AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 2002
REGISTRATION NO. 333-86210
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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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. / /
--------------------------
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.
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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 $0.201 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
$18.4 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 16, 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 July 11,
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 July 16, 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 May 28, 2002 was
$0.24 per share.
MINIMUM AGGREGATE MAXIMUM AGGREGATE
PER SHARE MINIMUM PER SHARE MAXIMUM
--------- ---------- --------- -----------
Subscription Price..................... $0.201 $7,791,935 0.201 $18,367,644
Estimated Expenses..................... $0.014 $ 541,597 0.006 $ 541,597
Net Proceeds to Rare Medium............ $0.187 $7,250,338 0.195 $17,826,047
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.
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The date of this prospectus is May 29, 2002
TABLE OF CONTENTS
PAGE
--------
Incorporation of Certain Documents by Reference............. ii
Questions and Answers About the Rights Offering............. iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
This Prospectus Contains Forward-Looking Statements......... 18
The Rights Offering......................................... 19
Apollo Advance Purchase and Investment Agreement............ 30
Use of Proceeds............................................. 32
Capitalization.............................................. 33
Certain United States Federal Income Tax Consequences....... 34
Legal Matters............................................... 35
Experts..................................................... 35
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:
- Our Quarterly Report on Form 10-Q for the period ended March 31, 2002;
- Our Definitive Proxy Statement for a Special Meeting of Stockholders,
filed with the SEC concurrently with this Registration Statement;
- Our Annual Report on Form 10-K for the year ended December 31, 2001;
- Our Current Reports on Form 8-K filed with the SEC on April 4, 2002,
May 13, 2002 and May 17, 2002;
- Our Definitive Proxy Statement for the Annual Meeting of Stockholders held
on March 28, 2002; and
- Our Definitive Proxy Statement for the 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.
ii
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 16, 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 $0.201 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 purported 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 and to take advantage of business opportunities including
maintaining or increasing our stake in 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."
iii
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 22.
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 16, 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 $0.201.
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 electing
to exercise their over-subscription privilege 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 47,871,196 rights are
to be distributed to stockholders other than the Apollo Stockholders. An
aggregate of 4,744,271 rights will also be distributed to the Apollo
Stockholders with respect to the voting common stock they acquired in the
recent tender offer. However, 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. Accordingly, the 4,744,271 rights relating to
the shares acquired by the Apollo Stockholders in the recent tender offer
are available for over-subscription by all stockholders, including the
Apollo Stockholders.
iv
Q: How was the $0.201 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.
As contemplated by our agreement with the Apollo Stockholders, the
subscription price was set at 85% of the average closing prices of our
common stock for the three trading day period ending May 23, 2002. The
agreement also adjusted 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. The
Apollo Stockholders paid an adjusted price of $0.201 per share for an
aggregate purchase price of $7,791,935.
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 156,732,948 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: Following the tender offer, as described on page 3, in which an affiliate
of the Apollo Stockholders acquired 4,744,271 shares of our common stock,
the Apollo Stockholders beneficially owned approximately 26.7% of our
outstanding common stock and all of our outstanding shares of preferred
stock prior to the rights offering and their advance purchase.
If no rights holder exercises its rights in the rights offering, the
Apollo Stockholders will, as a result of their advance purchase,
beneficially own approximately 54.0% of our outstanding common stock. If
all rights holders fully exercise their basic subscription privileges,
then the Apollo Stockholders will beneficially own approximately 37.0% of
our outstanding common stock. If no rights holder exercises its rights in
the rights offering and the Apollo Stockholders exercise their
over-subscription privilege in full, the Apollo Stockholders will
beneficially own approximately 69.4% of our outstanding common stock.
v
As described on page 2, the Apollo Stockholders acquired 38,765,848 shares
of our non-voting common stock in their advance purchase. 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 36.2% of the voting power
of our outstanding voting securities. However, 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. Additionally, 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 continue to beneficially own approximately 36.2%
of the voting power of our outstanding voting securities, subject to the
limitation at 29.9% in the pro-rata voting agreement. If no rights holder
exercises its rights in the rights offering and the Apollo Stockholders
exercise their over-subscription privilege in full, the Apollo
Stockholders will continue to beneficially own approximately 36.2% of the
voting power of our outstanding voting securities, subject to the
limitation at 29.9% in the pro-rata voting agreement, since the Apollo
Stockholders are acquiring non-voting common stock in the rights offering.
