" shall have the meaning set forth in Section 11
hereof.
"Dilution Fee" shall have the meaning set forth in Section 13 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Exercise Date" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Notice" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1 hereof.
"Exercise Price" shall mean, in respect of a share of Non-Voting
Common Stock at any date herein specified, the initial Exercise Price set forth
in the preamble of this Warrant as adjusted from time to time pursuant to
Sections 2.4 and 5 hereof.
"Expiration Date" shall mean the tenth anniversary of the Original
Issue Date.
"Fair Value" per share of Common Stock as of any specified date shall
mean (A) if the Common Stock is publicly traded on such date, the Current Market
Price per share or (B) if the Common Stock is not publicly traded on such date,
(1) the fair market value per share of Common Stock as determined in good faith
by the Board of Directors of the Company and set forth in a written notice to
each Holder or (2) if the Majority Warrant Holders object in writing to such
price as determined by the Board of Directors within thirty (30) days after
receiving notice of same, the Appraised Value per share as of such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
4
<PAGE>
"Holder" shall mean (a) with respect to this Warrant, the Person in
whose name the Warrant set forth herein is registered on the books of the
Company maintained for such purpose and (b) with respect to any other Warrant or
shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock
is registered on the books of the Company maintained for such purpose.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or comparable
law of any jurisdiction).
"Majority Warrant Holders", with respect to a given determination,
shall mean the Holders of Warrants representing more than fifty percent (50%) of
all then outstanding Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"NASDAQ" shall mean the NASDAQ quotation system, or any successor
reporting system.
"Non-Voting Common Stock" shall mean the non-voting common stock, par
value $0.01 per share, of the Company.
"Opinion of Counsel" means a written opinion of outside counsel
experienced in Securities Act matters chosen by the Holder of this Warrant or
Warrant Stock issued upon the exercise hereof and reasonably acceptable to the
Company.
"Original Issue Date" shall mean the date on which this Warrant was
issued, as set forth on the cover page of this Warrant.
"Original Warrants" shall mean the Warrants originally issued by the
Company on June 4, 1999 to the Apollo Stockholders.
"Outside Date" shall mean the date that is 120 days after the Original
Issue Date.
"Outstanding" shall mean, when used with reference to Common Stock or
Non-Voting Common Stock, at any date as of which the number of shares thereof is
to be determined, all issued shares of Common Stock or Non-Voting Common Stock,
as the case may be, except shares then owned or held by or for the account of
the Company or any Subsidiary, and shall
5
<PAGE>
include all shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock or Non-Voting Common
Stock, as the case may be.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Restricted Common Stock" shall mean shares of Non-Voting Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.2(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock of the Company.
"Series B Preferred Stock" shall mean the Series B Preferred Stock of
the Company.
"Share Withholding Option" has the meaning set forth in Section 2.1
hereof.
"Subsidiary" shall mean any corporation, association or other business
entity (i) at least 50% of the outstanding voting securities of which are at the
time owned or controlled directly or indirectly by the Company; or (ii) with
respect to which the Company possesses, directly or indirectly, the power to
direct or cause the direction of the affairs or management of such person.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest therein, which would constitute a "sale" thereof or a
transfer of a beneficial interest therein within the meaning of the Securities
Act.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Non-Voting Common Stock being purchased upon exercise of this Warrant
pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the
date of such exercise.
"Warrants" shall mean the Original Warrants and all warrants issued
upon transfer, division or combination of, or in substitution for, such Original
Warrants, and any additional Warrants issued together with shares of Series B
Preferred Stock paid as dividends, or any other such Warrant. All Warrants
shall at all times be identical as to terms and conditions, except as to
6
<PAGE>
the number of shares of Non-Voting Common Stock for which they may be exercised
and their date of issuance.
"Warrant Stock" generally shall mean the shares of Non-Voting Common
Stock issued, issuable or both (as the context may require) upon the exercise of
Warrants.
2. EXERCISE OF WARRANT
-------------------
2.1 Manner of Exercise. (a) From and after the Original Issue Date
------------------
and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this
Warrant may from time to time exercise this Warrant, on any Business Day, for
all or any part of the number of shares of Non-Voting Common Stock purchasable
hereunder (as determined pursuant to Section 2.2 below); provided, however, if
-------- -------
after the Outside Date, any Holder of this Warrant elects to exercise such
warrant for Non-Voting Common Stock pursuant to this Section 2 and it is
determined that the Company cannot issue Non-Voting Common Stock, the Company
shall use its reasonable efforts to deliver to such Holder securities, cash or
other property to provide such Holder with the economic equivalent of an
exercise of the Series 1-B Warrant for, and an immediate sale of, the Non-Voting
Common Stock. In order to exercise this Warrant, in whole or in part, the
Holder shall (i) deliver to the Company at its Designated Office a written
notice of the Holder's election to exercise this Warrant (an "Exercise Notice"),
---------------
which Exercise Notice shall be irrevocable and specify the number of shares of
Non-Voting Common Stock to be purchased, together with this Warrant and (ii) pay
to the Company the Warrant Price (the date on which both such delivery and
payment shall have first taken place being hereinafter sometimes referred to as
the "Exercise Date"). Such Exercise Notice shall be in the form of the
subscription form appearing at the end of this Warrant as Annex A, duly executed
-------
by the Holder or its duly authorized agent or attorney.
(b) Upon receipt by the Company of such Exercise Notice, Warrant and
payment, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute (or cause to be executed) and deliver
(or cause to be delivered) to the Holder a certificate or certificates
representing the aggregate number of full shares of Non-Voting Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as the exercising Holder shall reasonably request in the Exercise
Notice and shall be registered in the name of the Holder or, subject to Section
9 below, such other name as shall be designated in the Exercise Notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of the
Holder by one or more of the following methods: (i) by delivery of a certified
or official bank check in the
7
<PAGE>
amount of such Warrant Price payable to the order of the Company, (ii) by
instructing the Company to withhold a number of shares of Warrant Stock then
issuable upon exercise of this Warrant with an aggregate Fair Value equal to
such Warrant Price (the "Share Withholding Option"), or (iii) by surrendering to
------------------------
the Company shares of Non-Voting Common Stock previously acquired by the Holder
with an aggregate Fair Value equal to such Warrant Price. In the event of any
withholding of Warrant Stock or surrender of Non-Voting Common Stock pursuant to
clause (ii) or (iii) above where the number of shares whose Fair Value is equal
to the Warrant Price is not a whole number, the number of shares withheld by or
surrendered to the Company shall be rounded up to the nearest whole share and
the Company shall make a cash payment to the Holder based on the incremental
fraction of a share being so withheld by or surrendered to the Company in an
amount determined in accordance with Section 2.3 hereof. Notwithstanding any
provision herein to the contrary, the Company shall not be required to register
shares of Non-Voting Common Stock in the name of any Person who acquired this
Warrant (or part hereof) or any shares of Warrant Stock otherwise than in
accordance with this Warrant.
(d) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the shares of Non-Voting Common Stock being issued, deliver to the Holder a new
Warrant evidencing the rights of the Holder to purchase the unpurchased shares
of Non-Voting Common Stock called for by this Warrant. Such new Warrant shall
in all other respects be identical to this Warrant.
(e) All Warrants delivered for exercise shall be canceled by the
Company.
2.2 Payment of Taxes. All shares of Non-Voting Common Stock issuable
----------------
upon the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, issued without violation of any preemptive
rights and free and clear of all Liens (other than any created by actions of the
Holder). The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue or
delivery thereof, unless such tax or charge is imposed by law upon the Holder,
in which case such taxes or charges shall be paid by the Holder and the Company
shall reimburse the Holder therefor on an After-Tax Basis. The Company shall
not, however, be required to pay any tax or governmental charge which may be
payable in respect of any Transfer involved in the issue and delivery of shares
of Non-Voting Common Stock issuable upon exercise of this Warrant in a name
other than that of the holder of the Warrants to be exercised, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid.
2.3 Fractional Shares. The Company shall not be required to issue a
-----------------
fractional share of Non-Voting Common Stock upon exercise of any Warrant. As to
any fraction of a share that the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be entitled
to purchase upon such exercise, the Company shall pay
8
<PAGE>
to such Holder an amount in cash equal to such fraction multiplied by (i) the
Current Market Price of one share of Non-Voting Common Stock on the Exercise
Date, if the Non-Voting Common Stock is then publicly traded, or (ii) the Book
Value per share of Non-Voting Common Stock based on the most recent available
consolidated balance sheet of the Company, if the Non-Voting Common Stock is not
then publicly traded.
2.4 Reduced Exercise Price. In the event that the Company shall not
----------------------
have obtained the approval of its stockholders of the conversion of the Series
1-B Warrants into Series 1-A Warrants (the "Series 1-B-to-1-A Conversion") on or
----------------------------
prior to the Outside Date, the Exercise Price herein shall be reduced to $0.01.
