As filed with the Securities and Exchange Commission on April 12, 2002
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RARE MEDIUM GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-2368845
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
44 West 18th Street, 6th Floor
New York, NY 10011
(646) 638-9700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of registrant's principal executive offices)
Robert C. Lewis, Esq.
Senior Vice President, General Counsel and Secretary
Rare Medium Group, Inc.
44 West 18th Street, 6th Floor
New York, New York 10011
(646) 638-9700
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copy to:
Gregory A. Fernicola, Esq.
David J. Friedman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
========================================= ============ =================== ===================== ===================
Proposed
Amount to Maximum Proposed Maximum
Title of Each Class of Securities be Aggregate Price Aggregate Offering Amount of
to be Registered Registered Per Share Price Registration Fee
----------------------------------------- ------------ ------------------- --------------------- -------------------
Rights 52,615,467 N/A N/A $ -0- (1)
----------------------------------------- ------------ ------------------- --------------------- -------------------
Common Stock, par value $0.01 per share 52,615,467 $0.33(2) $17,363,104(3) $1,597.41
========================================= ============ =================== ===================== ===================
(1) The Rights are being issued without consideration.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Represents the aggregate gross proceeds from the exercise of the maximum number of rights as may be issued.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
[FLAG]
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to Completion. Dated April 12, 2002.
Prospectus
91,381,315 Shares
Rare Medium Group, Inc.
Common Stock
We are distributing at no charge to the holders of our common
stock, warrants and preferred stock non-transferable subscription rights to
purchase up to an aggregate of 91,381,315 shares of our common stock (or,
in the case of rights distributed to the Apollo Stockholders (as defined
below), non-voting common stock) at a cash subscription price of $ per
share. The rights offering is being made in connection with an agreement to
settle our outstanding class action litigation. In accordance with the
settlement, the Apollo Stockholders have purchased in advance 38,765,848
shares of our non-voting common stock, which equals the number of shares of
voting common stock that the Apollo Stockholders would otherwise have been
entitled to purchase in the rights offering, after giving effect to the
cancellation of some warrants in connection with the litigation settlement.
The total purchase price of shares offered in this rights
offering, including the advance purchase by the Apollo Stockholders, will
be approximately $ million if the rights offering is fully subscribed.
You will not be entitled to receive any rights unless you are a stockholder
of record as of the close of business on May , 2002. Concurrently with this
rights offering, we are soliciting our stockholders to approve the rights
offering and a one for ten reverse stock split at a special meeting of
stockholders to be held on June , 2002.
If the rights offering and reverse stock split are approved, the
rights offering will be completed 3 business days after the special
meeting. It is expected that the reverse stock split will be effected
promptly following the closing of the rights offering. Accordingly, there
will be no adjustment to the subscription price in the rights offering as a
result of the reverse stock split. If the rights offering is not
consummated by June 30, 2003 or is not approved by our stockholders, it
will not be completed and a committee consisting of all of our independent
directors desiring to serve on such committee may elect to rescind the
advance purchase of 38,765,848 shares of non-voting common stock by the
Apollo Stockholders.
The rights will expire if they are not exercised by 5:00 p.m., New
York City time, on June , 2002, the expected expiration date of this rights
offering. We, in our sole discretion, may extend the period for exercising
the rights. Rights which are not exercised by the expiration date of the
rights offering will expire and will have no value. You should carefully
consider whether or not to exercise your rights before the expiration date.
The rights may not be sold or transferred except under the very
limited circumstances described later in this prospectus.
Shares of our common stock are quoted on the Nasdaq National
Market under the symbol "RRRR." The last sale price of our common stock on
April , 2002 was $ per share.
Per Share Minimum Maximum
Subscription Price............... $ $ $
Estimated Expenses............... $ $ $
Net Proceeds to Rare Medium...... $ $ $
An investment in our common stock is very risky. You should
consider carefully the risk factors beginning on page 8 in this prospectus
before exercising your rights.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense. The securities are not being offered
in any jurisdiction where the offer is not permitted under applicable local
laws.
The date of this prospectus is , 2002
Table of Contents
Page
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................iv
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING............................v
PROSPECTUS SUMMARY.........................................................1
RISK FACTORS...............................................................8
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.......................18
THE RIGHTS OFFERING.......................................................19
APOLLO ADVANCE PURCHASE AND INVESTMENT AGREEMENT..........................29
USE OF PROCEEDS...........................................................31
CAPITALIZATION............................................................32
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.....................33
LEGAL MATTERS.............................................................34
EXPERTS...................................................................34
WHERE CAN YOU FIND MORE INFORMATION.......................................35
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission, or the SEC, allows us to
"incorporate by reference" information that we file with them, which means
that we can disclose important information to you by referring you to those
documents. Specifically, we are incorporating by reference the documents
listed below and any future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
o Our Preliminary Proxy Statement for a Special Meeting of
Stockholders, filed with the SEC concurrently with this
Registration Statement;
o Our Annual Report on Form 10-K for the year ended
December 31, 2001;
o Our Current Report on Form 8-K filed with the SEC on
April 4, 2002;
o Our Definitive Proxy Statement for an Annual Meeting of
Stockholders held on March 28, 2002; and
o Our Definitive Proxy Statement for an Annual Meeting of
Stockholders held on August 19, 1999, which includes a
description of our capital stock and the terms of the
Apollo Stockholders' original investment.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Robert C. Lewis, Esq.
Senior Vice President,
General Counsel and Secretary
Rare Medium Group, Inc.
44 West 18th Street, 6th Floor
New York, NY 10011
Telephone: (646) 638-9700
This prospectus is part of a Registration Statement we filed with
the SEC. You should rely only on the information provided in this
prospectus or incorporated by reference. We have not authorized anyone else
to provide you with different information. You should not assume that the
information in this prospectus is accurate as of any date other than the
date on the front of the document. We are not making an offer of these
securities in any state where the offer is not permitted.
Any statement contained in this prospectus or in a document all or
a portion of which is incorporated or deemed to be incorporated by
reference in this prospectus shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained in
this prospectus or in any other subsequently filed document which also is
or is deemed to be incorporated by reference in this prospectus modifies or
supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this prospectus.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
Q: What is the rights offering?
A: The rights offering is a distribution to holders of our common
stock, warrants and preferred stock of one non-transferable
subscription right to purchase one additional share of our common
stock (or, in the case of rights distributed to the Apollo
Stockholders, non-voting stock) for each share of common stock
owned (or, in the case of the warrants and the preferred stock,
one right for each share of common stock issuable upon exercise or
conversion) as of May , 2002, the record date.
Q: What is a subscription right?
A: Each subscription right is a right to purchase a share of our
common stock and carries with it a basic subscription privilege
and an over-subscription privilege.
Q: What is the basic subscription privilege?
A: The basic subscription privilege of each right entitles you to
purchase one share of our common stock at the subscription price
of $ per share.
Q: What is the over-subscription privilege?
A: The over-subscription privilege of each right entitles you, if you
fully exercise your basic subscription privilege, to subscribe for
additional shares of our common stock at the same subscription
price per share.
Q: Why are we engaging in a rights offering?
A: The rights offering is being made in connection with an agreement
to settle our outstanding class action litigation. The primary
purpose for the rights offering is to raise equity capital in a
cost-effective manner in order to satisfy potential and expected
cash needs, to take advantage of business opportunities including
future opportunities relating to the Mobile Satellite Ventures,
L.P. ("MSV") joint venture.
Q: What happens if I choose not to exercise my subscription rights?
A: You will retain your current number of shares of common stock even
if you do not exercise your subscription rights. However, due to
the advance purchase of 38,765,848 shares of non-voting common
stock by the Apollo Stockholders and if other stockholders
exercise their subscription rights and you do not, the percentage
of our common stock that you own will decrease, and your voting
and other rights will be diluted.
Furthermore, even though the rights will be offered on a one for
one basis to each holder of our common stock, due to the
anti-dilution adjustments and the participation rights of the
preferred stock and the Series 1-A and 2-A Warrants, the
percentage of common stock owned by stockholders, other than the
Apollo Stockholders, will decrease. This will be the case even if
you exercise the rights you will receive in full.
Q: Can the board of directors cancel the rights offering?
A: Yes. The board of directors may decide to cancel the rights
offering at any time and for any reason. In addition, we are
soliciting our stockholders to approve the rights offering. If the
rights offering is not consummated by June 30, 2003 or is not
approved by the stockholders, the rights offering will be
cancelled. If we cancel the rights offering, any money received
from subscribing stockholders will be refunded promptly, without
interest. If the rights offering is cancelled, a committee
consisting of all of our independent directors desiring to serve
on such committee may elect to rescind the advance purchase of
38,765,848 shares of non-voting common stock by the Apollo
Stockholders. See "The Rights Offering - Cancellation Right."
Q: What should I do if I want to participate in the rights offering
but my shares are held in the name of my broker, custodian bank or
other nominee?
A: If you hold shares of our common stock through a broker, custodian
bank or other nominee, we will ask your broker, custodian bank or
other nominee to notify you of the rights offering. If you wish to
exercise your rights, you will need to have your broker, custodian
bank or other nominee act for you. To indicate your decision, you
should complete and return to your broker, custodian bank or other
nominee the form entitled "Beneficial Owner Election Form." You
should receive this form from your broker, custodian bank or other
nominee with the other rights offering materials. You should
contact your broker, custodian bank or other nominee if you
believe you are entitled to participate in the rights offering but
you have not received this form.
Q: Will I be charged a sales commission or a fee if I exercise my
subscription rights?
A: No. We will not charge a brokerage commission or a fee to rights
holders for exercising their rights. However, if you exercise your
rights through a broker or nominee, you will be responsible for
any fees charged by your broker or nominee.
Q: Are there any conditions to my right to exercise my subscription
rights?
A: Yes. The rights offering is expressly conditioned upon approval by
our stockholders and will not be undertaken if stockholder
approval is not obtained. Please see "The Rights
Offering--Conditions to the Rights Offering" on page 21.
Q: What is the board of directors recommendation regarding the rights
offering?
A: Our board of directors is not making any recommendation as to
whether or not you should exercise your subscription rights. You
are urged to make your decision based on your own assessment of
the rights offering.
Q: How many shares may I purchase?
A: You will receive one non-transferable subscription right for each
share of common stock (or, in the case of the preferred stock and
warrants, one non-transferable subscription right for each share
of common stock issuable upon conversion or exercise) that you
owned on May , 2002, the record date. Each subscription right
contains the basic subscription privilege and the
over-subscription privilege. Each basic subscription privilege
entitles you to purchase one share of common stock for $ . See
"The Rights Offering - Basic Subscription Privilege." Each
over-subscription privilege entitles you to subscribe for
additional shares of our common stock at the same subscription
price per share on a pro-rata basis to the number of shares you
purchased under your basic subscription privilege, provided you
fully exercise your basic subscription privilege. "Pro-rata" means
in proportion to the number of shares of our common stock which
you and the other rights holders have purchased by exercising your
basic subscription privileges on your common stock holdings. See
"The Rights Offering - Over-Subscription Privilege." Exclusive of
the 38,765,848 shares of non-voting common stock purchased in
advance by the Apollo Stockholders, an aggregate of 52,615,467
rights are to be distributed to stockholders other than the Apollo
Stockholders.
The Apollo Stockholders will be deemed to have exercised their
basic subscription rights by their advance purchase of our
non-voting common stock and have agreed not to exercise the rights
they receive in the rights offering and to hold the rights until
they expire, except that the Apollo Stockholders may exercise
their over-subscription privilege. An aggregate of 52,615,467
shares of common stock are available for purchase in the basic
subscription privilege by stockholders other than the Apollo
Stockholders.
Q: How was the $0. per share subscription price established?
A: The subscription price per share was established by our board of
directors and is reflected in our agreement dated April 2, 2002
with the Apollo Stockholders whereby the Apollo Stockholders
purchased in advance 38,765,848 shares of non-voting common stock,
which equals the number of shares of voting common stock that the
Apollo Stockholders would otherwise have been entitled to purchase
in the rights offering, after giving effect to the cancellation of
some warrants in connection with the settlement of outstanding
litigation. The Apollo Stockholders paid $0.255 per share for an
aggregate purchase price of $9,885,291.
As provided for in our agreement with the Apollo Stockholders, the
subscription price was set at 85% of the average market price of
the common stock over a number of trading days prior to the
commencement of the rights offering as determined in good faith by
our board of directors, but in no event greater than $0.33 per
share or less than $0.18 per share. The agreement also adjusts the
per share advance purchase price paid by the Apollo Stockholders
to equal the per share subscription price for the rights offering.
Therefore, if you exercise your rights, you will be paying the
same price per share as the Apollo Stockholders are paying.
Q: Is exercising my subscription rights risky?
A: The exercise of your rights involves risks. Exercising your rights
means buying additional shares of our common stock and should be
considered as carefully as you would consider any other equity
investment. Among other things, you should carefully consider the
risks described under the heading "Risk Factors," beginning on
page 8.
Q: May I transfer my rights if I do not want to purchase any shares?
A: No. Should you choose not to exercise your rights, you may not
sell, give away or otherwise transfer your rights. However, rights
will be transferable to affiliates of the recipient and by
operation of law, for example, upon death of the recipient.
Q: Am I required to subscribe in the rights offering?
A: No.
Q: How many shares will be outstanding after the rights offering?
A: The number of shares of common stock that will be outstanding
immediately after the rights offering will depend on the number of
shares that are purchased in the rights offering. If we sell all
of the shares being offered, then we will have issued 91,381,315
shares of common stock in connection with the rights offering
(including the 38,765,848 shares of non-voting common stock which
the Apollo Stockholders purchased in the advance purchase). In
that case, we will have 156,706,281 shares of common stock
outstanding immediately after the rights offering (of which at
least 38,765,848 will be shares of non-voting common stock).
Q: How will the rights offering affect the Apollo Stockholders'
ownership of our common stock?
A: Currently, the Apollo Stockholders beneficially own approximately
19.5% of our outstanding voting common stock and all of our
outstanding shares of preferred stock. Because the Apollo
Stockholders are entitled to cast a maximum of 9,750,000 votes
with respect to the preferred stock, the common and preferred
stock owned by the Apollo Stockholders represents approximately
29.9% of the voting power of our outstanding voting securities.
The Apollo Stockholders have agreed to purchase only non-voting
common stock in the rights offering.
If no rights holder exercises its rights in the rights offering,
the Apollo Stockholders will beneficially own approximately 29.9%
of the voting power of our outstanding voting securities and
approximately 49.5% of our outstanding common stock (approximately
66.4% of our common stock if the Apollo Stockholders exercise
their over-subscription privilege in full). If no rights holder
exercises its rights in the rights offering, the Apollo
Stockholders will continue to own voting securities representing
approximately 29.9% of the voting power, since the Apollo
Stockholders are acquiring non-voting common stock in the rights
offering.