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 owned by the Apollo Stockholders, 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: 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 $0.201 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
$0.201 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 $0.201
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 $0.201 per
share subscription price.
Q: What should I do if I have other questions?
A: If you have questions or need assistance, please contact Morrow & Co., the
information agent, at: (877) 807-8896.
Banks and brokerage firms please call (800) 654-2468.
For a more complete description of the rights offering, see "The Rights
Offering" beginning on page 19.
vi
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
quarterly report on Form 10-Q and 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 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.
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.
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 2, 2002, we and the Apollo Stockholders entered into a Stipulation
of Settlement with the plaintiffs relating to the purported 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. Also, 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 an
adjusted price of $0.201 per share for an aggregate purchase price of
$7,791,935. The Investment Agreement adjusted 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:
- 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;
- 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;
- 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;
- 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
2
Stockholders' knowledge, will not, as a result of the transfer, hold more
than 15% of our voting power;
- that, subject to stockholder approval, the Apollo Stockholders may also
exchange the non-voting common stock for common stock to the extent they
will hold, after giving effect to such exchange, less than 29.9% of our
voting power;
- 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;
- subject to final court approval of the Stipulation of Settlement, that 20%
of the warrants held as of March 24, 2002 by the Apollo Stockholders to
acquire shares of common stock will be cancelled;
- 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
- 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 equaled 105% of the average of the closing prices of
the common stock for the five trading days prior to April 9, 2002. In the tender
offer, which expired on May 10, 2002, 4,744,271 shares of common stock were
acquired by the Apollo Stockholders. 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 was 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.
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.
3
THE RIGHTS OFFERING
Rights....................................... We will distribute to each stockholder and
warrant holder of record on May 16, 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). The rights will be
evidenced by a non-transferable rights
certificate. 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, 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
$0.201, 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.
4
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........................... $0.201 per share.
Record Date.................................. May 16, 2002.
Expiration Date.............................. The rights will expire, if not exercised, at
5:00 p.m., New York City time, on July 16,
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.
5
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
July 16, 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 28, 2002, the last trading day before the
date of this prospectus, the closing price of
our common stock on Nasdaq was $0.24 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 an adjusted price of $0.201
per share for an aggregate purchase price of
$7,791,935. 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
6
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 was adjusted in accordance with
the Investment Agreement 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 approximately $7.8 million in
proceeds from the advance purchase by the
Apollo Stockholders. If the rights offering
is fully subscribed, our proceeds from the
rights offering will be approximately $18.4
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.
Subscription Agent........................... American Stock Transfer & Trust Company,
(800) 937-5449 or (212) 936-5100.
Information Agent............................ Morrow & Co., (877) 807-8896; banks and
brokerage firms please call (800) 654-2468.
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.
7
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 interest 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
- rapid technological change;
- intense competition; and
- 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
8
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
- implement its business plans;
- take advantage of opportunities, including acquisitions of, or investments
in, businesses or technologies;
- develop new services; or
- 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.
As a result, 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 licensees 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,
9
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 our 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
10
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
- implement its business plans;
- take advantage of opportunities, including acquisitions of, or investments
in, businesses or technologies;
- develop new services; or
- 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,
in connection with the approval of Motient's plan of reorganization, to cancel
the outstanding amounts on the Motient notes in exchange for a new note in the
principal amount of $19.0 million issued by a new wholly-owned subsidiary of
Motient that owns 100% of Motient Ventures Holding Inc., which owns all of
Motient's interests in the MSV joint venture. The new note is due in
three years and bears interest at a rate of 9% per annum. On April 26, 2002,
Motient's plan of reorganization, including the exchange of our note, was
approved by the bankruptcy court. In light of, among other things, the operating
results and financial condition of Motient, there can be no assurance that we
will be able to recover any of the
11
$19.0 million principal amount of the new Motient note or any of the interest
related to the note. As a result of uncertainty with respect to their ultimate
collection, we recognized a reserve for the entire amount of the original
Motient notes and we maintain a full reserve on the new Motient note.