3. TRANSFER, DIVISION AND COMBINATION
----------------------------------
3.1 Transfer. Subject to compliance with Section 9 hereof, each
--------
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the Designated Office, together with a written
assignment of this Warrant in the form of Annex B hereto duly executed by the
-------
Holder or its agent or attorney and funds sufficient to pay any transfer taxes
described in Section 2.2 in connection with the making of such transfer. Upon
such surrender and delivery and, if required, such payment, the Company shall,
subject to Section 9, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned in compliance with
Section 9, may be exercised by the new Holder for the purchase of shares of Non-
Voting Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to compliance with the
------------------------
applicable provisions of this Warrant including, without limitation, Section 9,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the Designated Office, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with the applicable
provisions of this Warrant as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its own
--------
expense any new Warrant or Warrants required to be issued under this Section 3
(other than pursuant to Section 2.2 hereof).
3.4 Maintenance of Books. The Company agrees to maintain, at the
--------------------
Designated Office, books for the registration and transfer of the Warrants.
9
<PAGE>
4. CONVERSION TO SERIES 1-A WARRANTS
---------------------------------
4.1 Conversion. The Company will, as soon as practicable, duly call,
----------
give notice of, convene and hold a meeting of its stockholders for the purpose
of approving, among other things, the Series 1-B-to-1-A Conversion and the
creation of the Non-Voting Common Stock. The Company shall use its best efforts
to secure such approval on or prior to the Outside Date. Upon stockholder
approval of the Series 1-B-to-1-A Conversion, whenever obtained, this Warrant
shall, without any action on the part of the Holder hereof or the Company, be
automatically converted into one Series 1-A Warrant (a "Series 1-A Warrant") in
------------------
the form attached as Annex 2-A to the Amended and Restated Securities Purchase
Agreement dated as of June 4, 1999 among the Company, the Apollo Stockholders
and certain other parties thereto, to purchase the same number of shares of
Common Stock (subject to adjustment) as could be purchased upon the exercise of
this Warrant immediately prior to such conversion.
4.2 Promptly following any conversion of this Warrant into a Series
1-A Warrant pursuant to Section 4.1 above, the Holder of this Warrant shall (i)
surrender this Warrant, at the office of the Company or of the transfer agent
for this Warrant and (ii) state in writing the name or names in which the Series
1-A Warrant is to be registered. As soon as practical following receipt of the
foregoing, the Company shall deliver to such former Holder of this Warrant one
or more Series 1-A Warrants in denominations acceptable to such Holder. Such
conversion shall be deemed to have been effected as of the close of business on
the date on which the stockholders of the Company approve the Series 1-B-to-1-A
Conversion.
5. ANTIDILUTION PROVISIONS
-----------------------
5.1 General. The number of shares of Non-Voting Common Stock for
-------
which this Warrant is exercisable and the Exercise Price shall be subject to
adjustment from time to time in the same manner as the number of shares of
Common Stock issuable upon exercise of the Series 1-A Warrant and the "Exercise
Price" as set forth in the Series 1-A Warrant are adjusted pursuant to Section 5
thereof.
5.2 Notice of Adjustment of Exercise Price. Whenever the Exercise
--------------------------------------
Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Exercise Price in
accordance with this Section 5 and shall prepare a certificate signed
by the Treasurer or Chief Financial Officer of the Company setting
forth the adjusted Exercise Price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall
forthwith be filed at each office or agency maintained for such
purpose or exercise of Warrants; and
10
<PAGE>
(ii) a notice stating that the Exercise Price has been adjusted
and setting forth the adjusted Exercise Price shall forthwith be
prepared by the Company, and as soon as practicable after it is
prepared, such notice shall be mailed by the Company at its expense to
all Holders at their last addresses as they shall appear in the stock
register.
6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION
--------------------------------------------------------------------------
(a) The Company shall not by any action, including, without
limitation, amending its charter documents or through any reorganization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all Liens, and shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
(b) The Company shall deliver to each Holder of Warrants on or before
six months prior to the tenth anniversary of the Original Issue Date, but no
earlier than nine months prior to the tenth anniversary of the Original Issue
Date, advance notice of such tenth anniversary and of the anticipated Expiration
Date. If the Company fails to fulfill in a timely manner the notice obligation
set forth in the prior sentence, it shall provide such notice as soon as
possible thereafter.
7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK;
--------------------------------------------------------
REGISTRATION WITH OR APPROVAL OF ANY
-------------------------------------
GOVERNMENTAL AUTHORITY
----------------------
From and after the Original Issue Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of the Warrants such
number of its authorized but unissued shares of Non-Voting Common Stock as will
be sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Non-Voting Common Stock issuable pursuant to the terms hereof, when
issued upon exercise of this Warrant with payment therefor in accordance with
the terms hereof, shall be duly and validly issued and fully paid and
nonassessable, not subject to preemptive rights and shall be free and clear of
all Liens. Before taking any action that would result in an adjustment in the
number of shares of Non-Voting Common Stock for which
11
<PAGE>
this Warrant is exercisable or in the Exercise Price, the Company shall obtain
all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction over
such action. If any shares of Non-Voting Common Stock required to be reserved
for issuance upon exercise of Warrants require registration or qualification
with any governmental authority under any federal or state law (other than under
the Securities Act or any state securities law) before such shares may be so
issued, the Company will in good faith and as expeditiously as possible and at
its expense endeavor to cause such shares to be duly registered.
8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS
-------------------------------------------------------------
8.1 Notices of Corporate Actions.
----------------------------
In case:
(a) the Company shall take an action or an event shall occur,
that would require an Exercise Price adjustment pursuant to Section 5;
or
(b) the Company shall grant to the holders of its Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class; or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock),
or of any consolidation, merger or share exchange to which the Company
is a party and for which approval of any stockholders of the Company
is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the outstanding shares of Common Stock
(or shall amend any such tender offer to change the maximum number of
shares being sought or the amount or type of consideration being
offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
such purpose, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the stock register, at least 30 days prior to
the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend, distribution, rights or warrants are to
be determined, (y) the date on which such reclassification,
12
<PAGE>
consolidation, merger, share exchange, 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 shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up, or (z) the date on which such
tender offer commenced, the date on which such tender offer is scheduled to
expire unless extended, the consideration offered and the other material terms
thereof (or the material terms of the amendment thereto). Such notice shall also
set forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Exercise Price and the number and kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon exercise of
the Warrants. Neither the failure to give any such notice nor any defect therein
shall affect the legality or validity of any action described in clauses (a)
through (e) of this Section 8.1.
8.2 Taking of Record. In the case of all dividends or other
----------------
distributions by the Company to the holders of its Common Stock with respect to
which any provision of any Section hereof refers to the taking of a record of
such holders, the Company will in each such case take such a record and will
take such record as of the close of business on a Business Day.
8.3 Closing of Transfer Books. The Company shall not at any time,
-------------------------
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. TRANSFER RESTRICTIONS
---------------------
The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
9.1 Restrictions on Transfers. Neither this Warrant nor any shares
-------------------------
of Restricted Common Stock issued upon the exercise hereof shall be transferred,
sold, assigned, exchanged, mortgaged, pledged, hypothecated, or otherwise
disposed of or encumbered without compliance with the provisions of, and are
otherwise restricted by the provisions of, the Securities Act, the rules and
regulations thereunder and this Warrant. Each certificate, if any, evidencing
such shares of Restricted Common Stock issued upon any such Transfer, other than
in a public offering pursuant to an effective registration statement, shall bear
the restrictive legend set forth in Section 9.2(a), and each Warrant issued upon
such Transfer shall bear the restrictive legend set forth in Section 9.2(b),
unless the Holder delivers to the Company an Opinion of Counsel to the effect
that such legend is not required for the purposes of compliance with the
Securities Act. Holders of the Warrants or the Restricted Common Stock, as the
case may be, shall not be entitled to Transfer such Warrants or such Restricted
Common Stock except in accordance with this Section 9.1.
13
<PAGE>
9.2 Restrictive Legends. (a) Except as otherwise provided in this
-------------------
Section 9, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
two legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE
DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND
ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND
REGULATIONS THEREUNDER."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF
AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 1-B
WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC.
(THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED.
A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF RARE MEDIUM
GROUP, INC."
(b) Except as otherwise provided in this Section 9, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"NEITHER THIS SERIES 1-B WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 1-B WARRANTS
REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH
THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE
ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT."
