-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AdPDhemlviVy1v2PwOUGmbSAeHZi9cH2xrmxGdeWJNW9yreAVFQfImJ3u6DgXXx7 DeckUmUiSzuvx6sW5joAzg== 0000950130-99-003650.txt : 19990615 0000950130-99-003650.hdr.sgml : 19990615 ACCESSION NUMBER: 0000950130-99-003650 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990614 GROUP MEMBERS: AIF IV / RRRR LLC GROUP MEMBERS: APOLLO ADVISORS IV, L.P. GROUP MEMBERS: APOLLO INVESTMENT FUND IV LP GROUP MEMBERS: APOLLO MANAGEMENT IV, L.P. GROUP MEMBERS: APOLLO OVERSEAS PARTNERS IV, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: RARE MEDIUM GROUP INC CENTRAL INDEX KEY: 0000756502 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 232368845 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-36742 FILM NUMBER: 99646176 BUSINESS ADDRESS: STREET 1: 44 WEST 18TH STREET CITY: NEW YORK STATE: NY ZIP: 10011 BUSINESS PHONE: 2126346950 MAIL ADDRESS: STREET 1: 44 WEST 18TH STREET, 6TH FL CITY: NEW YORK STATE: NY ZIP: 10011 FORMER COMPANY: FORMER CONFORMED NAME: ICC TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL COGENERATION CORP DATE OF NAME CHANGE: 19891005 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: APOLLO INVESTMENT FUND IV LP CENTRAL INDEX KEY: 0001068331 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: TWO MANHATTANVILLE ROAD CITY: PURCHOSE STATE: NY ZIP: 10577 MAIL ADDRESS: STREET 1: TWO MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (Amendment No. __)* UNDER THE SECURITIES EXCHANGE ACT OF 1934 RARE MEDIUM GROUP, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $0.01 PER SHARE - -------------------------------------------------------------------------------- (Title of Class of Securities) 449238203 - -------------------------------------------------------------------------------- (CUSP Number) DANIEL G. KELLY, JR. SIDLEY & AUSTIN 875 THIRD AVENUE NEW YORK, NEW YORK 10022 (212) 906-2000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) JUNE 4, 1999 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13-d-1(b)(3) or (4), check the following box: [ ] NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13-d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act, but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ---------------------- --------------------------------- CUSP No. 449238203 Page 2 of 17 - --------- ----------------- - --------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON APOLLO INVESTMENT FUND IV, L.P. - --------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/x/ (b)/ / -------- - --------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------- 4. SOURCE OF FUNDS* 00 - --------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2 (e) / /-------- - --------------------------------------------------------- 6. CITIZENSHIP OR PLACE ORGANIZATION DELAWARE - --------------------------------------------------------------------- 7. SOLE VOTING POWER 4,193,657 SHARES OF COMMON STOCK NUMBER OF ----------------------------------------------------------- SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,417,994 SHARES OF COMMON STOCK ------------------------------------------------------------- OWNED BY 9. SOLE DISPOSITIVE POWER EACH 4,193,657 SHARES OF COMMON STOCK --------------------------------------------------------------- REPORTING 10. SHARED DISPOSITIVE POWER PERSON WITH 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / -------------- - --------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.5% - --------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* PN - --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. - --------------- ------------------------------- CUSP No. 449239203 Page 3 of 17 - ---------- ------------- - --------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON APOLLO OVERSEAS PARTNERS IV, L.P. - --------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/x/ (b)/ / -------- - --------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------- 4. SOURCE OF FUNDS* 00 - --------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2 (e) / / -------- - --------------------------------------------------------- 6. CITIZENSHIP OR PLACE ORGANIZATION CAYMAN ISLANDS - --------------------------------------------------------------------- 7. SOLE VOTING POWER 224,889 SHARES OF COMMON STOCK NUMBER OF ----------------------------------------------------------- SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,417,994 SHARES OF COMMON STOCK ------------------------------------------------------------- OWNED BY 9. SOLE DISPOSITIVE POWER EACH 224,889 SHARES OF COMMON STOCK -------------------------------------------------------------- REPORTING 10. SHARED DISPOSITIVE POWER PERSON WITH 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / ----------------- - --------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.5% - --------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* PN - --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. -3- - ---------------------- ---------------------------------- CUSP No. 449238203 Page 4 of 17 - --------- ------------- - --------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON AIF IV/RRRR LLC - --------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/x/ (b)/ / ----------- - --------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------- 4. SOURCE OF FUNDS* 00 - --------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2 (e) / / ------------ - --------------------------------------------------------- 6. CITIZENSHIP OR PLACE ORGANIZATION DELAWARE - --------------------------------------------------------------------- 7. SOLE VOTING POWER 999,448 SHARES OF COMMON STOCK NUMBER OF ----------------------------------------------------------- SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- OWNED BY 9. SOLE DISPOSITIVE POWER EACH 999,448 SHARES OF COMMON STOCK - --------------------------------------------------------------------- REPORTING 10. SHARED DISPOSITIVE POWER PERSON WITH 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / --------------- - --------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.5% - --------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* 00 - --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. -4- - ----------------------- ------------------------------ CUSP No. 449238203 Page 5 of 17 - --------- ----------- - --------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON APOLLO ADVISORS IV, L.P. - --------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/x/ (b)/ / --------- - --------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------- 4. SOURCE OF FUNDS* 00 - --------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2 (e) / / ---------- - ---------------------------------------------------------- 6. CITIZENSHIP OR PLACE ORGANIZATION DELAWARE - --------------------------------------------------------------------- 7. SOLE VOTING POWER 0 SHARES OF COMMON STOCK NUMBER OF ----------------------------------------------------------- SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,417,994 SHARES OF COMMON STOCK ------------------------------------------------------------- OWNED BY 9. SOLE DISPOSITIVE POWER EACH 0 SHARES OF COMMON STOCK -------------------------------------------------------------- REPORTING 10. SHARED DISPOSITIVE POWER PERSON WITH 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / ---------------- - --------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.5% - --------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* PN - --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. -5- - ---------------------- -------------------------------- CUSP No. 449238203 Page 6 of 17 - --------- ---------------- - --------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON APOLLO MANAGEMENT IV, L.P. - --------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/x/ (b)/ / ---------- - --------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------- 4. SOURCE OF FUNDS* 00 - --------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2 (e) / /----------- - --------------------------------------------------------- 6. CITIZENSHIP OR PLACE ORGANIZATION DELAWARE - --------------------------------------------------------------------- 7. SOLE VOTING POWER 0 SHARES OF COMMON STOCK NUMBER OF ----------------------------------------------------------- SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,417,994 SHARES OF COMMON STOCK ------------------------------------------------------------- OWNED BY 9. SOLE DISPOSITIVE POWER EACH 0 SHARES OF COMMON STOCK -------------------------------------------------------------- REPORTING 10. SHARED DISPOSITIVE POWER PERSON WITH 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,417,994 SHARES OF COMMON STOCK - --------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / --------------- - --------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.5% - --------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* PN - --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. -6- ITEM 1. SECURITY AND ISSUER. This Statement on Schedule 13D relates to the Common Stock, par value $.01 per share ("Common Stock") of Rare Medium Group, Inc., a Delaware corporation (the "Issuer"), which has its principal executive office at 44 West 18th Street, New York, New York 10011. ITEM 2. IDENTITY AND BACKGROUND. This Schedule 13D is being filed jointly on behalf of Apollo Investment Fund IV, L.P., a Delaware limited partnership ("AIF IV"), Apollo Overseas Partners IV, L.P. an exempted limited partnership registered in the Cayman Islands ("Overseas IV"), AIF IV/RRRR LLC, a Delaware limited liability corporation ("AIF LLC"), Apollo Advisors IV, L.P., a Delaware limited partnership ("Advisors IV") and Apollo Management IV, L.P., a Delaware limited partnership ("Apollo Management IV"). AIF IV, Overseas IV, AIF LLC, Advisors IV and Apollo Management IV are referred to collectively as the "Reporting Persons." The principal office of each of the Reporting Persons is c/o Apollo Advisors IV, L.P., Two Manhattanville Road, Purchase, New York 10577. AIF IV and Overseas IV are principally engaged in the business of investment in securities. AIF LLC was formed for the principal purpose of co-investing with each of AIF IV and Overseas IV in their investments in securities of the Issuer. Advisors IV is principally engaged in the business of serving as general partner of AIF IV and Overseas IV. Apollo Management IV serves as the manager of AIF LLC, as to whose ownership in the Issuer, Apollo Management IV has exclusive investment, voting and dispositive power, and, in addition, serves as the manager of each of AIF IV and Overseas IV and manages their day-to-day operations. Apollo Capital Management IV, Inc., a Delaware corporation ("Capital Management IV"), is the general partner of Advisors IV. Capital Management IV is principally engaged in the business of serving as general partner to Advisors IV. AIF IV Management, Inc., a Delaware corporation ("AIMIV"), is the general partner of Apollo Management IV. AIMIV is principally engaged in the business of serving as general partner to Apollo Management IV. The respective addresses of the principal office of Capital Management IV and AIMIV are c/o Apollo Management IV, L.P., Two Manhattanville Road, Purchase, New York 10577. Apollo Fund Administration IV LLC, a Delaware limited liability company ("Administration"), is the administrative general partner of Overseas IV. Administration is principally engaged in the business of serving as administrative general partner of Overseas IV. The principal place of business of Administration is c/o Apollo Advisors IV, L.P., Two Manhattanville Road, Purchase, New York 10577. Attached as Appendix A to Item 2 is information concerning certain principals, executive officers, directors and principal shareholders of the Reporting Persons and other entities as to which such information is required to be disclosed in response to Item 2 and General Instruction C to Schedule 13D. Neither the Reporting Persons nor any of the persons or entities referred to in Appendix A to Item 2 during the last five years has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree, or final -7- order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. The Reporting Persons have purchased an aggregate of 126,000 shares of the Issuer's Series A Convertible Preferred Stock (the "Series A Preferred Stock"), 126,000 Series 1-A Warrants (the "Series 1-A Warrants"), 744,000 shares of Series B Preferred Stock (the "Series B Preferred Stock"), 744,000 Series 1-B Warrants (the "Series 1-B Warrants"), 1,916,994 Series 2-A Warrants (the "Series 2-A Warrants") and 10,345,548 Series 2-B Warrants (the "Series 2-B Warrants") for an aggregate purchase price of $87,000,000 (the "Purchase Price"). The purchases were financed with cash on hand from contributions of partners of each of AIF IV and Overseas IV or members of AIF LLC, respectively, as the case may be. All such contributions are in the ordinary course and pursuant to (equity) investor commitments to the respective entities. The Series A Preferred Stock, Series B Preferred Stock, Series 1-A Warrants, Series 1-B Warrants, Series 2-A Warrants and Series 2-B Warrants are referred to herein collectively as the "Securities." ITEM 4. PURPOSE OF THE TRANSACTION. On June 4, 1999, AIF IV, Overseas IV and AIF LLC (collectively, the "Purchasers") acquired the Securities pursuant to the Amended and Restated Securities Purchase Agreement with the Issuer (the "Agreement"). The Series A Preferred Stock and the Series 1-A and 2-A Warrants (collectively, the "Series A Securities") are presently convertible into, or exercisable for, an aggregate of 5,417,994 shares of Common Stock, representing approximately 12.5% of the outstanding Common Stock on a fully diluted basis. The Series B Preferred Stock and the Series 1-B and 2-B Warrants (collectively the "Series B Securities") are convertible into, or exercisable for, 31,018,119 shares of the Issuer's non- voting common stock (the "Non-Voting Stock"). The Issuer's certificate of incorporation does not currently authorize the issuance of Non-Voting Stock, and the Issuer intends to seek such authorization at the special meeting of stockholders referred to below. Under the Agreement, the Issuer is required to seek shareholder approval for the conversion (the "Series B-to-A Conversion") of the Series B Securities into an equal amount of Series A Securities, as well as the creation of Non-Voting Stock, on or prior to October 4, 1999 (the "Outside Date"). The Issuer intends to notice and call a special meeting of stockholders in the near future to seek such approval. If the Issuer's stockholders approve the Series B-to-A Conversion, then the Series B Preferred Stock, the Series 1-B Warrants and the Series 2-B Warrants will automatically be converted into 744,000 shares of Series A Preferred Stock, 744,000 Series 1-A Warrants and 10,345,548 Series 2-A Warrants, respectively. Upon such conversion, the holders of such securities would have the right to convert them into, or exercise them for, an aggregate of 31,018,119 shares of Common Stock. If the Issuer's stockholders fail to approve the Series B-to-A Conversion on or prior to the Outside Date, then the Reporting Persons will have a right to require the Issuer to redeem the Series B Preferred Stock for its liquidation preference plus a 10% premium. The Issuer has deposited $74,400,000 of the Purchase Price into an escrow account in order to secure its repurchase obligation. In addition, if the stockholders fail to approve the Series B-to-A Conversion on or prior to the Outside Date, the dividend rate of the Series B Preferred Stock will be increased and the strike price of the Warrants will be reduced. The Series A Preferred Stock is entitled to vote with the holders of Common Stock on all matters (except the Series B-to-A Conversion and related matters under the Agreement). The number of votes to which the Series A Preferred Stock is entitled is .875 per underlying share of Common Stock (a total of -8- 1,575,000 votes, which represents approximately 4.0% of the total voting power). In addition, the holders of the Series A Preferred Stock initially will have the right to elect one member of the Issuer's Board of Directors, and will be able to elect a second Director following stockholder approval of the Series B-to-A Conversion. At that time, pursuant to the Agreement, the Purchasers will also have certain approval rights with respect to a third member of the Board of Directors. In addition to the foregoing, the Purchasers (so long as they own at least 100,000 shares of Series A Preferred Stock) will have approval rights over certain matters, including matters described in Items 4 (a) through (f) of Schedule 13D. The following is a description of certain additional terms of the Series A Securities: Series A Preferred Stock. ------------------------ Liquidation Preference. The Series A Preferred Stock has a liquidation preference of $100 per share (the "Liquidation Preference") plus all accrued and unpaid dividends. No distributions may be made to holders of the Common Stock until the holders of the Series A Preferred Stock have received the Liquidation Preference. Dividends. Holders of Series A Preferred Stock are initially entitled to receive quarterly dividends at the rate of 7.50% of the Liquidation Preference per share from the original issuance date of such shares to June 30, 2002 and thereafter at the rate of 4.65%. From the date of the original issuance of the Series A Preferred Stock until June 30, 2002, the Issuer shall pay dividends through the issuance of additional shares of Series A Preferred Stock ("Additional Securities"). From June 30, 2002 until June 30, 2004, the Issuer shall pay dividends through the issuance of Additional Securities, provided that at the option of either the holders of a majority of the then outstanding shares of Series A Preferred Stock or the Issuer, the Issuer shall pay the dividends in whole in cash. After June 30, 2004, all dividends on the Series A Preferred Stock shall be paid in cash. Conversion Price. Holders of Series A Preferred Stock may convert their shares at any time into a number of shares of Common Stock determined by dividing (x) $100 plus accrued and unpaid dividends, by (y) $7.00 per share, subject to adjustment in accordance with certain anti-dilution provisions (the "Conversion Price"). Optional Redemption. The Series A Preferred Stock is not redeemable for five years; thereafter, the Issuer may redeem all of the Series A Preferred Stock at any time at 103% of the Liquidation Preference plus accrued and unpaid dividends. Mandatory Redemption. Holders of Series A Preferred Stock have the right to require the Issuer to redeem the Preferred Stock on the earliest of a change of control, the date upon which the Common Stock is not listed for trading on a United States national securities exchange or the Nasdaq National Market System or June 30, 2012 at a price equal to the Liquidation Preference plus all accrued and unpaid dividends thereon. Series 1-A Warrants. ------------------- Each share of Series A Preferred Stock (including Additional Shares) will be issued with a Series 1-A Warrant entitling the holder to acquire 13.5 shares of Common Stock at a variable exercise price between $4.20 and $0.01 per share, subject to adjustment. The Series 1-A Warrants have no voting rights. -9- Series 2-A Warrants. ------------------- Each Series 2-A Warrant entitled the holder to acquire one share of Common Stock initially for $7.00, subject to adjustment. The strike price will be reduced to $0.01 if the Issuer's stockholders do not approve the Series B-to-A Conversion on or prior to the Outside Date. The Series 2-A Warrants have no voting rights. The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the Agreement, the Certificates of Designation of the Series A and Series B Preferred Stock, and the terms of the Series 1-A, 1-B, 2-A and 2-B Warrants, a copy of each of which has been filed as an Exhibit to this Schedule 13D and is incorporated herein by reference. The Reporting Persons retain the right to change their investment intent, to propose one or more possible transactions to the Issuer's Board of Directors, to acquire additional shares of Series A Preferred Stock or Common Stock or other securities of the Issuer from time to time, or to sell or otherwise dispose of all or part of the Series A Securities, Series B Securities or Common Stock beneficially owned by them (or any shares of Common Stock into which such securities are converted) in any manner permitted by law. The Reporting Persons may engage from time to time in ordinary course transactions with financial institutions with respect to the securities described herein. To the extent such transactions materially affect the Reporting Persons' ownership of such securities, or in the event of a material change in the present plans or intentions of the Reporting Persons, the Reporting Persons will amend this Schedule 13D to reflect such change. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) and (b) The Reporting Persons beneficially own 126,000 shares of Series A Preferred Stock, 126,000 Series 1-A Warrants, 1,916,994 Series 2-A Warrants, 744,000 shares of Series B Preferred Stock, 744,000 Series 1-B Warrants and 10,345,548 Series 2-B Warrants. Each share of Series A Preferred Stock is currently convertible into approximately 14.3 shares of Common Stock as described in Item 4, or an aggregate of 1,800,000 shares of the Common Stock, which represents approximately 4.5% of the class. Assuming approval of the Series B-to-A Conversion on or prior to the Outside Date, each share of Series B Preferred Stock would be automatically converted into one share of Series A Preferred Stock, which would be convertible into an aggregate of 10,628,571 shares of Common Stock. The Series 1-A and Series 2-A Warrants are currently exercisable for 1,701,000 and 1,916,994 shares of Common Stock, representing approximately 4.3% and 4.8% of the class, respectively. Assuming approval of the Series B-to-A Conversion on or prior to the Outside Date, the Series 1-B and Series 2-B Warrants would be automatically converted into 744,000 Series 1-A Warrants and 10,345,548 Series 2-A Warrants, which would be convertible into an aggregate of 20,389,548 shares of Common Stock. Beneficial ownership of all such securities was acquired as described in Item 3 and Item 4. (c),(d) and (e) None or not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. -10- The responses to Item 2, Item 3 and Item 4 are incorporated herein by reference. Rare Medium Acquisition, LLC, which is an affiliate of Bear Stearns & Co. Inc., is the principal equity holder of a membership interest in AIF LLC. Pursuant to the Agreement, the Issuer has agreed, through its Board of Directors, to recommend that its stockholders approve the Series B-to-A Conversion, and to use its best efforts to have each Director vote his shares of Common Stock for such approval. The foregoing response to this Item 6 is qualified in its entirety by reference to the Agreement, the full text of which is filed as Exhibit 1 hereto and incorporated hereby by this reference. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Amended and Restated Securities Purchase Agreement dated as of June 4, 1999 among Rare Medium Group, Inc., Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P. and AIF IV/RRRR LLC. Exhibit 2 Forms of Series 1-A, 1-B, 2-A and 2-B Warrant of the Issuer. Exhibit 3 Certificate of Designation of Series A Convertible Preferred Stock of Rare Medium Group, Inc. Exhibit 4 Certificate of Designation of Series B Preferred Stock of Rare Medium Group, Inc. Exhibit 5 Form of Limited Liability Company Agreement of AIF IV/RRRR LLC among the members and manager thereto. -11- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. June 14, 1999 APOLLO INVESTMENT FUND IV, L.P. By: Apollo Advisors IV, L.P., its General Partner By: Apollo Capital Management IV, Inc., its General Partner By: /s/ Michael D. Weiner ----------------------------------------- Name: Michael D. Weiner Title: Vice President -12- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. June 14, 1999 APOLLO OVERSEAS PARTNERS IV, L.P. By: Apollo Advisors IV, L.P., its General Partner By: Apollo Capital Management IV, Inc., its General Partner By: /s/ Michael D. Weiner --------------------------------------------- Name: Michael D. Weiner Title: Vice President -13- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. June 14, 1999 AIF IV/RRRR LLC By: APOLLO MANAGEMENT IV, L.P., its Manager By: AIF IV MANAGEMENT, INC., its General Partner By: /s/ Michael D. Weiner --------------------------------------------- Name: Michael D. Weiner Title: Vice President -14- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. June 14, 1999 APOLLO ADVISORS IV, L.P. By: Apollo Capital Management IV, Inc., its General Partner By: /s/ Michael D. Weiner --------------------------------------------- Name: Michael D. Weiner Title: Vice President -15- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. June 14, 1999 APOLLO MANAGEMENT IV, L.P. By: AIF IV Management, Inc., its General Partner By: /s/ Michael D. Weiner -------------------------------------------- Name: Michael D. Weiner Title: Vice President -16- APPENDIX A TO ITEM 2 The following sets forth information with respect to certain of the general partners, executive officers, directors and principal shareholders of Advisors IV, Capital Management IV, AIMIV and Administration. Capitalized terms used herein without definition have the meanings assigned thereto in the Schedule 13D to which this Appendix A relates. Except as otherwise indicated in this Appendix A or in the Schedule 13D to which this Appendix A relates, the principal business address of each person or entity set forth below is c/o Apollo Advisors IV, L.P., Two Manhattanville Road, Purchase, New York 10577, and each such person or entity is a citizen of the United States of America. The principal business of Advisors IV is to provide advice regarding investments by, and serving as general partner to, the Reporting Persons (other than AIF LLC, for which Apollo Management IV serves as manager), and the principal business of Capital Management IV is that of serving as general partner of Advisors IV. The principal business of Apollo Management IV is to serve as manager of the Reporting Persons and to manage their day-to-day operations. The directors and principal executive officers of Capital Management IV and AIMIV are Messrs. Leon D. Black and John J. Hannan. The principal occupation of each of Messrs. Black and Hannan is to act as an executive officer and director of Capital Management IV and AIMIV. Messrs. Black and Hannan are also founding principals of Advisors IV. Mr. Black is the President and director of AIMIV, which is the general partner of Apollo Management IV. Mr. Hannan is a Vice President and director of AIMIV. AIMIV is principally engaged in the business of serving as general partner of Apollo Management IV. Messrs. Black and Hannan are also founding principals of Apollo Advisors, L.P. and its successive managers (collectively, "Advisors"), Lion Advisors, L.P. ("Lion"), Apollo Real Estate Advisors, L.P. and its successive managers (collectively, "AREA"). The principal business of Advisors, (on behalf of the Apollo Investment Funds) and Lion is to provide advice regarding investments in securities and the principal business of AREA is to provide advice regarding investments in real estate and real estate-related investments on behalf of the Apollo Real Estate Investment Funds. The business address of each of Messrs. Black and Hannan is c/o Apollo Management, L.P., 1301 Avenue of the Americas, New York, New York 10019. Peter Henry Larder, Michael Francis Benedict Gillooly, Ian Thomas Patrick and Martin William Laidlaw, each of whom is a British citizen, each serves as a director of Administration. Each of the above individuals is principally employed by CIBC Bank and Trust Company (Cayman) Limited ("CIBC") in the following positions: Mr. Larder, Managing Director; Mr. Gillooly, Deputy Managing Director; Mr. Patrick, Manager-Accounting Services; and Mr. Laidlaw, Senior Fund Accountant. CIBC is a Cayman Islands corporation which is principally engaged in the provision of trust, banking and corporate administration services, the principal address of which is Edward Street, Grand Cayman, Cayman Islands, British West Indies. It provides accounting, administrative and other services to Administration pursuant to a contract. Mr. Black is the principal beneficial owner of the stock of each of Apollo Capital and Administration. -17- EX-1 2 AMEND & RESTATED SECURITIES PURCHASE AGREEMENT Exhibit 1 ================================================================================ AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT AMONG RARE MEDIUM GROUP, INC. AND APOLLO INVESTMENT FUND IV, L.P. AND APOLLO OVERSEAS PARTNERS IV, L.P. AND AIF IV/RRRR LLC Dated as of June 4, 1999 ================================================================================ TABLE OF CONTENTS