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 17,453,770
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 36.2% of the voting power of
our outstanding voting securities, subject to the pro-rata voting agreement.
Assuming that all currently outstanding shares of our preferred stock are
converted and all warrants are exercised, the Apollo Stockholders would own
approximately 63.4% 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.
12
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
- risks and uncertainties affecting the current and proposed business of the
MSV joint venture and the mobile satellite services industry;
- increased competition in the mobile satellite services industry;
- fluctuations in the market price of XM Satellite Radio common stock;
- costs associated with discontinuing our Internet professional services
business; and
13
- 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.
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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 closing bid price of our common stock is not at least
$1.00 for a minimum of 10 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. On May 16, 2002, we received a letter
from Nasdaq indicating that we failed to comply with the minimum closing bid
price requirement for continued listing. On May 17, 2002, we filed a request for
a hearing to review Nasdaq's determination. Our request is based on our proposed
one for ten reverse stock split. Our common stock will continue to trade on the
Nasdaq National Market pending the outcome of the hearing. There is no assurance
that we would be successful in appealing any determination by Nasdaq to delist
our common stock.
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 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.
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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
stockholder 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, including the advance purchase, 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
16
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 contemplated by our agreement with the Apollo Stockholders, the
subscription price was set at 85% of the average closing prices of our common
stock for the three trading day period ending May 23, 2002. 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 approximately $7.8 million from the
advance purchase of non-voting common stock by the Apollo Stockholders. Assuming
the rights offering is fully subscribed, our proceeds will be approximately
$18.4 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
$0.201, 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 28, 2002 was $0.24 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.
17
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 July 16, 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.
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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:
- the Investment Agreement under which the Apollo Stockholders purchased
38,765,848 shares of non-voting common stock in advance of the rights
offering;
- 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
- 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:
- 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;
- the potential to raise up to $18.4 million through a rights offering
(including the advance purchase by the Apollo Stockholders of $7,791,935),
assuming all rights are subscribed for, with a minimum of transaction
costs;
- 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;
- the concerns of the board of directors as to other financing alternatives,
in light of:
- 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
- the belief of the board of directors that it is not an appropriate time
to sell assets to raise cash;
- the subscription price relative to the common stock's historical and
recent trading price and pricing policies customary for transactions of
this type;
- 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;
- the Apollo Stockholders' willingness to subscribe in advance for the
equivalent of 38,765,848 rights, which ensured that a minimum of
$7,791,935 would be raised;
19
- the willingness of the Apollo Stockholders to modify certain of their
rights under their original investment agreements, including:
- to consent to our grant of over-subscription rights to all
stockholders;
- to consent to the rights offering;
- to cancel, subject to final court approval of the Stipulation of
Settlement, 20% of the warrants;
- 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;
- 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
- to limit anti-dilution adjustments to only those rights exercised by
persons other than the Apollo Stockholders;
- the potential impact of the rights offering on relative voting and
ownership interests of our stockholders as described under "Effects of
Rights Offering on the Apollo Stockholders' Securities and Ownership" on
page 28;
- 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;
- 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
- 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 16,
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 $0.201.
EXPIRATION OF THE RIGHTS OFFERING
You may exercise your subscription privilege at any time before 5:00 p.m.,
New York City time, on July 16, 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
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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 $0.201 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.
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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 $7,791,935 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 July 16, 2002, the date
on which the rights expire:
- Your properly completed and executed rights certificate with any required
signature guarantees or other supplemental documentation; and
- 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:
- Check or bank draft drawn upon a U.S. bank or postal, telegraphic or
express money order payable to the subscription agent; or
- Wire transfer of immediately available funds, to the subscription account
maintained by the subscription agent at Chase Manhattan Bank, 55 Water
Street, New York, New York, ABA No. 021-000021, Account No. 323-212069.
RECEIPT OF PAYMENT
Your payment will be considered received by the subscription agent only
upon:
- Clearance of any uncertified check;
- 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
- Receipt of collected funds in the subscription account designated above.