9.3 Termination of Securities Law Restrictions. Notwithstanding the
------------------------------------------
foregoing provisions of this Section 9, the restrictions imposed by Section
9.1(b) upon the transferability of the Warrants and the Restricted Common Stock
and the legend requirements of Section 9.2 shall terminate as to any particular
Warrant or shares of Restricted Common Stock when the Company shall have
received from the Holder thereof an Opinion of Counsel to the effect that such
legend is
14
<PAGE>
not required in order to ensure compliance with the Securities Act. Whenever the
restrictions imposed by Sections 9.1(b) and 9.2 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company, at the expense of the Company, a new Warrant bearing the
following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 1-B WARRANT
CONTAINED IN SECTIONS 9.1(b) AND 9.2 HEREOF TERMINATED ON ______________,
20__, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.2(a).
10. LOSS OR MUTILATION
------------------
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and an indemnity reasonably satisfactory to it (it
being understood that the written indemnification agreement of or affidavit of
loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case
of mutilation, upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided,
--------
however, that, in the case of mutilation, no indemnity shall be required if this
- -------
Warrant in identifiable form is surrendered to the Company for cancellation.
11. OFFICE OF THE COMPANY
---------------------
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency, which may be the principal executive offices of
the Company (the "Designated Office"), where the Warrants may be presented for
-----------------
exercise, registration of transfer, division or combination as provided in this
Warrant. Such Designated Office shall initially be the office of the Company at
44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from
time to time change the Designated Office to another office of the Company or
its agent within the United States by notice given to all registered Holders at
least ten (10) Business Days prior to the effective date of such change.
15
<PAGE>
12. FINANCIAL AND BUSINESS INFORMATION
----------------------------------
(a) Financial Reports.
-----------------
Until (i) the Company shall no longer be required to deliver financial
reports in connection with the Series A Preferred Stock, or (ii) the Expiration
Date, whichever first occurs, the Company shall furnish to Apollo Investment
Fund IV, L.P. the following:
(i) Monthly Reports. As soon as available, but not later than
---------------
30 days after the end of each fiscal month, a consolidated balance sheet of
the Company as of the end of such period and consolidated statements of
income of the Company for such period and for the period commencing at the
end of the previous fiscal year and ending with the end of such period,
setting forth in each case in comparative form the corresponding figures
for the corresponding period of the preceding fiscal year, and including
comparisons to the budget or business plan and an analysis of the variances
from the budget or plan, all prepared in accordance with generally accepted
accounting principals consistently applied (except for the absence of
footnotes and year-end adjustments).
(ii) Quarterly Reports. As soon as available, but not later
-----------------
than 45 days after the end of each quarterly accounting period, (A) a
consolidated balance sheet of the Company as of the end of such period and
consolidated statements of income, cash flows and changes in shareholders'
equity for such quarterly accounting period and for the period commencing
at the end of the previous fiscal year and ending with the end of such
period, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, and
including comparisons to the budget or business plan and an analysis of the
variances from the budget or plan, all prepared in accordance with
generally accepted accounting principals consistently applied, subject to
normal year-end adjustments and the absence of footnote disclosure, and (B)
a report by management of the Company of the operating and financial
highlights of the Company and its Subsidiaries for such period, which shall
include (x) a comparison between operating and financial results and budget
and (y) an analysis of the operations of the Company and its Subsidiaries
for such period.
(iii) Annual Audit. As soon as available, but not later than 90
------------
days after the end of each fiscal year of the Company, audited consolidated
financial statements of the Company, which shall include statements of
income, cash flows and changes in shareholders' equity for such fiscal year
and a balance sheet as of the last day thereof, each prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by the report of a "Big 5" firm of independent certified public
accountants selected by the Company's Board of Directors (the
"Accountants"). The Company and its Subsidiaries shall maintain a system
-----------
of accounting sufficient to enable its Accountants to render the report
referred to in this Section 12(a)(iii).
16
<PAGE>
(iv) Miscellaneous. Promptly upon becoming available, each of
-------------
the following:
(A) copies of all financial statements, reports, press releases,
notices, proxy statements and other documents sent by the Company or its
Subsidiaries to its shareholders generally or released to the public and
copies of all regular and periodic reports, if any, filed by the Company or
its Subsidiaries with the SEC, any securities exchange or the NASD;
(B) notification in writing of the existence of any default
under any material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of their assets are bound;
(C) upon request, copies of all reports prepared for or
delivered to the management of the Company or its Subsidiaries by its
accountants; and
(D) upon request, any other routinely collected financial or
other information available to management of the Company or its
Subsidiaries (including, without limitation, routinely collected
statistical data).
(b) Other Holders. Without duplication of any document or information
-------------
provided pursuant to this Section 12, the Company shall provide to each Holder
of Warrants or Warrant Stock the following:
(i) as soon as available, but not later than 45 days after the
end of each quarterly accounting period, a Form 10-Q or, if the Company
does not then file quarterly reports with the SEC, the documents referred
to in Section 12(a)(ii).
(ii) as soon as available, but not later than 90 days after the
end of each fiscal year, a Form 10-K or, if the Company does not then file
annual reports with the SEC, the audited consolidated financial statements
referred to in Section 12(a)(iii).
(iii) simultaneously with any distribution of any document to
the stockholders of the Company generally, any such document so
distributed.
13. DILUTION FEE
------------
In the event any dividends are declared with respect to the Common
Stock, the holder of this Warrant as of the record date established by the Board
of Directors for such dividend shall be entitled to receive as a dilution fee
(the "Dilution Fee") an amount (whether in the form of cash, securities or other
------------
property) equal to the amount (and in the form) of the dividends that such
holder would have received had this Warrant been exercised for purchase of
17
<PAGE>
Non-Voting Common Stock (on the basis of one share of Common Stock for each
share of Non-Voting Common Stock for which this Warrant is then exercisable) as
of the record date of such dividend, such Dilution Fee to be payable on the
payment date of the dividend established by the Board of Directors (the
"Dilution Fee Payment Date"). The record date for any such Dilution Fee shall be
-------------------------
the record date for the applicable dividend, and any such Dilution Fee shall be
payable to the persons in whose name this Warrant is registered at the close of
business on the applicable record date.
14. MISCELLANEOUS
-------------
14.1 Nonwaiver. No course of dealing or any delay or failure to
---------
exercise any right hereunder on the part of the Company or the Holder shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of such Person.
14.2 Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or communication hereunder to be made pursuant
to the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) if to any Holder of this Warrant or of Warrant Stock issued upon
the exercise hereof, at its last known address appearing on the books of
the Company maintained for such purpose;
(b) if to the Company, at the Designated Office;
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, or one (1) Business Day
after the same shall have been sent by Federal Express or another recognized
overnight courier service.
14.3 Indemnification. If the Company fails to make, when due, any
---------------
payments provided for in this Warrant, the Company shall pay to the Holder
hereof (a) interest at the Agreed Rate on any amounts due and owing to such
Holder and (b) such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees and
expenses incurred by such Holder in collecting any amounts due hereunder. The
Company shall indemnify, save and hold harmless the Holder hereof and the
Holders of any Warrant Stock issued upon the exercise hereof from and against
any and all liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and all other out-
18
<PAGE>
of-pocket expenses incurred in connection with or arising from any default
hereunder by the Company. This indemnification provision shall be in addition to
the rights of such Holder or Holders to bring an action against the Company for
breach of contract based on such default hereunder.
14.4 Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by the Holder to purchase shares of Non-Voting Common Stock,
and no enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder to pay the Exercise Price for
any Warrant Stock other than pursuant to an exercise of this Warrant or any
liability as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
14.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in
--------
addition to being entitled to exercise its rights granted by law, including
recovery of damages, shall be entitled to specific performance of its rights
provided under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Warrant and hereby agrees, in an action for specific
performance, to waive the defense that a remedy at law would be adequate.
14.6 Successors and Assigns. Subject to the provisions of Sections
----------------------
3.1, 9.1 and 9.2, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and to the extent applicable, all Holders of shares of Warrant
Stock issued upon the exercise hereof (including transferees), and shall be
enforceable by any such Holder.
14.7 Amendment. This Warrant and all other Warrants may be modified
---------
or amended or the provisions hereof waived with the written consent of the
Company and the Majority Warrant Holders, provided that no such Warrant may be
--------
modified or amended to reduce the number of shares of Non-Voting Common Stock
for which such Warrant is exercisable or to increase the price at which such
shares may be purchased upon exercise of such Warrant (before giving effect to
any adjustment as provided therein) without the written consent of the Holder
thereof.
14.8 Severability. Wherever possible, each provision of this Warrant
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.9 Headings. The headings used in this Warrant are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
19
<PAGE>
14.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL
---------------------------
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS
WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND
DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE
GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH
BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR
TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS
--------
ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK.
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
RARE MEDIUM GROUP, INC.