If all rights holders fully exercise their basic subscription
privileges, then the Apollo Stockholders will beneficially own
approximately 32.8% of our outstanding common stock. Even though
the rights will be offered on a one for one basis to each holder
of our common stock, due to the anti-dilution adjustments and the
participation rights of the preferred stock and the Series 1-A and
2-A Warrants, the percentage of common stock owned by
stockholders, other than the Apollo Stockholders, will decrease.
This will be the case even if you exercise the rights you will
receive in full.
As described on page 3, an affiliate of the Apollo Stockholders is
in the process of conducting a tender offer to purchase up to
15,002,909 shares of common stock at a price of $0.28 per share.
The tender offer is scheduled to expire on May 7, 2002.
Accordingly, none of the share amounts or ownership or voting
percentages in this prospectus give effect to the results of the
tender offer. The Apollo Stockholders have agreed that so long as
any tendered shares are held by them or any of their affiliates,
the Apollo Stockholders and their affiliates will cause all such
shares held by them, which would otherwise entitle the Apollo
Stockholders and their affiliates, collectively, to cast more than
29.9% of voting power of our outstanding capital stock, to be
voted pro-rata with all other votes cast by holders of common
stock.
Q: After I exercise my rights, can I change my mind and cancel my
purchase?
A: No. Once you send in your subscription certificate and payment you
cannot revoke the exercise of your rights, even if you later learn
information about us that you consider to be unfavorable and even
if the market price of our common stock is below the $ per share
purchase price. You should not exercise your subscription rights
unless you are certain that you wish to purchase additional shares
of our common stock at a price of $ per share. See "The Rights
Offering - No Revocation."
Q: What are the federal income tax consequences of exercising my
subscription rights?
A: A holder should not recognize income or loss for federal income
tax purposes in connection with the receipt or exercise of
subscription rights in the rights offering. See "Certain United
States Federal Income Tax Consequences" on page 34.
Q: If the rights offering is not completed, will my subscription
payment be refunded to me?
A: Yes. The subscription agent will hold all funds it receives in
escrow until completion of the rights offering. If the rights
offering is not completed, the subscription agent will return
promptly, without interest, all subscription payments.
Q: What effect will the one for ten reverse stock split have on the
$ per share subscription price in the rights offering?
A: Since the one for ten reverse stock split will take place
following the closing of the rights offering it will have no
effect on the $ per share subscription price.
Q: What should I do if I have other questions?
A: If you have questions or need assistance, please contact , the
information agent, at:
Banks and brokerage firms please call .
For a more complete description of the rights offering, see "The
Rights Offering" beginning on page 19.
PROSPECTUS SUMMARY
This summary highlights some of the information from this
prospectus and may not contain all the information that is important to
you. You should read the entire prospectus, including the section entitled
"Risk Factors" beginning on page 8 and the documents incorporated by
reference in this prospectus, including our consolidated financial
statements and related notes contained in our annual report on Form 10-K,
before deciding to exercise your rights and investing in our common stock.
In this prospectus, unless the context otherwise requires a
different meaning, all references to "Rare Medium," "we," "our," "us" or
"our company" refer to Rare Medium Group, Inc. and its subsidiaries. All
references to "Rare Medium, Inc." refer to our wholly owned subsidiary,
Rare Medium, Inc. and its subsidiaries. All references to the "Apollo
Stockholders" refer to Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., AIF IV/RRRR LLC and their affiliates. Unless the context
otherwise requires a different meaning, all references to "common stock"
refers to our voting common stock and non-voting common stock combined.
None of the share numbers or other amounts contained in this
prospectus give effect to the pending tender offer by an affiliate of the
Apollo Stockholders or the proposed one for ten reverse stock split that we
plan to do following the rights offering if the reverse stock split is
approved by our stockholders. The prospectus will be amended prior to the
commencement of the rights offering to reflect the results of the tender
offer.
Our Company
From 1998 through the third quarter of 2001, our principal
business was conducted through our subsidiary Rare Medium, Inc., which
developed Internet e-commerce strategies, business processes, marketing
communications, branding strategies and interactive content using
Internet-based technologies and solutions. As a result of the weakening of
general economic conditions which caused many companies to reduce spending
on Internet-focused business solutions, a decision to discontinue Rare
Medium, Inc.'s operations, along with those of its LiveMarket, Inc.
subsidiary, was made at the end of the third quarter of 2001.
From 1999 through the first quarter of 2001, we made venture
investments by taking strategic minority equity positions in other
independently managed companies. Additionally, in the past, we have
developed, managed and operated companies in selected Internet-focused
market segments. During the first quarter of 2001, we reduced our focus on
these businesses and substantially ceased providing funding to these
start-up companies. Additionally, we sold a majority of our equity interest
in the operations of three companies: ChangeMusic Network and ePrize in
April 2001 and Regards.com in December 2001. Currently, we are no longer
actively seeking new start-up opportunities or venture investments, nor are
we managing or operating any start-up companies.
As a result of the decision to discontinue the operations of Rare
Medium, Inc. and LiveMarket, the operating results reported in our
statements of operations as continuing operations include the consolidated
results of Rare Medium Group, Inc., our 80% owned MSV Investors, LLC
subsidiary, and our start-up companies, up to their respective dates of
sale or shutdown. The results of Rare Medium, Inc. and LiveMarket are
reflected as discontinued operations.
In November 2001, through our MSV Investors, LLC subsidiary, we
became a participant in the MSV joint venture, a joint venture which
includes TMI Communications, Inc., Motient Corporation, and certain other
investors. The MSV joint venture is currently a provider of mobile digital
voice and data communications services via satellite in North America. We
expect to become an increasingly active participant in the MSV joint
venture and have designated three members of the 12-member board of
directors of the MSV joint venture's corporate general partner.
In addition to winding down Rare Medium, Inc., our current
operations consist of actively managing our interest in the MSV joint
venture. Our principal assets consist of our interest in the MSV joint
venture, five million shares of XM Satellite Radio, Inc. common stock, a
promissory note from Motient Corporation with a principal amount of $19.0
million, our remaining investments in our venture portfolio companies, and
cash, cash equivalents and short-term investments.
Recent Developments
On April 3, 2002, we announced that we and the Apollo Stockholders
entered into a Stipulation of Settlement relating to the putative class
action suit, In Re Rare Medium Group, Inc. Shareholders Litigation, C.A.
No. 18879-NC, brought by holders of our common stock challenging our
previously proposed plan of merger with Motient Corporation. In connection
with the Stipulation of Settlement, we also announced our intent to effect
a one for ten reverse stock split and to commence the rights offering. In
connection with the settlement, we entered into an Investment Agreement
with the Apollo Stockholders who agreed to purchase in advance a number of
shares of our non-voting common stock that equals the number of shares of
voting common stock that they would otherwise have been entitled to
purchase in the rights offering, after giving effect to the cancellation of
some warrants in connection with the litigation settlement. The description
of the Investment Agreement and the Stipulation of Settlement in this
prospectus is qualified in its entirety by the text of the Investment
Agreement and the Stipulation of Settlement, respectively, which are
exhibits to the registration statement that includes this prospectus
Advance Purchase by the Apollo Stockholders. Under the Investment
Agreement, the Apollo Stockholders purchased 38,765,848 shares of our
non-voting common stock. This purchase equals the number of shares of
voting common stock that the Apollo Stockholders would otherwise have been
entitled to purchase in the rights offering, after giving effect to the
cancellation of some warrants in connection with the litigation settlement.
The Apollo Stockholders paid $0.255 per share for an aggregate purchase
price of $9,885,291. The Investment Agreement adjusts the per share advance
purchase price paid by the Apollo Stockholders to equal the per share
subscription price for the rights offering. In the event that the rights
offering is not consummated by June 30, 2003 or is not approved by our
stockholders, a committee consisting of all of our independent directors
desiring to serve on such committee may elect to rescind the purchase of
non-voting stock.
Stipulation of Settlement. We and the Apollo Stockholders have
agreed:
o that the Apollo Stockholders will vote all of their
shares in favor of the rights offering, the reverse stock
split and the proposal, described below, regarding the
potential exchange of the non-voting common stock for
common stock under specified limited conditions; except
that the shares of common stock acquired in the tender
offer will be voted pro-rata with all other votes cast on
those issues by holders of voting common stock;
o that, in connection with the rights offering, the Apollo
Stockholders will waive anti-dilution rights in their
preferred stock and warrants with respect to the
non-voting common stock acquired by the Apollo
Stockholders in the advance purchase or their
over-subscription privilege in the rights offering;
o that the Apollo Stockholders' existing registration
rights will be modified to cover the additional shares of
common stock and non-voting stock that were acquired
pursuant to the tender offer and the advance purchase and
that they may acquire pursuant to the over-subscription
privilege in the rights offering;
o that, subject to stockholder approval, the Apollo
Stockholders may exchange the non-voting common stock for
common stock in connection with any transfer of the
shares to a non-affiliate, in an amount not to exceed 10%
of our voting power, and such transferee, to the Apollo
Stockholders' knowledge, will not, as a result of the
transfer, hold more than 15% of our voting power;
o that, subject to stockholder approval, the Apollo
Stockholders may also exchange the non-voting common
stock for common stock if they will hold, after giving
effect to such exchange, less than 29.9% of our voting
power;
o that so long as any tendered shares are held by them or
any of their affiliates, the Apollo Stockholders will
cause all such shares, which would otherwise entitle the
Apollo Stockholders and their affiliates, collectively,
to cast more than 29.9% of the voting power of our
capital stock, to be voted pro-rata with all other votes
cast by holders of voting common stock;
o subject to final court approval of the Stipulation of
Settlement, that 20% of the warrants held by the Apollo
Stockholders to acquire shares of common stock will be
cancelled;
o subject to final court approval of the Stipulation of
Settlement, that the Apollo Stockholders will elect to
receive dividends on their shares of preferred stock in
the form of additional shares of preferred stock, in lieu
of cash dividends, for any dividend payment date
occurring after June 30, 2002 and on or prior to June 30,
2004; and
o subject to final court approval of the Stipulation of
Settlement, that the Apollo Stockholders will agree to
vote for two independent directors to our board of
directors for the next five years.
Tender Offer. As part of the Stipulation of Settlement, on April
9, 2002, the Apollo Stockholders commenced a cash tender offer at a price
of $0.28 per share for up to 15,002,909 shares, or approximately 23% of our
outstanding common stock. In accordance with the Stipulation of Settlement,
the $0.28 per share tender offer price equals 105% of the average closing
prices of the common stock for the five trading days prior to April 9,
2002. The tender offer is scheduled to expire on May 7, 2002. The Apollo
Stockholders have agreed that so long as any tendered shares are held by
them or any of their affiliates, the Apollo Stockholders and their
affiliates will cause all such shares held by them, which would otherwise
entitle the Apollo Stockholders and their affiliates, collectively, to cast
more than 29.9% of voting power of our outstanding capital stock, to be
voted pro-rata with all other votes cast by holders of common stock. The
tender offer is intended to provide additional liquidity for our common
stockholders and, thereby, provide near term support for the market price
of our common stock in light of our recent announcement of the one for ten
reverse stock split. The tender offer will be concluded prior to
commencement of the rights offering.
Reverse Split of our Common Stock. On April 3, 2002, we announced
our intention to effect a one for ten reverse split of our common stock.
The reverse stock split is intended to assist us in meeting the Nasdaq
National Market's minimum closing bid price requirement of $1.00 per share.
The reverse stock split is subject to stockholder approval. If approved by
our stockholders, we expect that the reverse stock split will be effected
promptly following the closing of the rights offering. Accordingly, there
will be no adjustment to the subscription price in the rights offering as a
result of the reverse stock split. However, we are not required to effect
the reverse stock split and we are permitted to abandon it at any time
prior to it being effected.
THE RIGHTS OFFERING
Rights................................................. We will distribute to each stockholder and warrant
holder of record on May , 2002, at no charge, one
non-transferable subscription right for each share of
our common stock then owned (or, in the case of the
preferred stock and warrants, one subscription right
for each share of common stock issuable upon conversion
or exercise) as of May , 2002, the record date.
The rights will be evidenced by a non-transferable
rights certificate. Since the Apollo Stockholders have
funded in advance their subscription amount, the Apollo
Stockholders will be deemed to have exercised their
basic subscription rights by their advance purchase of
our non-voting common stock and have agreed not to
exercise the rights they receive in the rights offering
and to hold the rights until they expire, except that
the Apollo Stockholders may exercise their
over-subscription privilege.
Basic Subscription Privilege........................... Each right will entitle the holder to purchase one
share of our common stock for $ , the per share
subscription price.
Over-Subscription Privilege............................ Each rights holder who elects to exercise its basic
subscription privilege in full may also subscribe for
additional shares at the same subscription price per
share. If an insufficient number of shares is
available to fully satisfy the over-subscription
privilege requests, the available shares will be
distributed proportionately among rights holders who
exercised their over-subscription privilege based on
the number of shares each rights holder subscribed for
under the basic subscription privilege. The
Subscription Agent will return any excess payments by
mail without interest or deduction promptly after the
expiration of the rights offering.
Even though the Apollo Stockholders acquired
38,765,848 shares of our non-voting common stock in
the advance purchase, in order to enhance the
over-subscription rights of the other stockholders,
the Apollo Stockholders have agreed that their
over-subscription privilege is based upon the
assumption that their basic subscription privilege was
limited to 12,709,499 shares, the total number of
shares of voting common stock held by them immediately
prior to entering into the Investment Agreement.
Conditions to the Rights Offering...................... The rights offering is expressly conditioned upon
approval by our stockholders and will not be undertaken
if stockholder approval is not obtained.
Subscription Price..................................... $ per share.
Record Date............................................ May , 2002.
Expiration Date........................................ The rights will expire, if not exercised, at 5:00 p.m.,
New York City time, on June , 2002, unless we decide
to extend the rights offering until some later time.
Non-Transferability of Rights.......................... The rights are not transferable, except to affiliates
of the recipient and by operation of law.
Procedure for Exercising Rights........................ You may exercise your rights by properly completing and
signing your rights certificate. You must deliver your
rights certificate with full payment of the
subscription price (including any amounts in respect of
the over-subscription privilege) to the subscription
agent on or prior to the expiration date. If you use
the mail, we recommend that you use insured, registered
mail, return receipt requested. If you cannot deliver
your rights certificate to the subscription agent on
time, you may follow the guaranteed delivery procedures
described under "The Rights Offering--Guaranteed
Delivery Procedures" beginning on page 25.
No Revocation ......................................... Once you have exercised your basic subscription
privilege your exercise may not be revoked. Rights not
exercised prior to the expiration of the rights
offering will expire.
How Rights Holders Can
Exercise Rights Through Others..................... If you hold shares of our common stock through a
broker, custodian bank or other nominee, we will ask
your broker, custodian bank or other nominee to notify
you of the rights offering. If you wish to exercise
your rights, you will need to have your broker,
custodian bank or other nominee act for you. To
indicate your decision, you should complete and return
to your broker, custodian bank or other nominee the
form entitled "Beneficial Owner Election Form." You
should receive this form from your broker, custodian
bank or other nominee with the other rights offering
materials. You should contact your broker, custodian
bank or other nominee if you believe you are entitled
to participate in the rights offering but you have not
received this form.