Page ---- 1. Authorization of Securities ............................................. 1 2. Sale and Purchase of the Securities; Escrow ............................. 2 3. Closing ................................................................. 2 4. Representations and Warranties of the Purchaser; Register of Securities; Restrictions on Transfer ................................................ 3 4.1 Organization ...................................................... 3 4.2 Authority ......................................................... 3 4.3 Consents and Approvals; No Violations ............................. 3 4.4 Information Supplied .............................................. 4 4.5 Ownership of Company Common Stock ................................. 4 4.6 Financing ......................................................... 4 4.7 Brokers ........................................................... 4 4.8 Investment Representations and Warranties ......................... 5 5. Representations and Warranties by the Company ........................... 5 5.1 Capitalization .................................................... 6 5.2 Due Issuance and Authorization of Capital Stock ................... 6 5.3 Organization ...................................................... 7 5.4 Subsidiaries ...................................................... 7 5.5 Financial Statements .............................................. 8 5.6 Absence of Certain Developments ................................... 8 5.7 Title to Property and Assets ...................................... 9 5.8 SEC Documents ..................................................... 9 5.9 Undisclosed Liabilities ........................................... 10 5.10 Litigation ........................................................ 10 5.11 Compliance with Laws .............................................. 10 5.12 Taxes ............................................................. 10 5.13 Consents .......................................................... 11 5.14 Authorization; Enforcement ........................................ 11 5.15 Issuance of Shares; Lien of Escrow Agreement ...................... 11 5.16 No Conflicts ...................................................... 12 5.17 Intellectual Property ............................................. 13 5.18 Foreign Corrupt Practices Act ..................................... 15 5.19 Material Contracts ................................................ 15 5.20 Right of First Refusal; Stockholders' Agreement; Voting and Registration Rights ............................................... 15 5.21 Form S-3 Eligibility .............................................. 16 5.22 Previous Issuances Exempt ......................................... 16 5.23 No Integrated Offering ............................................ 16 5.24 Acknowledgment Regarding Securities ............................... 17
-i- 5.25 Year 2000 ......................................................... 17 5.26 Insurance ......................................................... 18 5.27 Environmental Matters ............................................. 18 5.28 Exchange Agreements ............................................... 19 5.29 Rare Medium Note Holders .......................................... 19 5.30 Employee Relations ................................................ 19 5.31 Related Party Transactions ........................................ 20 5.32 Acknowledgment Regarding the Purchaser's Purchase of the Securities 20 5.33 Corporate Minute Books ............................................ 21 5.34 Disclosure ........................................................ 21 5.35 Fresh Air Solutions Liabilities ................................... 21 6. Conditions of Parties' Obligations ...................................... 22 6.1 Conditions of the Purchaser's Obligations ......................... 22 6.2 Conditions of Company's Obligations ............................... 24 7. Covenants ............................................................... 25 7.1 Maintain Corporate Rights and Facilities .......................... 25 7.2 Maintain Insurance ................................................ 25 7.3 Information Rights ................................................ 25 7.4 Notice of Litigation, Disputes and Adverse Changes ................ 27 7.5 Conduct of Business ............................................... 28 7.6 Compliance with Certificate of Incorporation and Bylaws ........... 28 7.7 Internal Accounting Controls ...................................... 28 7.8 Indemnification of the Board of Directors ......................... 28 7.9 Use of Proceeds ................................................... 28 7.10 Reservation of Common Stock ....................................... 28 7.11 Advice of Changes; Filings; Proxy ................................. 28 7.12 Future Offerings .................................................. 29 8. Negative Covenants ...................................................... 29 8.1 No Solicitation ................................................... 30 8.2 Protective Provisions ............................................. 31 8.3 No Purchase by Apollo Purchasers .................................. 32 9. Registration Rights ..................................................... 32 9.1 Certain Definitions ............................................... 32 9.2 Demand Registration ............................................... 33 9.3 Piggyback Registration ............................................ 35 9.4 S-3 Registrations ................................................. 36 9.5 Expenses .......................................................... 37 9.6 Preparation and Filing ............................................ 37 9.7 Indemnification ................................................... 40 9.8 Underwriting Agreement ............................................ 43 9.9 Information From Selling Investors ................................ 43 9.10 Exchange Act Compliance ........................................... 43 9.11 No Conflicting Registration Rights ................................ 43
-ii- 9.12 Registration Rights Regarding the Non-Voting Common Stock ...... 43 10. Definitions .......................................................... 43 11. Enforcement .......................................................... 47 11.1 Remedies at Law or in Equity ................................... 47 11.2 Cumulative Remedies ............................................ 48 11.3 No Implied Waiver .............................................. 48 12. Miscellaneous ........................................................ 48 12.1 Waivers and Amendments ......................................... 48 12.2 Notices ........................................................ 49 12.3 Termination of Agreement ....................................... 50 12.4 Indemnification ................................................ 51 12.5 Allocation of Purchase Price ................................... 51 12.6 Survival of Representations and Warranties, etc ................ 51 12.7 Severability ................................................... 51 12.8 Parties in Interest ............................................ 52 12.9 Headings ....................................................... 52 12.10 Choice of Law .................................................. 52 12.11 Expenses ....................................................... 52 12.12 Counterparts ................................................... 53 12.13 Entire Agreement ............................................... 53
-iii- LIST OF ANNEXES (Not a part of this Agreement) Annex 1-A Certificate of Designation of Series A Convertible Preferred Stock Annex 1-B Certificate of Designation of Series B Preferred Stock Annex 2-A Form of Series 1-A Warrant Annex 2-B Form of Series 1-B Warrant Annex 2-C Form of Series 2-A Warrant Annex 2-D Form of Series 2-B Warrant Annex 3 Form of Escrow Agreement Annex 6.1(d) Form of Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP Annex 6.2(d) Form of Opinion of Sidley & Austin -iv- LIST OF SCHEDULES (Not a part of this Agreement) Schedule 5.1 - Capitalization Schedule 5.2 - Due Issuance and authorization of Capital Stock Schedule 5.3 - Organization Schedule 5.4 - Subsidiaries Schedule 5.5 - Financial Statements Schedule 5.6 - Absence of Certain Developments Schedule 5.7 - Title to Property and Assets Schedule 5.9 - Undisclosed Liabilities Schedule 5.10 - Litigation Schedule 5.11 - Compliance with Laws Schedule 5.12 - Taxes Schedule 5.13 - Consents Schedule 5.16 - No Conflicts Schedule 5.17 - Intellectual Property Schedule 5.19 - Material Contracts Schedule 5.20 - Right of First Refusal; Stockholders' Agreement; Voting and Registration Rights Schedule 5.21 - Form S-3 Eligibility Schedule 5.22 - Previous Issuances Exempt Schedule 5.24 - Acknowledgment Regarding Securities Schedule 5.25 - Year 2000 Schedule 5.26 - Insurance Schedule 5.30 - Employee Relations Schedule 5.31 - Related Party Transactions Schedule 5.35 - Fresh Air Solutions Liabilities -v- AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT This AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into this 4th day of June, 1999 by and among --------- RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company") and APOLLO ------- INVESTMENT FUND IV, L.P., a Delaware limited partnership, APOLLO OVERSEAS PARTNERS IV, L.P., a Cayman Islands limited partnership, AIF IV/RRRR LLC, a Delaware limited liability corporation (the "LLC"), and their respective --- assignees (collectively, the "Apollo Purchasers") and certain other persons and ----------------- entities whose names are set forth on the signature pages hereof (the Apollo Purchasers, such other persons and entities and any partnership or other entity to which any of the foregoing assigns any of its interests hereunder, collectively, the "Purchaser"). Certain terms used and not otherwise defined in --------- the text of this Agreement are defined in Section 10 of this Agreement. W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company and the Purchaser entered into a Securities Purchase Agreement dated as of May 7, 1999 (the "Existing Agreement"); ------------------ WHEREAS, since the execution date of the Existing Agreement, the parties have agreed to amend and restate the Existing Agreement to provide, among other things, for changes in certain voting rights and other terms; and WHEREAS, the Company desires to issue and to sell to the Purchaser, and the Purchaser desires to purchase from the Company, the Preferred Shares and the Warrants (each as hereinafter defined), all in accordance with the terms and provisions of this Agreement, which supersedes and replaces in all respects the Existing Agreement; NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: 1. Authorization of Securities. The Company has authorized (or --------------------------- prior to the Closing (as hereinafter defined) shall have authorized) (i) the issue and sale of 126,000 shares of its Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Shares") and 744,000 shares ------------------------- of its Series B Preferred Stock, par value $0.01 per share (the "Series B -------- Preferred Shares"); (ii) the issue with the Series A Preferred Shares of 126,000 - ---------------- detachable ten-year warrants (the "Series 1-A Warrants"), and with the Series B ------------------- Preferred Shares of 744,000 detachable ten-year warrants (the "Series 1-B ---------- Warrants"), each of which shall entitle its holder to purchase from the Company - -------- thirteen and one-half (13.5) shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), or the Company's non-voting ------------ common stock, par value $0.01 per share (the "Non-Voting Common Stock"), ----------------------- respectively, at a purchase price ranging from $0.01 to $4.20 per share depending on the market price of the Common Stock on the date of exercise; (iii) the issue and sale of 12,262,542 ten-year warrants (the "Series 2 Warrants"), ----------------- which shall initially be divided into 1,916,994 Series 2-A Warrants (the "Series ------ 2-A Warrants") to purchase from the Company one (1) share of Common Stock at an - ------------ initial purchase price of $7.00 per share and 10,345,548 Series 2-B Warrants (the "Series 2-B Warrants") to purchase from the Company one (1) share of Non- ------------------- Voting Common Stock at an initial purchase price of $7.00 per share; and (iv) the issue of up to an additional 500,000 Series A Preferred Shares and an additional 775,000 Series B Preferred Shares for the payment of dividends, each such share to be issued with a Series 1-A Warrant or Series 1-B Warrant, respectively. The Series A Preferred Shares and Series B Preferred Shares (collectively, the "Preferred Shares") will have the respective rights, ---------------- preferences and privileges set forth in the forms of Certificate of Designation attached hereto as Annex 1-A and Annex 1-B, respectively (the "Certificates of --------- --------- --------------- Designation"). The Series 1-A, Series 1-B, Series 2-A and Series 2-B Warrants - ----------- (collectively, the "Warrants") will have the respective rights, preferences and -------- privileges set forth in the forms of Warrant attached hereto as Annex 2-A, Annex --------- ----- 2-B, Annex 2-C and Annex 2-D, respectively. The Common Stock and Non-Voting - --- --------- --------- Common Stock into which the Preferred Shares are convertible is sometimes referred to herein as the "Conversion Shares"; the Common Stock and Non-Voting ----------------- Common Stock that may be purchased upon exercise of the Warrants is sometimes referred to herein as the "Warrant Shares"; and the Preferred Shares and the -------------- Warrants are sometimes referred to herein collectively as the "Securities". ---------- 2. Sale and Purchase of the Securities; Escrow. Upon the terms and ------------------------------------------- subject to the conditions herein contained, the Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Company, at the Closing, on the Closing Date (as hereinafter defined), 126,000 Series A Preferred Shares, 126,000 Series 1-A Warrants, 744,000 Series B Preferred Shares, 744,000 Series 1-B Warrants, 1,916,994 Series 2-A Warrants and 10,345,548 Series 2-B Warrants for an aggregate purchase price of $87,000,000 (the "Purchase Price"). The Company will immediately deposit $74,400,000 of the -------------- Purchase Price into an escrow account (the "Escrow Account") with The Chase -------------- Manhattan Bank, as escrow agent (the "Escrow Agent"), pursuant to the Pledge, ------------ Escrow and Disbursement Agreement, dated as of the Closing Date (the "Escrow ------ Agreement"), among the Company, Apollo Investment Fund IV, L.P. and the Escrow - --------- Agent. The Escrow Account will be invested in high-grade, short-term securities pursuant to Section 2 of the Escrow Agreement and will be pledged to secure the Company's obligation to redeem the Series B Preferred Stock pursuant to Section 4(b)(i) of the Certificate of Designation of Series B Preferred Stock. The form of Escrow Agreement is attached hereto as Annex 3. By executing this Agreement, ------- each of the Apollo Purchasers authorize Apollo Investment Fund IV, L.P. to approve and enter into the Escrow Agreement on behalf of the other Apollo Purchasers. 3. Closing. The closing of the sale to, and purchase by, the ------- Purchaser of the Securities referred to in Section 2 hereof (the "Closing") ------- shall occur at the offices of Sidley & Austin, 875 Third Avenue, New York, New York 10022, on the third business day after the -2- satisfaction or waiver of all of the conditions set forth in Section 6 hereof (the "Closing Date"). At the Closing, the Company shall deliver to the Purchaser ------------ certificates evidencing the Preferred Shares and Warrants (in such denominations as shall be specified in writing by the Purchaser), each of which shall be registered in the Purchaser's name, against delivery to the Company by the Purchaser of the Purchase Price payable by (i) wire transfer, in immediately available funds to an account that the Company will designate in writing to the Purchaser prior to the Closing Date, (ii) certified or cashier's check payable to the order of the Company or (iii) such other form of payment as may be acceptable to the Company. 4. Representations and Warranties of the Purchaser; Register of ------------------------------------------------------------ Securities; Restrictions on Transfer. Each entity comprising the Purchaser, - ------------------------------------ including for this purpose any entity that is a member of the LLC, severally (and not jointly) represents and warrants to the Company as follows: 4.1 Organization. It is duly organized, validly existing and in good ------------ standing under the laws of the jurisdiction of its organization and has all requisite power and authority to carry on its business as now being conducted. Each such entity is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualifications or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) could not be reasonably expected to either prevent or materially delay its ability to perform its obligations hereunder. 4.2 Authority. Each such entity that is executing this Agreement or --------- any Transaction Document has the requisite corporate or partnership power and authority to execute and deliver this Agreement and each Transaction Document to which it is party, and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, the Transaction Documents and the other documents and instruments referred to herein, in each case to which each such entity is a party, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action on the part of such entity and no other proceedings on the part of any such entity are necessary to authorize this Agreement, any Transaction Documents or any such other agreement, document or instrument or to consummate the transactions so contemplated hereby or thereby. This Agreement and the Transaction Documents, and the other documents and instruments referred to herein, to which such each entity is a party have been duly executed and delivered by it and each such document constitutes a valid and binding obligation such entity enforceable against it in accordance with its respective terms. 4.3 Consents and Approvals; No Violations. Except for filings, ------------------------------------- permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable state securities or blue sky laws, the ------------ Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR --- Act"), the Delaware General Corporation Law and state takeover - --- -3- laws, neither the execution, delivery or performance of this Agreement and the Transaction Documents to which it is a party, nor the consummation by each such entity of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of its agreement of limited partnership, operating agreement or other organizational documents, (ii) require any filing with, notice to, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not reasonably be expected to prevent or materially delay the consummation of the transactions contemplated by this Agreement), (iii) result in a violation or breach of, require any notice to any party pursuant to, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any contract to which any such entity is a party or by which it or any of its properties or assets may be bound or (iv) violate any order applicable to it, any of its properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches or defaults which could not, individually or in the aggregate, be reasonably expected to either prevent or materially delay its ability to perform its obligations hereunder. 4.4 Information Supplied. None of the written information supplied -------------------- by each such entity specifically for inclusion or incorporation by reference in any documents to be filed by the Company with the Securities and Exchange Commission (the "SEC") or any Governmental Entity in connection with the --- transactions contemplated hereby will, on the date of its filing contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 4.5 Ownership of Company Common Stock. As of the date hereof, the --------------------------------- entities comprising the Purchaser do not own of record or beneficially, a number of shares of Common Stock which, in the aggregate, exceeds 1% of the outstanding shares of Common Stock on the date hereof and, without the consent of the Company, which consent will not be unreasonably withheld, the entities comprising the Purchaser shall not acquire or dispose of any shares of Common Stock until after the Closing Date except in connection with the transactions contemplated by this Agreement. 4.6 Financing. At the Closing, the entities comprising the Purchaser --------- will have $87 million available to purchase the Securities. 4.7 Brokers. The Purchaser has not engaged a broker, investment ------- banker, financial advisor, finder or other person (other than the entities comprising the Purchaser, including for this purpose any entity that is a member of the LLC, pursuant to Section 6.1(j) hereof) entitled to any brokerage, investment banker's, financial advisor's, finder's or other fee or commission for which the Company will be liable in connection with the execution of this Agreement by the Purchaser or the performance by the Purchaser of its obligations hereunder. -4- 4.8 Investment Representations and Warranties. (a) Each such entity ----------------------------------------- is acquiring the Securities to be acquired hereunder for its own account, for investment and not with a view to the public resale or distribution thereof, and without any present intention of distributing the same. (b) Each such entity comprising the Purchaser understands that the Securities have not been, and will not upon issuance be, registered or qualified under the Securities Act of 1933, as amended (the "Securities Act"), or any -------------- applicable state securities laws, by reason of their issuance in a transaction exempt from the registration or qualification requirements of the Securities Act and such laws, and that the Securities must be held indefinitely unless a subsequent disposition thereof is registered or qualified under the Securities Act and such laws or is exempt from such registration or qualification. (c) Each such entity is an "accredited investor" within the meaning of Rule 501(a) promulgated under the Securities Act. (d) Each such entity (A) has been furnished with or has had full access to all of the information that it considers necessary or appropriate to make an informed investment decision with respect to the Securities and that it has requested from the Company, (B) has had an opportunity to discuss with management of the Company the intended business and financial affairs of the Company and to obtain information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to it or to which had access and (C) can bear the economic risk of such investment in the Securities, has such knowledge and experience in business and financial matters so as to enable it to understand and evaluate the risks of and form an investment decision with respect to its investment in the Securities and to protect its own interests in connection with such investment. (e) Each such entity has no need for liquidity in its investment in the Securities and is able to bear the economic risk of its investment in the Securities and the complete loss of all of such investment. (f) Each such entity understands that the transferability of the Securities is restricted. (g) Each such entity recognizes that an investment in the Company involves certain risks and has taken full cognizance of, and understands all of, the risks related to the purchase of the Securities. 