By:_________________________________
Name:
Title:
[SEAL]
Attest:
By:_____________________________
Name:
Title:
21
<PAGE>
ANNEX A
-------
SUBSCRIPTION FORM
-----------------
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of ______ shares Non-Voting Common Stock of Rare
Medium Group, Inc. and herewith makes payment therefor in __________, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Non-Voting Common Stock hereby purchased
(and any securities or other property issuable upon such exercise) be issued in
the name of and delivered to _________________ whose address is
_______________________________ and, if such shares of Non-Voting Common Stock
shall not include all of the shares of Non-Voting Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Non-Voting Common Stock issuable hereunder be delivered
to the undersigned.
_______________________________
(Name of Registered Owner)
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
22
<PAGE>
ANNEX B
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the under signed under this Warrant, with respect to the number of
shares of Non-Voting Common Stock set forth below:
No. of Shares of
Name and Address of Assignee ____ Non-Voting Common Stock
- ----------------------------
and does hereby irrevocably constitute and appoint ________ _____________
attorney-in-fact to register such transfer onto the books of Rare Medium Group,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:___________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
23
<PAGE>
Appendix F
============================================================================
SERIES 2-B
WARRANT
to Purchase Non-Voting Common Stock of
RARE MEDIUM GROUP, INC.
============================================================================
Warrant No. [___]
Original Issue
Date: June 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS .......................................................... 1
2. EXERCISE OF WARRANT .................................................. 6
2.1 Manner of Exercise .......................................... 6
2.2 Payment of Taxes ............................................ 7
2.3 Fractional Shares ........................................... 8
2.4................................................................... 8
3. TRANSFER, DIVISION AND COMBINATION ................................... 8
3.1 Transfer .................................................... 8
3.2 Division and Combination .................................... 8
3.3 Expenses .................................................... 9
3.4 Maintenance of Books ........................................ 9
4. CONVERSION TO SERIES 2-A WARRANTS .................................... 9
5. ANTIDILUTION PROVISIONS .............................................. 9
5.1 General ..................................................... 9
5.2 Notice of Adjustment of Exercise Price ...................... 9
6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION;
NOTICE OF EXPIRATION ................................................. 10
7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY .......... 10
8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD;
TRANSFER BOOKS ....................................................... 11
8.1 Notices of Corporate Actions ................................ 11
8.2 Taking of Record ............................................ 12
8.3 Closing of Transfer Books ................................... 12
9. TRANSFER RESTRICTIONS ................................................ 12
9.1 Restrictions on Transfers ................................... 12
9.2 Restrictive Legends ......................................... 13
9.3 Termination of Securities Law Restrictions .................. 13
10. LOSS OR MUTILATION ................................................... 14
11. OFFICE OF THE COMPANY ................................................ 14
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
12. FINANCIAL AND BUSINESS INFORMATION ................................... 15
13. DILUTION FEE ......................................................... 16
14. MISCELLANEOUS ........................................................ 17
14.1 Nonwaiver ..................................................... 17
14.2 Notice Generally .............................................. 17
14.3 Indemnification ............................................... 17
14.4 Limitation of Liability ....................................... 18
14.5 Remedies ...................................................... 18
14.6 Successors and Assigns ........................................ 18
14.7 Amendment ..................................................... 18
14.8 Severability .................................................. 18
14.9 Headings ...................................................... 18
14.10 GOVERNING LAW; JURISDICTION 18
ANNEX A
SUBSCRIPTION FORM..................................................... 21
ANNEX B
ASSIGNMENT FORM ...................................................... 22
</TABLE>
-ii-
<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS
CERTIFI CATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS
OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES
AND REGULATIONS THEREUNDER AND THIS WARRANT.
Warrant No. [___]
SERIES 2-B
WARRANT
TO PURCHASE ____ SHARES OF NON-VOTING COMMON STOCK
(SUBJECT TO ADJUSTMENT) OF
RARE MEDIUM GROUP, INC.
THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its
registered assigns, is entitled, at any time prior to the Expiration Date (such
term, and certain other capitalized terms used herein being hereinafter
defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the
"Company"), one (1) share of the Non-Voting Common Stock of the Company (subject
-------
to adjustment as provided herein), at a purchase price per share (the initial
"Exercise Price", subject to adjustment as provided herein) equal to $7.00.
- ---------------
1. DEFINITIONS
-----------
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Affiliate" of any Person means any other Person (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such Person. The term "control" (including the
terms "controlled by" and "under common control with") as used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
<PAGE>
"After-Tax Basis" when referring to a payment that is required
hereunder (the "target amount"), shall mean a total payment (the "total amount")
that, after deduction of all federal, state and local taxes that are required to
be paid by the recipient in respect of the receipt or accrual of such total
amount, is equal to the target amount.
"Agreed Rate" shall mean the rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s
base rate.
"Apollo Stockholders" shall mean Apollo Investment Fund IV, L.P. or
any of its Affiliates.
"Appraised Value" per share of Common Stock as of a date specified
herein shall mean the value of such a share as of such date as determined by an
investment bank of nationally recognized standing selected by the Majority
Warrant Holders and reasonably acceptable to the Company. If the investment bank
selected by the Majority Warrant Holders is not reasonably acceptable to the
Company, and the Company and the Majority Warrant Holders cannot agree on a
mutually acceptable investment bank, then the Company and the Majority Warrant
Holders shall each choose one such investment bank and the respective chosen
firms shall jointly select a third investment bank, which shall make the
determination. The Company shall pay the costs and fees of each such investment
bank (including any such investment bank selected by the Majority Warrant
Holders), and the decision of the investment bank making such determination of
Appraised Value shall be final and binding on the Company and all affected
holders of Warrants or Warrant Stock. Such Appraised Value shall be determined
as a pro rata portion of the value of the Company taken as a whole, based on the
higher of (A) the value derived from a hypothetical sale of the entire Company
as a going concern by a willing seller to a willing buyer (neither acting under
any compulsion) and (B) the liquidation value of the entire Company. No discount
shall be applied on account of (i) any Warrants or Warrant Stock representing a
minority interest, (ii) any lack of liquidity of the Common Stock or the
Warrants, (iii) the fact that the Warrants or Warrant Stock may constitute
"restricted securities" for securities law purposes, (iv) the existence of any
call option or (v) any other grounds.
"Book Value" per share of Common Stock as of a date specified herein
shall mean the consolidated book value of the Company and its Subsidiaries as of
such date divided by the number of shares of Common Stock Outstanding on such
date. Such book value shall be determined in accordance with GAAP, except that
there shall be no reduction in such book value by reason of any amount that may
be required either as an offset to or reserve against retained earnings or as a
deduction from book value as a result of the issuance, existence, anticipated
exercise of, or anticipated cost to the Company of the repurchase of, any of the
Warrants.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
2
<PAGE>
"Common Stock" shall mean the Common Stock of the Company, par value
$0.01 per share, as constituted on the Original Issue Date, and any capital
stock into which such Common Stock may thereafter be changed, and shall also
include (i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of any Common Stock upon any
reclassification thereof which is also not preferred as to dividends or
liquidation over any other class of stock of the Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by Section 5 hereof.
"Company" means Rare Medium Group, Inc., a Delaware corporation, and
any successor corporation.
"Current Market Price" shall mean as of any specified date the average
of the daily market price of one share of the Common Stock for the shorter of
(x) the twenty (20) consecutive Business Days immediately preceding such date or
(y) the period commencing on the Business Day next following the first public
announcement by the Company of any event giving rise to an adjustment of the
Exercise Price pursuant to Section 5 below and ending on such date. The "daily
market price" of one share of Common Stock for each such Business Day shall be:
(i) if the Common Stock is then listed on a national securities exchange or is
listed on NASDAQ and is designated as a National Market System security, the
last sale price of one share of Common Stock, regular way, on such day on the
principal stock exchange or market system on which such Common Stock is then
listed or admitted to trading, or, if no such sale takes place on such day, the
average of the closing bid and asked prices for one share of Common Stock on
such day as reported on such stock exchange or market system or (ii) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or designated as a National Market System security on NASDAQ
but is traded over-the-counter, the average of the closing bid and asked prices
for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin
Board or in the National Daily Quotation Sheets, as applicable.
"Designated Office" shall have the meaning set forth in Section 11
hereof.
"Dilution Fee" shall have the meaning set forth in Section 13 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Exercise Date" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Notice" shall have the meaning set forth in Section 2.1
hereof.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1 hereof.
3
<PAGE>
"Exercise Price" shall mean, in respect of a share of Non-Voting
Common Stock at any date herein specified, the initial Exercise Price set forth
in the preamble of this Warrant as adjusted from time to time pursuant to
Sections 2.4 and 5 hereof.
"Expiration Date" shall mean the tenth anniversary of the Original
Issue Date.