How Foreign Stockholders and
Stockholders with APO or FPO
Addresses Can Exercise Rights...................... The subscription agent will mail rights certificates to
you if you are a stockholder whose address is outside
the United States or if you have an Army Post Office or
a Fleet Post Office address. To exercise your rights,
you must notify the subscription agent on or prior to
5:00 p.m., New York City time, on June , 2002,
and take all other steps which are necessary to
exercise your rights, on or prior to the date on which
the rights offering expires. If you do not follow
these procedures prior to the expiration of the rights
offering, your rights will expire.
Certain United States Federal
Income Tax Consequences............................ A holder should not recognize income or loss for
federal income tax purposes in connection with the
receipt or exercise of subscription rights in the
rights offering. For a detailed discussion see
"Certain United States Federal Income Tax Consequences."
Issuance of Our Common Stock........................... We will issue certificates representing shares
purchased in the rights offering as soon as practicable
after the expiration of the rights offering.
No Recommendation to Rights Holders.................... We are not making any recommendations as to whether or
not you should subscribe for shares of our common
stock. You should decide whether to subscribe for
shares based upon your own assessment of your best
interests.
Nasdaq Listing of Our Common Stock..................... Our common stock is traded on the Nasdaq National
Market under the symbol "RRRR." On April 3, 2002, the
last trading day prior to our public announcement of
the rights offering, the closing price of our common
stock on Nasdaq was $0.28 per share. On May ,
2002, the last trading day before the date of this
prospectus, the closing price of our common stock on
Nasdaq was $ per share.
Nasdaq Symbol for Our Common Stock..................... "RRRR"
Advance Purchase....................................... On April 2, 2002, the Apollo Stockholders purchased
38,765,848 shares of our non-voting common stock at a
price of $0.255 per share for an aggregate purchase
price of $9,885,291. The basic subscription rights the
Apollo Stockholders will receive in the rights offering
will be deemed to have been exercised by this advance
purchase of our non-voting common stock. As part of
this advance purchase, the Apollo Stockholders have
agreed to not exercise any of the basic subscription
rights they receive in the rights offering. The
advance purchase price paid by the Apollo Stockholders
will be adjusted to equal the per share subscription
price in the rights offering.
Use of Proceeds........................................ If no stockholders other than the Apollo Stockholders
subscribe for shares of our common stock in the rights
offering, we will have raised $9,885,291 in proceeds
from the advance purchase by the Apollo Stockholders.
If the rights offering is fully subscribed, our net
proceeds from the rights offering will be approximately
$23 million assuming a subscription price of $0.255 per
share. The actual proceeds will depend on the numbers
of shares subscribed for in the rights offering. The
net proceeds will be used to supplement our cash
resources, to satisfy our ongoing cash requirements,
including our general and administrative expenses, and
to take advantage of business opportunities, including
maintaining or increasing our stake in the MSV joint
venture.
Subscription Agent..................................... American Stock Transfer & Trust Company
Information Agent......................................
For additional information concerning the rights offering, see
"The Rights Offering" below.
Risk Factors
An investment in the shares of our common stock is very risky. You
should carefully consider the information set forth under "Risk Factors"
beginning on page 8 and all of the information included and incorporated by
reference in this prospectus before deciding to exercise your rights.
Our executive offices are located at 44 West 18th Street, 6th
Floor, New York, New York 10011, and our telephone number is (646)
638-9700.
RISK FACTORS
This offering and an investment in our common stock involves a
high degree of risk. You should carefully consider the risks described
below before deciding whether to invest in shares of our common stock. The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us may also
impair our operations and business. If we do not successfully address any
one or more of the risks described below, there could be a material adverse
effect on our financial condition, operating results and business. We
cannot assure you that we will successfully address these risks.
Risks Relating to Our Operations
The recent winding down of our Internet professional services
business has resulted in uncertainty about our prospects and future
operating results.
During the year ended December 31, 2001, we ceased funding our
Internet professional services subsidiary, Rare Medium, Inc. and its
LiveMarket subsidiary, and recognized restructuring charges of
approximately $55.6 million related to these businesses. Our interests in
the MSV joint venture, our investment in XM Satellite Radio common stock,
our Motient promissory note and our remaining investments in our venture
portfolio companies are subject to a number of significant risks and
uncertainties. As a result of these and other costs and risks, we may incur
losses in the future, and our prospects, financial condition and future
results are uncertain.
The value of our interest in the MSV joint venture may never
appreciate or may decline significantly in the future because the MSV joint
venture is entering a new stage of development and its business involves a
high degree of risk.
Our interest in the MSV joint venture represents a substantial
portion of the value of our total assets. The value of our investment in
the MSV joint venture may never appreciate in value or may decline rapidly
in value in the future. The MSV joint venture is entering a new stage of
development with significant future funding requirements and its business
is subject to a number of significant risks and uncertainties. These risks
include
o rapid technological change;
o intense competition; and
o pervasive government regulation by the FCC in the United
States and by Industry Canada, its counterpart in Canada.
The FCC and Industry Canada are currently considering
applications submitted by the MSV joint venture which could, if granted by
both regulatory authorities, greatly expand the scope of the MSV joint
venture's business by permitting the MSV joint venture to incorporate an
ancillary terrestrial component, or ATC, into its mobile satellite network.
An ATC would permit the MSV joint venture to reuse its satellite spectrum
terrestrially. In this regard, an ATC will allow communications devices on
the MSV joint venture's system to operate inside of buildings and
throughout urban environments, which is currently not possible due to
terrain blockage from buildings and other urban structures which interrupt
the satellite signal's path. In response to the MSV joint venture's
application, the FCC has sought public comment on proposals to permit the
incorporation of an ATC into mobile satellite services in various frequency
bands, including the Big LEO (Low Earth Orbit) bands where Iridium and
Globalstar provide service, as well as other mobile satellite frequency
bands. If the FCC were to adopt all such proposals, the MSV joint venture
would face increased competition in the provision of mobile satellite
service using an ATC. Moreover, if the FCC grants these potential
competitors approval prior to the MSV joint venture receiving approval for
its application or grants more extensive or more favorable approvals to
these potential competitors, the MSV joint venture's ability to implement
its business strategy and compete effectively could also be harmed. If an
ATC is not authorized, however, the MSV joint venture's business may be
severely limited and the value of our interest in the MSV joint venture may
be significantly impaired.
Satellite services face numerous uncertainties that are unique to
the industry. Satellite launches are inherently risky and launch failures
occur. Moreover, once in orbit, satellites experience failures or technical
anomalies that could damage the MSV joint venture's ability to provide
services to its customers. While the MSV joint venture's satellites have
not experienced significant anomalies, no assurance can be given that such
anomalies will not occur. Satellites cannot easily be repaired once in
orbit and, accordingly, even a technical anomaly short of total failure of
the satellite could render the satellite useless. The MSV joint venture's
application to incorporate an ATC contemplates that these services will be
provided over a next-generation satellite. Accordingly, the MSV joint
venture will face the risks attendant with launching new satellites in the
near term should ATC be authorized and the MSV joint venture's application
granted.
It is likely that the MSV joint venture will need to raise
additional funds through public or private debt or equity financings in
order to
o implement its business plans;
o take advantage of opportunities, including acquisitions
of, or investments in, businesses or technologies;
o develop new services; or
o respond to competitive pressures.
We cannot assure you that any such additional financing will be available
on terms favorable to the MSV joint venture, or at all. If the MSV joint
venture does not receive certain regulatory approvals by the FCC and
Industry Canada by March 31, 2003, certain other investors in the MSV joint
venture are not obligated to invest an additional $50.0 million as
currently anticipated, and this could materially adversely affect the MSV
joint venture's implementation of its business plans if it is unable to
raise additional funds from other sources. We cannot assure you that any
additional financing the MSV joint venture may need will be available on
favorable terms, or at all. In such case, the value of our interest in the
MSV joint venture, which represents a substantial portion of the value of
our total assets, may be materially adversely affected and, in turn, our
financial condition, operating results and business may be materially and
adversely affected.
Governmental regulation of the mobile satellite services industry
could negatively impact the value of our interest in the MSV joint venture.
Currently, we are not subject to any direct governmental
regulation other than the securities laws and regulations applicable to all
publicly owned companies and laws and regulations applicable to businesses
generally. The mobile satellite services business of the MSV joint venture,
however, is subject to pervasive government regulation in the United States
and Canada. Unlike some satellite services where a satellite licensee is
granted an exclusive right to a predetermined amount of spectrum for a
definite time period, L-band spectrum historically has been shared among
five different licensees (Solidaridad in Mexico, TMI in Canada, Motient in
the U.S., the Russian Federation, and Inmarsat), and these five licensees
have agreed to coordinate their spectrum needs on an annual basis and
divide the available L-band spectrum among themselves. Among other
considerations, prior usage of the L-band to provide service is one factor
determining the allotment to each licensee on an annual basis.
Notwithstanding the agreement among these five countries to coordinate
annually their spectrum usage in the L-band, the five licensees currently
continue to operate pursuant to a coordination agreement reached in Mexico
City in 1995 and annual coordination meetings have not been held since
1999. Motient and TMI were licensed by their respective communications
regulatory agencies many years ago to use L-band spectrum in their
respective countries. Following FCC and Industry Canada consent, each
company recently assigned its respective L-band satellite licenses to the
MSV joint venture. It is unclear how the annual coordination process
described above will be affected by the assignment of the Motient and TMI
licenses to the MSV joint venture and, accordingly, the MSV joint venture
cannot be assured that it will have access to sufficient L-band spectrum to
meet its needs in the future pursuant to this annual coordination process.
Moreover, several companies recently were authorized by the FCC to
use mobile earth terminals in the U.S. over the Inmarsat L-band satellites.
These authorizations could increase the demand for and usage of the L-band
by Inmarsat, which in turn could increase Inmarsat's demand for L-band
spectrum pursuant to the annual coordination process in the L-band. The FCC
also recently concluded a long-pending proceeding in which it originally
had proposed to coordinate up to 28 MHz of L-band spectrum solely for
Motient. The FCC determined early this year that numerous advances in
satellite technology during the intervening years suggested that Motient's
L-band spectrum needs could be satisfied with only 20 MHz of L-band
spectrum. The FCC also indicated it would count toward Motient's 20 MHz
allotment any spectrum assigned to the MSV joint venture from TMI as part
of the MSV joint venture's application. These actions may cap the MSV joint
venture's L-band spectrum at 20 MHz. The FCC further proposed that any new
spectrum that becomes available in the L-band may be awarded to competing
mobile satellite service providers. If the FCC adopts this proposal, the
MSV joint venture could face increased competition in the mobile satellite
services marketplace.
Our investment in XM Satellite Radio common stock involves a high
degree of risk because XM Satellite Radio is a company which only recently
commenced generation of revenues.
Our investment in XM Satellite Radio common stock involves a high
degree of risk because XM Satellite Radio is a company which only recently
commenced generation of revenues. We own five million shares of XM
Satellite Radio common stock, which represents a substantial portion of our
total assets based on the current market price of XM Satellite Radio common
stock. The value of our investment in XM Satellite Radio has fluctuated
significantly in the past and may decline rapidly in the future. XM
Satellite Radio was a development stage company through the fourth quarter
of 2001 and has just recently started to generate revenues. XM Satellite
Radio has limited revenues, has incurred significant capital expenditures
and losses and will likely require significant additional funding. XM
Satellite Radio's business is subject to a number of significant risks and
uncertainties such as rapid technological change, intense competition from
Sirius Satellite Radio Inc., currently its sole competitor in the satellite
radio market, and pervasive regulation by the FCC.
Malfunctions in satellite technology could damage XM Satellite
Radio's ability to provide services to its customers. While XM Satellite
Radio's two satellites have been successfully launched into their
respective orbital locations and to our knowledge have not yet experienced
significant anomalies impairing current satellite operation, no assurance
can be given that such anomalies will not occur. Satellites cannot easily
be repaired once in orbit and, accordingly, even a technical anomaly short
of total failure of the satellite could render the satellite useless,
thereby harming XM Satellite Radio's ability to provide its service to its
customers. Moreover, XM has publicly disclosed that the manufacturer of its
two satellites has notified it of a progressive degradation problem with
the solar array output power of satellites in the same class as XM's two
existing satellites. According to XM, and to the best of the Company's
knowledge, at the present time, the output power of XM's solar arrays and
the broadcast signal strength are above minimum acceptable levels and are
expected to remain that way at least through 2005, permitting full
operation of the XM system (based on patterns projected by the
manufacturer) through that time. There can be no assurances that the
satellites' power system or broadcast system will not fail prior to that
time or that XM will be able to adequately replace them by 2005, should
they remain functional until then.
On February 14, 2002, XM Satellite Radio's primary competitor,
Sirius Satellite Radio, commenced commercial service in four markets in the
U.S. Sirius also announced that it plans a nationwide rollout of commercial
service before the end of 2002. Sirius Satellite Radio will compete
directly with XM Satellite Radio for customers.
Both XM Satellite Radio and Sirius Satellite Radio require the use
of terrestrial repeaters to augment the satellite signal in certain
locations in order to overcome the effects of terrain blockage (e.g., tall
buildings or tunnels) and provide a robust, uninterrupted signal. XM
Satellite Radio and Sirius Satellite Radio currently operate numerous
terrestrial repeaters nationwide pursuant to special temporary authority
("STA") from the FCC. STAs generally run for a period of 180 days and may
be renewed by the FCC upon request. On March 11, 2002, XM Satellite Radio
applied for an extension of its current STA which expired in late March.
Pursuant to the FCC's rules, XM Satellite Radio can continue to operate its
terrestrial repeaters pursuant to the STA pending a final determination on
the extension request. XM Satellite Radio cannot be assured that the FCC
will renew the current STA for the use of its terrestrial repeaters.
The FCC currently is seeking comment on proposed rules that will
grant permanent authority to XM Satellite Radio and Sirius Satellite Radio
to operate terrestrial repeaters. Several comments from the public have
opposed the authorization of terrestrial repeaters. XM Satellite Radio
cannot be assured that the FCC will adopt its proposed rules governing
terrestrial repeaters or that the rules as adopted will be sufficient to
permit XM Satellite Radio to operate the terrestrial repeaters at the
requisite power levels. If the FCC fails to extend XM Satellite Radio's
current STA or to adopt suitable rules governing terrestrial repeaters, XM
Satellite Radio's business will be harmed.
XM Satellite Radio will likely need to raise additional funds
through public or private debt or equity financings in order to
o implement its business plans;
o take advantage of opportunities, including acquisitions
of, or investments in, businesses or technologies;
o develop new services; or
o respond to competitive pressures. We cannot assure you
that any such additional financing will be available on
terms favorable to XM Satellite Radio, or at all.