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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, BY HAND OR BY OVERNIGHT COURIER TO:
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
You may call the subscription agent at (800) 937-5449 or (212) 936-5100.
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:
- Your rights certificate provides that shares are to be delivered to you as
record holder of those rights; or
- You are an eligible institution.
23
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 16, 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
24
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:
- 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;
- 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
- 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:
- Your name;
- 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
- 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
25
subscription agent by facsimile transmission (Facsimile No.: (718) 236-2641). To
confirm facsimile deliveries, you may call (800) 937-5449.
The information agent will send you additional copies of the form of Notice
of Guaranteed Delivery if you need them. Please call (877) 807-8896 to request
any copies of the form of Notice of Guaranteed Delivery. Banks and brokerage
firms please call (800) 654-2468 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 Morrow & Co. 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 July 16, 2002, unless we decide to extend
26
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, 156,732,948 shares of common stock will be issued and outstanding, at
least 38,765,848 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 May 22, 2002, there were outstanding options to purchase 4,381,823
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.
27
EFFECTS OF RIGHTS OFFERING ON THE APOLLO STOCKHOLDERS' SECURITIES AND OWNERSHIP
ANTI-DILUTION ADJUSTMENTS
- 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 that all stockholders
exercise their basic subscription privilege in full, the conversion price
of the preferred stock would be reduced to $4.12 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 26,014,368. The actual adjustment will depend on the number
of rights exercised.
- Under the terms of the Series 1-A and 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 and 2-A Warrants 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
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 $2.51 per share, thereby increasing the number of shares
issuable upon exercise of all of the Series 1-A Warrants from 1,466,368 to
2,454,853 and the exercise price of the Series 2-A Warrants would be
reduced to $4.12 per share, thereby increasing the number of shares
issuable upon exercise of all of the Series 2-A Warrants from 9,810,031 to
16,648,659. 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
- 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
28
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
- 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. The Apollo Stockholders
have waived the rights that they have under their original investment
documents to subscribe for all unsubscribed rights and have consented to
our grant of over-subscription rights to all stockholders.
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.
Set forth below, for illustrative purposes only, 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 36.2% of the voting power of our outstanding capital stock, subject to
the pro-rata voting agreement, and own 54.0% of our outstanding common stock
(63.4% 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 with the exception of rights issued
to the Apollo Stockholders with respect to shares acquired by their affiliate in
the tender offer 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.
29
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 APOLLO --------------------------
TOTAL RIGHTS STOCKHOLDERS' STOCKHOLDERS' AT MAXIMUM
SCENARIO OFFERED EXERCISE CASH RAISED VOTING%(A) UNDILUTED(B) DILUTION(C)
-------- ------------ ------------- ----------- ------------- ------------ -----------
A.................... 91,381,315 38,765,848 $17,414,046 22.1% 37.0% 51.4%
B.................... 91,381,315 38,765,848 $ 7,791,935 36.2% 54.0% 63.4%
C.................... 91,381,315 91,381,315 $18,367,644 36.2% 69.4% 73.9%
------------------------
(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 voting percentage at 29.9%, as
limited by the Investment Agreement.
(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 an adjusted price of $0.201 per share for an aggregate purchase price of
$7,791,935. The Investment Agreement adjusted 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 rights offering and the
reverse stock split are subject to stockholder approval. The foregoing
description of the Investment
30
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 35 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 commenced the tender offer, which expired
on May 10, 2002, at a price of $0.28 per share and acquired 4,744,271 shares of
our common stock. 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:
- 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;
- 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;
- 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;
- 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;
- that, subject to stockholder approval, the Apollo Stockholders may also
exchange the non-voting common stock for common stock to the extent they
will hold, after giving effect to such exchange, less than 29.9% of our
voting power;
- 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;
31
- subject to final court approval of the Stipulation of Settlement, that 20%
of the warrants held as of March 24, 2002 by the Apollo Stockholders to
acquire shares of common stock will be cancelled;
- 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
- 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 (3,571,428 shares 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 approximately
$7.8 million in proceeds from the advance purchase by the Apollo Stockholders.