"Fair Value" per share of Common Stock as of any specified date shall
mean (A) if the Common Stock is publicly traded on such date, the Current Market
Price per share or (B) if the Common Stock is not publicly traded on such date,
(1) the fair market value per share of Common Stock as determined in good faith
by the Board of Directors of the Company and set forth in a written notice to
each Holder or (2) if the Majority Warrant Holders object in writing to such
price as determined by the Board of Directors within thirty (30) days after
receiving notice of same, the Appraised Value per share as of such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean (a) with respect to this Warrant, the Person in
whose name the Warrant set forth herein is registered on the books of the
Company maintained for such purpose and (b) with respect to any other Warrant or
shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock
is registered on the books of the Company maintained for such purpose.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or comparable
law of any jurisdiction).
"Majority Warrant Holders", with respect to a given determination,
shall mean the Holders of Warrants representing more than fifty percent (50%) of
all then outstanding Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"NASDAQ" shall mean the NASDAQ quotation system, or any successor
reporting system.
"Non-Voting Common Stock" shall mean the non-voting common stock, par
value $0.01 per share, as the Company.
4
<PAGE>
"Opinion of Counsel" means a written opinion of outside counsel
experienced in Securities Act matters chosen by the Holder of this Warrant or
Warrant Stock issued upon the exercise hereof and reasonably acceptable to the
Company.
"Original Issue Date" shall mean the date on which this Warrant was
issued, as set forth on the cover page of this Warrant.
"Original Warrants" shall mean the Warrants originally issued by the
Company on June 4 1999 to the Apollo Stockholders.
"Outside Date" shall mean the date which is 120 days after the
Original Issue Date.
"Outstanding" shall mean, when used with reference to Common Stock or
Non-Voting Common Stock, at any date as of which the number of shares thereof is
to be determined, all issued shares of Common Stock or Non-Voting Common Stock,
as the case may be, except shares then owned or held by or for the account of
the Company or any Subsidiary, and shall include all shares issuable in respect
of outstanding scrip or any certificates representing fractional interests in
shares of Common Stock or Non-Voting Common Stock, as the case may be.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Restricted Common Stock" shall mean shares of Non-Voting Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.2(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock of the Company.
"Series B Preferred Stock" shall mean the Series B Preferred Stock of
the Company.
"Share Withholding Option" has the meaning set forth in Section 2.1
hereof.
"Subsidiary" shall mean any corporation, association or other business
entity (i) at least 50% of the outstanding voting securities of which are at the
time owned or controlled directly or indirectly by the Company; or (ii) with
respect to which the Company possesses, directly or indirectly, the power to
direct or cause the direction of the affairs or management of such person.
5
<PAGE>
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest therein, which would constitute a "sale" thereof or a
transfer of a beneficial interest therein within the meaning of the Securities
Act.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Non-Voting Common Stock being purchased upon exercise of this Warrant
pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the
date of such exercise.
"Warrants" shall mean the Original Warrants and all warrants issued
upon transfer, division or combination of, or in substitution for, such Original
Warrants, and any additional Warrants issued together with shares of Series A
Preferred Stock paid as dividends, or any other such Warrant. All Warrants shall
at all times be identical as to terms and conditions, except as to the number of
shares of Non-Voting Common Stock for which they may be exercised and their date
of issuance.
"Warrant Stock" generally shall mean the shares of Non-Voting Common
Stock issued, issuable or both (as the context may require) upon the exercise of
Warrants.
2. EXERCISE OF WARRANT
-------------------
2.1 Manner of Exercise. (a) From and after the Original Issue Date
------------------
and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this
Warrant may from time to time exercise this Warrant, on any Business Day, for
all or any part of the number of shares of Non-Voting Common Stock purchasable
hereunder (as determined pursuant to Section 2.2 below); provided, however, if
-------- -------
after the Outside Date, any Holder of this Warrant elects to convert such
warrant to Non-Voting Common Stock pursuant to this Section 2 and it is
determined that the Company cannot issue Non-Voting Common Stock, the Company
shall use its reasonable efforts to deliver to such Holder securities, cash or
other property to provide such Holder with the economic equivalent of an
exercise of the Series 2-B Warrant into, and an immediate sale of, the Non-
Voting Common Stock. In order to exercise this Warrant, in whole or in part, the
Holder shall (i) deliver to the Company at its Designated Office a written
notice of the Holder's election to exercise this Warrant (an "Exercise Notice"),
---------------
which Exercise Notice shall be irrevocable and specify the number of shares of
Non-Voting Common Stock to be purchased, together with this Warrant and (ii) pay
to the Company the Warrant Price (the date on which both such delivery and
payment shall have first taken place being hereinafter sometimes referred to as
the "Exercise Date"). Such Exercise Notice shall be in the form of the
subscription form appearing at the end of this Warrant as Annex A, duly executed
-------
by the Holder or its duly authorized agent or attorney.
(b) Upon receipt by the Company of such Exercise Notice, Warrant and
payment, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute (or cause to be executed) and deliver
(or cause to be delivered) to the Holder a certificate or certificates
representing the aggregate number of full shares of Non-Voting Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share,
6
<PAGE>
as hereafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the
exercising Holder shall reasonably request in the Exercise Notice and shall be
registered in the name of the Holder or, subject to Section 9 below, such other
name as shall be designated in the Exercise Notice. This Warrant shall be deemed
to have been exercised and such certificate or certificates shall be deemed to
have been issued, and the Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such shares for all
purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of the
Holder by one or more of the following methods: (i) by delivery of a certified
or official bank check in the amount of such Warrant Price payable to the order
of the Company, (ii) by instructing the Company to withhold a number of shares
of Warrant Stock then issuable upon exercise of this Warrant with an aggregate
Fair Value equal to such Warrant Price (the "Share Withholding Option"), or
------------------------
(iii) by surrendering to the Company shares of Non-Voting Common Stock
previously acquired by the Holder with an aggregate Fair Value equal to such
Warrant Price. In the event of any withholding of Warrant Stock or surrender of
Non-Voting Common Stock pursuant to clause (ii) or (iii) above where the number
of shares whose Fair Value is equal to the Warrant Price is not a whole number,
the number of shares withheld by or surrendered to the Company shall be rounded
up to the nearest whole share and the Company shall make a cash payment to the
Holder based on the incremental fraction of a share being so withheld by or
surrendered to the Company in an amount determined in accordance with Section
2.3 hereof.
(d) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the shares of Non-Voting Common Stock being issued, deliver to the Holder a new
Warrant evidencing the rights of the Holder to purchase the unpurchased shares
of Non-Voting Common Stock called for by this Warrant. Such new Warrant shall in
all other respects be identical to this Warrant. Notwithstanding any provision
herein to the contrary, the Company shall not be required to register shares of
Non-Voting Common Stock in the name of any Person who acquired this Warrant (or
part hereof) or any shares of Warrant Stock otherwise than in accordance with
this Warrant.
(e) All Warrants delivered for exercise shall be canceled by the
Company.
2.2 Payment of Taxes. All shares of Non-Voting Common Stock issuable
----------------
upon the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, issued without violation of any preemptive
rights and free and clear of all Liens (other than any created by actions of the
Holder). The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue or
delivery thereof, unless such tax or charge is imposed by law upon the Holder,
in which case such taxes or charges shall be paid by the Holder and the Company
shall reimburse the Holder therefor on an After-Tax Basis. The Company shall
not, however, be required to pay any tax or governmental charge which may be
payable in respect of any Transfer involved in the issue and delivery of shares
of Non-Voting Common Stock issuable upon exercise of this Warrant in a name
other than that of the holder of the Warrants to be exercised, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Company the
7
<PAGE>
amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
2.3 Fractional Shares. The Company shall not be required to issue a
-----------------
fractional share of Non-Voting Common Stock upon exercise of any Warrant. As to
any fraction of a share that the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be entitled
to purchase upon such exercise, the Company shall pay to such Holder an amount
in cash equal to such fraction multiplied by (i) the Current Market Price of one
share of Non-Voting Common Stock on the Exercise Date, if the Non-Voting Common
Stock is then publicly traded, or (ii) the Book Value per share of Non-Voting
Common Stock based on the most recent available consolidated balance sheet of
the Company, if the Non-Voting Common Stock is not then publicly traded.
2.4 Reduced Exercise Price. In the event that the Company shall not
----------------------
have obtained the approval of its stockholders of the conversion of the Series
2-B Warrants into Series 2-A Warrants (the "Series 2-B-to-2-A Conversion"), on
----------------------------
or prior to the Outside Date the Exercise Price herein shall be reduced to
$0.01.
3. TRANSFER, DIVISION AND COMBINATION
----------------------------------
3.1 Transfer. Subject to compliance with Section 9 hereof, each
--------
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the Designated Office, together with a written
assignment of this Warrant in the form of Annex B hereto duly executed by the
-------
Holder or its agent or attorney and funds sufficient to pay any transfer taxes
described in Section 2.2 in connection with the making of such transfer. Upon
such surrender and delivery and, if required, such payment, the Company shall,
subject to Section 9, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned in compliance with
Section 9, may be exercised by the new Holder for the purchase of shares of Non-
Voting Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to compliance with the
------------------------
applicable provisions of this Warrant including, without limitation, Section 9,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the Designated Office, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with the applicable
provisions of this Warrant as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
8
<PAGE>
3.3 Expenses. The Company shall prepare, issue and deliver at its
--------
own expense any new Warrant or Warrants required to be issued under this Section
3 (other than pursuant to Section 2.2 hereof).