These risks and uncertainties may impair the value of our
investment in XM Satellite Radio common stock. The value of our investment
in XM Satellite Radio represents a significant portion of our total assets
and fluctuates with the market price of XM Satellite Radio's common stock.
The outcome and effects of the Motient bankruptcy proceedings on
the Motient Notes and the MSV joint venture's regulatory approvals are
highly uncertain.
On January 10, 2002, Motient Corporation and its subsidiaries
filed for protection under Chapter 11 of the United States Bankruptcy Code.
As part of its filing Motient indicated that it would potentially challenge
our right to the $26.2 million of outstanding principal amount of the
exchangeable notes issued to us by Motient in October 2001. To mitigate the
risk, uncertainties and expenses associated with Motient's proposed plan of
reorganization, we agreed that, in connection with the approval of
Motient's plan of reorganization, we would cancel the outstanding amounts
on the Motient notes and receive a new note in the principal amount of
$19.0 million to be issued by a new wholly-owned subsidiary of Motient that
will own 100% of Motient Ventures Holding Inc., which owns all of Motient's
interests in the MSV joint venture. The new note will be due in 3 years and
will bear interest at a rate of 9% per annum. However, there can be no
assurances that the Motient plan of reorganization will be approved. In the
event the plan is not approved, we will retain our right to the original
Motient Notes, but Motient's bankruptcy proceedings could have other
effects on us. These effects could include the initiation of litigation
directly against us to challenge the delivery to us of the shares of XM
Satellite Radio common stock as partial repayment by Motient of the
aggregate $50.0 million principal amount of the exchangeable notes issued
to us in connection with two $25.0 million loans made to Motient by us in
April and July 2001. In light of, among other things, the operating results
and financial condition of Motient and the uncertainties as to the outcome
of Motient's bankruptcy, there can be no assurance that we will be able to
recover any of the $19.0 million for which we have currently agreed to
compromise our claim, though we believe that our recovery on the
compromised new note could be substantial. As a result of uncertainty with
respect to the ultimate collection on either the original Motient notes or
the new Motient note, we recognized a reserve for the entire amount of the
original Motient notes. While we believe that the Motient plan of
reorganization will be approved and do not believe that claims that may be
made against he Motient notes have merit, if the Motient plan is not
approved and the Motient notes are successfully challenged, such actions
could also adversely impact the value of our investment in XM Satellite
Radio's common stock.
Motient and TMI filed applications with the FCC and Industry
Canada seeking regulatory approval to (1) assign certain of their
respective satellite assets and authorizations to the MSV joint venture and
(2) operate a next-generation satellite that incorporates an ATC for the
provision of a more robust wireless communications offering through the MSV
joint venture's next-generation satellite. Motient's bankruptcy could
negatively impact the MSV joint venture's ability to obtain approval of its
application to operate a next-generation satellite incorporating an ATC. In
this regard, the MSV joint venture's application to launch and operate a
next-generation mobile satellite system and to incorporate an ATC has been
opposed by a number of parties, some of which argue that the FCC should
reallocate satellite spectrum in the L-band to terrestrial use only. These
parties have argued that, among other things, the inability of Motient to
develop a vibrant business constitutes evidence that the mobile satellite
industry is no longer viable and, therefore, the L-band spectrum should be
reallocated to terrestrial wireless uses.
Our business is subject to general economic conditions. Future
economic downturns could have an adverse impact on the value of our
interest in the MSV joint venture and our investment in XM Satellite Radio
common stock.
Our business is subject to fluctuations based upon the general
economic conditions in North America and, to a lesser extent, the global
economy. Future general economic downturns or a recession in the United
States could substantially reduce the demand for satellite communications
services, thereby reducing the market price of XM Satellite Radio common
stock and the value of our interest in the MSV joint venture. A
deterioration in existing economic conditions could therefore materially
and adversely affect our financial condition, operating results and
business.
The Apollo Stockholders beneficially own a large percentage of our
voting stock.
As of the date of this prospectus, the Apollo Stockholders owned
12,709,499 shares of our outstanding voting common stock, 38,765,848 shares
of our non-voting common stock, all of the 1,073,007 outstanding shares our
preferred stock and all of our outstanding warrants. These securities,
collectively, entitle the Apollo Stockholders to approximately 29.9% of the
voting power of our outstanding voting securities. Assuming that all
currently outstanding shares of our preferred stock are converted and all
warrants are exercised, the Apollo Stockholders would own approximately
59.7% of our outstanding common stock. As a result of the rights offering
the ownership of the Apollo Stockholder could increase further as described
under "The Right Offering - Effects of Rights Offerings on The Apollo
Stockholders' Securities and Ownership". Additionally, the Apollo
Stockholders' ownership interest in our company may increase upon their
conversion of additional shares of convertible preferred stock or exercise
of additional warrants received as in-kind dividends on its shares of
preferred stock. As long as the Apollo Stockholders own at least 100,000
shares of the preferred stock, we are precluded from taking various
corporate actions and entering into various transactions, without the
Apollo Stockholders' consent. These corporate actions and transactions are
described in our proxy statement for the stockholders' meeting held on
August 19, 1999 which is incorporated herein by reference. As long as the
Apollo Stockholders own at least 100,000 shares of our preferred stock, the
holders of the preferred stock, voting as a separate class, have the right
to elect two of the members of our board of directors and have certain
approval rights with respect to additional members of our board of
directors in the event that the size of our board of directors is
increased. In addition, the Apollo Stockholders are entitled to an
aggregate limit of 9,750,000 votes with respect to the preferred stock, or
9.09 votes per share of preferred stock as of the date of this Prospectus.
Because of the Apollo Stockholders' large percentage of ownership
and their rights as the holders of preferred stock, the Apollo Stockholders
may have significant influence over our management and policies, such as
the election of our directors, the appointment of new management and the
approval of any other action requiring the approval of our stockholders,
including any amendments to our certificate of incorporation and mergers or
sales of all or substantially all of our assets. In addition, the level of
the Apollo Stockholders' ownership of our shares of common stock and these
rights could have the effect of discouraging or impeding an unsolicited
acquisition proposal.
We may suffer adverse consequences if we are deemed to be an
investment company.
We may suffer adverse consequences if we are deemed to be an
investment company under the Investment Company Act of 1940. A company may
be deemed to be an investment company if it owns investment securities with
a value exceeding 40% of its total assets, subject to certain exclusions.
Some investments made by us may constitute investment securities under the
Investment Company Act of 1940. If we were to be deemed an investment
company, we would become subject to registration and regulation as an
investment company under the Investment Company Act of 1940. If we failed
to do so, we would be prohibited from engaging in business or issuing our
securities and might be subject to civil and criminal penalties for
noncompliance. In addition, certain of our contracts might be voidable, and
a court-appointed receiver could take control of our company and liquidate
our business. If we registered as an investment company, we would be
subject to restrictions regarding our operations, investments, capital
structure, governance and reporting of our results of operations, among
other things, and our ability to operate as we have in the past would be
adversely affected.
Although our investment securities currently comprise more than
40% of our assets, fluctuations in the value of these securities or of our
other assets may cause this limit to be satisfied. In addition, we expect
any excess value of our investment securities to be temporary as we intend
to continue to increase our interests in non-investment businesses such as
the MSV joint venture. Unless an exclusion or safe harbor were available to
us, in certain circumstances, we would have to attempt to reduce our
investment securities as a percentage of our total assets in order to avoid
becoming subject to the requirements of the Investment Company Act of 1940.
This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may
sell them sooner than we otherwise would. These sales may be at depressed
prices, and we may never realize anticipated benefits from, or may incur
losses on, these investments. Some investments may not be sold due to
contractual or legal restrictions or the inability to locate a suitable
buyer. Moreover, we may incur tax liabilities when we sell assets. We may
also be unable to purchase additional investment securities that may be
important to our operating strategy. If we decide to acquire non-investment
security assets, we may not be able to identify and acquire suitable assets
and businesses.
Risks Related to Our Common Stock
Fluctuations in our financial performance could adversely affect
the trading price of our common stock.
Our financial results may fluctuate as a result of a variety of
factors, many of which are outside of our control, including
o risks and uncertainties affecting the current and
proposed business of the MSV joint venture and the mobile
satellite services industry;
o increased competition in the mobile satellite services
industry;
o fluctuations in the market price of XM Satellite Radio
common stock;
o costs associated with discontinuing our Internet
professional services business; and
o general economic conditions.
As a result of these possible fluctuations, period-to-period
comparisons of our financial results may not be reliable indicators of
future performance.
The price of our common stock has been volatile.
The market price of our common stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. In recent years,
the stock market has experienced significant price and volume fluctuations
that have particularly affected the market prices of equity securities of
many companies providing Internet-related products and services. Some of
these fluctuations appear to be unrelated or disproportionate to the
operating performance of such companies. Future market movements may
materially and adversely affect the market price of our common stock.
We do not intend to pay dividends on shares of our common stock in
the foreseeable future.
We currently expect to retain our future earnings, if any, for use
in the operation and expansion of our business. We do not anticipate paying
any cash dividends on shares of our common stock in the foreseeable future.
The issuance of preferred stock or additional common stock may
adversely affect our stockholders.
Our board of directors has the authority to issue up to 10,000,000
shares of our preferred stock and to determine the terms, including voting
rights, of those shares without any further vote or action by our common
stockholders. The voting and other rights of the holders of our common
stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future.
Similarly, our board may issue additional shares of common stock without
any further vote or action by common stockholders, which would have the
effect of diluting common stockholders. An issuance could occur in the
context of another public or private offering of shares of common stock or
preferred stock or in a situation where the common stock or preferred stock
is used to acquire the assets or stock of another company. The issuance of
common stock or preferred stock, while providing desirable flexibility in
connection with possible acquisitions, investments and other corporate
purposes, could have the effect of delaying, deferring or preventing a
change in control.
Anti-takeover provisions could make a third-party acquisition of
our company difficult.
We are a Delaware corporation. The Delaware General Corporation
Law contains provisions that could make it more difficult for a third party
to acquire control of our company. In addition, we have a classified board
of directors, with each board member serving a staggered three-year term.
The existence of a classified board could make it more difficult for a
third-party to acquire control of our company.
Shares eligible for future sale could cause our stock price to
decline.
The market price of our common stock could decline as a result of
future sales of substantial amounts of our common stock, or the perception
that such sales could occur. Furthermore, certain of our existing
stockholders have the right to require us to register their shares, and the
holders of our preferred stock and warrants have the right to require us to
register the shares of common stock underlying these securities, which may
facilitate their sale of shares in the public market.
Our common stock could be delisted from the Nasdaq National Market
which could seriously limit the liquidity and negatively affect the value
of our common stock.
By letter dated, February 14, 2002, Nasdaq notified us that if at
any time prior to May 15, 2002, the bid price of our common stock is at not
least $1.00 for a minimum of ten consecutive trading days, Nasdaq will
notify us that the common stock will be delisted from the Nasdaq National
Market for failure to satisfy the minimum bid price requirement. As
described above, we plan to effect a reverse stock split in an attempt to
increase the market price of the common stock. However, the reverse stock
split requires approval by our stockholders and we plan to hold a
stockholders meeting for this purpose on or about June , 2002. We believe
that the plan to effect the reverse stock split will prevent delisting of
our common stock on May 15, 2002, so long as we are pursuing the required
stockholder vote.
If the reverse stock split is not approved by our stockholders,
then it is likely, absent a significant upward movement in the trading
price of our common stock, that we will not satisfy the requirements for
continued listing on the Nasdaq National Market or initial listing on
either the New York Stock Exchange or the American Stock Exchange. If
Nasdaq determines to delist our common stock, we plan to appeal the
determination pursuant to Nasdaq's procedures. There is no assurance that
we would be successful in appealing any determination by Nasdaq to delist
our common stock. If our listing on the Nasdaq cannot be maintained,
stockholders may experience a greater difficulty in trading shares of our
common stock and the price of our common stock could be adversely affected.
This lack of liquidity may also make it more difficult for us to raise
capital.
In addition to satisfying the minimum average closing price
requirement, we would also need to continue to satisfy all other applicable
Nasdaq listing criteria. Therefore, we cannot assure you that we will be
successful in meeting these and other listing criteria of Nasdaq or that,
in the event that our common stock is delisted from the Nasdaq National
Market, we will be successful in maintaining the listing of the common
stock on the Nasdaq SmallCap Market or obtaining an initial listing on any
other stock exchange.
The delisting of our common stock from the Nasdaq National Market
would result in an event of non-compliance under the provisions of our
preferred stock held by the Apollo Stockholders. If we are unable to obtain
a waiver of this event of non-compliance, the Apollo Stockholders would be
entitled to elect a majority of the members of our board of directors. This
would provide the Apollo Stockholders with the ability to control our
management and policies.
If our common stock is deemed 'penny stock,' its liquidity will be
adversely affected.
If the market price for our common stock remains below $1.00 per
share and is no longer listed on the Nasdaq National Market or another
national securities exchange or quotation system, our common stock may be
deemed to be penny stock. If our common stock is considered penny stock, it
would be subject to rules that impose additional sales practices on
broker-dealers who sell our securities. For example, broker-dealers must
make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Also, a disclosure schedule must be prepared before any transaction
involving a penny stock, and disclosure is required about (1) sales
commissions payable to both the broker-dealer and the registered
representative and (2) current quotations for the securities. Monthly
statements are also required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited
market in penny stock. The additional burdens imposed upon broker-dealers
by these requirements could discourage them from facilitating trades in our
common stock, which could have an adverse effect on the liquidity of our
common stock.
Risks Associated with the Reverse Stock Split
The market price of our stock may not increase proportionately
with the split ratio.
In addition to seeking approval from our stockholders to conduct
this rights offering, we are also soliciting our stockholders to approve a
one for ten reverse stock split. If both the rights offering and reverse
stock split are approved, we intend to complete the rights offering and we
may, in the sole discretion of our board of directors, complete the reverse
stock split sometime thereafter. If the reverse stock split is completed,
there can be no assurance that the market price of the shares will increase
proportionately to the ratio of the reverse stock split, in which case the
common stock may trade at a price that is lower than the price paid for
equivalent shares in the rights offering.
The successful completion of the reverse stock split will result
in an increase in the number of our authorized but unissued shares of
common stock which may be construed as having an anti-takeover effect.
Because the proposed one for ten reverse stock split will not
affect our authorized capital, the number of authorized but unissued shares
of common stock will increase following the reverse stock split. This may
be construed as having an anti-takeover effect to the extent it would
permit the issuance of shares to purchasers who might oppose a hostile
takeover bid or oppose any efforts to amend or repeal certain provisions of
our Restated Certificate of Incorporation or Amended and Restated Bylaws.
We have no current plans to issue any of the additional authorized but
unissued shares of our common stock that will become available as a result
of the reverse stock split and the corresponding amendment to our Restated
Certificate of Incorporation.