5. Representations and Warranties by the Company. The Company --------------------------------------------- (which term as used in this Section 5 shall, unless the context otherwise requires, be deemed to include any Subsidiary of the Company) represents and warrants to the Purchaser as follows: -5- 5.1 Capitalization. (a) The authorized capital stock of the Company -------------- consists of two hundred million (200,000,000) shares of Common Stock, par value $.01 per share, and ten million (10,000,000) shares of Preferred Stock, par value $.01 per share. The Company has no other class of capital stock authorized, issued or outstanding. The capitalization of the Company as of the date hereof, including, without limitation, the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities (other than the Preferred Stock and the Warrants) exercisable for, or convertible into or exchangeable for any shares of capital stock and the number of shares to be reserved for issuance upon conversion of the Preferred Shares and exercise of the Warrants is set forth on Schedule 5.1(a) of the disclosure schedule --------------- delivered by the Company to the Purchaser in connection herewith (the "Disclosure Schedule"). Schedule 5.1(a) also lists any stockholders that, to the ------------------- --------------- Company's knowledge, beneficially own five percent (5%) or more of the Common Stock, determined in accordance with Rule 13d-3 of the Exchange Act. Schedule -------- 5.1(a) lists the estimated number of shares of capital stock that may be - ------ issuable by the Company in the event that the transactions contemplated by any letter of intent (a "Letter of Intent") or similar oral or written understanding ---------------- between the Company and another person or entity are consummated. (b) Except as set forth on Schedule 5.1(b), as of the date of this --------------- Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company, or arrangements by which the Company is or may become bound to issue additional shares of capital stock, nor are any such issuances or arrangements contemplated, (ii) there are no agreements or arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act (except as provided hereunder), (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. Schedule 5.1(b) --------------- also includes complete and accurate copies of all stock option or stock purchase plans, including, without limitation, a list of all outstanding options, warrants or other rights to acquire shares of the Company's stock and a description of the material terms of such outstanding options, warrants or other rights. Except as set forth on Schedule 5.1(b), there are no securities or --------------- instruments containing antidilution or similar provisions that will be triggered by the issuance of the Securities in accordance with the terms of this Agreement, the Certificates of Designation or the Warrants. (c) The Company has furnished to the Purchaser true and correct copies of the Company's and each Subsidiary's certificates of incorporation (the "Certificates of Incorporation") as in effect on the date hereof, and the ----------------------------- Company's and each Subsidiary's by-laws (the "By-laws") as in effect on the date ------- hereof. 5.2 Due Issuance and Authorization of Capital Stock. All of the ----------------------------------------------- outstanding shares of capital stock of the Company have been, or upon issuance will be, validly issued, fully paid and nonassessable. Except as disclosed on Schedule 5.2, no shares of capital stock of the - ------------ -6- Company are subject to (a) preemptive rights or any other similar rights of the stockholders of the Company or (b) any lien, claim, judgment, charge, mortgage, security interest, pledge, escrow equity or other encumbrance (collectively, "Encumbrances") and the sale and delivery of the Securities to the Purchaser ------------ pursuant to the terms hereof will vest in the Purchaser legal and valid title to the Securities, free and clear of all Encumbrances. 5.3 Organization. The Company (a) is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of Delaware, (b) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction, as listed on Schedule 5.3, where the nature of ------------ the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect on the Company or any Subsidiary, (c) has its principal place of business and chief executive office at 44 West 18th Street, New York, New York and (d) has all requisite corporate power and authority to own or lease and operate its assets and carry on its business as presently being conducted. For purposes of this Agreement, "Material Adverse ---------------- Effect" shall mean any material adverse effect on (i) the Securities, (ii) the - ------ ability of the Company to perform its obligations under this Agreement, the Escrow Agreement, the Certificates of Designation or the Warrants, or (iii) the condition (financial or otherwise), properties, assets, liabilities, business or operations of the Company or any Subsidiary (except for any changes that are the effect or result of economic factors generally affecting the economy as a whole). 5.4 Subsidiaries. (a) Schedule 5.4(a) lists the name of each ------------ --------------- Subsidiary in which the Company has a direct or indirect equity interest and sets forth the number and class of the authorized capital stock of each and the number of shares of each which are issued and outstanding. The Company owns the equity interest in each Subsidiary set forth on Schedule 5.4(a), in each case --------------- free and clear of any Encumbrance. Each Subsidiary is (i) duly organized, validly existing and in good standing under the laws of its state of organization; (ii) duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction, as listed on Schedule 5.4(a), where the --------------- nature of the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect, and (iii) has all requisite organizational power and authority to own or lease and operate its assets and carry on its business as presently being conducted. (b) Except as disclosed on Schedule 5.4(b), there are (i) no --------------- outstanding securities convertible into, exchangeable for or carrying the right to acquire any class of securities of the Subsidiaries (whether from the Company, the Subsidiaries or otherwise), or subscriptions, warrants, options, rights or other arrangements or commitments of any kind that relate to or require the issuance, sale or other disposition or transfer of any of the Subsidiaries' respective equity securities (whether or not presently issued) or any interest therein, (ii) no arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of capital stock of any Subsidiary, nor are any such issuances or arrangements contemplated, and (iii) no obligations (contingent or otherwise) of any Subsidiary to purchase, redeem or otherwise -7- acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. Schedule 5.4(b) also --------------- includes complete and accurate copies of all stock option or stock purchase plans, including, without limitation, a list of all outstanding options, warrants or other rights to acquire shares of any Subsidiary's stock and a description of the material terms of such outstanding options, warrants or other rights. Schedule 5.4(c) lists all other instruments and agreements governing --------------- securities convertible into or exercisable or exchangeable for capital stock of the Subsidiaries. 5.5 Financial Statements. The Company has caused to be delivered to -------------------- the Purchaser an audited consolidated balance sheet of the Company and the Subsidiaries (other than those entities that became Subsidiaries of the Company after the date of the balance sheet) for the year ended December 31, 1998 (the "Balance Sheet"), audited consolidated statements of income and retained ------------- earnings and cash flows of the Company and the Subsidiaries for the year ended December 31, 1998 (collectively with the Balance Sheet, the "Financial --------- Statements"), and an unqualified auditor's opinion with an explanatory paragraph - ---------- with respect to the Financial Statements, copies of which are set forth on Schedule 5.5. The Financial Statements were prepared in conformity with United - ------------ States generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto) and fairly present, in all material respects, the financial position and the results of operations of the Company and the Subsidiaries as of, and for the year ended, December 31, 1998. 5.6 Absence of Certain Developments. Except as set forth on Schedule ------------------------------- -------- 5.6, since December 31, 1998, neither the Company nor the Subsidiaries has - --- suffered any change or development in its business, financial condition, or results of operations which has had a Material Adverse Effect. Except as set forth on Schedule 5.6, since December 31, 1998, the Company and the Subsidiaries ------------ have conducted their business in the ordinary and usual course consistent with past practices and have not (a) sold, leased, transferred or otherwise disposed of any of the assets (other than dispositions in the ordinary course of business consistent with past practices), (b) terminated or amended in any material respect any material contract or lease to which the Company or the Subsidiaries is a party or to which it is bound or to which its properties are subject, (c) suffered any loss, damage or destruction, whether or not covered by insurance, which have had a Material Adverse Effect, (d) made any change in the accounting methods or practices it follows, whether for general financial or tax purposes, (e) incurred any liabilities (other than in the ordinary course of business or contractual liabilities) which, individually or in the aggregate, have had a Material Adverse Effect, (f) incurred, created or suffered to exist any Encumbrances (other than non-material Encumbrances) on its assets, (g) increased the compensation payable or to become payable to any of its officers or employees or increased any bonus, severance, accrued vacation, insurance, pension or other employee benefit plan, payment or arrangement made by the Company or any of the Subsidiaries for or with any such officers or employees out of the ordinary course of business, (h) suffered any labor dispute, strike, or other work stoppage, (i) made or obligated itself to make any capital expenditures in excess of $2,500,000 individually or in the aggregate, (j) entered into any contract or other agreement requiring the Company or a Subsidiary to make payments in excess of $500,000 per annum, individually or in the aggregate, other than in -8- the ordinary course of business consistent with past practices, (k) paid any dividends, whether in cash or property, on account of, or repurchased any of, the Common Stock, or (l) entered into any agreement to do any of the foregoing. 5.7 Title to Property and Assets. Except as set forth on Schedule ---------------------------- -------- 5.7, neither the Company nor any Subsidiary owns any real property. Each of the - --- Company and the Subsidiaries owns its personal property and assets free and clear of all Encumbrances, except liens that arise in the ordinary course of business which do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. With respect to any real property, except as set forth on Schedule 5.7, the Company is not in material violation of any of ------------ its leases. All machinery, equipment, furniture, fixtures and other personal property and all plants, buildings, structures and other facilities, including, without limitation, office space used by the Company and the Subsidiaries in the conduct of its business, is in good operating condition and fit for operation in the ordinary course of business (subject to normal wear and tear) except for any defects which will not materially interfere with the conduct of normal operations of the Company and the Subsidiaries. The Company has delivered to the Purchaser true and complete copies of any leases related to the real property used by the Company and the Subsidiaries in the conduct of their business (the "Real Property"). ------------- 5.8 SEC Documents. Since December 31, 1995, the Company has timely ------------- filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and after December 31, 1995, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). The Company has ------------- delivered to the Purchaser true and complete copies of the SEC Documents, except the exhibits and schedules thereto and the documents incorporated therein. As of their respective dates, the SEC Documents complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the -9- dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to immaterial year-end audit adjustments). 5.9 Undisclosed Liabilities. Schedule 5.9 sets forth an accurate ----------------------- ------------ list of (a) all liabilities of the Company and its Subsidiaries in excess of $10,000 that are not reflected on the Financial Statements, the unaudited financial statements of those entities that became Subsidiaries of the Company after the date of the Financial Statements, or in the SEC Documents (other than trade payables in the ordinary course of business), and (b) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other security agreements to which the Company or any Subsidiary is a party. Except as set forth on Schedule 5.9, since the date of the Financial Statements, neither ------------ the Company nor any Subsidiary has incurred any liabilities of any kind, character and description, whether accrued, absolute, secured or unsecured, contingent or otherwise other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the Financial Statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements. 5.10 Litigation. Except as set forth on Schedule 5.10, as of the date ---------- ------------- hereof, there is no claim, action, proceeding, lawsuit, inquiry, arbitration or investigation before or by any court, public board, self-regulatory organization or body including, without limitation, the SEC or the National Association of Securities Dealers Automated Quotation System (the "Nasdaq"), pending or, to the ------ knowledge of the Company or any Subsidiary, threatened against or affecting the Company, any Subsidiary, or their respective directors or officers in their capacities as such. To the knowledge of the Company, there are no facts which, if known by a potential claimant or governmental authority, could reasonably be expected to give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any Subsidiary, could have a Material Adverse Effect. Neither the Company nor any Subsidiary is subject to any outstanding order, ruling, judgment or decree that would have a Material Adverse Effect. 5.11 Compliance with Laws. Except as set forth on Schedule 5.11, -------------------- ------------- neither the Company nor any Subsidiary has received notification from any agency or department of any federal, state, foreign, or local government (a) asserting a violation of any law applicable to the conduct of its business, (b) threatening to revoke any license, franchise, permit or government authorization, or (c) restricting or in any way limiting its operations as currently conducted or proposed to be conducted. 5.12 Taxes. Except as set forth on Schedule 5.12, the Company and ----- ------------- each Subsidiary has made or filed all federal and all material state, local and foreign income tax returns required to be filed with respect to the Company and each Subsidiary in a timely manner (taking into account all extensions of due dates). The Company and each Subsidiary has paid all taxes and other governmental assessments and charges, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and for which adequate reserves have been made, and has set aside on its books provisions reasonably adequate for the -10- payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. Neither the Company or any Subsidiary has executed a waiver with respect to any statute of limitations relating to the assessment or collection of any federal, state or local tax. None of the Company's or any Subsidiary's tax returns has been or is being audited by any taxing authority. 5.13 Consents. Except as set forth on Schedule 5.13, neither the -------- ------------- execution, delivery or performance of this Agreement, the Escrow Agreement, the Certificates of Designation or the Warrants by the Company, nor the consummation by it of the obligations and transactions contemplated hereby or thereby (including, without limitation, the issuance, the reservation for issuance and the delivery of the Securities and the Conversion Shares and the Warrant Shares) requires any consent of, authorization by, exemption from, filing with or notice to any governmental authority or any other person, other than the approvals or filings required under the HSR Act, the Securities Act and the Exchange Act, and the approval of the stockholders of the Company. 5.14 Authorization; Enforcement. The Company has all requisite -------------------------- corporate power and has taken all necessary corporate action required for the due authorization, execution, delivery and performance by the Company of this Agreement and to consummate the transactions contemplated hereby (including, without limitation, performance under the Escrow Agreement and the issuance of the Securities, the Conversion Shares and the Warrant Shares). The execution, delivery and performance by the Company of each of this Agreement, the Escrow Agreement and the Warrants, the execution and filing of the Certificates of Designation, and the consummation by the Company of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of the Company, except the approval of the Company's stockholders (as to which the Company will take the action required by Section 7.11 hereof). The Company has taken all actions under its Certificate of Incorporation and its By-laws as may be necessary or advisable to provide the Purchaser with the rights hereby contemplated. Each of this Agreement, the Escrow Agreement, the Warrants and other Transaction Documents have been duly and validly executed and delivered, and the Certificates of Designation have been duly filed, by the Company and constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that such enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (b) is subject to general principles of equity. 5.15 Issuance of Shares; Lien of Escrow Agreement. (a) The Preferred -------------------------------------------- Shares, the Conversion Shares and the Warrant Shares are duly authorized and a sufficient number of shares of authorized but unissued Common Stock have been reserved for issuance upon conversion of the Preferred Shares and exercise of the Warrants, and upon such issuance or exercise in accordance with the terms of this Agreement, the Certificates of Designation or the Warrants (as applicable), all such Conversion Shares and Warrant Shares will be duly authorized, validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and -11- Encumbrances, and will not be subject to preemptive rights or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. If the Company's stockholders vote to approve the creation of the Non-Voting Common Stock but do not vote to approve the conversion of the Series B Preferred Stock to Series A Preferred Stock, a sufficient number of shares of authorized but unissued Non-Voting Common Stock will have been reserved for issuance upon conversion of the Series B Preferred Stock and the Series 1-B Warrants and Series 2-B Warrants and upon such issuance or exercise in accordance with the terms of this Agreement, the Certificates of Designation or the Warrants (as applicable), the Non-Voting Common Stock will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and Encumbrances, and will not be subject to pre-emptive rights or similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. (b) The lien on the pledged securities constituting the Escrow Account under the Escrow Agreement creates a valid security interest in such securities and account securing the Company's obligation to redeem the Series B Preferred Stock (pursuant to Section 4 of the Certificate of Designation of Series B Preferred Stock) and the Series 1-B Warrants (pursuant to Section 5.1 of the Form of Series 1-B Warrant). On the Closing Date, such security interest will constitute a first, prior and exclusive lien with respect to such securities and account, and no filings, registrations, recordings, deliveries or other actions on the part of the Company will be required in order to perfect the security interest in such securities and account other than filings, registrations, recordings, deliveries or other actions which, on or before the Closing Date, will have been duly made by or on behalf of the Company. 5.16 No Conflicts. Except as set forth on Schedule 5.16, the ------------ ------------- execution, delivery and performance of this Agreement, the Escrow Agreement and the Warrants, the execution and filing of the Certificates of Designation, and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares) will not (a) result in a violation of the Certificates of Incorporation or By-laws of the Company or any Subsidiary, (b) conflict with or result in the breach of the terms, conditions or provisions of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right of termination, acceleration or cancellation under, any material agreement, lease, mortgage, license, indenture, instrument or other contract to which the Company or any Subsidiary is a party, (c) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, U.S. federal and state securities laws and regulations) applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected, or (d) result (except pursuant to the Escrow Agreement) in the creation of any Encumbrance upon any of their assets. Neither the Company nor any Subsidiary is in violation of its respective Certificate of Incorporation, By-laws or other organizational documents, and neither the Company nor any Subsidiary is in default (and no event has occurred which, with notice or lapse of time or both, would cause the Company or any Subsidiary to be in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any -12- material agreement, indenture or instrument to which the Company or any Subsidiary is a party. The businesses of the Company and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for violations that, either singly or in the aggregate, would not have a Material Adverse Effect. Except as set forth on Schedule 5.16, to the knowledge of the Company, the Company is not in violation - ------------- of the qualification or maintenance requirements of the Nasdaq National Market System (the "Nasdaq National Market") and is not subject to any threat of a ---------------------- proceeding or any proceeding to disqualify the Common Stock from qualification to trade on the Nasdaq National Market. 