3.4 Maintenance of Books. The Company agrees to maintain, at the
--------------------
Designated Office, books for the registration and transfer of the Warrants.
4. CONVERSION TO SERIES 2-A WARRANTS
---------------------------------
4.1 Conversion. The Company will, as soon as practicable, duly call,
----------
give notice of, convene and hold a meeting of its stockholders for the purpose
of approving, among other things, the Series 2-B-to-2-A Conversion. The Company
shall use its best efforts to secure such approval on or prior to the Outside
Date. Upon stockholder approval of the Series 2-B-to-2-A Conversion, whenever
obtained, this Warrant shall, without any action on the part of the Holder
hereof or the Company, be automatically converted into one Series 2-A Warrant (a
"Series 2-A Warrant") in the form attached as Annex 2-C to the Amended and
------------------
Restated Securities Purchase Agreement dated as of June 4 1999 among the
Company, the Apollo Stockholders and certain other parties thereto, to purchase
the same number of shares of Common Stock (subject to adjustment) as could be
purchased upon the exercise of this Warrant immediately prior to such
conversion.
4.2 Promptly following any conversion of this Warrant into a Series
2-A Warrant pursuant to Section 4.1 above, the Holder of this Warrant shall (i)
surrender this Warrant, at the office of the Company or of the transfer agent
for this Warrant and (ii) state in writing the name or names in which the Series
2-A Warrant is to be registered. As soon as practical following receipt of the
foregoing, the Company shall deliver to such former Holder of this Warrant one
or more Series 2-A Warrants in denominations acceptable to such Holder. Such
conversion shall be deemed to have been effected as of the close of business on
the date on which the stockholders of the Company approve the Series 2-B-to-2-A
Conversion.
5. ANTIDILUTION PROVISIONS
-----------------------
5.1 General. The number of shares of Non-Voting Common Stock
-------
Common Stock for which this Warrant is exercisable and the Exercise Price shall
be subject to adjustment from time to time in the same manner as the number of
shares of Common Stock issuable upon exercise of the Series 1-A Warrant and the
"Exercise Price" as set forth in the Series 1-A Warrant and adjusted pursuant to
Section 5 thereof.
5.2 Notice of Adjustment of Exercise Price. Whenever the Exercise
--------------------------------------
Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Exercise Price in
accordance with this Section 5 and shall prepare a certificate signed by
the
9
<PAGE>
Treasurer or Chief Financial Officer of the Company setting forth the
adjusted Exercise Price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be
filed at each office or agency maintained for such purpose or exercise of
Warrants; and
(ii) a notice stating that the Exercise Price has been adjusted
and setting forth the adjusted Exercise Price shall forthwith be prepared
by the Company, and as soon as practicable after it is prepared, such
notice shall be mailed by the Company at its expense to all Holders at
their last addresses as they shall appear in the stock register.
6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION
--------------------------------------------------------------------------
(a) The Company shall not by any action, including, without
limitation, amending its charter documents or through any reorganization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all Liens, and shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
(b) The Company shall deliver to each Holder of Warrants on or before
six months prior to the tenth anniversary of the Original Issue Date, but no
earlier than nine months prior to the tenth anniversary of the Original Issue
Date, advance notice of such tenth anniversary and of the anticipated Expiration
Date. If the Company fails to fulfill in a timely manner the notice obligation
set forth in the prior sentence, it shall provide such notice as soon as
possible thereafter.
7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK; REGISTRATION WITH
---------------------------------------------------------------------------
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY
-----------------------------------------
From and after the Original Issue Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of the Warrants such
number of its authorized but unissued shares of Non-Voting Common Stock as will
be sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Non-Voting Common Stock issuable pursuant to the terms hereof, when
issued upon exercise of this Warrant with payment therefor in accordance
10
<PAGE>
the terms hereof, shall be duly and validly issued and fully paid and
nonassessable, not subject to preemptive rights and shall be free and clear of
all Liens. Before taking any action that would result in an adjustment in the
number of shares of Non-Voting Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction over such action.
If any shares of Non-Voting Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (other than under the
Securities Act or any state securities law) before such shares may be so issued,
the Company will in good faith and as expeditiously as possible and at its
expense endeavor to cause such shares to be duly registered.
8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS
-------------------------------------------------------------
8.1 Notices of Corporate Actions.
----------------------------
In case:
(a) the Company shall take an action or an event shall occur,
that would require an Exercise Price adjustment pursuant to Section 5;
or
(b) the Company shall grant to the holders of its Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class; or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock),
or of any consolidation, merger or share exchange to which the Company
is a party and for which approval of any stockholders of the Company
is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the outstanding shares of Common Stock (or
shall amend any such tender offer to change the maximum number of
shares being sought or the amount or type of consideration being
offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
such purpose, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the stock register, at least 30 days prior to
the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend,
11
<PAGE>
distribution, rights or warrants are to be determined, (y) the date on which
such reclassification, consolidation, merger, share exchange, 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 shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the
date on which such tender offer commenced, the date on which such tender offer
is scheduled to expire unless extended, the consideration offered and the other
material terms thereof (or the material terms of the amendment thereto). Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on the Exercise Price
and the number and kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon exercise of the Warrants. Neither the failure to give any such
notice nor any defect therein shall affect the legality or validity of any
action described in clauses (a) through (e) of this Section 8.1.
8.2 Taking of Record. In the case of all dividends or other
----------------
distributions by the Company to the holders of its Common Stock with respect to
which any provision of any Section hereof refers to the taking of a record of
such holders, the Company will in each such case take such a record and will
take such record as of the close of business on a Business Day.
8.3 Closing of Transfer Books. The Company shall not at any time,
-------------------------
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. TRANSFER RESTRICTIONS
---------------------
The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
9.1 Restrictions on Transfers. Neither this Warrant nor any shares
-------------------------
of Restricted Common Stock issued upon the exercise hereof shall be transferred,
sold, assigned, exchanged, mortgaged, pledged, hypothecated or otherwise
disposed of or encumbered without compliance with the provisions of, and are
otherwise restricted by the provisions of, the Securities Act, the rules and
regulations thereunder and this Warrant. Each certificate, if any, evidencing
such shares of Restricted Common Stock issued upon any such Transfer, other than
in a public offering pursuant to an effective registration statement, shall bear
the restrictive legend set forth in Section 9.2(a), and each Warrant issued upon
such Transfer shall bear the restrictive legend set forth in Section 9.2(b),
unless the Holder delivers to the Company an Opinion of Counsel to the effect
that such legend is not required for the purposes of compliance with the
Securities Act. Holders of the Warrants or the Restricted Common Stock, as the
case may be, shall not be entitled to Transfer such Warrants or such Restricted
Common Stock except in accordance with this Section 9.1.
12
<PAGE>
9.2 Restrictive Legends. (a) Except as otherwise provided in this
-------------------
Section 9, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
two legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE
DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND
ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND
REGULATIONS THEREUNDER."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF
AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 2-B
WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC.
(THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED.
A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF RARE MEDIUM
GROUP, INC."
(b) Except as otherwise provided in this Section 9, each Warrant shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
"NEITHER THIS SERIES 2-B WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 2-B WARRANTS
REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH
THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE
ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT."
9.3 Termination of Securities Law Restrictions. Notwithstanding the
------------------------------------------
foregoing provisions of this Section 9, the restrictions imposed by Section
9.1(b) upon the transferability of the Warrants and the Restricted Common Stock
and the legend requirements of Section 9.2 shall terminate as to any particular
Warrant or shares of Restricted Common Stock when the Company shall have
received from the Holder thereof an Opinion of Counsel to the effect that such
legend is not required in order to ensure compliance with the Securities Act.
Whenever the restrictions imposed by Sections 9.1(b) and 9.2 shall terminate as
to this Warrant, as hereinabove provided,
13
<PAGE>
the Holder hereof shall be entitled to receive from the Company, at the expense
of the Company, a new Warrant bearing the following legend in place of the
restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 2-B WARRANT
CONTAINED IN SECTIONS 9.1(b) AND 9.2 HEREOF TERMINATED ON ______________,
20__, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Non-
Voting Common Stock not bearing the restrictive legend set forth in Section
9.2(a).
10. LOSS OR MUTILATION
------------------
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and an indemnity reasonably satisfactory to it (it
being understood that the written indemnification agreement of or affidavit of
loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case
of mutilation, upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided,
--------
however, that, in the case of mutilation, no indemnity shall be required if this
- -------
Warrant in identifiable form is surrendered to the Company for cancellation.