The reverse stock split could result in a decrease in our
aggregate market capitalization due to a decrease in the market price of
our common stock following the effective date of the reverse stock split.
Although the reverse stock split would not, by itself, affect our
assets or prospects, the reverse stock split could result in a decrease in
our aggregate market capitalization due to a decrease in the market price
of our common stock following the effective date.
Risks Related to the Rights Offering
If you do not exercise your full basic subscription right, your
percentage ownership and voting rights in us will decrease.
If you choose not to exercise your basic subscription right in
full, your relative ownership interest in us will be diluted to the extent
others exercise their basic subscription and over-subscription rights. Your
voting rights and percentage interest in any of our net earnings will also
be diluted if you do not exercise your rights in full. We are unable to
determine the precise total number of shares that will be actually sold in
the rights offering, but, if all of the shares of common stock which we are
offering, including the shares of non-voting common stock sold in the
advance purchase, are purchased upon the exercise of basic subscription
rights and over-subscription rights, our total outstanding shares of common
stock will be increased by 140%. If you do not exercise any of the rights
distributed to you, your percentage interest as a shareholder will be
diluted by at least 37% and you could be diluted by as much as
approximately 58% if all other stockholders exercise their rights in the
rights offering.
The rights offering may result in our issuance of up to an
additional 91,381,315 shares of our common stock, assuming full exercise of
rights.
Furthermore, even though the rights will be offered on a one for
one basis to each holder of our common stock, due to the anti-dilution
adjustments and the participation rights of the preferred stock and the
Series 1-A and 2-A Warrants, the percentage of common stock owned by
stockholders, other than the Apollo Stockholders, will decrease. This will
be the case even if you exercise the rights you will receive in full.
The subscription price determined for this offering in not an
indication of our value.
As provided for in our agreement with the Apollo Stockholders, the
subscription price was set at 85% of the average market price of the common
stock over a number of trading days prior to the commencement of the rights
offering as determined in good faith by our board of directors. The
subscription price does not necessarily bear any relationship to the book
value of our assets, past operations, cash flows, losses, financial
condition or any other established criteria for value. You should not
consider the subscription price as an indication of our value. After the
date of this prospectus, our common stock may trade at prices above or
below the offering price.
Our proceeds from this rights offering are indeterminate.
If no stockholders subscribe for shares of our common stock in the
rights offering, we will have raised a minimum of $9,885,291 from the
advance purchase of non-voting common stock by the Apollo Stockholders.
Assuming the rights offering is fully subscribed, our net proceeds will be
approximately $ million.
The rights offering is not conditioned upon any minimum level of
exercise of the rights.
You may not revoke your subscription exercise and could be
committed to buying shares above the prevailing market price.
The public trading market price of our common stock may decline
before the subscription rights expire. If you exercise your subscription
rights and, afterwards, the public trading market price of our common stock
decreases below $ , you will have committed to buying shares of common
stock at a price above the prevailing market price. Our common stock is
traded on the Nasdaq National Market under the symbol "RRRR" and the last
reported sales price of our common stock on the Nasdaq National Market on
May , 2002 was $ per share. Once you have exercised your subscription
rights, you may not revoke your exercise. Moreover, you may be unable to
sell your shares of common stock at a price equal to or greater than the
offering price.
Once you exercise your subscription rights, you cannot change your
mind, but we may cancel the rights offering.
Once you exercise your subscription rights, you may not revoke
the exercise. If we elect to withdraw or terminate the rights offering,
neither the subscription agent nor we will have any obligation with respect
to the subscription rights except to return, without interest or penalty,
any subscription payments.
You will not receive interest on subscription funds returned to
you.
If we elect to cancel the rights offering, neither we nor the
subscription agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments to you.
Because we may terminate the offering at any time, your
participation in the offering is not assured.
Once you exercise your subscription rights, you may not revoke the
exercise for any reason unless we amend the offering. We may terminate the
offering at any time. If we decide to terminate the offering, we will not
have any obligation with respect to the subscription rights except to
return any subscription payments, without interest.
Need to Act Promptly and Follow Subscription Instructions.
Stockholders who desire to purchase shares in this rights offering
must act promptly to ensure that all required forms and payments are
actually received by the subscription agent prior to June , 2002, the
expiration date. If you fail to complete and sign the required subscription
forms, send an incorrect payment amount, or otherwise fail to follow the
subscription procedures that apply to your desired transaction the
subscription agent may, depending on the circumstances, reject your
subscription or accept it to the extent of the payment received. Neither we
nor our subscription agent undertakes to contact you concerning, or attempt
to correct, an incomplete or incorrect subscription form or payment. We
have the sole discretion to determine whether a subscription exercise
properly follows the subscription procedures.
Risk of Personal Checks.
Any personal check used to pay for shares must clear prior to the
expiration date, and the clearing process may require seven or more
business days.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
This document includes certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995,
including statements relating to the consummation of the proposed
transactions described above. These statements are based on management's
current expectations and are subject to uncertainty and changes in
circumstances. Actual results may differ materially from these expectations
due to changes in global economic conditions, competition, regulatory
approvals necessary for the MSV joint venture to develop a business
combining satellite operations with terrestrial base stations and the
liquidity of XM Satellite Radio common stock. Important factors that could
cause actual results to differ materially from those expressed or implied
by these forward-looking statements include but are not limited to those
contained under the Risk Factors section of this prospectus and our annual
report on Form 10-K. We assume no obligation to update these
forward-looking statements to reflect actual results, changes in risks,
uncertainties or assumptions underlying or affecting such statements or for
prospective events that may have a retroactive effect.
THE RIGHTS OFFERING
Reasons For the Rights Offering
At a meeting held on March 24, 2002, the board of directors
discussed and authorized, subject to the approval of the Stipulation of
Settlement by counsel to the plaintiffs in our pending stockholder class
action litigation:
o the Investment Agreement under which the Apollo
Stockholders purchased 38,765,848 shares of non-voting
common stock in advance of the rights offering;
o the Stipulation of Settlement with the Apollo
Stockholders and the plaintiffs in our pending
stockholder class action litigation in which the parties
agreed to settle all outstanding claims relating to that
lawsuit; and
o the commencement of the rights offering in connection
with the execution of the Investment Agreement and the
Stipulation of Settlement.
The primary purpose for authorizing the rights offering, which is
being made in connection with the Stipulation of Settlement, was to assist
us in raising capital in a cost-effective manner to be available to satisfy
potential and expected cash needs, including future investment
opportunities relating to the MSV joint venture. The closing of the rights
offering is subject to stockholder approval. If the rights offering is
canceled, any funds we have received will be promptly refunded without
interest.
In reaching its conclusion, the board of directors considered a
number of factors, including:
o our potential needs for cash relative to our cash
resources as of December 31, 2001 of $16.8 million, to
satisfy anticipated obligations, and to take advantage of
business opportunities, including opportunities which may
become available to maintain or possibly increase our
proportionate interest in the MSV joint venture and
further our and MSV's business interests in light of the
winding down of our Internet professional services
business;
o the potential to raise up to $23 million through a rights
offering (including the advance purchase by the Apollo
Stockholders of $9,885,291), assuming all rights are
subscribed for at a price of $0.255 per share, with a
minimum of transaction costs;
o the opportunity that a rights offering allows all of our
stockholders on the record date to participate and
acquire additional shares of common stock at a discount
to the market price;
o the concerns of the board of directors as to other
financing alternatives, in light of:
o the perception of the board of directors as to the
difficulties in raising equity capital or debt in
light of the current state of the capital markets and
our business; and
o the belief of the board of directors that it is not
an appropriate time to sell assets to raise cash;
o the subscription price relative to the common stock's
historical and recent trading price and pricing policies
customary for transactions of this type;
o the opinion of Houlihan Lokey Howard & Zukin as to the
fairness, from a financial point of view, to our public
stockholders of the rights offering, the advance
purchase, the reverse stock split and other related
transactions, but excluding the tender offer;
o the Apollo Stockholders' willingness to subscribe in
advance for the equivalent of 38,765,848 rights, which
ensured that a minimum of $9,885,291 would be raised
(subject to adjustment based on the subscription price in
the rights offering);
o the willingness of the Apollo Stockholders to modify
certain of their rights under their original investment
agreements, including:
o to consent to our grant of over-subscription rights
to all stockholders;
o to consent to the rights offering;
o to cancel, subject to final court approval of the
Stipulation of Settlement, 20% of the warrants;
o to accept non-voting stock both in the advance
purchase and in their over-subscription, which limits
the impact of the rights offering on the voting power
of the Apollo Stockholders and may permit us to raise
more capital than if the Apollo Stockholders were to
receive voting stock subject to their contractual
requirements not to acquire shares with the right to
cast more than 50% of the voting power of our capital
stock;
o to elect, subject to final court approval of the
Stipulation of Settlement, to receive dividends in
the form of additional shares of preferred stock for
two years, in lieu of receiving cash dividends; and
o to limit anti-dilution adjustments to only those
rights exercised by persons other than the Apollo
Stockholders;
o the potential impact of the rights offering on relative
voting and ownership interests of our stockholders as
described under "Effects of Rights Offering on Preferred
Stock and Warrants" on page 17;
o the fact that the terms of the rights offering were
reviewed by, and negotiated with, counsel to the
plaintiffs in the pending stockholder class action
lawsuit against us, an unaffiliated third party, as part
of an agreed upon settlement to such litigation contained
in the Stipulation of Settlement;
o the fact that, while the Apollo Stockholders may increase
their percentage ownership as a result of the rights
offering, the Apollo Stockholders, as a result of their
agreeing to receive non-voting common stock, will not, as
a result of the rights offering, increase their voting
rights; and
o the potential tax consequences of the rights offering.
The Rights
We will distribute to each holder of our common stock, warrants
and preferred stock who is a record holder on the record date, which is on
May , 2002, at no charge, one non-transferable subscription right for each
share of our common stock they own or, in the case of rights distributed to
the Apollo Stockholders, one share of non-voting common stock for each
share into and for which the preferred stock and 80% of the warrants are
convertible and exercisable. The rights will be evidenced by
non-transferable rights certificates. Each right will allow you to purchase
one additional share of our common stock at a price of $ .
Expiration of the Rights Offering
You may exercise your subscription privilege at any time before
5:00 p.m., New York City time, on June , 2002, the expiration date for the
rights offering. We may, in our sole discretion, extend the time for
exercising the rights. If you do not exercise your rights before the
expiration date, your unexercised rights will be null and void. We will not
be obligated to honor your exercise of rights if the subscription agent
receives the documents relating to your exercise after the rights offering
expires, regardless of when you transmitted the documents, except when you
have timely transmitted the documents under the guaranteed delivery
procedures described below. We may extend the expiration date by giving
oral or written notice to the subscription agent on or before the scheduled
expiration date. If we elect to extend the expiration of the rights
offering, we will issue a press release announcing the extension no later
than 9:00 a.m., New York City time, on the next business day after the most
recently announced expiration date.
Subscription Privileges
Basic Subscription Privilege. With your basic subscription
privilege, you may purchase one share of our common stock per right, upon
delivery of the required documents and payment of the subscription price of
$ per share. You are not required to exercise all of your rights. We will
deliver to you certificates representing the shares which you purchased
with your basic subscription privilege as soon as practicable after the
rights offering has expired.
Over-Subscription Privilege. Subject to the allocation described
below, each subscription right also grants each stockholder an
over-subscription privilege to purchase additional shares of common stock
that are not purchased by other stockholders pursuant to their basic
subscription privileges. You are entitled to exercise your
over-subscription privilege only if you exercise your basic subscription
privilege in full.
If you wish to exercise your over-subscription privilege, you
should indicate the number of additional shares that you would like to
purchase in the space provided on your subscription certificate. When you
send in your subscription certificate, you must also send the full purchase
price for the number of additional shares that you have requested to
purchase (in addition to the payment due for shares purchased through your
basic subscription privilege). If the number of shares remaining after the
exercise of all basic subscription privileges is not sufficient to satisfy
all requests for shares pursuant to over-subscription privileges, you will
be allocated additional shares pro-rata (subject to elimination of
fractional shares), based on the number of shares you purchased through the
basic subscription privilege in proportion to the total number of shares
that you and other over-subscribing stockholders purchased through the
basic subscription privilege. However, if your pro-rata allocation exceeds
the number of shares you requested on your subscription certificate, then
you will receive only the number of shares that you requested, and the
remaining shares from your pro-rata allocation will be divided among other
stockholders exercising their over-subscription privileges.
The subscription rights the Apollo Stockholders received with
respect to their basic subscription privilege will be deemed to have been
exercised by their advance purchase on April 2, 2002, of 38,765,848 shares
of non-voting common stock. For purposes of the Apollo Stockholders'
over-subscription privilege, it is assumed that the Apollo Stockholders'
basic subscription privilege was fully exercised but limited to 12,709, 499
shares, the total number of shares of voting common stock held by them
immediately prior to entering into the Investment Agreement, thereby
limiting their over-subscription privilege to the pro-rata participation
based on this more limited number of shares of common stock.
As soon as practicable after the expiration date, American Stock
Transfer & Trust Company, acting as our Subscription Agent, will determine
the number of shares of common stock that you may purchase pursuant to the
over-subscription privilege. You will receive certificates representing
these shares as soon as practicable after the expiration date. If you
request and pay for more shares than are allocated to you, we will refund
that overpayment, without interest. In connection with the exercise of the
over-subscription privilege, banks, brokers and other nominee holders of
subscription rights who act on behalf of beneficial owners will be required
to certify to us and to the Subscription Agent as to the aggregate number
of subscription rights that have been exercised, and the number of shares
of common stock that are being requested through the over-subscription
privilege, by each beneficial owner on whose behalf the nominee holder is
acting.
Conditions to the Rights Offering
The rights offering is expressly conditioned upon approval by our
stockholders and will not be undertaken if stockholder approval is not
obtained. If the stockholders do not approve the rights offering or the
rights offering is not consummated by June 30, 2003, a committee consisting
of all of our independent directors desiring to serve on such committee may
elect to rescind the advance purchase made by the Apollo Stockholders. If
the committee of independent directors decides that the advance purchase
should be rescinded, then we will return the $9,885,291 received from the
Apollo Stockholders plus interest accrued at the prime rate and cancel the
38,765,848 shares of non-voting common stock issued to the Apollo
Stockholders.
Non-Transferability of the Rights
Except in the limited circumstances described below, only you may
exercise the basic subscription privilege and the over-subscription
privilege. You may not sell, give away or otherwise transfer the basic
subscription privilege or the over-subscription privilege.
Notwithstanding the foregoing, you may transfer your rights to any
affiliate of yours and your rights also may be transferred by operation of
law; for example a transfer of rights to the estate of the recipient upon
the death of the recipient would be permitted. If the rights are
transferred as permitted, evidence satisfactory to us that the transfer was
proper must be received by us prior to the expiration date of the rights
offering.