5.17 Intellectual Property. (a) "Intellectual Property" means (i) --------------------- --------------------- all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereon, and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations- in-part, revisions, extensions and reexaminations thereof, (ii) all trademarks, service marks, trade dress, logos, trade names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith, (iii) all copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith, (iv) all trade secrets and confidential business information (including, without limitation, ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals), (v) all computer software (including, without limitation, data and related documentation) and source codes, (vi) all other proprietary rights, (vii) all copies and tangible embodiments of the foregoing (in whatever form or medium) and (viii) all licenses or agreements in connection with the foregoing. "Company ------- Intellectual Property" means all Intellectual Property which is used in - --------------------- connection with, and is material to, the business of the Company or any Subsidiary. (b) Except as set forth on Schedule 5.17, with respect to each ------------- material item of Company Intellectual Property: (i) the Company and the Subsidiaries possesses all right, title and interest in and to the item, free and clear of any Encumbrance, license or other restriction, and the Company or its Subsidiaries has taken or caused to be taken reasonable and prudent steps to protect its rights in and to, and the validity and enforceability of, the item; (ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to the knowledge of the Company, is threatened which challenges the legality, validity, enforceability, use or ownership of the item; -13- (iv) the Company has never agreed to indemnify any person for or against any interference, infringement, misappropriation or other conflict with respect to the item; (v) each license, sublicense, agreement or permission covering the item is legal, valid, binding, enforceable and in full force and effect; and (vi) no party to any license, sublicense or agreement is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification or acceleration thereunder, except for any such breach, default or event which would not have a Material Adverse Effect. Schedule 5.17 sets forth a list of all Company Intellectual Property. ------------- All registered patents, copyrights, trademarks, and service marks listed on Schedule 5.17 are valid and subsisting and in full force and effect and are not - ------------- subject to any taxes or other fees except for annual filing and maintenance fees. Except as set forth on Schedule 5.17, neither the Company nor any ------------- Subsidiary is aware of (a) any notice, claim or assertion that any item of Company Intellectual Property is invalid or (b) any facts which would cause a reasonable person to conclude that any item of Company Intellectual Property is invalid. Other than as set forth on Schedule 5.17, neither the Company nor any ------------- Subsidiary has knowingly interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties, and there is no pending or, to the knowledge of the Company, threatened claim or litigation against the Company or any Subsidiary contesting the right to use its Intellectual Property rights, asserting the misuse of any thereof, or asserting the infringement or other violation of any Intellectual Property rights of a third party. True and complete copies of all issued patents and copies of all filed patent applications of the Company have been provided to the Purchaser. (c) Other than as set forth on Schedule 5.17, there are no ------------- outstanding options, licenses, or agreements of any kind relating to Company Intellectual Property, nor is the Company or any Subsidiary bound by or a party to any options, licenses, or agreements of any kind with respect to Company Intellectual Property. Except as set forth on Schedule 5.17, to the knowledge ------------- of the Company or any Subsidiary, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with the Intellectual Property rights of the Company or any Subsidiary. (d) To the knowledge of the Company, none of the key employees of the Company or any Subsidiary are obligated under any contract (including, without limitation, licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use of his or her reasonable diligence to promote the interests of the Company or any Subsidiary or that would conflict with the Company's or the Subsidiary's businesses as presently conducted. Neither the execution, delivery or performance of this Agreement, nor the carrying on of the Company's or the Subsidiaries' businesses by the employees of the Company or the Subsidiaries, -14- nor the conduct of the Company's and the Subsidiaries' businesses as presently conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant, or instrument under which any such key employee is obligated, and which conflict, breach or default would be materially adverse to the Company or any Subsidiary. (e) The Company has entered into written agreements with all key employees of the Company and each Subsidiary with provisions seeking to protect the confidentiality of all Company Intellectual Property and to ensure full and unencumbered ownership by the Company or a Subsidiary of all Company Intellectual Property. The Company, after reasonable investigation, is not aware of any violation by any such employees of such agreements. No stockholder, member, director, officer or employee of the Company or any Subsidiary has any interest in any of the Company Intellectual Property. 5.18 Foreign Corrupt Practices Act. Neither the Company, any ----------------------------- Subsidiary, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his, her or its actions for, or on behalf of, the Company or any Subsidiary, offered or made, directly or indirectly through any other person or entity, any payments of anything of value (in the form of a contribution, gift, entertainment or other expense), to (a) any person employed by, or acting in an official capacity on behalf of, any governmental agency, department or instrumentality, or (b) any foreign or domestic government official, political party or official of such party, or any candidate for political office or employee thereof. Neither the Company, any Subsidiary, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or unlawful payment to any foreign or domestic government or political party official, employee, appointee or candidate. 5.19 Material Contracts. Each material contract of the Company and ------------------ each Subsidiary is set forth on Schedule 5.19. Each such contract is the legal, ------------- valid and binding obligation of the Company or its Subsidiary, enforceable against the Company or such Subsidiary in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or other similar laws affecting creditors' rights generally and by general equitable principles. Except as set forth on Schedule -------- 5.19, there has not occurred any breach, violation or default or any event that, - ---- with the lapse of time, the giving of notice or the election of any person, or any combination thereof, would constitute a breach, violation or default by the Company or a Subsidiary under any such contract or, to the knowledge of the Company, by any other person to any such contract. Neither the Company nor any Subsidiary has been notified that any party to any material contract intends to cancel, terminate, not renew or exercise an option under any material contract, whether in connection with the transactions contemplated hereby or otherwise. 5.20 Right of First Refusal; Stockholders' Agreement; Voting and ----------------------------------------------------------- Registration Rights. Except as set forth on Schedule 5.20, no party has any - ------------------- ------------- right of first refusal, right of first -15- offer, right of co-sale, preemptive right or other similar right regarding the Company's securities. The issuance of the Securities is not subject to any of the rights set forth on Schedule 5.20. There are no provisions of the ------------- Certificates of Incorporation or the By-laws, no agreements to which the Company is a party and no agreements by which the Company, any Subsidiary or the Securities are bound, which (a) may affect or restrict the voting rights of the Purchaser with respect to the Securities in its capacity as a stockholder of the Company, (b) restrict the ability of the Purchaser, or any successor thereto or assignee or transferee thereof, to transfer the Securities, (c) would adversely affect the Company's or the Purchaser's right or ability to consummate this Agreement or comply with the terms of the Warrants and the transactions contemplated hereby or thereby, (d) require the vote of more than a majority of the Company's issued and outstanding Common Stock, voting together as a single class, to take or prevent any corporate action, other than those matters requiring a class vote under Delaware law, or (e) entitle any party to nominate or elect any director of the Company or require any of the Company's stockholders to vote for any such nominee or other person as a director of the Company. 5.21 Form S-3 Eligibility. The Company is currently eligible under -------------------- the eligibility requirements of General Instruction I to Registration Statement on Form S-3 to register the resale of its Common Stock on a registration statement on Form S-3 under the Securities Act. To the knowledge of the Company, there exist no facts or circumstances that would reasonably be expected to prohibit or delay the preparation and filing of a registration statement on Form S-3 with respect to the Conversion Shares and the Warrant Shares in accordance with the terms of this Agreement. Except as disclosed on Schedule -------- 5.21, the Company is not under any obligation, contractual or otherwise, to - ---- register for sale any of its securities. 5.22 Previous Issuances Exempt. Except as set forth on Schedule 5.22, ------------------------- ------------- all shares of capital stock and other securities issued by the Company prior to the Closing Date have been issued in transactions exempt from the registration requirements under the Securities Act and all applicable state securities or "blue sky" laws, and in compliance with all applicable corporate laws. The Company has not violated the Securities Act or any applicable state securities or "blue sky" laws in connection with the issuance of any shares of capital stock or other securities prior to the Closing Date. The Company has not offered any of its capital stock, or any other securities, for sale to, or solicited any offers to buy any of the foregoing from the Company, or otherwise approached or negotiated with any other person in respect thereof, in such a manner as to require registration under the Securities Act. No holder of any of the Company's capital stock has any rescission or pre-emptive rights. 5.23 No Integrated Offering. Neither the Company, nor any of its ---------------------- Affiliates or any other person acting on the Company's behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Securities under the Securities Act or cause this offering of Securities to be integrated with any prior offering of securities of the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, NASD Rule 4460(i) or any similar rule. -16- 5.24 Acknowledgment Regarding Securities. The Company's executive ----------------------------------- officers have studied and fully understand the nature of the Securities being sold hereunder. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares and Warrant Shares upon exercise of the Warrants, to exchange the Series B Preferred Shares for Series A Preferred Shares, the Series 1-B Warrants for Series 1-A Warrants and the Series 2-B Warrants for 2-A Warrants, and to redeem the Series B Preferred Shares and the Series 1-B Warrants under certain circumstances with the Escrow Account under the Escrow Agreement, in accordance with the terms of this Agreement, the Escrow Agreement, the Certificates of Designation, and the Warrants, is absolute and unconditional, regardless of the dilution that such issuance may have on the ownership interests of other stockholders of the Company. Taking the foregoing into account, the Company's Board of Directors has determined in its good faith business judgment that the issuance of the Preferred Shares and the Warrants hereunder and the consummation of the other transactions contemplated hereby are (a) in the best interests of the Company and its stockholders, and (b) do not breach (with or without the passage of time or the giving of notice) any obligations of the Company or any Subsidiary the result of which would have a Material Adverse Effect. The Company's Board of Directors has approved the terms of this Agreement, the Escrow Agreement, the Certificates of Designation and the Warrants and the transactions contemplated hereby and thereby. Schedule -------- 5.24 sets forth any adjustments, Encumbrances or rights (other than pursuant to - ---- the Escrow Agreement) that would be triggered by the issuance of the Securities pursuant to agreements between the Company or any Subsidiary and any lender or holder of an equity interest or other securities of the Company or any Subsidiary. 5.25 Year 2000. To the Company's knowledge: --------- (a) Except as set forth on Schedule 5.25, each system of the Company ------------- and each Subsidiary, including, without limitation, software, hardware, databases or embedded control systems (microprocessor controlled, robotic or other device), that constitutes any part of, or is used in connection with the use, operation or enjoyment of, any material tangible or intangible asset or property of the Company or any Subsidiary (collectively a "System"), (a) has, to ------ the extent determined to be necessary, been modified to operate after January 1, 2000 without error arising from the creation, recognition, acceptance, calculation, display, storage, retrieval, accessing, comparison, sorting, manipulation, processing or other use of dates or date-based, date-dependent or date-related data, including, but not limited to, century recognition, day-of- the-week recognition, leap years, date values and interfaces of date functionalities and (b) will not be materially adversely affected by the advent of the year 2000, the advent of the twenty-first century or the transition from the twentieth century through the year 2000 and into the twenty-first century (collectively, items (a) and (b) are referred to herein as "Year 2000 --------- Compliant"); (b) Except as set forth on Schedule 5.25, all Systems developed and ------------- sold by the Company and the Subsidiaries are Year 2000 Compliant and will be able to accurately process date data (including, but not limited to, calculating, comparing and sequencing) from, into and between the twentieth century (through 1999), the year 2000 and the twenty-first century, -17- including, without limitation, leap year calculations, when used in accordance with the product documentation accompanying such systems; (c) Neither the Company nor any Subsidiary has received notice, or otherwise has any reason to believe, given the extent of the Company's investigation to date, that any System that is used in the business of the Company or any of the Subsidiaries receives data from or communicates with any component or system external to itself (whether or not such external component or system is the Company's or any Subsidiary's) that is not itself Year 2000 Compliant. All licenses for the use of any System permit the Company and each Subsidiary or a third party to make all modifications, by-passes, de-bugging, work-arounds, repairs, replacements, conversions or corrections necessary to permit the System to operate compatibly in conformance with their respective specifications, and to be Year 2000 Compliant; (d) Except as set forth on Schedule 5.25, neither the Company nor any ------------- Subsidiary has any reason to believe that it may incur material expenses arising from or relating to the failure of any of its Systems as a result of not being Year 2000 Compliant; and (e) Except as set forth on Schedule 5.25, the Company and the ------------- Subsidiaries have requested and received written assurances from each third party whose systems failure would have a Material Adverse Effect that such systems are Year 2000 Compliant. 5.26 Insurance. The Company and each Subsidiary has in force fire, --------- casualty, product liability and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its material properties or assets which might be damaged or destroyed or sufficient to cover liabilities to which the Company or any Subsidiary may reasonably become subject, and such types and amounts of other insurance with respect to its business and properties, on both a per occurrence and an aggregate basis, as are customarily carried by persons engaged in the same or similar business as the Company and its Subsidiaries. The Company has a directors' and officers' liability insurance policy that is in full force and effect with extended coverage sufficient in amount to cover liabilities to which its directors and officers may be subject by virtue of their positions and as is customarily carried by companies engaged in the same or similar business as the Company. Schedule 5.26 sets forth a list of all insurance policies currently in effect - ------------- that insure the business, operations, assets, directors, officers or employees of the Company and the Subsidiaries, the name of the carrier and the terms and amount of coverage. No default or event has occurred that could give rise to a default under any such policy. 5.27 Environmental Matters. There is no environmental litigation or --------------------- other environmental proceeding pending or, to the knowledge of the Company, threatened by any governmental regulatory authority or others with respect to the current or any former business of the Company or any Subsidiary or of any partnership or joint venture currently or at any time affiliated with the Company or any Subsidiary. To the knowledge of the Company, no state of facts exists as to environmental matters or Hazardous Substances (as defined below) that involves the reasonable likelihood of a material capital expenditure by the Company or any Subsidiary or -18- that may otherwise have a Material Adverse Effect. To the knowledge of the Company, no Hazardous Substances have been treated, stored or disposed of, or otherwise deposited, in or on the properties owned or leased by the Company or any Subsidiary or by any partnership or joint venture currently or at any time affiliated with the Company or any Subsidiary in violation of any applicable environmental laws. As used herein, "Hazardous Substances" means any substance, -------------------- waste, contaminant, pollutant or material that has property or the environment. 5.28 Exchange Agreements. The execution, delivery and performance by ------------------- the Company and Rare Medium, Inc. of the Exchange Agreements, dated as of December 31, 1998, by and between the Company and the other signatories thereto, and the consummation of the transactions contemplated thereby by the Company, Rare Medium, Inc. and certain of the holders of the $22,200,000 principal amount of Secured Promissory Notes referred to therein (the "Rare Medium Note") do not ---------------- constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration, rescission or cancellation of, any agreement, indenture or instrument to which the Company or any Subsidiary is a party, the result of which would be a Material Adverse Effect. 5.29 Rare Medium Note Holders. No event or circumstance relating to ------------------------ the Company's relationship with any of the holders of the Rare Medium Note, including, without limitation, William Nelson, Robert Stratton and James Casey, who were founders of Rare Medium, Inc. and are current employees of the Company, including, without limitation, the event of default called by one or more of such individuals on January 27, 1999, will result in a Material Adverse Effect. 5.30 Employee Relations. (a) The Company and its Subsidiaries have ------------------ entered into individualized written employment agreements with the key executive officers or employees of the Company and its Subsidiaries listed on Schedule -------- 5.30(a), true and complete copies of which have been delivered to Purchaser. To - ------- the knowledge of the Company, no employee of or consultant to the Company or any Subsidiary is in violation of any term of any employment contract or any other contract or agreement relating to the relationship of any such employee or consultant with the Company or any Subsidiary. Except as set forth Schedule -------- 5.30(a), the Company and each Subsidiary has operated and administered all - ------- plans, programs and arrangements providing compensation and benefits to employees in accordance with their terms and with all applicable laws. To the Company's knowledge, no key employee has any plans to terminate his or her employment with the Company or any Subsidiary, nor does the Company or any Subsidiary have any present intention to terminate the employment of any key employee. (b) The Company and its Subsidiaries are not delinquent in payments to any of their employees, for any wages, salaries, commissions, bonuses or other direct compensation for any services performed through the date hereof or amounts required to be reimbursed to them to the date hereof. The Company and it Subsidiaries are in compliance with all applicable federal, state and local laws, rules and regulations respecting employment, employment practices, labor, -19- terms and conditions of employment and wages and hours, except for either immaterial instances of noncompliance or instances of noncompliance of which the Company is unaware which may be reasonably cured without the incurrence by the Company or the Subsidiary of any material cost or liability. Neither the Company nor any Subsidiary is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, commitment or arrangement with any labor union, and, to the knowledge of the Company, no labor union has requested or has sought to represent any of the employees, representatives or agents of the Company or any Subsidiary. There is no labor strike, dispute, slowdown or stoppage actually pending or, to the knowledge of the Company, threatened against or involving the Company or any Subsidiary. (c) All bonus, deferred compensation, pension, retirement, profit- sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, employment or severance contracts, health and medical insurance plans, life insurance and disability insurance plans, other material employee benefit plans, contracts or arrangements which cover employees or former employees of the Company or the Subsidiaries including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of ERISA (the "Employee Benefit Plans"), are listed on Schedule ---------------------- -------- 5.30(c). No Employee Benefit Plan are or were collectively bargained for or has - ------ terms requiring assumption or any guarantee by the Purchaser. (d) There have been no violations of ERISA or the Code that could reasonably be expected to have a Material Adverse Effect relating to any Employee Benefit Plan. The Company has timely filed all documents, notes and reports (including IRS Form 5500) for each such Employee Benefit Plan with all applicable Governmental Authorities and has timely furnished all required documents to the participants or beneficiaries of each such Employee Benefit Plans. 5.31 Related Party Transactions. Except as disclosed on Schedule -------------------------- -------- 5.31, no director, officer or Affiliate of the Company or any of the - ---- Subsidiaries (including, without limitation, spouses, children and relatives of any of the foregoing) has been a party to any transaction, arrangement or agreement with the Company or any Subsidiary providing for the furnishing of services by or to or rental of real or personal property from or to, or otherwise requiring payments to or by any such person. No director or executive officer is the direct or indirect owner of a controlling interest in any business organization that is a competitor, a supplier or a customer of the Company or any Subsidiary. 5.32 Acknowledgment Regarding the Purchaser's Purchase of the -------------------------------------------------------- Securities. The Company acknowledges and agrees that the Purchaser is not acting - ---------- as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, and the relationship between the Company and the Purchaser is "arms length" and that, except for the representations and warranties and covenants of the Purchaser under this Agreement, any statement made by the Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated -20- hereby is not advice or a recommendation and is merely incidental to the Purchaser's purchase of Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further represents to the Purchaser that the Company's decision to enter into this Agreement has been based solely on an independent evaluation by the Company and its representatives. 5.33 Corporate Minute Books. The corporate records of the Company ---------------------- and each Subsidiary are correct and complete in all material respects. 5.34 Disclosure. (a) All information relating to or concerning the ---------- Company and the Subsidiaries set forth in this Agreement, including, without limitation, in the Schedules hereto, or provided to the Purchaser and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any Subsidiary or their respective businesses, properties, operations or financial conditions, which has not been publicly disclosed or which has not been disclosed to the Purchaser but, under applicable law, rule or regulation, would be required to be disclosed by the Company in a registration statement filed on the date hereof by the Company under the Securities Act with respect to an issuance of the Company's securities. (b) None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in any documents to be filed by the Company with the SEC or any other Governmental Entity in connection with the issue of the Securities hereunder and the other transactions contemplated hereby and under the Transaction Documents will, on the date of its filing, or, with respect to the Proxy Statement (as hereinafter defined), as supplemented if necessary, on the date it is sent or given to stockholders or at the time of the annual meeting of stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, that no -------- representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by the Purchaser specifically for inclusion or incorporation by reference therein. The Proxy Statement and any such other documents filed by the Company with the SEC or with any other Governmental Entity will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. 