11. OFFICE OF THE COMPANY
---------------------
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency, which may be the principal executive offices of
the Company (the "Designated Office"), where the Warrants may be presented for
---------- ------
exercise, registration of transfer, division or combination as provided in this
Warrant. Such Designated Office shall initially be the office of the Company at
44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from
time to time change the Designated Office to another office of the Company or
its agent within the United States by notice given to all registered Holders at
least ten (10) Business Days prior to the effective date of such change.
14
<PAGE>
12. FINANCIAL AND BUSINESS INFORMATION
----------------------------------
(a) Financial Reports.
-----------------
Until (i) the Company shall no longer be required to deliver financial
reports in connection with the Series A Preferred Stock, or (ii) the Expiration
Date, whichever first occurs, the Company shall furnish to Apollo Investment
Fund IV, L.P. the following:
(i) Monthly Reports. As soon as available, but not later than
---------------
30 days after the end of each fiscal month, a consolidated balance sheet
of the Company as of the end of such period and consolidated statements of
income of the Company for such period and for the period commencing at the
end of the previous fiscal year and ending with the end of such period,
setting forth in each case in comparative form the corresponding figures
for the corresponding period of the preceding fiscal year, and including
comparisons to the budget or business plan and an analysis of the
variances from the budget or plan, all prepared in accordance with
generally accepted accounting principals consistently applied (except for
the absence of footnotes and year-end adjustments).
(ii) Quarterly Reports. As soon as available, but not later
-----------------
than 45 days after the end of each quarterly accounting period, (A) a
consolidated balance sheet of the Company as of the end of such period and
consolidated statements of income, cash flows and changes in shareholders'
equity for such quarterly accounting period and for the period commencing
at the end of the previous fiscal year and ending with the end of such
period, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, and
including comparisons to the budget or business plan and an analysis of the
variances from the budget or plan, all prepared in accordance with
generally accepted accounting principals consistently applied, subject to
normal year-end adjustments and the absence of footnote disclosure, and (B)
a report by management of the Company of the operating and financial
highlights of the Company and its Subsidiaries for such period, which shall
include (x) a comparison between operating and financial results and budget
and (y) an analysis of the operations of the Company and its Subsidiaries
for such period.
(iii) Annual Audit. As soon as available, but not later than 90
------------
days after the end of each fiscal year of the Company, audited consolidated
financial statements of the Company, which shall include statements of
income, cash flows and changes in shareholders' equity for such fiscal year
and a balance sheet as of the last day thereof, each prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by the report of a "Big 5" firm of independent certified public
accountants selected by the Company's Board of Directors (the
"Accountants"). The Company and its Subsidiaries shall maintain a system
-----------
of accounting sufficient to enable its Accountants to render the report
referred to in this Section 12(a)(iii).
15
<PAGE>
(iv) Miscellaneous. Promptly upon becoming available, each of
-------------
the following:
(A) copies of all financial statements, reports, press releases,
notices, proxy statements and other documents sent by the Company or its
Subsidiaries to its shareholders generally or released to the public and
copies of all regular and periodic reports, if any, filed by the Company or
its Subsidiaries with the SEC, any securities exchange or the NASD;
(B) notification in writing of the existence of any default
under any material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of their assets are bound;
(C) upon request, copies of all reports prepared for or
delivered to the management of the Company or its Subsidiaries by its
accountants; and
(D) upon request, any other routinely collected financial or
other information available to management of the Company or its
Subsidiaries (including, without limitation, routinely collected
statistical data).
(b) Other Holders. Without duplication of any document or information
-------------
provided pursuant to this Section 12, the Company shall provide to each Holder
of Warrants or Warrant Stock the following:
(i) as soon as available, but not later than 45 days after the
end of each quarterly accounting period, a Form 10-Q or, if the Company
does not then file quarterly reports with the SEC, the documents referred
to in Section 12(a)(ii).
(ii) as soon as available, but not later than 90 days after the
end of each fiscal year, a Form 10-K or, if the Company does not then file
annual reports with the SEC, the audited consolidated financial statements
referred to in Section 12(a)(iii).
(iii)simultaneously with any distribution of any document to
the stockholders of the Company generally, any such document so
distributed.
13. DILUTION FEE
------------
In the event any dividends are declared with respect to the Common
Stock, the holder of this Warrant as of the record date established by the Board
of Directors for such dividend shall be entitled to receive as a dilution fee
(the "Dilution Fee") an amount (whether in the form of cash, securities or other
------------
property) equal to the amount (and in the form) of the dividends that such
holder would have received had this Warrant been exercised for purchase of Non-
Voting Common Stock (on the basis of one share of Common Stock for each share of
Non-Voting Common Stock for which this Warrant is then exercisable) as of the
record date of such
16
<PAGE>
dividend, such Dilution Fee to be payable on the payment date of the dividend
established by the Board of Directors (the "Dilution Fee Payment Date"). The
-------------------------
record date for any such Dilution Fee shall be the record date for the
applicable dividend, and any such Dilution Fee shall be payable to the persons
in whose name this Warrant is registered at the close of business on the
applicable record date.
14. MISCELLANEOUS
-------------
14.1 Nonwaiver. No course of dealing or any delay or failure to
---------
exercise any right hereunder on the part of the Company or the Holder shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of such Person.
14.2 Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or communication hereunder to be made pursuant
to the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) if to any Holder of this Warrant or of Warrant Stock issued upon
the exercise hereof, at its last known address appearing on the books of
the Company maintained for such purpose;
(b) if to the Company, at the Designated Office;
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, or one (1) Business Day
after the same shall have been sent by Federal Express or another recognized
overnight courier service.
14.3 Indemnification. If the Company fails to make, when due, any
---------------
payments provided for in this Warrant, the Company shall pay to the Holder
hereof (a) interest at the Agreed Rate on any amounts due and owing to such
Holder and (b) such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees and
expenses incurred by such Holder in collecting any amounts due hereunder. The
Company shall indemnify, save and hold harmless the Holder hereof and the
Holders of any Warrant Stock issued upon the exercise hereof from and against
any and all liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and all other out-of-pocket expenses
incurred in connection with or arising from any default hereunder by the
Company. This indemnification provision shall be in addition to the rights of
such Holder or Holders to bring an action against the Company for breach of
contract based on such default hereunder.
17
<PAGE>
14.4 Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by the Holder to purchase shares of Non-Voting Common Stock,
and no enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder to pay the Exercise Price for
any Warrant Stock other than pursuant to an exercise of this Warrant or any
liability as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
14.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in
--------
addition to being entitled to exercise its rights granted by law, including
recovery of damages, shall be entitled to specific performance of its rights
provided under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Warrant and hereby agrees, in an action for specific
performance, to waive the defense that a remedy at law would be adequate.
14.6 Successors and Assigns. Subject to the provisions of Sections
----------------------
3.1, 9.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and to the extent applicable, all Holders of shares of Warrant
Stock issued upon the exercise hereof (including transferees), and shall be
enforceable by any such Holder.
14.7 Amendment. This Warrant and all other Warrants may be modified
---------
or amended or the provisions hereof waived with the written consent of the
Company and the Majority Warrant Holders, provided that no such Warrant may be
--------
modified or amended to reduce the number of shares of Non-Voting Common Stock
for which such Warrant is exercisable or to increase the price at which such
shares may be purchased upon exercise of such Warrant (before giving effect to
any adjustment as provided therein) without the written consent of the Holder
thereof.
14.8 Severability. Wherever possible, each provision of this Warrant
-----------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.9 Headings. The headings used in this Warrant are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL
---------------------------
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS
WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND
18
<PAGE>
THE RIGHTS AND DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER,
WHICH SHALL BE GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT
AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS
WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED,
--------
THAT IT IS ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF NEW YORK.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
RARE MEDIUM GROUP, INC.
By:_______________________
Name:
Title:
[SEAL]
Attest:
By:_____________________________
Name:
Title:
20
<PAGE>
ANNEX A
-------
SUBSCRIPTION FORM
-----------------
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of ______ shares Non-Voting Common Stock of Rare
Medium Group, Inc. and herewith makes payment therefor in ______________, all at
the price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Non-Voting Common Stock hereby purchased
(and any securities or other property issuable upon such exercise) be issued in
the name of and delivered to _________________ whose address is
___________________________________________________ and, if such shares of Non-
Voting Common Stock shall not include all of the shares of Non-Voting Common
Stock issuable as provided in this Warrant, that a new Warrant of like tenor and
date for the balance of the shares of Non-Voting Common Stock issuable hereunder
be delivered to the undersigned.