Method of Subscription -- Exercise of Rights
You may exercise your rights by delivering the following to the
subscription agent, at or prior to 5:00 p.m., New York City time, on June ,
2002, the date on which the rights expire:
o Your properly completed and executed rights certificate
with any required signature guarantees or other
supplemental documentation; and
o Your full subscription price payment for each share
subscribed for under your basic subscription privileges
and your over-subscription privilege.
Method of Payment
Your payment of the subscription price must be made in U.S.
dollars for the full number of shares of common stock you are subscribing
for by either:
o Check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to the
subscription agent; or
o Wire transfer of immediately available funds, to the
subscription account maintained by the subscription agent
at ABA No. , further credit to ,
Attention:
Receipt of Payment
Your payment will be considered received by the subscription
agent only upon:
o Clearance of any uncertified check;
o Receipt by the subscription agent of any certified check
or bank draft drawn upon a U.S. bank or of any postal,
telegraphic or express money order; or
o Receipt of collected funds in the subscription account
designated above.
Clearance of Uncertified Checks
If you are paying by uncertified personal check, please note that
uncertified checks may take at least seven (7) business days to clear. If
you wish to pay the subscription price by uncertified personal check, we
urge you to make payment sufficiently in advance of the time the rights
offering expires to ensure that your payment is received and clears by that
time. We urge you to consider using a certified or cashier's check, money
order or wire transfer of funds to avoid missing the opportunity to
exercise your rights.
Delivery of Subscription Materials and Payment
You should deliver your rights certificate and payment of the
subscription price or, if applicable, notices of guaranteed delivery, to
the subscription agent by one of the methods described below:
If by mail to:
If by hand delivery or by overnight courier to:
You may call the subscription agent at .
Your delivery to an address other than the address set forth above
will not constitute valid delivery.
Calculation of Rights Exercised
If you do not indicate the number of rights being exercised, or do
not forward full payment of the total subscription price payment for the
number of rights that you indicate are being exercised, then you will be
deemed to have exercised your basic subscription privilege with respect to
the maximum number of rights that may be exercised with the aggregate
subscription price payment you delivered to the subscription agent. If we
do not apply your full subscription price payment to your purchase of
shares of our common stock, we will return the excess amount to you my mail
without interest or deduction as soon as practicable after the expiration
date of the rights offering.
Your Funds Will Be Held by the Subscription Agent Until Shares of Common
Stock Are Issued
The subscription agent will hold your payment of the subscription
price payment in a segregated account with other payments received from
other rights holders until we issue your shares to you.
Signature Guarantee May Be Required
Your signature on each rights certificate must be guaranteed by an
eligible institution such as a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or from a commercial bank or trust company having an office
or correspondent in the United States, subject to standards and procedures
adopted by the subscription agent, unless:
o Your rights certificate provides that shares are to be
delivered to you as record holder of those rights; or
o You are an eligible institution.
Notice to Beneficial Holders
If you are a broker, a trustee or a depositary for securities who
holds shares of our common stock for the account of others on May __, 2002,
the record date for the rights offering, you should notify the respective
beneficial owners of such shares of the rights offering as soon as possible
to find out their intentions with respect to exercising their rights. You
should obtain instructions from the beneficial owner with respect to the
rights, as set forth in the instructions we have provided to you for your
distribution to beneficial owners. If the beneficial owner so instructs,
you should complete the appropriate rights certificates and submit them to
the subscription agent with the proper payment. If you hold shares of our
common stock for the account(s) of more than one beneficial owner, you may
exercise the number of rights to which all such beneficial owners in the
aggregate otherwise would have been entitled had they been direct record
holders of our common stock on the record date for the rights offering,
provided that, you, as a nominee record holder, make a proper showing to
the subscription agent by submitting the form entitled "Nominee Holder
Certification" which we will provide to you with your rights offering
materials.
Beneficial Owners
If you are a beneficial owner of shares of our common stock or
will receive your rights through a broker, custodian bank or other nominee,
we will ask your broker, custodian bank or other nominee to notify you of
this rights offering. If you wish to exercise your rights, you will need to
have your broker, custodian bank or other nominee act for you. If you hold
certificates of our common stock directly and would prefer to have your
broker, custodian bank or other nominee exercise your rights, you should
contact your nominee and request it to effect the transaction for you. To
indicate your decision with respect to your rights, you should complete and
return to your broker, custodian bank or other nominee the form entitled
"Beneficial Owners Election Form." You should receive this form from your
broker, custodian bank or other nominee with the other rights offering
materials. If you wish to obtain a separate rights certificate, you should
contact the nominee as soon as possible and request that a separate rights
certificate be issued to you.
Instructions for Completing Your Rights Certificate
You should read and follow the instructions accompanying the
rights certificates carefully.
If you want to exercise your rights, you should send your rights
certificate(s) with your subscription price payment to the subscription
agent. Do not send your rights certificate(s) and subscription price
payment to us.
You are responsible for the method of delivery of your rights
certificate(s) with your subscription price payment to the subscription
agent. If you send your rights certificate(s) and subscription price
payment by mail, we recommend that you send them by registered mail,
properly insured, with return receipt requested. You should allow a
sufficient number of days to ensure delivery to the subscription agent
prior to the time the rights offering expires. Because uncertified personal
checks may take at least seven (7) business days to clear, you are strongly
urged to pay, or arrange for payment, by means of certified or cashier's
check, money order or wire transfer of funds.
Determinations Regarding the Exercise of Your Rights
We will decide all questions concerning the timeliness, validity,
form and eligibility of your exercise of your rights and our determinations
will be final and binding. We, in our sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within
such time as we may determine. We may reject the exercise of any of your
rights because of any defect or irregularity. We will not receive or accept
any subscription until all irregularities have been waived by us or cured
by you within such time as we decide, in our sole discretion.
Neither we, the subscription agent nor the information agent will
be under any duty to notify you of any defect or irregularity in connection
with your submission of rights certificates and we will not be liable for
failure notify you of any defect or irregularity. We reserve the right to
reject your exercise of rights if your exercise is not in accordance with
the terms of the rights offering or in proper form. We will also not accept
your exercise of rights if our issuance of shares of our common stock to
you could be deemed unlawful under applicable law or is materially
burdensome to Rare Medium.
Regulatory Limitation
We will not be required to issue to you shares of common stock
pursuant to the rights offering if, in our opinion, you would be required
to obtain prior clearance or approval from any state or federal regulatory
authorities to own or control such shares if, at the time the subscription
rights expire, you have not obtained such clearance or approval.
Guaranteed Delivery Procedures
If you wish to exercise rights, but you do not have sufficient
time to deliver the rights certificate evidencing your rights to the
subscription agent on or before the time your rights expire, you may
exercise your rights by the following guaranteed delivery procedures:
o Deliver your subscription price payment in full for each
share you subscribed for under your subscription
privileges in the manner set forth in "--Method of
Payment" on page 22 to the subscription agent on or prior
to the expiration date;
o Deliver the form entitled "Notice of Guaranteed
Delivery", substantially in the form provided with the
"Instructions as to Use of Rare Medium Rights
Certificates" distributed with your rights certificates
at or prior to the expiration date; and
o Deliver the properly completed rights certificate
evidencing your rights being exercised and, the related
nominee holder certification, if applicable, with any
required signatures guaranteed, to the subscription agent
within three (3) business days following the date of your
Notice of Guaranteed Delivery.
Your Notice of Guaranteed Delivery must be delivered in
substantially the same form provided with the Instructions as to the Use of
Rare Medium Rights Certificates, which will be distributed to you with your
rights certificate. Your Notice of Guaranteed Delivery must come from an
eligible institution, or other eligible guarantee institutions which are
members of, or participants in, a signature guarantee program acceptable to
the subscription agent.
In your Notice of Guaranteed Delivery, you must state:
o Your name;
o The number of rights represented by your rights
certificates, the number of shares of our common stock
you are subscribing for under your basic subscription
privilege; and
o Your guarantee that you will deliver to the subscription
agent any rights certificates evidencing the rights you
are exercising within three (3) business days following
the date the subscription agent receives your Notice of
Guaranteed Delivery.
You may deliver your Notice of Guaranteed Delivery to the
subscription agent in the same manner as your rights certificates at the
address set forth above under "--Delivery of Subscription Materials and
Payment" on page 23. You may alternatively transmit your Notice of
Guaranteed Delivery to the subscription agent by facsimile transmission
(Facsimile No.: or ). To confirm facsimile deliveries,
you may call .
The subscription agent will send you additional copies of the form
of Notice of Guaranteed Delivery if you need them. Please call to request
any copies of the form of Notice of Guaranteed Delivery. Banks and
brokerage firms please call to request any copies of the form of Notice of
Guaranteed Delivery.
Questions About Exercising Rights
If you have any questions or require assistance regarding the
method of exercising your rights or requests for additional copies of this
prospectus, the Instructions as to the Use of Rare Medium Rights
Certificates or the Notice of Guaranteed Delivery, you should contact the
information agent at the following address and telephone number:
Subscription Agent and Information Agent
We have appointed American Stock Transfer & Trust Company to act
as subscription agent and to act as information agent for the rights
offering. We will pay all fees and expenses of the subscription agent and
the information agent related to the rights offering and have also agreed
to indemnify the subscription agent and the information agent from
liabilities which it may incur in connection with the rights offering.
No Revocation
Once you have exercised your subscription privileges, you may not
revoke your exercise. Rights not exercised prior to the expiration date of
the rights offering will expire.
Procedures for DTC Participants
We expect that your exercise of your basic subscription privilege
may be made through the facilities of the Depository Trust Company. If your
rights are held of record through DTC, you may exercise your basic
subscription privilege and your over-subscription privilege by instructing
DTC to transfer your rights from your account to the account of the
subscription agent, together with certification as to the aggregate number
of rights you are exercising and the number of shares of our common stock
you are subscribing for under your basic subscription privilege and your
over-subscription privilege, if any, and your subscription price payment
for each share you subscribed for pursuant to your basic subscription
privilege and your over-subscription privilege.
No change will be made to the cash subscription price by reason of
changes in the trading price of our common stock prior to the closing of
the rights offering.
Foreign and Other Stockholders
Rights certificates will be mailed to rights holders whose
addresses are outside the United States or who have an Army Post Office or
Fleet Post Office address. To exercise such rights, you must notify the
subscription agent, and take all other steps which are necessary to
exercise your rights on or prior to the expiration date of the rights
offering. If the procedures set forth in the preceding sentence are not
followed prior to the expiration date your rights will expire.
Expiration Date, Extensions and Termination
We may extend the rights offering and the period for exercising
your rights, in our sole discretion. The rights will expire at 5:00 p.m.,
New York City time, on June , 2002, unless we decide to extend the rights
offering. If the commencement of the rights offering is delayed, the
expiration date will be similarly extended. If you do not exercise your
basic subscription privilege prior to that time, your rights will be null
and void. We will not be required to issue shares of common stock to you if
the subscription agent receives your subscription certificate or your
payment after that time, regardless of when you sent the subscription
certificate and payment, unless you send the documents in compliance with
the guaranteed delivery procedures described above. In addition, we may
terminate the rights offering at any time prior to the time the rights
offering expires.
Cancellation Right
Our board of directors may cancel the rights offering in its sole
discretion at any time prior to or on the expiration date for any reason
(including a change in the market price of the common stock). In addition,
we are soliciting our stockholders to approve the rights offering. If the
rights offering is not approved by the stockholders, the board of directors
may cancel the rights offering. If we cancel the rights offering, any funds
you paid will be promptly refunded, without interest.
No Board Recommendation
An investment in shares of our common stock must be made according
to each investor's evaluation of its own best interests. Accordingly, our
board of directors makes no recommendation to rights holders regarding
whether they should exercise their rights.
Shares of Common Stock Outstanding After the Rights Offering
Assuming we issue all of the shares of common stock offered in the
rights offering, including the shares of non-voting common stock sold in
the advance purchase, 156,706,281 shares of common stock will be issued and
outstanding, at least 38,765,848 million of which will be non-voting
shares. If every subscription right were exercised, this would represent a
140% increase in the number of outstanding shares of common stock.
Even though the rights will be offered on a one for one basis to
each holder of our common stock, due to the anti-dilution adjustments and
the participation rights of the preferred stock and the Series 1-A and 2-A
Warrants, the percentage of common stock owned by stockholders, other than
the Apollo Stockholders, will decrease. This will be the case even if you
exercise the rights you will receive in full.
Effects of Rights Offering on Our Stock Option Plans and Other Plans
As of April 8, 2002, there were outstanding options to purchase
4,421,823 shares of common stock issued or committed to be issued pursuant
to stock options granted by Rare Medium and our predecessors. Mr. Glenn S.
Meyers, our chairman and chief executive officer, waived his right to
receive subscription rights in the rights offering to which he was entitled
under his employment agreement on account of his options. Other than Mr.
Meyers' options, none of the outstanding options have antidilution or other
provisions of adjustment which will be triggered by the rights offering.
Each outstanding and unexercised option will remain unchanged and will be
exercisable, subject to divesting, if any, for the same number of shares of
common stock and at the same exercise price as before the rights offering.
Effects of Rights Offering on the Apollo Stockholders' Securities and Ownership
Anti-Dilution Adjustments
o Under the terms of the preferred stock, the conversion
price of the preferred stock is to be adjusted if, among
other things, we issue rights to subscribe for our common
stock at a price below the conversion price of the
preferred stock in effect at the time of issuance of the
rights. The calculation of the antidilution adjustment is
described in our Definitive Proxy Statement for the
Annual Meeting of Stockholders held on August 19, 1999.
However, we have agreed with the Apollo Stockholders that
the conversion price will be adjusted in connection with
the rights offering only to the extent that shares of our
common stock are actually issued in the rights offering
excluding the shares of our non-voting stock acquired by
the Apollo Stockholders in the advance purchase or
pursuant to their over-subscription privilege. This will
result in a smaller downward adjustment to the conversion
price than a calculation methodology that includes all
common stock issued in connection with the rights
offering. At the time of issuance of the rights in the
rights offering, the conversion price of the preferred
stock is expected to continue to be $7.00 per share and,
accordingly, an aggregate of 15,328,671 shares of common
stock would be issuable upon conversion of the 1,073,007
shares of preferred stock that have a stated value of
$107,300,700, or $100 per share. For illustrative
purposes only, assuming a subscription price of $0.255
per share and that all stockholders exercise their basic
subscription privilege in full, the conversion price of
the preferred stock would be reduced to $3.99 per share,
thereby increasing the number of shares of our common
stock issuable upon conversion of all of the outstanding
shares of preferred stock from 15,328,671 to 26,886,156.