5.35 Fresh Air Solutions Liabilities. Except as disclosed on ------------------------------- Schedule 5.35, to the knowledge of the Company, there are no liabilities, - ------------- contingent or otherwise, for which the Company is or may be responsible that arose out of its position as General Partner and owner of Fresh Air Solutions, L.P., and its predecessors, or that arise out of the Company's current limited partnership interest in Fresh Air Solutions, L.P. -21- 6. Conditions of Parties' Obligations. ---------------------------------- 6.1 Conditions of the Purchaser's Obligations. The obligations of ----------------------------------------- the Purchaser under Section 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Purchaser. (a) Representations and Warranties Correct. The representations and -------------------------------------- warranties of the Company under this Agreement shall in all material respects be true on and as of the date hereof and on the Closing Date with the same force and effect as if they had been made on the Closing Date. (b) Compliance with Agreement. The Company shall have performed and ------------------------- complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date and, except for stockholder approval (which is governed by Section 7.11 hereof), shall have obtained all consents and approvals required for the consummation of the transactions contemplated hereby. (c) Certificate of Officer. The Company shall have delivered to the ---------------------- Purchaser a certificate dated the Closing Date, executed by its Chief Executive Officer, certifying the satisfaction of the conditions specified in paragraphs (a) and (b) of this Section 6.1. (d) Opinion of the Company's Counsel. The Purchaser shall have -------------------------------- received from Mesirov Gelman Jaffe Cramer & Jamieson, LLP, counsel for the Company, a favorable opinion dated the Closing Date substantially in the form of Annex 6.1(d) hereto. - ------------ (e) Certificates of Designation. The Certificates of Designation --------------------------- shall have been filed with the Secretary of State of the State of Delaware, and counsel for the Purchaser, Sidley & Austin, shall have received confirmation reasonably satisfactory to it that such filing has occurred. (f) Capital Ventures Transaction. On or prior to the Closing, the ---------------------------- Company and Capital Ventures International ("CVI"), the holder of $6,000,000 --- principal amount of the Company's Convertible Term Debentures and a Warrant to acquire a number of shares of Common Stock issued pursuant to the Securities Purchase Agreement dated as of January 28, 1999 between ICC Technologies, Inc. and CVI, shall have concluded the transactions contemplated by the Agreement dated as of May 28, 1999 between the Company (the "CVI Agreement"). Pursuant to ------------- the CVI Agreement, CVI's Debentures and Warrants will be cancelled in exchange for, or converted into or exercised for, 1,588,462 shares of Common Stock. (g) Qualification Under State Securities Laws. All registrations, ----------------------------------------- qualifications, permits and approvals required under applicable state securities laws shall have been obtained for the lawful execution, delivery and performance of this Agreement, including without limitation the offer and sale of the Securities. -22- (h) Supporting Documents. The Purchaser shall have received the -------------------- following: (i) Copies of resolutions of the Board of Directors of the Company, certified by the Secretary of the Company, authorizing and approving the filing of the Certificates of Designation, the execution, delivery and performance of this Agreement, the Escrow Agreement, the other Transaction Documents and all other documents and instruments to be delivered pursuant hereto and thereto; (ii) A certificate of incumbency executed by the Secretary of the Company (A) certifying the names, titles and signatures of the officers authorized to execute the documents referred to in subparagraph (i) above and (B) further certifying that the Certificate of Incorporation and By- laws of the Company delivered to the Purchaser at the time of the execution of this Agreement have been validly adopted and have not been amended or modified, except to the extent provided in the Certificates of Designation; and (iii) Such additional supporting documentation and other information with respect to the transactions contemplated by this Agreement as the Purchaser or its counsel, Sidley & Austin, may reasonably request. (i) Composition of Board. On the Closing Date, the Company's Board -------------------- of Directors shall be composed of Glenn S. Meyers, Jeffrey Killeen, Richard Liebhaber, Steven Winograd, Andrew D. Africk and Marc Rowan. (j) Fee. The Purchaser or its designees shall have received from the --- Company a fee equal to one percent (1%) of the Purchase Price, which may be paid out of the Purchase Price. (k) NASDAQ. The Company shall have received from NASD, and delivered ------ to the Purchaser, written advice that such body does not object to the transactions described herein and that, upon the obtaining of an approving vote of stockholders (as described in Section 7.11 below), the Company's Common Stock will continue to be eligible for listing on the Nasdaq National Market. (l) Escrow Agreement. The Escrow Agreement shall have been duly ---------------- executed and delivered by the Company and the Escrow Agent. (m) No Material Adverse Change. There shall have been no material -------------------------- adverse change in the business, properties, assets or condition (financial or otherwise) of the Company from and after the date of this Agreement, except for any such changes that are the effect or result of economic factors generally affecting the economy as a whole. (n) Consents and Waivers. The Company shall have obtained all -------------------- consents or waivers necessary to execute and perform its obligations under this Agreement, the Escrow -23- Agreement and the other Transaction Documents and documents contemplated herein, to issue the Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares, and to carry out the transactions contemplated hereby and thereby. All corporate and other action (other than stockholder approval) and governmental filings necessary to effectuate the terms of this Agreement, the Escrow Agreement, the other Transaction Documents, the Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares, and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken. (o) Employment Agreement. The employment agreement of the Company's -------------------- Chairman, CEO and President shall have been amended to implement the revised terms previously agreed with the Apollo Purchasers. 6.2 Conditions of Company's Obligations. The Company's obligations ----------------------------------- under Section 2 hereof are subject to the fulfillment prior to or on the Closing Date of the following conditions, any of which may be waived in whole or in part by the Company. (a) Representations and Warranties Correct. The representations and -------------------------------------- warranties of the Purchaser under this Agreement shall in all material respects be true on and as of the date hereof and on the Closing Date with the same force and effect as if they had been made on the Closing Date. (b) Compliance with Agreement. The Purchaser shall have performed ------------------------- and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date and shall have obtained all governmental consents and approvals required for the consummation of the transactions contemplated thereby. (c) Certificate of the Purchaser. The general partner of the ---------------------------- Purchaser shall have provided to the Company a certificate dated such closing date executed by a duly authorized officer thereof certifying a copy of the resolutions of the general partner approving this Agreement and the Transaction Documents, the satisfaction of the conditions specified in paragraphs (a) and (b) of this Section 6.2 and the names, titles and signatures of the persons authorized to execute this Agreement and the Transaction Documents to which the Purchaser is a party, and all other documents and instruments to be delivered pursuant hereto and thereto. (d) Opinion of the Purchaser's Counsel. The Company shall have ---------------------------------- received from Sidley & Austin, counsel for the Purchaser, a favorable opinion dated the Closing Date substantially in the form of Annex 6.2(d) hereto. ------------ (e) Operating Agreement. The Company shall have received a copy of ------------------- the operating agreement for the LLC, which shall be reasonably acceptable to the Company. -24- (f) Payment. The Company shall have received from the Apollo ------- Purchasers $50,000,000 of the Purchase Price. 6.3 Conditions of Each Party's Obligations. The respective -------------------------------------- obligations of each party to consummate the transactions contemplated hereunder are subject to the fulfillment prior to or on the Closing Date of all of the following conditions: (a) Absence of Litigation. The parties shall be satisfied as to the --------------------- absence of litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement or by the Transaction Documents. (b) HSR Act. The waiting period applicable to the consummation of ------- the transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated. 7. Covenants. The Company agrees that until the termination of this --------- Agreement pursuant to Section 12.3 below, the Company (and each of its Subsidiaries unless the context otherwise requires) will do the following: 7.1 Maintain Corporate Rights and Facilities. Maintain and preserve ---------------------------------------- its corporate existence and all rights, franchises, licenses, trademarks, service marks, trade names, copyrights and other authority reasonably deemed adequate by the Company for the conduct of its business; maintain its properties, equipment and facilities in good order and repair; and conduct its business in an orderly manner without voluntary interruption. 7.2 Maintain Insurance. Maintain in full force and effect a policy ------------------ or policies of insurance issued by insurers of recognized responsibility, insuring it and its properties and business against such losses and risks, and in such amounts, as are customary in the case of corporations of established reputation engaged in the same or a similar business. 7.3 Information Rights. ------------------ (a) Access to Records. ----------------- The Company shall, and shall cause each subsidiary to, afford to the Purchaser, the affiliates of the Purchaser and each of their respective officers, employees, advisors, counsel and other authorized representatives (collectively with the affiliates of the Purchaser, the "Representatives"), --------------- during normal business hours, reasonable access, upon reasonable advance notice, to all of the books, records and properties of the Company and such Subsidiary and all officers and employees of the Company and such Subsidiary. The Purchaser shall maintain the confidentiality of any confidential and proprietary information regarding the Company and its Subsidiaries; provided, however, that -------- ------- the foregoing shall in no way limit or otherwise restrict the ability of the Purchaser or any of its Representatives to disclose any such information concerning -25- the Company and each Subsidiary which it may be required to disclose (i) to its partners or limited partner to the extent required to satisfy its fiduciary obligations to such Persons, or (ii) otherwise pursuant to or as required by law. (b) Financial Reports. ----------------- For so long as the Apollo Purchasers beneficially own not less than 100,000 Series A Preferred Shares, the Company shall furnish to the Purchaser the following: (i) Monthly Reports. As soon as available, but not later --------------- than 30 days after the end of each fiscal month beginning with the report for the month of July 1999, a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income of the Company for such period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied (except for the absence of footnotes, and quarter-end and year-end adjustments). (ii) Quarterly Reports. As soon as available, but not later ----------------- than 45 days after the end of each quarterly accounting period, (A) a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income, cash flows and changes in stockholders' equity for such quarterly accounting period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied, subject to normal year-end adjustments and the absence of footnote disclosure, and (B) a report by management of the Company of the operating and financial highlights of the Company and its Subsidiaries for such period, which shall include (x) a comparison between operating and financial results and budget and (y) an analysis of the operations of the Company and its Subsidiaries for such period. (iii) Annual Audit. As soon as available, but not later than 90 ------------ days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company, which shall include statements of income, cash flows and changes in stockholders' equity for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the report of a "Big 5" firm of independent certified public accountants selected by the Company's Board of Directors (the "Accountants"). The ----------- -26- Company and its Subsidiaries shall maintain a system of accounting sufficient to enable its Accountants to render the report referred to in this Section 7.3(b)(iii). (iv) Miscellaneous. Promptly upon becoming available, each of ------------- the following: (A) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company or its Subsidiaries to its stockholders generally or released to the public and copies of all regular and periodic reports, if any, filed by the Company or its Subsidiaries with the SEC, any securities exchange or the NASD; (B) notification in writing of the existence of any default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound; (C) upon request, copies of all reports prepared for or delivered to the management of the Company or its Subsidiaries by its accountants; and (D) upon request, any other routinely collected financial or other information available to management of the Company or its Subsidiaries (including, without limitation, routinely collected statistical data). (c) Other Investors. Without duplication of any document or --------------- information provided pursuant to this Section 7.3, the Company shall provide to the Holders the following: (i) as soon as available, but not later than 45 days after the end of each quarterly accounting period, a Form 10-Q or, if the Company does not then file quarterly reports with the SEC, the documents referred to in Section 7.3(b)(ii). (ii) as soon as available, but not later than 90 days after the end of each fiscal year, a Form 10-K or, if the Company does not then file annual reports with the SEC, the audited consolidated financial statements referred to in Section 7.3(b)(iii). (iii) simultaneously with any distribution of any document to the stockholders of the Company generally, any such document so distributed. 7.4 Notice of Litigation, Disputes and Adverse Changes. Promptly -------------------------------------------------- notify the Purchaser of (i) each legal action, suit, arbitration or other administrative or governmental investigation or proceeding (whether federal, state, local or foreign) instituted or, to the Company's knowledge, threatened against the Company (or of any occurrence or dispute which involves a reasonable likelihood of any such action, suit, arbitration, investigation or proceeding being instituted), or (ii) any other occurrence or change of circumstance relating to the Company -27- which, in either such case, could reasonably be expected to materially and adversely affect the Company's condition (financial or otherwise), properties, assets, liabilities, business or operations (except for any changes that are the effect or result of economic factors generally affecting the economy as a whole). 7.5 Conduct of Business. Conduct its business in accordance with all ------------------- applicable provisions of federal, state, local and foreign law. 7.6 Compliance with Certificate of Incorporation and Bylaws. Perform ------------------------------------------------------- and observe all of its obligations to the holders of all of its securities set forth in the Company's Certificate of Incorporation and By-laws. 7.7 Internal Accounting Controls. Maintain a system of internal ---------------------------- accounting controls administered in accordance with generally accepted accounting principles. 7.8 Indemnification of the Board of Directors. Reimburse all ----------------------------------------- directors of the Company for their reasonable out-of-pocket expenses in connection with attending meetings of the Company's Board of Directors and all committees thereof and all reasonable out-of-pocket expenses otherwise incurred in fulfilling their duties as directors. The Company's By-Laws or charter shall at all times require the indemnification of all of the Company's directors against liability for actions and omissions to act in their capacity as directors of the Company to the maximum extent that such individuals may lawfully be so indemnified by the Company. 7.9 Use of Proceeds. The Company will use the proceeds from the sale --------------- of the Securities (including any such proceeds after they are released to the Company under the Escrow Agreement) to provide investment and acquisition capital, to repay indebtedness and for general corporate purposes. 7.10 Reservation of Common Stock. The Company shall reserve and keep --------------------------- available out of its authorized but unissued Common Stock or Non-Voting Common Stock (if any), as applicable, the number of shares required for issuance upon the conversion of all of the Preferred Shares and exercise of the Warrants (including any additional shares which may become so issuable by reason of the operation of anti-dilution provisions of the Certificates of Designation and the Warrants). 7.11 Advice of Changes; Filings; Proxy. (a) The Company shall confer --------------------------------- with the Purchaser on a regular and frequent basis as reasonably requested by the Purchaser, orally and, if requested by the Purchaser, in writing, with regard to any change that has had a Material Adverse Effect with respect to the Company or its Affiliates. The Company shall promptly provide to the Purchaser (or its counsel) copies of all filings made by the Company or any Affiliate with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby. -28- (b) The Company will, as soon as practicable following the date hereof, duly call, give notice of, convene and hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose of obtaining approval -------------------- for (A) the conversion of (i) Series B Preferred Shares into Series A Preferred Shares, (ii) Series 1-B Warrants into Series 1-A Warrants, (iii) Series 2-B Warrants into Series 2-A Warrants and (iv) the creation of the Non-Voting Common Stock, and (B) more generally, if necessary, the approval of this Agreement, the Escrow Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby. The Company will, through its Board of Directors, recommend to its stockholders that stockholder approval be given and the Company shall use its best efforts to cause each member of the Company's Board of Directors to vote his shares of Common Stock to approve the items set forth in clauses (A) and (B) of this paragraph (b). (c) The Company will, as soon as practicable following the date hereof, prepare and file a preliminary proxy or information statement (as amended, modified or supplemented, the "Proxy Statement") with the SEC and will --------------- use its best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to its stockholders as promptly as practicable after responding to all such comments to the satisfaction of the SEC staff. The Company will afford the Purchaser and its counsel an opportunity to review and comment upon any description of the Purchaser or its Affiliates, this Agreement, the Escrow Agreement, the other Transaction Documents or the transactions contemplated hereby and thereby set forth in the Proxy Statement (including all drafts or amendments thereto). The Purchaser shall provide the Company with all necessary information reasonably requested with respect to itself and its Affiliates solely for inclusion by the Company in the Proxy Statement. The Company will notify the Purchaser promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply the Purchaser with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement. If at any time prior to the Stockholders Meeting there shall occur any event that would be required, under the Exchange Act and the rules and regulations thereunder, to be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. 7.12 Future Offerings. From the Closing Date through June 30, 2004, ---------------- in connection with any offering or distribution to securityholders of the Company of rights to subscribe for or otherwise acquire shares of Common Stock (or securities exercisable or convertible for shares of Common Stock) or to acquire any asset of the Company, the Company shall provide the Apollo Purchasers the right to acquire any unsubscribed rights in any such offering or distribution. 8. Negative Covenants. The Company agrees that until the ------------------ termination of this Agreement pursuant to Section 12.3 below, the Company (and each of its Subsidiaries unless the -29- context otherwise requires) will not, without the consent of the Purchaser, do any of the following, except as specifically provided in this Agreement or the Transaction Documents: 8.1 No Solicitation. (a) From the date hereof through the Closing --------------- Date, the Company shall and shall cause each Subsidiary and its Subsidiaries' officers and directors to, and each of the foregoing shall cause their respective agents, representatives, advisors or subsidiaries, to cease any discussions or negotiations with any parties (other than the Purchaser) that may be ongoing with respect to (A) any acquisition or purchase of assets of the Company and its Subsidiaries other than in the ordinary course of business consistent with past practice, (B) the purchase of any equity security of the Company or any Subsidiary (including a self tender offer) or any security that is convertible, exchangeable or exercisable for any equity security, (C) any merger, consolidation, business combination, sale of substantially all assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any Subsidiary (other than a Permitted Acquisition), or (D) any other transaction the consummation of which would, or could reasonably be expected to, impede, interfere with, prevent or materially delay the transactions contemplated by this Agreement or which would, or could reasonably be expected to, materially dilute the benefits to the Purchaser of the transactions contemplated hereby (each of the foregoing items set forth in (A) through (D), an "Alternative Transaction"). From the date hereof through the Closing Date, ----------------------- the Company shall not, shall cause each Affiliate not to and shall not authorize or permit any of its or any such Person's officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative representing any such Person to, directly or indirectly, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal that may lead to an Alternative Transaction or (ii) participate in any discussions or negotiations with any third party regarding any proposed Alternative Transaction. (b) From the date hereof through the Closing Date, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify the approval or recommendation by such Board of Directors or such committee of this Agreement, the Transaction Documents or any of the transactions contemplated hereby or thereby, (ii) approve or recommend any Alternative Transaction or (iii) cause or permit the Company or any Affiliate to enter to any letter of intent, agreement in principle or other agreement with respect to an Alternative Transaction. (c) In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this Section 8.1, the Company shall promptly advise the Purchaser orally and in writing of any request for information or of any proposal or any inquiry regarding any Alternative Transaction, the material terms and conditions of such request, proposal or inquiry and the identity of the Person making such request, proposal or inquiry. The Company will keep the Purchaser fully informed of the status and details (including amendments or proposed amendments) of any such request, proposal or inquiry. -30- 8.2 Protective Provisions. For so long as the Apollo Purchasers --------------------- beneficially own not less than 100,000 Series A Preferred Shares, the Company shall not, and shall not permit any Subsidiary to, without the prior written consent of the Apollo Purchasers, which consent shall not be unreasonably withheld: (a) merge, consolidate, or amalgamate with any person or entity, except in connection with any Permitted Acquisition; (b) effect, approve or authorize any Liquidation of the Company or any recapitalization or reorganization of the Company or any Subsidiary; (c) directly or indirectly declare or pay any dividend or make any other distribution in respect thereof, or directly or indirectly redeem or repurchase any shares of capital stock of the Company, whether in cash or property or in obligations of the Company or any Subsidiary; provided, however, -------- ------- that the Company may declare or pay any dividend on, distribution upon or redemption of the Preferred Shares and the Warrants, in accordance with their terms and the provisions of this Agreement; (d) agree to, or permit any Subsidiary to agree to, any provision in any agreement that would impose any restriction on the ability of the Company to honor the exercise of any rights of the holders of the Preferred Shares or the Warrants; (e) enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate unless such transaction is (a) in the ordinary course of business of the Company and its Subsidiaries, and (b) upon fair and reasonable terms no less favorable to the Company and its Subsidiaries than they would obtain in a comparable arm's length transaction with a Person which is not an Affiliate; (f) materially alter or change the business of the Company or any Subsidiary as it is currently conducted or planned to be conducted (including related Internet ventures); (g) hire or fire, or amend the employment terms of, the Chief Executive Officer or the Chief Operating Officer of the Company; (h) acquire or dispose of any business or assets in a single transaction or a series of related transactions with an aggregate value in such transaction or series of related transactions in excess of $2,500,000 (including all assumed debt, all cash payments, and the fair market value of all securities or other property issued as consideration); (i) adopt any employee stock option plan or stock incentive plan, or alter any of the Company's equity incentive plan for executive officers; -31- (j) take any of the actions described in Section 7(d)(x)(i)(B), 7(d)(x)(ii) or 7(d)(x)(iii) of the Certificate of Designation of Series A Preferred Stock; or (k) agree or otherwise commit to take any of the actions set forth above. 