_______________________________
(Name of Registered Owner)
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
ANNEX B
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the under signed under this Warrant, with respect to the number of
shares of Non-Voting Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Non-Voting Common Stock
- ---------------------------- -----------------------
and does hereby irrevocably constitute and appoint ________ _____________
attorney-in-fact to register such transfer onto the books of Rare Medium Group,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:___________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
Appendix G
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RARE MEDIUM GROUP, INC.
RARE MEDIUM GROUP, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: The Board of Directors of this corporation duly adopted resolutions
setting forth a proposed amendment to the corporation's Certificate of
Incorporation, declaring said proposed amendment to be advisable, and directing
that said proposed amendment be submitted for consideration at the corporation's
1999 Annual Meeting of Stockholders. The resolution setting forth the said
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered FOURTH, so that, as
amended said Article shall be and read as follows:
"FOURTH: The aggregate number of shares which the corporation shall
have the authority to issue shall be:
Three Hundred Ten Million (310,000,000) shares, consisting of
200,000,000 shares of Common Stock with a par value of One Cent
($0.01) per share, 100,000,000 shares of Non-Voting Common Stock with
a par value of One Cent ($0.01) per share, and 10,000,000 shares of
Preferred Stock with a par value of One Cent ($0.01) per share. The
Board of Directors, in its sole direction shall have full and complete
authority, by resolutions, from time to time, to establish one or more
series or classes and to issue shares of Preferred Stock, and to fix,
determine and vary the voting rights, designations, preferences,
restrictions, qualifications, privileges, limitations, options,
conversion rights and other special rights of each series or class of
Preferred Stock, including, but not limited to, dividend rates and
manner of payment, preferential amounts payable upon voluntary or
involuntary liquidation, voting rights, conversion rights, redemption
prices, terms and conditions and sinking fund and stock purchase
prices, terms and conditions."
SECOND: That thereafter the corporation's 1999 Annual Meeting of
Stockholders was duly called and held on ________, 1999, at which meeting the
necessary number of Stockholders voted in favor of and approved the
aforementioned amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of Delaware.
<PAGE>
IN WITNESS WHEREOF, said RARE MEDIUM GROUP, INC. has caused this
Certificate to be signed by Glenn S. Meyers, its President and Chief Executive
Officer, on this ___ day of ____________, 1999.
Attest: ________________________________ By: ________________________________
Robert Lewis, Esq., Secretary Glenn S. Meyers
President and Chief Executive
Officer
<PAGE>
- --------------------------------------------------------------------------------
RARE MEDIUM GROUP, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON AUGUST 19, 1999
The undersigned hereby appoints Glenn S. Meyers, Chairman of the Board of
Rare Medium Group, Inc. (the "Company"), and John S. Gross, Chief Financial
Officer of the Company, or either of them individually and each of them with
the full power of substitution, as attorney and proxy of the undersigned for
and in the name, place and stead of the undersigned to appear at the Annual
Meeting of Stockholders of the Company to be held on the 19th day of August,
1999, at 9:30 a.m., local time, in the ballroom at the Masonic Hall, located at
71 West 23rd Street, New York, NY 10010, and at any postponement or adjournment
thereof (the "meeting"), and to vote all of the shares of Common Stock, which
the undersigned is entitled to vote, with all the powers and authority the
undersigned would possess if personally present. The Board of Directors
recommends a vote for approval of each of the nominees for Director and for
each of the proposals to be voted on at the meeting.
The Board of Directors has fixed the close of business on July 9, 1999,
as the record date for the determination of Stockholders entitled to vote at the
meeting. Only Stockholders of record at the close of business on the record
date will be entitled to notice of, and to vote at, the meeting or any
postponement or adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTIONS TO THE CONTRARY ARE INDICATED IN THE BOXES PROVIDED, THE PERSONS
NAMED HEREIN INTEND TO VOTE FOR APPROVAL OF EACH OF THE NOMINEES FOR DIRECTOR
AND FOR APPROVAL OF EACH OF THE PROPOSALS TO BE VOTED ON AT THE MEETING.
THE SAID ATTORNEY AND PROXY PRESENT AT SAID MEETING MAY EXERCISE ALL THE
POWERS HEREUNDER. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE
ACCOMPANYING PROXY STATEMENT.
(Continued and to be dated and signed on other side)
<PAGE>
<TABLE>
Please Detach and Mail in the Envelope Provided
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Please mark your
A /X/ votes as in this
example
GRANT WITHHOLD
authority to vote for authority to vote for THE UNDERSIGNED HEREBY DIRECTS THAT THE PROXY BE VOTED AS FOLLOWS:
the five nominees the five nominess
as a group as a group
Nominees: Class 1:
1. To elect two / / / / Jeffrey Killeen
Class 1 directors, Marc J. Rowan
one Class 2
director, and two Class 2:
Class 3 directors; Richard T. Liebhaber
FOR ALL NOMINEES EXCEPT AS NOTED BELOW. Class 3:
Glenn S. Meyers
Steven Winograd
_______________________________________________________________
</TABLE>
<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. To approve the conversion of 744,000 shares
of the Company's Series B Preferred Stock (plus / / / / / /
any additional shares of Series B Preferred Stock issued or issuable
in connection with dividends paid or accrued on such Series B Preferred
Stock), 744,000 Series 1-B Warrants (plus any additional Series 1-B Warrants
issued or issuable in connection with dividends paid or accrued on the Series
B Preferred Stock) and 10,345,548 Series 2-B Warrants, that have been
issued to Apollo Investment Fund IV, L.P. and certain other parties
(collectively, the "Preferred Stockholders"), into an equal number of
shares or warrants, as the case may be, of the Company's Series A
Convertible Preferred Stock, Series 1-A Warrants and Series 2-A Warrants
(collectively, the "Series A Securities"), respectively, that, at issuance
date, and assuming conversion (along with the Series A Securities
previously issued to the Preferred Stockholders), represented approximately
22.1% of the voting power of the Company's outstanding securities, after
giving effect to such conversion, and were convertible into, or exercisable
for, approximately 39.5% of the Company's outstanding common stock ("Common
Stock"), computed on a fully diluted basis using the treasury stock method
after giving effect to such conversion and the subsequent full conversion
and exercise of all such Series A Securities into or for Common Stock;
3. To approve an amendment to the Company's
Certificate of Incorporation to authorize for
issuance a class of non-voting common stock / / / / / /
of the Company;
4. To ratify the appointment of KPMG LLP as
the independent auditors of the Company for / / / / / /
the year ending December 31, 1999; and
5. To transact such other business as may come before the Annual Meeting or
any adjournment or postponement thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
Stockholder's Signature ____________________________________ Dated: ______, 1999
Signature __________________________________________________ Dated: ______, 1999
NOTE: It is necessary that you date this Proxy and sign your name (or names)
exactly as it appears on the label indicating any official position or
representative capacity.
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Rare Medium Group, Inc.:
We have audited the accompanying consolidated balance sheet of Rare
Medium Group, Inc. as of December 31, 1998 and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of the Company as of December 31, 1997 and for
each of the years in the two-year period ended December 31, 1997 were audited by
other auditors whose report, dated March 20, 1998, on those statements included
an explanatory paragraph that states that the Company has incurred losses
accumulating to $54,184,410 through December 31, 1997, which raises substantial
doubt of their ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rare Medium
Group, Inc. as of December 31, 1998 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Rare Medium Group, Inc. will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company has
suffered net losses and losses from continuing operations, has a working
capital deficiency and has incurred accumulated losses through December 31,
1998. These factors, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
KPMG LLP
New York, New York
March 29, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors of
Rare Medium Group, Inc.
We have audited the accompanying consolidated balance sheets of Rare
Medium Group, Inc. (formerly ICC Technologies, Inc.) as of December 31,
1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1997. These consolidated financial statements
are the responsibility of Rare Medium Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Rare Medium Group as of December 31, 1997 and the
consolidated results of its operations and its cash flows for each of
the two years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Rare Medium Group will continue as a going concern. As
discussed in Note 1, Rare Medium Group incurred losses accumulating to a
$54,184,410 through December 31, 1997. This factor among others, raises
substantial doubt about Rare Medium Group's ability to continue as a
going concern. Management's plans in regard to these matters are
described in Note 1. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of
this uncertainty.
Coopers & Lybrand LLP
Philadelphia, Pennsylvania
March 20, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners of Engelhard/ICC
We have audited the accompanying balance sheets of Engelhard/ICC (Partnership)
as of December 31, 1997 and 1996, and the related statements of operations,
changes in partners' capital and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Engelhard/ICC as of December
31, 1997 and 1996, the results of its operations and its cash flows for the
years ended December 31, 1997, 1996 and 1995 in conformity with generally
accepted accounting principles.
As more fully described in Notes 1 and 15, on February 27, 1998, the Partners
terminated the Partnership and divided its net assets into two separate limited
partnerships.
Coopers & Lybrand LLP
Philadelphia, Pennsylvania
March 20, 1998