The actual adjustment will depend on the number of rights
exercised.
o Under the terms of the Series 1-A and Series 2-A
Warrants, the exercise price of these warrants and the
number of shares of common stock purchasable under such
warrants is to be adjusted if, among other things, we
issue rights to subscribe for our common stock at a price
below the exercise price in effect at the time of
issuance of the rights. However, we have agreed with the
holders of the Series 1-A Warrants and Series 2-A that
the exercise price and the number of shares of common
stock purchasable under such warrants will be adjusted in
connection with the rights offering only to the extent
that shares of our common stock are actually issued in
the rights offering excluding the shares of our
non-voting stock acquired by the Apollo Stockholders in
the advance purchase or pursuant to their
over-subscription privilege. This will result in a
smaller downward adjustment to the conversion price than
a calculation methodology that includes all common stock
issued in connection with the rights offering. At the
time of issuance of the rights in the rights offering,
the exercise price of the Series 1-A Warrants is expected
to continue to be $4.20 per share and the exercise price
of the Series 2-A Warrants is expected to continue to be
$7.00 per share. For illustrative purposes only, assuming
a subscription price of $0.255 per share and that all
stockholders exercise their basic subscription privilege
in full and assuming the cancellation of some warrants
in connection with the litigation settlement, the
exercise price of the Series 1-A Warrants would be
reduced to $2.44 per share, thereby increasing the number
of shares issuable upon exercise of all of the Series 1-A
Warrants from 1,466,368 to 2,524,013 and the exercise
price of the Series 2-A Warrants would be reduced to
$3.993 per share, thereby increasing the number of shares
issuable upon exercise of all of the Series 2-A Warrants
from 9,810,031 to 17,206,585. The actual adjustment will
depend on the number of rights exercised. The aggregate
exercise price will remain unchanged.
Rights Distributable in Respect of Preferred Stock and Warrants
o The Apollo Stockholders have, pursuant to their original
investment documents, the right to receive subscription
rights in respect of the common stock underlying their
preferred stock and warrants, as if they had converted
the preferred stock and exercised the warrants in full.
The Apollo Stockholders would not need to actually
convert the preferred stock or exercise the warrants in
order to receive and exercise these rights. These rights
would be in addition to the rights the Apollo
Stockholders will receive in respect of the shares of our
common stock that they own. As part of the advance
purchase, the Apollo Stockholders will be deemed to have
exercised their basic subscription rights by their
advance purchase of 38,765,848 shares of our non-voting
common stock and have agreed not to exercise the rights
they receive in the rights offering and to hold the
rights until they expire, except that the Apollo
Stockholders may exercise their over-subscription
privilege. Of the 38,765,848 shares of non-voting common
stock acquired in the advance purchase, 26,056,349
represent subscription rights in respect of the common
stock underlying the preferred stock and 80% of the
warrants as of March 24, 2002. The remaining 12,709,499
shares of non-voting common stock represent subscription
rights in respect of shares of common stock held by the
Apollo Stockholders at the time of their advance
purchase.
Over-Subscription Rights
o Because of the advance purchase, the Apollo Stockholders
have agreed not to exercise any basic subscription
privilege received in the offering. For purposes of the
over-subscription privilege, the Apollo Stockholders have
agreed to limit their over-subscription pro-rata
participation by assuming their basic subscription right
is limited to 12,709,499 shares of common stock
regardless of the amount of shares into which the
preferred stock and warrants they hold are actually
convertible.
Even though the rights will be offered on a one for one basis to
each holder of our common stock, due to the anti-dilution adjustments and
the participation rights of the preferred stock and the Series 1-A and 2-A
Warrants, the percentage of common stock owned by stockholders, other than
the Apollo Stockholders, will decrease. This will be the case even if you
exercise the rights you will receive in full. Under their original
investment documents, the Apollo Stockholders have the right to subscribe
for all unsubscribed rights in any of our rights offerings. The Apollo
Stockholders have waived their right to subscribe for all unsubscribed
rights in this rights offering and have consented to our grant of
over-subscription rights to all stockholders.
Set forth below, for illustrative purposes only and assuming a
subscription price of $0.255 per share, are three scenarios which indicate
the effect the rights offering and related share issuance could have on the
amount of cash we raise and the Apollo Stockholders' relative voting and
economic interest. As of the date of this prospectus, the Apollo
Stockholders control 29.9% of the voting power of our outstanding capital
stock and own 49.5% of our outstanding common stock (59.7% on a fully
diluted basis assuming all of their preferred stock and warrants are
converted and exercised in full).
SCENARIO A - All subscription rights are subscribed for by the
stockholders to whom the subscription rights were issued and the Apollo
Stockholders do not exercise their over-subscription privilege.
SCENARIO B - Through their advance purchase of our non-voting
common stock, the Apollo Stockholders are the only stockholders to exercise
subscription rights, but do not exercise their over-subscription rights.
SCENARIO C - The Apollo Stockholders are the only stockholders to
exercise subscription rights and, through their over-subscription
privilege, the Apollo Stockholders acquire all of the shares offered
Apollo Stockholders'
Economic Ownership Percentage
Apollo -----------------------------
Total Apollo Stockholders'
Rights Stockholders' Voting At Maximum
Scenario Offered Exercise Cash Raised %(a) Undiluted(b) Dilution(c)
-------- ------------ --------------- ----------- ---- --------- ----------
A 91,381,315 38,765,848 $23,302,235 17.6% 32.8% 48.2%
B 91,381,315 38,765,848 $9,885,291 29.9% 49.5% 59.7%
C 91,381,315 91,381,315 $23,302,235 29.9% 66.4% 71.3%
-------
(a) Pursuant to the terms of the Investment Agreement governing the
advance purchase, the Apollo Stockholders may exchange their
non-voting common stock for common stock in order to maintain
their 29.9% voting percentage.
(b) Does not give effect to conversion of the preferred stock or exercise
of the warrants or outstanding stock options.
(c) Assumes conversion and exercise in full of the preferred stock and
the warrants, but does not give effect to the exercise of
outstanding stock options.
Other Matters
We are not making this rights offering in any state or other
jurisdiction in which it is unlawful to do so, nor are we selling or
accepting any offers to purchase any shares of our common stock from rights
holders who are residents of those states or other jurisdictions. We may
delay the commencement of the rights offering in those states or other
jurisdictions, or change the terms of the rights offering, in order to
comply with the securities law requirements of those states or other
jurisdictions. We may decline to make modifications to the terms of the
rights offering requested by those states or other jurisdictions, in which
case, if you are a resident in those states or jurisdictions you will not
be eligible to participate in the rights offering.
APOLLO ADVANCE PURCHASE AND INVESTMENT AGREEMENT
In connection with the Stipulation of Settlement, we and the
Apollo Stockholders entered into an Investment Agreement dated as of April
2, 2002. Under the Investment Agreement, and in connection with the
Stipulation of Settlement, the Apollo Stockholders purchased in advance
38,765,848 shares of our non-voting common stock. This purchase equals the
number of shares of voting common stock that the Apollo Stockholders would
otherwise have been entitled to purchase in the rights offering, based on
the number of securities held by them as of March 24, 2002, but after
giving effect to the cancellation of some warrants in connection with the
litigation settlement. The Apollo Stockholders paid $0.255 per share for an
aggregate purchase price of $9,885,291. The Investment Agreement adjusts
the per share advance purchase price paid by the Apollo Stockholders to
equal the per share subscription price for the rights offering. In the
event that the rights offering is not consummated by June 30, 2003 or is
not approved by our stockholders, a committee consisting of all of our
independent directors desiring to serve on such committee may elect to
rescind the purchase of non-voting stock.
The Investment Agreement also generally provides for the
commencement of the rights offering in which our stockholders will receive
non-transferable rights to purchase one additional share of our common
stock for each share held as of a record date to be established and the
proposed one for ten reverse stock split, both of which are subject to
stockholder approval. The price at which the additional shares may be
purchased in the rights offering will represent a 15% discount to the
market price of our common stock at the time the rights offering is
commenced, but will be no more than $0.33 per share and no less than $0.18
per share. The rights offering and the reverse stock split are subject to
stockholder approval. The foregoing description of the Investment Agreement
is qualified in its entirety by the text of the Investment Agreement which
is an exhibit to the registration statement that includes this prospectus.
See "Where You Can Find More Information" on page 36 of this prospectus.
Contemporaneously with entering into the Investment Agreement, we,
the Apollo Stockholders and the plaintiffs in our pending stockholder class
action litigation entered into a Stipulation of Settlement in which the
parties agreed to settle all outstanding claims relating to that lawsuit.
The Stipulation of Settlement, as part of the settlement, contemplates the
transactions described in the Investment Agreement. The description of the
Investment Agreement and the Stipulation of Settlement in this prospectus
is qualified in its entirety by the text of the Investment Agreement and
the Stipulation of Settlement, respectively, which are exhibits to the
registration statement that includes this prospectus.
In the Stipulation of Settlement, the Apollo Stockholders agreed
to make a tender offer to acquire, for cash, up to 15,002,909 shares of
common stock. An affiliate of the Apollo Stockholders has commenced the
tender offer, which is scheduled to expire on May 7, 2002 , at a price of
$0.28 per share. The Apollo Stockholders have agreed that so long as any
tendered shares are held by them or any of their affiliates, the Apollo
Stockholders and their affiliates will cause all such shares held by them,
which would otherwise entitle the Apollo Stockholders and their affiliates,
collectively, to cast more than 29.9% of voting power of our outstanding
capital stock, to be voted pro-rata with all other votes cast by holders of
common stock.
In addition, and as described in the Investment Agreement, we and
the Apollo Stockholders have agreed:
o that the Apollo Stockholders will vote all of their
shares in favor of the rights offering, the reverse stock
split and the proposal, described below, regarding the
potential exchange of the non-voting common stock for
common stock under specified limited conditions; except
that the shares of common stock acquired in the tender
offer will be voted pro-rata with all other votes cast on
those issues by holders of voting common stock;
o that, in connection with the rights offering, the Apollo
Stockholders will waive anti-dilution rights in their
preferred stock and warrants with respect to the
non-voting common stock acquired by the Apollo
Stockholders in the advance purchase or their
over-subscription privilege in the rights offering;
o that the Apollo Stockholders' existing registration
rights will be modified to cover the additional shares of
common stock and non-voting stock that were acquired
pursuant to the tender offer and the advance purchase and
that they may acquire pursuant to the over-subscription
privilege in the rights offering;
o that, subject to stockholder approval, the Apollo
Stockholders may exchange the non-voting common stock for
common stock in connection with any transfer of the
shares to a non-affiliate, in an amount not to exceed 10%
of our voting power, and such transferee, to the Apollo
Stockholders' knowledge, will not, as a result of the
transfer, hold more than 15% of our voting power;
o that, subject to stockholder approval, the Apollo
Stockholders may also exchange the non-voting common
stock for common stock if they will hold, after giving
effect to such exchange, less than 29.9% of our voting
power;
o that so long as any tendered shares are held by them or
any of their affiliates, the Apollo Stockholders will
cause all such shares, which would otherwise entitle the
Apollo Stockholders and their affiliates, collectively,
to cast more than 29.9% of the voting power of our
capital stock, to be voted pro-rata with all other votes
cast by holders of voting common stock;
o subject to final court approval of the Stipulation of
Settlement, that 20% of the warrants held by the Apollo
Stockholders to acquire shares of common stock will be
cancelled;
o subject to final court approval of the Stipulation of
Settlement, that the Apollo Stockholders will elect to
receive dividends on their shares of preferred stock in
the form of additional shares of preferred stock, in lieu
of cash dividends, for any dividend payment date
occurring after June 30, 2002 and on or prior to June 30,
2004; and
o subject to final court approval of the Stipulation of
Settlement, that the Apollo Stockholders will agree to
vote for two independent directors to our board of
directors for the next five years.
In the Stipulation of Settlement, we agreed to pay $100,000 in
cash and issue shares of common stock with a value of $1,000,000 based on
the tender offer price of $0.28 per share, as plaintiffs' counsels' fees
and expenses, subject to court approval.
USE OF PROCEEDS
If no stockholders other than the Apollo Stockholders subscribe
for shares of our common stock in the rights offering, we will have raised
$9,885,291 in proceeds from the advance purchase by the Apollo
Stockholders. If the rights offering is fully subscribed, our net proceeds
from the rights offering will be approximately $ million. The actual
proceeds will depend on the numbers of shares subscribed for in the rights
offering. The net proceeds will be used to supplement our cash resources,
to satisfy our ongoing cash requirements, including our general and
administrative expenses, and to take advantage of business opportunities,
including maintaining or increasing our stake in the MSV joint venture.
CAPITALIZATION
The following table presents our cash, cash equivalents and
short-term investments and capitalization as of December 31, 2001, as
adjusted to give pro forma effect to this rights offering assuming that the
minimum amount is subscribed for and also assuming that the maximum amount
is subscribed for. The adjusted amounts give effect to the rights offering
as if it had occurred on December 31, 2001. You should read the following
information together with our consolidated financial statements and the
notes to those financial statements included in the documents incorporated
by reference in this prospectus.
The table excludes:
o shares of common stock issuable upon the exercise of
outstanding stock options;
o shares of common stock reserved for future grants under
our director, officer and employee stock option plans;
o shares of common stock issuable upon conversion and
exercise of our outstanding preferred stock, Series 1-A
warrants and Series 2-A warrants; and
o shares of common stock issuable to plaintiffs' counsel
pursuant to the Stipulation of Settlement, subject to
court approval.
As of December 31, 2001
---------------------------------------------
As Adjusted
for the
Rights Offering
---------------------------
Actual Minimum Maximum
-------- -------- ----------
(in thousands, except share data)
Cash, cash equivalents and short-term investments........... $ 16,807 $ $
============= =============== =============
Series A convertible preferred stock, net of unamortized
discount of $45,768....................................... 59,558 59,558 59,558
Minority Interest........................................... 10,097 10,097 10,097
Stockholders' equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares, issued 1,053,259 shares
Series A convertible preferred stock............... -- -- --
Common stock, $.01 par value, authorized 200,000,000
shares, issued 65,324,966 actual shares (a)........ 653
Non-voting common stock, $.01 par value, authorized
100,000,000 shares, issued 0 actual shares (b)..... --
Additional paid-in capital........................... 529,955
Accumulated other comprehensive income............... 60,336 60,336 60,336
Accumulated deficit.................................. (521,469) (521,469) (521,469)
Treasury stock, at cost, 66,227 shares............... (171) (171) (171)
----------- ------------ ----------
Total stockholders' equity.................................. 69,304
----------- ------------ ----------
Total capitalization........................................ $ 138,959 $ $
=========== ============ ==========
-------------------
(a) If no stockholders exercise rights received by them in the rights
offering, the number of shares of voting common stock outstanding
immediately after the rights offering will remain at 65,324,966
since all shares purchased by the Apollo Stockholders in the
advance purchase and pursuant to the over-subscription privilege
will be non-voting common stock.