8.3 No Purchase by Apollo Purchasers. The Apollo Purchasers shall not -------------------------------- purchase shares of Common Stock (other than pursuant to the exercise of Warrants or the conversion of Preferred Stock) that would have the effect of increasing the voting power of the Apollo Purchasers to more than 50% of the total voting power of the Common Stock, without the permission of the Company's Board of Directors. 9. Registration Rights. ------------------- 9.1 Certain Definitions. As used in this Article 9, the following ------------------- terms shall have the following respective meanings. "Holder" shall mean any Person that is the beneficial owner of Preferred Shares, Warrants, Conversion Shares or Warrant Shares as a result of the sale, assignment or other transfer of Securities originally issued to the Purchaser or issuable or issued upon the conversion or exercise of any such Securities. "Other Shares" means at any time those shares of Common Stock which do not constitute Primary Shares or Purchaser Shares. "Primary Shares" means at any time the authorized but unissued shares of Common Stock or shares of Common Stock held by the Company in its treasury. "Purchaser Shares" means at any time, without duplication, (i) the Conversion Shares and Warrant Shares issuable upon conversion of Series A Preferred Shares and exercise of the Series 1-A or Series 2-A Warrants and (ii) the shares of Common Stock or Non-Voting Common Stock, as the case may be, consisting of Conversion Shares and Warrant Shares, in each case beneficially owned by the Purchaser or any Holder. As to any particular Purchaser Shares, once issued, such Purchaser Shares shall cease to be Purchaser Shares when (a) a registration statement with respect to the sale by the Purchaser of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) such securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) such securities shall have been otherwise transferred, new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any state securities or "blue sky" law then in force, or (d) such securities shall have ceased to be outstanding. -32- "Selling Investor" means the Purchaser or any Holder that sells or proposes to sell Purchaser Shares pursuant to a registration statement hereunder. "Selling Investors' Counsel" means counsel selected by the holders of a majority of the Purchaser Shares to be sold pursuant to a particular registration statement. 9.2 Demand Registration. ------------------- (a) If the Company shall be requested in writing by the Purchaser, or by Holders who beneficially own at least 7,000,000 Purchaser Shares, to effect a registration under the Securities Act of Purchaser Shares in accordance with this Section 9.2, then the Company shall promptly give written notice of such proposed registration to the Purchaser and all Holders and shall offer to include (subject to the terms of this Agreement) in such proposed registration any Purchaser Shares requested to be included in such proposed registration by such holders who respond in writing to the Company's notice within 15 days after delivery of such notice (which response shall specify the number of Purchaser Shares proposed to be included in such registration and the intended method of distribution, which may be pursuant to a shelf registration). Such written registration request shall specify the approximate number of Purchaser Shares requested to be registered and the anticipated per share price range for such offering. The Company shall promptly use its best efforts to effect such registration on an appropriate form under the Securities Act of the Purchaser Shares which the Company has been so requested to register; provided, however, -------- ------- that the Company shall not be obligated to effect any registration under the Securities Act except in accordance with the following provisions: (i) the Company shall not be obligated to file a registration statement pursuant to this Section 9.2 prior to the first anniversary of the Closing Date unless (x) a Person other than the Purchaser or a Holder exercises a demand registration right (in which case the Company must immediately comply with any demand made hereunder) other than the registration rights referred to in Section 6.1(f) hereof or (y) executive officers (as such term is defined in Rule 3b-7 under the Exchange Act) of the Company shall have sold an aggregate of 850,000 or more shares of Common Stock from and after the Closing Date or (z) Glenn Meyers shall have sold an aggregate of 600,000 or more shares of Common Stock from after the Closing Date; (ii) the Company shall not be obligated to file more than (a) three registration statements in total pursuant to this Section 9.2 plus (b) one additional registration statement registering all Purchaser Shares then owned by the Purchaser, subject to paragraph (c) below; (iii) the Company shall not be obligated to file or cause to be declared effective any registration statement during any period in which (A) any other registration statement (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto) pursuant to which Primary Shares are to be or were sold has -33- been filed and not withdrawn or has been declared effective within the prior 180 days, provided, that the Company shall use reasonable efforts to -------- achieve a shorter period or to have such restrictions released in less than 180 days or (B) the Company has determined in good faith that the filing of a registration statement would require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential, such filing to be delayed until the date which is 90 days after such request for registration pursuant to this Section 9.2; provided that the Company may only so delay the filing or -------- effectiveness of a registration statement pursuant to this Section 9.2(a)(iii)(B) on one occasion during any twelve month period; (iv) with respect to the registration pursuant to this Section, the Company may include in such registration any Primary Shares or Other Shares; provided, however, that if the managing underwriter advises the -------- ------- Company in writing that the inclusion of all Purchaser Shares, Primary Shares and Other Shares proposed to be included in such registration would adversely affect the successful marketing (including pricing) of all such securities, then the number of Purchaser Shares, Primary Shares and Other Shares proposed to be included in such registration shall be included in the following order: (A) First, the Purchaser Shares held by all Selling Investors, ----- pro rata based upon the number of Purchaser Shares owned by each such --- ---- Selling Investor at the time of such registration; (B) Second, the Primary Shares; and ------ (C) Third, the Other Shares. ----- (b) The Person requesting a registration pursuant to this Section may, in the notice delivered pursuant to paragraph (a) above, elect that such registration cover an underwritten offering. Upon such election, such Person shall elect one or more nationally recognized firms of investment banks to act as the managing underwriters and shall select any additional investment banks to be used in connection with such offering, provided that such investment banks must be reasonably satisfactory to the Company. The Company shall, together with Selling Investors, if it proposes to sell Primary Shares in such offering, enter into a customary underwriting agreement with such underwriters. (c) A requested registration under this Section 9.2 may be rescinded by written notice to the Company by the Selling Investors holding a majority of the Purchaser Shares to be included in such registration under the following circumstances: (A) If such registration statement is rescinded prior to the filing date, such rescinded registration shall not count as a registration statement initiated pursuant to this Section 9.2 for purposes of paragraph (a) above; -34- (B) If such registration statement is rescinded after the filing date but prior to its effective date, such rescinded registration shall not count as a registration statement initiated pursuant to this Section 9.2 for purposes of paragraph (a) above if the Selling Investors (x) have reimbursed the Company for all out-of-pocket expenses incurred by the Company in connection with such rescinded registration or (y)(1) reasonably believed that the registration statement contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein not misleading, (2) notified the Company of such fact and requested that the Company correct such alleged misstatement or omission and (3) the Company has refused to correct such alleged misstatement or omission; and (C) A registration shall not count as a registration statement initiated pursuant to this Section for purposes of paragraph (a) above unless it becomes effective and either (i) the Selling Investors are able to sell at least 80% of the Purchaser Shares sought to be included in such registration statement or (ii) such registration statement is kept effective for at least 180 days prior to such rescission notice. 9.3 Piggyback Registration. If at any time the Company proposes for ---------------------- any reason to register Primary Shares or Other Shares under the Securities Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto and other than with respect to the registration statement originally filed in April 1999 for CVI and others) including, without limitation, any registration pursuant to the exercise of the demand registration rights of any Person other than the Purchaser or any other Holder, on any form that would also permit the registration of Purchaser Shares, promptly give written notice to the Purchaser and the Holders of its intention to so register the Primary Shares or Other Shares and, upon the written request, given within 15 days after delivery of any such notice by the Company, of the Purchaser or any Holder to include in such registration Purchaser Shares held by such Person (which request shall specify the number of Purchaser Shares proposed to be included in such registration), the Company shall use its best efforts to cause all such Purchaser Shares to be included in such registration on the same terms and conditions as the securities otherwise being sold in such registration provided, however, that if at any time after giving written notice of its - -------- ------- intention to register any securities, and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Company may, at its election, give written notice of such determination to each Holder of Purchaser Shares and, thereupon, shall be relieved of its obligation to register any Purchaser Shares in connection with such registration; and, provided further, however, that if the ---------------- ------- managing underwriter advises the Company that the inclusion of all Purchaser Shares or Other Shares proposed to be included in such registration would interfere with the successful marketing (including pricing) of the Primary Shares proposed to be registered by the Company, then the number of Primary Shares, Purchaser -35- Shares and Other Shares proposed to be included in such registration shall be included in the following order: (a) first, the Primary Shares; and ----- (b) second, the Other Shares (other than those shares of Common Stock ------ which are not subject to any registration rights agreement) and the Purchaser Shares requested to be included in such registration, pro rata based upon the --- ---- number of shares of Common Stock requested to be included in such registration (assuming conversion of Preferred Shares and exercise of Warrants, as applicable) owned by each such seller at the time of such registration. In connection with any underwritten offering under this Section 9.3, the Company shall not be required to include Purchaser Shares in such underwritten offering unless the Holders of such Purchaser Shares accept the terms of the underwriting of such offering that have been agreed upon between the Company and the underwriters selected by the Company, including without limitation, the underwriting agreement and the fees and expenses in connection therewith. 9.4 S-3 Registrations. If (i) at any time following the earlier of ----------------- (A) the first anniversary of the Closing Date and (B) the occurrence of either of the events described in Section 9.2(a)(i)(y) or (z) the Purchaser, or Holders who beneficially own at least 7,000,000 Purchaser Shares, or (ii) at any time from and after the second anniversary of the Closing Date, the Apollo Purchasers, request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the Purchaser Shares held by such Persons, and (iii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Purchaser Shares specified in such notice provided that, if so requested by the Apollo -------- ---- Purchasers, at all times from and after the Closing Date the Company shall maintain a registration statement on Form S-3 covering Common Stock with a market value of not less than $125,000,000. Whenever the Company is required by this Section 9.4 to use its best efforts to effect the registration of Purchaser Shares, each of the procedures and requirements of Section 9.2 (including but not limited to the requirement that the Company notify all holders of Restricted Shares from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 9.4 within six months, provided, that the Company shall -------- use reasonable efforts to achieve a shorter period or have such restrictions released in less than six months after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering in which the holders of Purchaser Shares shall have been entitled to join pursuant to Section 9.2 or 9.3 in which there shall have been effectively registered all Purchaser Shares as to which registration shall have been requested. There is no limitation on the number of registrations pursuant to this Section 9.4 that the Company is obligated to effect. -36- 9.5 Expenses. The Company shall bear the expense of any -------- registrations effected pursuant to Sections 9.2, 9.3 and 9.4 including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), fees and expenses of complying with securities and blue sky laws, printing expenses, and fees and expenses of the Company's counsel and accountants, and the fees and expenses of the Selling Investors' Counsel, but excluding any underwriters' or brokers' discounts or commissions, transfer taxes (to the extent that such taxes are required by law to be paid by the Selling Investors) and the fees of any counsel to any Selling Investor, other than the Selling Investors' Counsel (it being understood that the fees and expenses of any underwriter and such underwriter's counsel shall be the responsibility of such underwriter and the Selling Investors). 9.6 Preparation and Filing. If and whenever the Company is under an ---------------------- obligation pursuant to the provisions of this Agreement to use its best efforts to effect the registration of any Purchaser Shares under the Securities Act, the Company shall, as expeditiously as practicable: (a) with respect to a registration under Sections 9.2, 9.3 and 9.4, use its best efforts to cause a registration statement that registers such Purchaser Shares to become and remain effective for a period of 180 days or until all of such Purchaser Shares have been disposed of (if earlier), provided, --------- however, that the Company may discontinue any registration of its securities - ------- that is being effected pursuant to Section 9.3 hereof at any time prior to the effective date of the registration statement relating thereto; (b) furnish, at least five business days before filing a registration statement that registers such Purchaser Shares, a prospectus relating thereto or any amendments or supplements relating to such a registration statement or prospectus, to each holder of Purchaser Shares, to any Selling Investors and to the Selling Investors' Counsel, copies of all such documents proposed to be filed with the SEC (it being understood that such five-business-day period need not apply to successive drafts of the same document proposed to be filed so long as such successive drafts are supplied to such counsel in advance of the proposed filing by a period of time that is customary and reasonable under the circumstances); (c) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for at least the periods set forth in Section 9(a) or until all of such Purchaser Shares have been disposed of (if earlier) and to comply with the provisions of the Securities Act with respect to the registration of the sale or other disposition of such Purchaser Shares; (d) notify in writing the Selling Investors promptly (i) of the receipt by the Company of any notification with respect to any comments by the SEC with respect to such registration statement or prospectus or any amendment or supplement thereto or any request by the SEC for the amending or supplementing thereof or for additional information with respect -37- thereto, (ii) of the receipt by the Company of any notification with respect to the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or prospectus or any amendment or supplement thereto or the initiation or threatening of any proceeding for that purpose and (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of such Purchaser Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes; (e) use its best efforts to register or qualify such Purchaser Shares covered by such registration statement under such other securities or blue sky laws of such jurisdictions as any Selling Investor reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Investor to consummate the disposition in such jurisdictions of the Purchaser Shares owned by such Selling Investor; provided, -------- however, that the Company will not be required to qualify generally to do - ------- business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required so to do but for this paragraph (e); (f) furnish to each Selling Investor such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Selling Investor may reasonably request in order to facilitate the public sale or other disposition of such Purchaser Shares; (g) use its best efforts to cause such Purchaser Shares to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Purchaser Shares; (h) notify on a timely basis each Selling Investor at any time when a prospectus relating to such Purchaser Shares is required to be delivered under the Securities Act within the appropriate period mentioned in paragraph (a) of this Section, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, included an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and, at the request of such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the offerees of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (i) make available for inspection by any counsel to any Selling Investor and the Selling Investors' Counsel or any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such -38- underwriter (collectively, the "Inspectors"), all pertinent financial and other ---------- records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them ------- to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information (together with the Records, the "Information") reasonably requested by any such Inspector in ----------- connection with such registration statement. Any of the Information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed by the Inspectors unless (i) the disclosure of such Information is necessary to avoid or correct a misstatement or omission of a material fact in the registration statement, (ii) the release of such Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) such Information has otherwise been made generally available to the public. The Selling Investor agrees that it will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Information deemed confidential; (j) use its best efforts to obtain from its independent certified public accountants "comfort" letters in customary form and at customary times and covering matters of the type customarily covered by comfort letters; (k) use its best efforts to obtain from its counsel an opinion or opinions in customary form; (l) provide a transfer agent and registrar (which may be the same entity and which may not be the Company) for such Purchaser Shares; (m) issue to any underwriter to which any Selling Investor may sell shares in such offering certificates evidencing such Purchaser Shares; provided, -------- however, that the Company shall have the right to approve any such underwriter - ------- in connection with an underwritten offering pursuant to Section 9.2 hereof, with such approval not to be unreasonably withheld, and the Company shall have the right to select such underwriter in connection with an underwritten offering pursuant to Section 9.3 hereof; (n) list such Purchaser Shares on any national securities exchange on which any shares of the Common Stock are listed or on Nasdaq if then included, or if the Common Stock is not then listed on a national securities exchange or on Nasdaq, use its best efforts to qualify such Purchaser Shares for inclusion on such national securities exchange or Nasdaq as the holders of a majority of such Purchaser Shares shall request; (o) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and, if required under such rules and regulations, make available to its security holders, as soon as reasonably practicable, earnings statements (which need not be audited) covering a period of 12 months beginning within three months after the effective date of -39- the registration statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act; (p) use its best efforts to take all other steps necessary to effect the registration of such Purchaser Shares contemplated hereby; and (q) use its best efforts to make available its senior executive and financial officers to participate at the reasonable request of any underwriter in marketing presentations to potential investors. 