If the rights offering is fully subscribed, our proceeds from the rights
offering will be approximately $18.4 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.
32
CAPITALIZATION
The following table presents our cash, cash equivalents and short-term
investments and capitalization as of March 31, 2002, as adjusted to give pro
forma effect to the net proceeds received from this rights offering assuming
that the rights offering is approved, the minimum amount was subscribed for in
the advanced purchase and also assuming that the maximum amount is subscribed
for in the rights offering. The adjusted amounts give effect to the rights
offering as if it had occurred on March 31, 2002. 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:
- shares of common stock issuable upon the exercise of outstanding stock
options;
- shares of common stock reserved for future grants under our director,
officer and employee stock option plans;
- shares of common stock issuable upon conversion and exercise of our
outstanding preferred stock, Series 1-A warrants and Series 2-A warrants;
and
- shares of common stock issuable to plaintiffs' counsel pursuant to the
Stipulation of Settlement, subject to court approval.
AS OF MARCH 31, 2002
---------------------------------------
AS ADJUSTED FOR THE RIGHTS
OFFERING
---------------------------
ACTUAL MINIMUM MAXIMUM
--------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Cash, cash equivalents and short-term investments........... $ 14,631 $ 21,023 $ 31,599
========= ========= =========
Series A convertible preferred stock, net of unamortized
discount of $44,670....................................... 62,631 62,631 62,631
Minority Interest........................................... 10,337 10,337 10,337
Stockholders' equity:
Preferred stock, $.01 par value, authorized 10,000,000
shares, issued 1,073,007 shares Series A convertible
preferred stock......................................... -- -- --
Common stock, $.01 par value, authorized 200,000,000
shares, issued 65,324,966 actual and minimum shares and
117,940,433 maximum shares(a)........................... 653 653 1,179
Non-voting common stock, $.01 par value, authorized
100,000,000 shares, issued 0 actual and 38,765,848
minimum and maximum shares(a)(b)........................ -- 388 388
Additional paid-in capital................................ 529,777 535,781 545,831
Accumulated other comprehensive income.................... 37,386 37,386 37,386
Accumulated deficit....................................... (525,738) (525,738) (525,738)
Treasury stock, at cost, 66,227 shares.................... (171) (171) (171)
--------- --------- ---------
Total stockholders' equity.................................. 41,907 48,299 58,875
--------- --------- ---------
Total capitalization........................................ $ 114,875 $ 121,267 $ 131,843
========= ========= =========
------------------------
(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 as of March 31, 2002 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.
33
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.
34
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 on page ii 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.
35
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------------------------
91,381,315 SHARES
RARE MEDIUM GROUP, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MAY 29, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee........................................ $ 1,597.41
Printing and engraving expenses............................. 30,000.00
Accountants' fees and expenses.............................. 15,000.00
Attorneys' fees and expenses................................ 200,000.00
Financial advisory fees and expenses........................ 215,000.00
Miscellaneous............................................... 80,000.00
-----------
Total................................................... $541,597.41
===========
Rare Medium will pay all of such expenses.
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
II-1
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
II-2
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.
II-3
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
NUMBER DESCRIPTION
------- -----------
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.
II-4
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
------------------------
* Previously filed.
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.
II-5
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
28th day of May, 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 May 28, 2002
Glenn S. Meyers Chief Executive Officer
*
------------------------------- Director May 28, 2002
Andrew D. Africk
*
------------------------------- Director May 28, 2002
Michael S. Gross
*
------------------------------- Director May 28, 2002
Jeffrey M. Killeen
*
------------------------------- Director May 28, 2002
William F. Stasior
*
------------------------------- Director May 28, 2002
Marc J. Rowan
/s/ CRAIG C. CHESSER
------------------------------- Senior Vice President, Finance and Treasurer May 28, 2002
Craig C. Chesser (principal financial officer)
/s/ MICHAEL A. HULTBERG
------------------------------- Senior Vice President and Controller May 28, 2002
Michael A. Hultberg (principal accounting officer)
*By: /s/ CRAIG C. CHESSER
--------------------------------------
Craig C. Chesser
ATTORNEY-IN-FACT
II-6