(b) There will be at least 38,765,848 shares of non-voting common
stock outstanding immediately following the rights offering,
representing the shares purchased by the Apollo Stockholders in
the advance purchase.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income
tax consequences of the rights offering to holders of common stock that
hold such stock as a capital asset for federal income tax purposes. This
discussion is based on laws, regulations, rulings and decisions in effect
on the date hereof, all of which are subject to change (possibly with
retroactive effect) and to differing interpretations. This discussion
applies only to holders that are U.S. persons and does not address all
aspects of federal income taxation that may be relevant to holders in light
of their particular circumstances or to holders who may be subject to
special tax treatment under the Internal Revenue Code, including, without
limitation, holders of preferred stock or warrants, holders who are dealers
in securities or foreign currency, foreign persons, insurance companies,
tax-exempt organizations, banks, financial institutions, broker-dealers,
holders who hold common stock as part of a hedge, straddle, conversion or
other risk reduction transaction, or who acquired common stock pursuant to
the exercise of compensatory stock options or otherwise as compensation.
We have not sought, and will not seek, an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the rights offering or the related share issuance. The
following summary does not address the tax consequences of the rights
offering or the related share issuance under foreign, state, or local tax
laws. Accordingly, each holder of common stock should consult its tax
advisor with respect to the particular tax consequences of the rights
offering or the related share issuance to such holder.
The federal income tax consequences for a holder of common stock
on a receipt of subscription rights under the rights offering should be as
follows:
1. A holder should not recognize taxable income for federal
income tax purposes in connection with the receipt of
subscription rights in the rights offering.
2. Except as provided in the following sentence, the tax
basis of the subscription rights received by a holder in
the rights offering should be zero. If either (i) the
fair market value of the subscription rights on the date
such subscription rights are distributed is equal to at
least 15% of the fair market value on such date of the
common stock with respect to which the subscription
rights are received or (ii) the holder elects, in its
federal income tax return for the taxable year in which
the subscription rights are received, to allocate part of
the tax basis of such common stock to the subscription
rights, then upon exercise or transfer of the
subscription rights, the holder's tax basis in the common
stock should be allocated between the common stock and
the subscription rights in proportion to their respective
fair market values on the date the subscription rights
are distributed. A holder's holding period for the
subscription rights received in the rights offering
should include the holder's holding period for the common
stock with respect to which the subscription rights were
received.
3. A holder which allows the subscription rights received in
the rights offering to expire should not recognize any
gain or loss, and the tax basis of the common stock owned
by such holder with respect to which such subscription
rights were distributed should be equal to the tax basis
of such common stock immediately before the receipt of
the subscription rights in the rights offering.
4. A holder should not recognize any gain or loss upon the
exercise of the subscription rights received in the
rights offering. The tax basis of the common stock
acquired through exercise of the subscription rights
should equal the sum of the subscription price for the
common stock and the holder's tax basis, if any, in the
rights as described above. The holding period for the
common stock acquired through exercise of the
subscription rights should begin on the date the
subscription rights are exercised.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, is
acting as legal counsel to Rare Medium.
EXPERTS
The consolidated financial statements of Rare Medium Group, Inc.
as of December 31, 2000 and 2001 and for each of the years in the
three-year period ended December 31, 2001 are incorporated by reference
herein in reliance upon the report of KPMG LLP, independent accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE CAN YOU FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may
read or copy any document we file at the public reference room maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
this information may also be obtained by mail from the SEC's Public
Reference Branch at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, our filings with the SEC are also available to the public on the
SEC's internet Web site at www.sec.gov. Our common stock is listed on the
Nasdaq National Market, and our reports, proxy statements and other
information concerning us may also be read and copied at the offices of The
Nasdaq Stock Market, Reports Section, at 1735 K Street, Washington, D.C.
20006.
We have filed with the SEC a registration statement on Form S-3
under the Securities Act of 1933 with respect to this rights offering. This
prospectus does not contain all of the information set forth in the
registration statement and its exhibits. Statements made by us in this
prospectus as to the contents of any contract, agreement or other document
referred to in this prospectus are not necessarily complete. For a more
complete description of these contacts, agreements or other documents, you
should carefully read the exhibits to the registration statement and the
documents which we referenced listed on page (v) of this prospectus.
The registration statement, together with its exhibits and
schedules, which we filed with the SEC, may also be reviewed and copied at
the public reference facilities of the SEC located at the addresses set
forth above. Please call the SEC at 1-800-SEC-0330 for further information
on its public reference facilities.
You should rely only on the information contained and incorporated
by reference in this prospectus. We have not authorized anyone to provide
information different from that contained in this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
This prospectus is not an offer to sell or a solicitation of an offer to
buy these securities in any circumstance under which the offer or
solicitation is not permitted. The information contained in this prospectus
is correct only as of the date of this prospectus, regardless of the time
of the delivery of this prospectus or any sale of these securities.
---------------
91,381,315 Shares
Rare Medium Group, Inc.
Common Stock
---------------
Prospectus
---------------
, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee...............................[ ]
Printing and engraving expenses.................... *
Accountants' fees and expenses..................... *
Attorneys' fees and expenses....................... *
Miscellaneous...................................... *
----------
Total.............................. *
---------
----------
* To be completed by amendment.
Rare Medium will pay all of such expenses. All of the foregoing
expenses are estimated except the SEC registration fee.
Item 15. Indemnification of Directors and Officers
The Company's restated certificate of incorporation (the
"certificate of incorporation") contains a provision which provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for a breach of fiduciary duty as a
director except for liabilities:
(i) for any breach of the director's duty of loyalty;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii) for an unlawful dividend payment or an unlawful repurchase
or redemption of stock under Section 174 of the Delaware General
Corporation Law; or
(iv) for any transaction from which the director derived an
improper personal benefit.
The Company's certificate of incorporation provides that the
Company may indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Company) by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amount paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he
acted in good faith in a manner he reasonably believed to be in or not
opposed to the best interest of the Company, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interest of the Company, and
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
The Company's certificate of incorporation provides that the
Company may indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by
or in the right of the Company to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interest of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Company unless and only to the extent
that the court in which such action or suit was brought shall determine
upon application, that despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the court of chancery or such
other court shall deem proper.
To the extent that a director, officer, employee or agent of the
Company has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above or in defense of any claim,
issue or matter therein, the Company's certificate of incorporation
provides that he will be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Any indemnification under the provisions of the Company's
certificate of incorporation (unless ordered by a court) will be made by
the Company upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth above. Such determination
shall be made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (3) by the
stockholders.
The Company's certificate of incorporation provides that the
Company may pay expenses incurred by defending a civil or criminal action,
suit or proceeding in advance of the final disposition of such action, suit
or proceeding in the manner provided herein upon receipt of any undertaking
by or on behalf of the director, officer, employee or agent to repay such
amount if it is ultimately determined that he is not entitled to be
indemnified by the Company.
The Company's certificate of incorporation provides that the
indemnification and advancement of expenses will, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Company's certificate of incorporation provides that the
indemnification and advancement of expenses provided therein will not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or of any disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office.
The Company's certificate of incorporation provides that the
Company may purchase and maintain insurance on behalf of any person who is
or was serving the Company in any capacity referred to above against any
liability asserted against him and incurred by him in such capacity, or
arising out of his status as such, whether or not the Company would have
the power to indemnify him against such liability under the provisions of
its certificate of incorporation.
The Company's amended and restated by-laws (the "by-laws") provide
that the Company will indemnify any director and any officer of the Company
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, quasi-administrative or investigative, other than
an action by or in the right of the Company (a "Third Party Proceeding"),
by reason of the fact that he or she was or is a director or officer,
employee or agent of the Company, acting solely in such capacity, or a
person serving at the request of the Company as a director, officer,
partner, trustee, employee or agent of another corporation, partnership,
joint venture, trust, committee or other enterprise 50% or more of whose
voting stock or equitable interest shall be owned by this Company (each an
"Authorized Representative") against his or her expenses and liabilities
(including attorneys' fees), actually and reasonably incurred by him or her
in connection with the Third Party Proceeding if he or she acted in good
faith and in a manner reasonably believed by him or her to be in, or not
opposed to, the best interests of the Company and, with respect to any
Third Party Proceeding involving potential criminal liability (a "Criminal
Third Party Proceeding"), had no reasonable cause to believe his or her
conduct was unlawful or in violation of applicable rules. The termination
of any Third Party Proceeding by judgment, order, settlement, consent
filing of a criminal complaint or information, indictment, conviction or
upon a plea of nolo contendere or its equivalent, will not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in, or not opposed to, the
best interests of the Company or, with respect to any Criminal Third Party
Proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
The Company's by-laws provide that the Company will indemnify any
director or officer of the Company who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit
by the Company to produce a judgment in favor of its shareholders, or any
threatened, pending or completed action or suit in the right of the Company
by its shareholders to procure a judgment in favor of the Company (a
"Derivative Action") by reason of the fact that the director or officer was
or is an Authorized Representative of the Company, against his or her
expenses (including attorneys' fees) actually and reasonably incurred by
the director or officer in the action if he or she acted in good faith and
in a manner reasonably believed by him or her to be in, or not opposed to,
the best interests of the Company; except that no indemnification will be
made in respect of any claim, issue or matter as to which he or she has
been adjudged to be liable for negligence or misconduct in the performance
of his or her duty to the Company unless and only to the extent that the
court of common pleas, or other similarly constituted state court, located
in the county where the registered office of the Company is located or the
court in which such Derivative Action is or was pending, determines upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, he or she is fairly and reasonably entitled to
indemnify for expenses which the court deems proper.
An Authorized Representative of the Company (other than a director
or officer of the Company) may be indemnified by the Company or have his or
her expenses advanced in accordance with the procedures described below. To
the extent that an Authorized Representative of the Company has been
successful on the merits or otherwise in defense of any Third Party
Proceeding or Derivative Action or in defense of any claim, issue or matter
therein, the Authorized Representative will be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her
in connection therewith.
Indemnification under the provisions of the Company's by-laws
described above (unless ordered by a court, in which case the expenses,
including attorneys' fees of the Authorized Representative in enforcing
indemnification will be added to and included in the final judgment against
the Company) will be made by the Company only as authorized in the specific
case upon a determination that the indemnification of the Authorized
Representative is required or proper in the circumstances because he or she
has met the applicable standard of conduct set forth above or has been
successful on the merits or as otherwise in defense of any Third Party
Proceeding or Derivative Action and that the amount requested has been
actually and reasonably incurred. Such determination shall be made:
(a) By the board of directors or a committee thereof, acting by a
majority vote of a quorum consisting of directors of the Company
who are not parties or have no economic or other collateral
personal benefit relating to a Third Party Proceeding or
Derivative Action ("Disinterested Directors"); or
(b) If a quorum is not obtainable or, even if obtainable, a
majority vote of a quorum of Disinterested Directors so directs,
by independent legal counsel in a written opinion.
The Company's by-laws provide that expenses incurred in defending
a Third Party Proceeding or Derivative Action will be paid on behalf of a
director or officer, and may be paid on behalf of any Authorized
Representative, by the Company in advance of the final disposition of the
action as authorized in the manner provided above (except that the
person(s) making the determination thereunder need not make a determination
on whether the applicable standard of conduct has been met unless a
judicial determination has been made with respect thereto, or the person
seeking indemnification has conceded that he or she has not met such
standard) upon receipt of an undertaking by or on behalf of the Authorized
Representative to repay the amount to be advanced unless it shall
ultimately be determined that the Authorized Representative is entitled to
be indemnified by the Company as required in the Company's by-laws or
authorized by law. The financial ability of any Authorized Representative
to make repayment will not be a prerequisite to making of an advance.
The Company's by-laws provide the Company may purchase and
maintain insurance on behalf of any person who is or was an Authorized
Representative against any expenses and liabilities asserted against him or
her and incurred by him or her in any such capacity, whether or not the
Company would have the power to indemnify him or her against such expenses
and liabilities under the provisions of the Company's by-laws.
The indemnification provided by the Company's by-laws is not
deemed to be exclusive of any other right to which a person seeking
indemnification may be entitled under any statute, agreement, vote of
Disinterested Directors, or otherwise, regardless of whether the event
giving rise to indemnification occurred before or after the effectiveness
thereof, both as to action taken in another capacity while holding his or
her office or position, and will continue as to a person who has ceased to
be an Authorized Representative of the Company and will inure to the
benefit of his or her heirs and personal representatives.
Item 16. Exhibits
Exhibit Description
Number
4.1 Form of Rights Certificate.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
23.2 Consent of KPMG LLP.
24 Power of Attorney (included on signature page).
99.1 Form of Instructions for Use of Rare Medium Rights
Certificates.
99.2 Form of Notice of Guaranteed Delivery for Subscription
Rights.
99.3 Form of Letter to Stockholders Who Are Record Holders.
99.4 Form of Letter to Stockholders Who Are Beneficial Holders.
99.5 Form of Letter to Clients of Stockholders Who Are
Beneficial Holders.
99.6 Form of Nominee Holder Certification Form.
99.7 Substitute Form W-9 for Use with the Rights Offering.
99.8 Form of Beneficial Owner Election Form.
99.9 Investment Agreement among the Registrant and the Apollo
Stockholders, dated as of April 2, 2002 (incorporated by
reference to Exhibit 99.2 to the Company's Current Report
on Form 8-K, filed with the Securities and Exchange
Commission on April 4, 2002).
99.10 Stipulation of Settlement in the matter of In Re Rare
Medium Group, Inc. Shareholders Litigation, Consolidated
C.A. No. 18879 NC (incorporated by reference to Exhibit
99.3 to the Company's Current Report on Form 8-K, filed
with the Securities and Exchange Commission on April 4,
2002).
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions discussed
in Item 15 of this registration statement, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) that for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(2) to deliver or cause to be delivered with the prospectus,
to each person to whom the prospectus is sent or given, the latest annual
report to security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to
be delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York on the 12th day of April, 2002.
RARE MEDIUM GROUP, INC.
By: /s/ Glenn S. Meyers
---------------------
Name: Glenn S. Meyers
Title: Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert C. Lewis and Craig C. Chesser
his true and lawful attorney-in-fact, each acting alone, with full power of
substitution and resubstitution for him and in his name, place and stead,
in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any and all
additional registration statements pursuant to Rule 462(b) relating to this
Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact or his substitutes, each acting alone, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Glenn S. Meyers Chairman of the Board and April 12, 2002
-------------------- Chief Executive Officer
Glenn S. Meyers
/s/ Andrew D. Africk Director April 12, 2002
---------------------
Andrew D. Africk
/s/ Michael S. Gross Director April 12, 2002
---------------------
Michael S. Gross
/s/ Jeffrey M. Killeen Director April 12, 2002
-----------------------
Jeffrey M. Killeen
/s/ William F. Stasior Director April 12, 2002
-----------------------
William F. Stasior
/s/ Marc J. Rowan Director April 12, 2002
------------------
Marc J. Rowan
/s/ Craig C. Chesser Senior Vice President, Finance and Treasurer April 12, 2002
--------------------- (principal financial officer)
Craig C. Chesser
/s/ Michael A. Hultberg Senior Vice President and Controller (principal April 12, 2002
------------------------ accounting officer)
Michael A. Hultberg