9.7 Indemnification. --------------- (a) In connection with any registration of any Purchaser Shares under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless each Selling Investor, its officers and directors, each underwriter, broker or any other person acting on behalf of such seller and each other person, if any, who controls any of the foregoing persons within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, (or actions in respect thereof) to which any of the foregoing persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the registration statement under which such Purchaser Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein or otherwise filed with the SEC, any amendment or supplement thereto or any document incident to registration or qualification of any Purchaser Shares, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such seller, such officer or director, such underwriter, such broker or such other person acting on behalf of such seller and each such controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company -------- ------- shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, preliminary prospectus, final prospectus, amendment, supplement or document incident to registration or qualification of any Purchaser Shares in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller or underwriter specifically for use in the preparation thereof; provided, further, -------- ------- that with respect to any prospectus, the foregoing indemnity shall not inure to the benefit of (a) any underwriter or, in the case of a registration statement filed with respect to an offering which is not an underwritten offering, any Selling Investor, from whom the person asserting any losses, claims, damages and liabilities and judgments purchased Purchaser Shares or (b) any person controlling such underwriter or Selling Investor, if (i) a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was required by law to have been delivered by such underwriter or Selling Investor (as applicable), (ii) the prospectus had not been sent or given by or on behalf of such underwriter or Selling Investor (as -40- applicable), (ii) the prospectus had not been sent or given by or on behalf of such underwriter or Selling Investor (as applicable) to such person with or prior to a written confirmation of the sale of the Purchaser Shares to such person, (iii) the prospectus (as so amended and supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or judgment and (iv) such failure to deliver the prospectus (as so amended and supplemented) was not the result of noncompliance by the Company with Section 9.6(f) hereof. (b) In connection with any registration of Purchaser Shares under the Securities Act pursuant to this Agreement, each Selling Investor shall indemnify and hold harmless (in the same manner and to the same extent as set forth in the preceding paragraph of this Section) the Company, each director of the Company, each officer of the Company who shall sign such registration statement, each underwriter, broker or other person acting on behalf of the Company or such seller, each person who controls any of the foregoing persons within the meaning of the Securities Act and each other Selling Investor under such registration statement with respect to any statement or omission from such registration statement, any preliminary prospectus or final prospectus contained therein or otherwise filed with the SEC, any amendment or supplement thereto or any document incident to registration or qualification of any Purchaser Shares, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company or such underwriter through an instrument duly executed by such seller specifically for use in connection with the preparation of such registration statement, preliminary prospectus, final prospectus, amendment, supplement or document; provided, however, that the -------- ------- obligation to indemnify will be several, not joint and several, among such Selling Investors, and the maximum amount of liability in respect of such indemnification shall be in proportion to and limited to, in the case of each Selling Investor, an amount equal to the net proceeds actually received by such seller from the sale of Purchaser Shares effected pursuant to such registration. (c) The Indemnification required by this Section 9.7 will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred, subject to prompt refund in the event any such payments are determined not to have been due and owing hereunder. (d) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding paragraphs of this Section 9.7, such indemnified party will, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action (it being understood that no delay in delivering or failure to deliver such notice shall relieve the indemnifying persons from any liability or obligation hereunder unless (and then solely to the extent that) the indemnifying person is prejudiced by such delay and/or failure). In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its -41- election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof; provided, however, that if any -------- ------- indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section 9.7, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying party shall reimburse such indemnified party and any person controlling such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity agreement provided in this Section 9.7. (e) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of securities. (f) If the indemnification provided for in this Section 9.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Investors agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by pro --- rata allocation or by any other method of allocation which did not take into - ---- account the equitable considerations referred to herein. The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to above shall be deemed to include, subject to the limitation set forth in Section 9.7(c), any legal or other expenses reasonably incurred in connection with investigating or defending the same. Notwithstanding the foregoing, in no event shall the amount contributed by a Selling Investor exceed the aggregate net offering proceeds received by such seller from the sale of its Purchaser Shares. -42- 9.8 Underwriting Agreement. Notwithstanding the provisions of ---------------------- Section 9.6 and 9.7, to the extent that the Company and the Selling Investors shall enter into an underwriting or similar agreement, which agreement contains provisions covering one or more issues addressed in such Sections, the provisions contained in such Sections addressing such issue or issues shall be superseded with respect to such registration by such other agreement. 9.9 Information From Selling Investors. The Selling Investors shall --------------------------------- furnish to the Company such written information regarding such Selling Investors and the distribution proposed by such Selling Investors as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 9.10 Exchange Act Compliance. The Company shall comply with all of ----------------------- the reporting requirements of the Exchange Act and with all other public information reporting requirements of the SEC which are conditions to the availability of Rule 144 for the sale of the Common Stock. The Company shall cooperate with the Purchaser and Holders supplying such information as may be necessary for the Purchaser and Holders to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of Rule 144. 9.11 No Conflicting Registration Rights. The Company represents and ---------------------------------- warrants to the Purchaser that the registration rights granted hereby do not conflict with any other registration rights granted by the Company. The Company shall not, after the date hereof, grant any registration rights which conflict with the registration rights granted hereby, or agree to any registration rights that restrict the ability of the Purchaser or the Holders to piggy-back on other registration statements (except pursuant to standard cut-back provisions). 9.12 Registration Rights Regarding the Non-Voting Common Stock. To the --------------------------------------------------------- extent that the Purchaser Shares shall consist of Non-Voting Common Stock, the Company hereby grants the holders of such Purchaser Shares the same registration rights and related rights and privileges with respect to the Non-Voting Common Stock as provided by this Article 9 with respect to the Common Stock. 10. Definitions. Unless the context otherwise requires, the terms ----------- defined in this Section 10 shall have the meanings specified for all purposes of this Agreement. Except as otherwise expressly provided, all accounting terms used in this Agreement, whether or not defined in this Section 10, shall be construed in accordance with United States generally accepted accounting principles. If and so long as the Company has one or more Subsidiaries, such accounting terms shall be determined on a consolidated basis for the Company and each of its Subsidiaries, and the financial statements and other financial information to be furnished by the Company pursuant to this Agreement shall be consolidated and presented with consolidating financial statements of the Company and each of its Subsidiaries. -43- "Alternative Transaction" shall have the meaning assigned to it in ----------------------- Section 8.1 hereof. "Affiliate" shall mean any Person that directly or indirectly --------- controls, is controlled by, or is under common control with, the indicated Person. "Agent" of a Person shall mean any officer, director, employee, agent, ----- partner stockholder or Affiliate of such Person. "Agreement" shall mean this Agreement. --------- "Apollo Purchasers" shall have the meaning assigned it in the ----------------- introductory paragraph of this Agreement. Certificate of Incorporation" shall have the meaning assigned to it in ---------------------------- Section 1 hereof. "Closing" shall have the meaning assigned to it in Section 3 hereof. ------- "Closing Date" shall have the meaning assigned to it in Section 3 ------------ hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- "Common Stock" shall have the meaning assigned to it in Section 1 ------------ hereof. "Company Intellectual Property "shall have the meaning assigned to it ------------------------------ in Section 5.17(a) hereof. "Conversion Shares" shall mean the shares of Common Stock or Non- ----------------- Voting Common Stock, as the case may be, issuable upon conversion of the Preferred Shares. "Employee Benefit Plans" shall have the meaning assigned to it in ---------------------- Section 5.30 hereof. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended. "Encumbrances" shall have the meaning assigned to it in Section 5.2 ------------ hereof. "Equity Security" shall mean any stock of the Company or any security --------------- convertible, with or without consideration, into any such stock, or any security carrying any warrant or right to subscribe to or purchase any such stock, or any such warrant or right. -44- "Escrow Agreement" shall have the meaning assigned to it in Section 2 ---------------- hereof. "Exchange Act" shall have the meaning assigned to it in Section 4.3 ------------ hereof. "Existing Agreement" shall have the meaning assigned to it in the ------------------ recitals. "Governmental Entity" shall mean any national, federal, state, ------------------- municipal, local, territorial, foreign or other government or any department, commission, board, bureau, agency, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal. "Hazardous Substances "shall have the meaning assigned to it in --------------------- Section 5.27 hereof. "Holder" shall have the meaning assigned to it in Section 9.1. ------ "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act ------- of 1976, as amended. "Intellectual Property "shall have the meaning assigned to it in ---------------------- Section 5.17(a) hereof. "LLC" shall have the meaning assigned to it in the preamble. --- "Liquidation" means any voluntary or involuntary liquidation, ----------- dissolution, or winding up of the affairs of the Company, other than any dissolution, liquidation or winding up in connection with any reincorporation of the Company in another jurisdiction. "Material Adverse Effect" shall have the meaning assigned to it in ----------------------- Section 5.3 hereof. "Nasdaq" shall have the meaning assigned to it in Section 5.10. ------ "Nasdaq National Market" shall have the meaning assigned to it in ---------------------- Section 5.16. "Non-Voting Common Stock" shall have the meaning assigned to it in ----------------------- Section 1 hereof. "Permitted Acquisition" means any acquisition by the Company or any --------------------- Subsidiary of (i) any business or assets with a purchase price of $2,500,000 or less (including all assumed debt, all cash payments, and the fair market value of all securities or other property issued as consideration) or (ii) any business or assets for which the consent or approval of the Purchaser has been given. -45- "Person" shall include all natural persons, corporations, business ------ trusts, associations, companies, partnerships, joint ventures and other entities and governments and agencies and political subdivisions. "Preferred Shares" shall have the meaning assigned to it in Section 1 ---------------- hereof. "Proxy Statement" shall have the meaning assigned to it in Section --------------- 7.11 hereof. "Purchase Price" shall have the meaning assigned it in Section 2 -------------- hereof. "Purchaser" shall have the meaning assigned it in the introductory --------- paragraph of this Agreement. "Rare Medium Note" shall have the meaning assigned to it in Section ---------------- 5.28 hereof. "Real Property" shall have the meaning assigned to it in Section 5.7 ------------- hereof. "Requisite Holders" shall mean the Apollo Purchasers so long as the ----------------- Total Attributable Share Percentage of the Apollo Purchasers is 50% or greater, and thereafter the Apollo Purchasers and such Holders as beneficially own in the aggregate 50% or more of the Securities. "SEC" shall mean the Securities and Exchange Commission. --- "SEC Documents" shall have the meaning assigned to it in Section 5.8 ------------- hereof. "Securities" shall have the meaning assigned to it in Section 1 ---------- hereof. "Securities Act" or "Act" shall mean the Securities Act of 1933, as -------------- amended. "Stockholders Meeting" shall have the meaning assigned to it in -------------------- Section 11.1 hereof. "Subsidiary" shall mean any corporation, association or other business ---------- entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled directly or indirectly by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. "Total Attributable Share Percentage" shall mean, for any Person on ----------------------------------- any date on which such calculation is to be made, the result obtained when the Total Attributable Shares beneficially owned by such Person on such date is divided by the Total Attributable Shares owned by such Person on the Closing Date (plus, the number of Securities acquired through the payment -46- of dividends in accordance with the Certificates of Designation through such date), expressed as a percentage. "Total Attributable Shares" shall mean, as to any Person on any date ------------------------- on which such amount is to be determined, the sum obtained by adding (a) the number of Conversion Shares and Warrant Shares beneficially owned by such Person on such date plus (b) the number of Conversion Shares into which the Preferred ---- Shares beneficially owned by such Person on such date may be converted plus (c) ---- the number of Warrant Shares issuable in respect of Warrants beneficially owned by such Person on such date. If Total Attributable Shares is being calculated prior to the approval by the Company's stockholders of the transactions contemplated by this Agreement (as described in Section 7.11(b) above), then (b) and (c) in the previous sentence shall be calculated by assuming that such approval has been obtained and that Series B Preferred Shares have been converted into Series A Preferred Shares, Series 1-B Warrants have been converted into Series 1-A Warrants, Series 2-B Warrants have been converted into Series 2-A Warrants and, in each case, are fully convertible or exercisable at the then conversion or exercise price. Immediately following the Closing, based on the assumption in the preceding sentence, the number of Total Attributable Shares will be 36,436,114. "Transaction Documents" means this Agreement, the Escrow Agreement, --------------------- the Certificates of Designation, the Warrants and Preferred Stock issued hereunder and any other instruments or agreements executed in connection herewith or therewith. "Warrants" shall have the meaning assigned to it in Section 1 hereof. -------- "Warrant Shares" shall have the meaning assigned to it in Section 1 -------------- hereof. "Warrant Stock" shall have the meaning assigned to it in Section 1 ------------- hereof. "Year 2000 Compliant" shall have the meaning assigned to it in Section ------------------- 5.25 hereof. 11. Enforcement. ----------- 11.1 Remedies at Law or in Equity. If any representation or warranty ---------------------------- made by or on behalf of the Company, on the one hand, or the Purchaser, on the other hand, in this Agreement or in any certificate, report or other instrument delivered under or pursuant to any term hereof shall be untrue or misleading in any material respect as of the date of this Agreement or as of the Closing Date or as of the date it was made, furnished or delivered, or any covenant made by either party hereto shall be breached by such party, the Purchaser or any Holder, on the one hand, or the Company on the other hand, may proceed to protect and enforce its rights by suit in equity or action at law, whether for the specific performance of any term contained in this Agreement, the Escrow Agreement, or the Certificates of Designation or the Warrants or for an injunction against the breach of any such term or in aid of the exercise of any power granted in -47- this Agreement, the Escrow Agreement, or the Certificates of Designation or the Warrants, or to enforce any other legal or equitable right of the Purchaser or such Holder, on the one hand, or the Company on the other hand, or to take any one or more of such actions. In the event the Purchaser or any Holder brings such an action against the Company or the Company brings an action against the Purchaser arising under this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, the Escrow Agreement, the Certificates of Designation or the Warrants, including without limitation such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 11.2 Cumulative Remedies. None of the rights, powers or remedies ------------------- conferred upon the Purchaser or any Holder on the one hand, or the Company on the other hand, shall be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy, whether conferred hereby or by the Escrow Agreement, the Certificates of Designation or the Warrants or now or hereafter available at law, in equity, by statute or otherwise. 11.3 No Implied Waiver. Except as expressly provided in this ----------------- Agreement, no course of dealing between the Company and the Purchaser or any Holder and no delay in exercising any such right, power or remedy conferred hereby or by the Escrow Agreement, the Certificates of Designation or the Warrants or now or hereafter existing at law in equity, by statute or otherwise, shall operate as a waiver of, or otherwise prejudice, any such right, power or remedy. 12. Miscellaneous. ------------- 12.1 Waivers and Amendments. Upon the approval of the Company and ---------------------- the written consent of the Requisite Holders (a) the obligations of the Company and the rights of the Purchaser and the Holders under this Agreement or the Escrow Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and (b) the Company may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or the Escrow Agreement, or of any supplemental agreement or modifying in any manner the rights and obligations hereunder or thereunder of the Purchaser, the Holders and the Company. The foregoing notwithstanding, no such waiver or supplemental agreement shall (a) affect any of the rights of any holder of a Security created by the Certificates of Designation, the Warrants or by the Delaware General Corporation Law without compliance with all applicable provisions of the Certificates of Designation, the Warrants and the Delaware General Corporation Law, or (b) reduce the aforesaid fraction of Preferred Shares or Warrants, as the case may be, the -48- holders of which are required to consent to any waiver or supplemental agreement, without the consent of the holders of all the Preferred Shares or Warrants, respectively. Upon the effectuation of each such waiver or supplemental agreement, the Company shall promptly give written notice thereof to the Purchaser and the Holders who have not previously consented thereto in writing. Neither this Agreement nor the Escrow Agreement, nor any provision hereof or thereof, may be changed, waived, discharged or terminated orally or by course of dealing, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this Section 12.1. 12.2 Notices. All notices, requests, consents and other ------- communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by registered or certified mail, (a) If to the Apollo Purchaser: Apollo Investment Fund IV, L.P. c/o Apollo Management, L.P. 1301 Avenue of the Americas 38th Floor New York, NY 10019 Attention: Andrew D. Africk Telecopy No.: (212) 261-4071 with copies to: Sidley & Austin 875 Third Avenue New York, NY 10022 Attention: Daniel G. Kelly, Jr. Telecopy No.: (212) 906-2021 or (b) If to the other persons or entities party to this Agreement, at the address specified on its respective signature page hereof. or (c) If to the Company: Rare Medium Group, Inc. 44 West 18th Street 6th Floor New York, NY 10011 -49- Attention: Glenn S. Meyers Telecopy No.: (917) 217-1111 with a copy to: Mesirov Gelman Jaffe Cramer & Jamieson, LLP 1735 Market Street Philadelphia, PA 19103 Attention: Richard P. Jaffe Telecopy No.: (215) 994-1046 or at such other address as the Company or the Purchaser each may specify by written notice to the other, and each such notice, request, consent and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid. 12.3 Termination of Agreement. This Agreement may be terminated ------------------------ prior to the Closing as follows: (a) by mutual consent of the Purchaser and the Company; (b) at the election of the Company, if any one or more of the conditions to its obligations has not been fulfilled as of 75 days following the date hereof; (c) at the election of the Purchaser, if any one or more of the conditions to its obligations has not been fulfilled as of 75 days following the date hereof; (d) at the election of the Company, if the Purchaser has breached any material representation, warranty, covenant or agreement contained in this Agreement; or (e) at the election of the Purchaser, if the Company has breached any material representation, warranty, covenant or agreement contained in this Agreement. If the Closing shall occur, this Agreement shall remain in effect until the later of (i) the date upon which no Preferred Shares or Warrants shall remain outstanding and (ii) the date upon which all Conversion Shares or Warrant Shares eligible to be sold pursuant to a registration statement under Article 9 shall have been sold. In the event that the Company or the Purchaser, as the case may be, elects to terminate this Agreement, it shall deliver an irrevocable notice to the other party to this -50- Agreement declaring its election to so terminate this Agreement in accordance with the provisions of this Section 12.3, and setting form therein the basis for such termination. 12.4 Indemnification. The Company shall indemnify, save and hold --------------- harmless the Purchaser, its directors, officers, employees, partners, representatives and agents from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from (i) the execution, delivery and performance of this Agreement and the Transaction Documents and the transactions contemplated thereby, and (ii) the Purchaser's role with the Company or such transactions, in each case, except to the extent of any wilful misconduct or gross negligence of the indemnified party. This indemnification provision shall be in addition to the rights of the Purchaser to bring an action against the Company for breach of any term of this Agreement and the Transaction Documents. 12.5 Allocation of Purchase Price. The Company and the Purchaser ---------------------------- hereby acknowledge that for the purposes of Section 1273(c)(2) of the Code, the Warrants are a part of an investment unit with the Preferred Shares and that the allocated purchase price of the Warrants for such purposes shall be mutually determined by the parties hereto. The Company and the Purchaser agree to use the foregoing allocated purchaser price as the purchase price of the Warrants for all income tax purposes. 12.6 Survival of Representations and Warranties, etc. All ----------------------------------------------- representations and warranties made in, pursuant to or in connection with this Agreement shall survive for two years following the Closing Date, notwithstanding any investigation at any time made by or on behalf of the Purchaser, and the sale and purchase of the Securities and payment therefor; and all statements contained in any certificate, instrument or other writing delivered by or on behalf of the Company pursuant hereto or in connection with or contemplation of the transactions herein contemplated shall constitute representations and warranties by the Company hereunder. If this Agreement is terminated and the transactions contemplated hereby are not consummated as described above, this Agreement shall become void and of no further force and effect. None of the parties hereto shall have any liability in respect of a termination of this Agreement, except to the extent that failure to satisfy the conditions set forth in Sections 6.1, 6.2 and 6.3 results from the intentional or willful violation of the representations, warranties, covenants or agreements of such party under this Agreement. 12.7 Severability. Should any one or more of the provisions of this ------------ Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. -51- 12.8 Parties in Interest. All the terms and provisions of this ------------------- Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective parties hereto, the successors and assigns of the Purchaser and the Company, whether so expressed or not, and any Holder (each of which is expressly deemed to be a third party beneficiary hereunder). This Agreement shall not run to the benefit of or be enforceable by any other Person. 12.9 Headings. The headings of the Sections and paragraphs of this -------- Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 12.10 Choice of Law. It is the intention of the parties that the ------------- internal laws, and not the laws of conflicts, of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 12.11 Expenses. The Company agrees, subject to the consummation of -------- the transactions contemplated hereby, to pay, and hold the Purchaser harmless from liability for the payment of, all expenses incurred by the Purchaser in connection with the preparation and negotiation of the Existing Agreement, this Agreement, the Escrow Agreement and the other Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, including, without limitation: (i) the fees and expenses of its counsel and accountants, and of the Escrow Agent and its counsel, and the Purchaser's out of pocket expenses, arising in connection with the negotiation and execution of the Existing Agreement, this Agreement, the Escrow Agreement, the Certificates of Designation and the Warrants and the consummation of the transactions contemplated hereby (the fees and expenses of such counsel may be paid by check delivered to such counsel at the Closing by the Purchaser, the amount of such check being deducted from the aggregate amount to be paid by the Purchaser at the Closing for the Securities to be purchased by it hereunder), (ii) the fees and expenses incurred with respect to any amendments to the Existing Agreement, this Agreement, the Escrow Agreement, the Certificates of Designation or the Warrants proposed by the Company (whether or not the same become effective), (iii) the fees and expenses incurred in connection with any requested waiver of the right of any holder of Securities or the consent of any holder of Securities to contemplated acts of the Company not otherwise permissible by the terms of this Agreement, the Escrow Agreement, the Certificates of Designation or the Warrants, (iv) stamp and other taxes, excluding income taxes, which may be payable with respect to the execution and delivery of the Existing Agreement, this -52- Agreement and the Escrow Agreement, or the issuance, delivery or acquisition of the Preferred Shares or the Warrants or upon the conversion of the Preferred Shares or the exercise of the Warrants, and (v) all costs of the Company's performance and compliance with the Existing Agreement, this Agreement, the Escrow Agreement, the Certificates of Designation and the Warrants. 12.12 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 12.13 Entire Agreement. This Agreement and the other Transaction ---------------- Documents contain the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces the Existing Agreement and all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. -53- IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed as of the day and year first above written. RARE MEDIUM GROUP, INC. By: _____________________________ Name: Glenn S. Meyers Title: Chairman, CEO and President APOLLO INVESTMENT FUND IV, L.P. By: APOLLO ADVISORS IV, L.P., its general partner By: Apollo Capital Management IV, Inc., its general partner By: _____________________________ Name: Andrew D. Africk Title: Vice President APOLLO OVERSEAS PARTNERS IV, L.P. By: APOLLO ADVISORS IV, L.P. its general partner By: Apollo Capital Management IV, Inc., its general partner By: _____________________________ Name: Andrew D. Africk Title: Vice President AIF IV/RRRR LLC By: _____________________________ Name: Andrew D. Africk Title: Manager -54- EX-2 3 RARE MEDIUM GROUP, INC. Exhibit 2 ================================================================================ SERIES 1-A WARRANT to Purchase Common Stock of RARE MEDIUM GROUP, INC. ================================================================================ Warrant No. [___] Original Issue Date: June 4, 1999 TABLE OF CONTENTS
1. DEFINITIONS.............................................................. 2 2. EXERCISE OF WARRANT...................................................... 7 2.1 Manner of Exercise................................................. 7 2.2 Payment of Taxes................................................... 8 2.3 Fractional Shares.................................................. 9 2.4 Reduced Exercise Price............................................. 9 3. TRANSFER, DIVISION AND COMBINATION....................................... 9 3.1 Transfer........................................................... 9 3.2 Division and Combination........................................... 9 3.3 Expenses........................................................... 10 3.4 Maintenance of Books............................................... 10 4. ANTIDILUTION PROVISIONS.................................................. 10 4.1 Upon Issuance of Common Stock...................................... 10 4.2 Upon Acquisition of Common Stock................................... 11 4.3 Provisions Applicable to Adjustments............................... 11 4.4 Upon Stock Dividends or Splits..................................... 13 4.5 Upon Combinations.................................................. 13 4.6 Upon Reclassifications, Reorganizations, Consolidations or Mergers. 13 4.7 Deferral in Certain Circumstances ................................. 14 4.8 Other Anti-Dilution Provisions..................................... 14 4.9 Appraisal Procedure ............................................... 14 4.10 Adjustment of Number of Shares Purchasable ........................ 14 4.11 Exceptions......................................................... 14 4.12 Notice of Adjustment of Exercise Price ............................ 15 5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION........................................ 15 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY ............................................................... 16 7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS .......................................................... 16 7.2 Taking of Record .................................................... 17 7.3 Closing of Transfer Books ........................................... 17
-i- 8. TRANSFER RESTRICTIONS..................................................... 17 8.1 Restrictions on Transfers............................................. 17 8.2 Restrictive Legends................................................... 18 8.3 Termination of Securities Law Restrictions............................ 19 9. LOSS OR MUTILATION........................................................ 19 10. OFFICE OF THE COMPANY..................................................... 20 11. FINANCIAL AND BUSINESS INFORMATION........................................ 20 12. DILUTION FEE.............................................................. 22 13. MISCELLANEOUS............................................................. 22 13.1 Nonwaiver........................................................... 22 13.2 Notice Generally.................................................... 22 13.3 Indemnification..................................................... 23 13.4 Limitation of Liability............................................. 23 13.5 Remedies............................................................ 23 13.6 Successors and Assigns.............................................. 23 13.7 Amendment........................................................... 23 13.8 Severability........................................................ 24 13.9 Headings............................................................ 24 13.10 GOVERNING LAW; JURISDICTION......................................... 24 ANNEX A SUBSCRIPTION FORM......................................................... 26 ANNEX B ASSIGNMENT FORM........................................................... 27
-ii- NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT. Warrant No. [___] SERIES 1-A WARRANT TO PURCHASE ____ SHARES OF COMMON STOCK (SUBJECT TO ADJUSTMENT) OF RARE MEDIUM GROUP, INC. THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its registered assigns, is entitled, at any time prior to the Expiration Date (such term, and certain other capitalized terms used herein being hereinafter defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"), thirteen and one-half (13.5) shares of the Common Stock of the ------- Company (subject to adjustment as provided herein), at a purchase price per share (the initial "Exercise Price", subject to adjustment as provided herein) -------------- set forth in the table below (or, if the Fair Value falls between any of the prices in the left column, then the Exercise Price will be calculated by linear interpolation between the corresponding prices in the right column): FAIR VALUE OF ONE SHARE OF COMMON STOCK ON EXERCISE DATE EXERCISE PRICE ---------------------- -------------- $4.00 or less $4.20 $5.00 $3.59 $6.00 $1.61 $7.00 or more $0.01 1. DEFINITIONS ----------- As used in this Warrant, the following terms have the respective meanings set forth below: "Affiliate" of any Person means any other Person (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person. The term "control" (including the terms "controlled by" and "under common control with") as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "After-Tax Basis" when referring to a payment that is required hereunder (the "target amount"), shall mean a total payment (the "total amount") that, after deduction of all federal, state and local taxes that are required to be paid by the recipient in respect of the receipt or accrual of such total amount, is equal to the target amount. "Agreed Rate" shall mean the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate. "Appraisal Procedure" if applicable, shall mean the following procedure to determine the fair market value, as to any security, for purposes of the definition of "Fair Value" or the fair market value, as to any other property (in either case, the "valuation amount"). So long as Apollo Investment Fund IV, L.P. or any of its Affiliates (the "Apollo Stockholders") beneficially ------------------- own sufficient Warrants to constitute the Majority Warrant Holders, the valuation amount shall be determined in good faith jointly by the Board of Directors and the Majority Warrant Holders; provided, however, that if such -------- ------- parties are not able to agree on the valuation amount within a reasonable period of time (not to exceed twenty (20) days) the valuation amount shall be determined by an investment banking firm of national recognition, which firm shall be reasonably acceptable to the Board of Directors and the Majority Warrant Holders. If the Board of Directors and the Majority Warrant Holders are unable to agree upon an acceptable investment banking firm within ten (10) days after the date either party proposed that one be selected, the investment banking firm will be selected by an arbitrator located in New York City, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the investment banking firm (within ten (10) days of his appointment) from a list, jointly prepared by the Board of Directors and the Majority Warrant Holders, of not more than six investment banking firms of national standing in the United States, of which no more than three may be named by the Board of Directors and no more than three may be named by the Majority Warrant Holders. The arbitrator may consider, within the ten- day period allotted, arguments from the parties regarding which investment banking firm to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Board of Directors and the Majority Warrant Holders shall submit their respective valuations and other relevant data to the investment 2 banking firm, and the investment banking firm shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the investment banking firm, from among the valuation amounts submitted by the Company and the Majority Warrant Holders and the valuation amount calculated by the investment banking firm. The determination of the final valuation amount by such investment-banking firm shall be final and binding upon the parties. The Company shall pay the fees and expenses of the investment banking firm and arbitrator (if any) used to determine the valuation amount. If required by any such investment banking firm or arbitrator, the Company shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such investment banking firm or arbitrator and its officers, directors, partners, employees, agents and Affiliates. If the Apollo Stockholders no longer constitute the Majority Warranty Holders, the valuation amount shall be determined in good faith by the Board of Directors. "Appraised Value" per share of Common Stock as of a date specified herein shall mean the value of such a share as of such date as determined by an investment bank of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company. If the investment bank selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment bank, then the Company and the Majority Warrant Holders shall each choose one such investment bank and the respective chosen firms shall jointly select a third investment bank, which shall make the determination. The Company shall pay the costs and fees of each such investment bank (including any such investment bank selected by the Majority Warrant Holders), and the decision of the investment bank making such determination of Appraised Value shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion of the value of the Company taken as a whole, based on the higher of (A) the value derived from a hypothetical sale of the entire Company as a going concern by a willing seller to a willing buyer (neither acting under any compulsion) and (B) the liquidation value of the entire Company. No discount shall be applied on account of (i) any Warrants or Warrant Stock representing a minority interest, (ii) any lack of liquidity of the Common Stock or the Warrants, (iii) the fact that the Warrants or Warrant Stock may constitute "restricted securities" for securities law purposes, (iv) the existence of any call option or (v) any other grounds. "Book Value" per share of Common Stock as of a date specified herein shall mean the consolidated book value of the Company and its Subsidiaries as of such date divided by the number of shares of Common Stock Outstanding on such date. Such book value shall be determined in accordance with GAAP, except that there shall be no reduction in such book value by reason of any amount that may be required either as an offset to or reserve against retained earnings or as a deduction from book value as a result of the issuance, existence, anticipated exercise of, or anticipated cost to the Company of the repurchase of, any of the Warrants. 3 "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean the Common Stock of the Company, par value $0.01 per share, as constituted on the Original Issue Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of any Common Stock upon any reclassification thereof which is also not preferred as to dividends or liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.6 hereof) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.6 hereof. "Company" means Rare Medium Group, Inc., a Delaware corporation, and any successor corporation. "Current Market Price" shall mean as of any specified date the average of the daily market price of one share of the Common Stock for the shorter of (x) the twenty (20) consecutive Business Days immediately preceding such date or (y) the period commencing on the Business Day next following the first public announcement by the Company of any event giving rise to an adjustment of the Exercise Price pursuant to Section 4 below and ending on such date. The "daily market price" of one share of Common Stock for each such Business Day shall be: (i) if the Common Stock is then listed on a national securities exchange or is listed on NASDAQ and is designated as a National Market System security, the last sale price of one share of Common Stock, regular way, on such day on the principal stock exchange or market system on which such Common Stock is then listed or admitted to trading, or, if no such sale takes place on such day, the average of the closing bid and asked prices for one share of Common Stock on such day as reported on such stock exchange or market system or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange or designated as a National Market System security on NASDAQ but is traded over-the-counter, the average of the closing bid and asked prices for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as applicable. "Designated Office" shall have the meaning set forth in Section 10 hereof. "Dilution Fee" shall have the meaning set forth in Section 14 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 4 "Excluded Stock" shall have the meaning set forth in Section 4.11 hereof. "Exercise Date" shall have the meaning set forth in Section 2.1 hereof. "Exercise Notice" shall have the meaning set forth in Section 2.1 hereof. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1 hereof. "Exercise Price" shall mean, in respect of a share of Common Stock at any date herein specified, the initial Exercise Price set forth in the preamble of this Warrant as adjusted from time to time pursuant to Sections 2.4 and 4 hereof. "Expiration Date" shall mean the tenth anniversary of the Original Issue Date. "Fair Value" per share of Common Stock as of any specified date shall mean (A) if the Common Stock is publicly traded on such date, the Current Market Price per share or (B) if the Common Stock is not publicly traded on such date, (1) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to each Holder or (2) if the Majority Warrant Holders object in writing to such price as determined by the Board of Directors within thirty (30) days after receiving notice of same, the Appraised Value per share as of such date. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "Holder" shall mean (a) with respect to this Warrant, the Person in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose and (b) with respect to any other Warrant or shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock is registered on the books of the Company maintained for such purpose. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Majority Warrant Holders", with respect to a given determination, shall mean the Holders of Warrants representing more than fifty percent (50%) of all then outstanding Warrants. 5 "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "NASDAQ" shall mean the NASDAQ quotation system, or any successor reporting system. "Opinion of Counsel" means a written opinion of outside counsel experienced in Securities Act matters chosen by the Holder of this Warrant or Warrant Stock issued upon the exercise hereof and reasonably acceptable to the Company. "Original Issue Date" shall mean the date on which this Warrant was issued, as set forth on the cover page of this Warrant. "Original Warrants" shall mean the Warrants originally issued by the Company on June 4, 1999 to the Apollo Stockholders. "Outside Date" shall mean the date which is 120 days after the Original Issue Date. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 8.2(a) hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company. "Series B Preferred Stock" shall mean the Series B Preferred Stock of the Company. 6 "Share Withholding Option" has the meaning set forth in Section 2.1 hereof. "Subsidiary" shall mean any corporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled directly or indirectly by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest therein, which would constitute a "sale" thereof or a transfer of a beneficial interest therein within the meaning of the Securities Act. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such exercise. "Warrants" shall mean the Original Warrants and all warrants issued upon transfer, division or combination of, or in substitution for, such Original Warrants, and any additional Warrants issued together with shares of Series A Preferred Stock paid as dividends, or any other such Warrant. All Warrants shall at all times be identical as to terms and conditions, except as to the number of shares of Common Stock for which they may be exercised and their date of issuance. "Warrant Stock" generally shall mean the shares of Common Stock issued, issuable or both (as the context may require) upon the exercise of Warrants. 2. EXERCISE OF WARRANT ------------------- 2.1 Manner of Exercise. (a) From and after the Original Issue Date ------------------ and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this Warrant may from time to time exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder (as determined pursuant to Section 2.2 below). In order to exercise this Warrant, in whole or in part, the Holder shall (i) deliver to the Company at its Designated Office a written notice of the Holder's election to exercise this Warrant (an "Exercise Notice"), which Exercise Notice shall be irrevocable and --------------- specify the number of shares of Common Stock to be purchased, together with this Warrant and (ii) pay to the Company the Warrant Price (the date on which both such delivery and payment shall have first taken place being hereinafter sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in ------------- the form of the subscription form appearing at the end of this Warrant as Annex ----- A, duly executed by the Holder or its duly authorized agent or attorney. - - 7 (b) Upon receipt by the Company of such Exercise Notice, Warrant and payment, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Notice and shall be registered in the name of the Holder or, subject to Section 8 below, such other name as shall be designated in the Exercise Notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the Exercise Date. (c) Payment of the Warrant Price shall be made at the option of the Holder by one or more of the following methods: (i) by delivery of a certified or official bank check in the amount of such Warrant Price payable to the order of the Company, (ii) by instructing the Company to withhold a number of shares of Warrant Stock then issuable upon exercise of this Warrant with an aggregate Fair Value equal to such Warrant Price (the "Share Withholding Option"), or ------------------------ (iii) by surrendering to the Company shares of Common Stock previously acquired by the Holder with an aggregate Fair Value equal to such Warrant Price. In the event of any withholding of Warrant Stock or surrender of Common Stock pursuant to clause (ii) or (iii) above where the number of shares whose Fair Value is equal to the Warrant Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount determined in accordance with Section 2.3 hereof. (d) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing the shares of Common Stock being issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares of Common Stock in the name of any Person who acquired this Warrant (or part hereof) or any shares of Warrant Stock otherwise than in accordance with this Warrant. (e) All Warrants delivered for exercise shall be canceled by the Company. 2.2 Payment of Taxes. All shares of Common Stock issuable upon the ---------------- exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, issued without violation of any preemptive rights and free and clear of all Liens (other than any created by actions of the Holder). The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery 8 thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder and the Company shall reimburse the Holder therefor on an After-Tax Basis. The Company shall not, however, be required to pay any tax or governmental charge which may be issuable upon exercise of this Warrant payable in respect of any Transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of the Warrants to be exercised, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. 2.3 Fractional Shares. The Company shall not be required to issue a ----------------- fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share that the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash equal to such fraction multiplied by (i) the Current Market Price of one share of Common Stock on the Exercise Date, if the Common Stock is then publicly traded, or (ii) the Book Value per share of Common Stock based on the most recent available consolidated balance sheet of the Company, if the Common Stock is not then publicly traded. 2.4 Reduced Exercise Price. On the Outside Date, in the event that ---------------------- the Company shall not have obtained the approval of its stockholders of the conversion of the Series B Preferred Stock to Series A Preferred Stock, the Exercise Price herein shall be reduced to $0.01. 3. TRANSFER, DIVISION AND COMBINATION ---------------------------------- 3.1 Transfer. Subject to compliance with Section 8 hereof, each -------- transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the ------- Holder or its agent or attorney and funds sufficient to pay any transfer taxes described in Section 2.2 in connection with the making of such transfer. Upon such surrender and delivery and, if required, such payment, the Company shall, subject to Section 8, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 8, may be exercised by the new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2 Division and Combination. Subject to compliance with the ------------------------ applicable provisions of this Warrant including, without limitation, Section 8, this Warrant may be divided or combined with other Warrants upon presentation hereof at the Designated Office, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with the applicable 9 provisions of this Warrant as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 Expenses. The Company shall prepare, issue and deliver at its -------- own expense (other than pursuant to Section 2.2 hereof) any new Warrant or Warrants required to be issued under this Section 3. 3.4 Maintenance of Books. The Company agrees to maintain, at the -------------------- Designated Office, books for the registration and transfer of the Warrants. 4. ANTIDILUTION PROVISIONS ----------------------- The number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 4. 4.1 Upon Issuance of Common Stock. If the Company shall, at any time ----------------------------- or from time to time after the Original Issuance Date, issue any shares of Common Stock, options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, other than shares of Series A Preferred Stock, Series B Preferred Stock or Excluded Stock, without consideration or for consideration per share less than either (x) the Exercise Price or (y) the Fair Value of the Common Stock, in effect immediately prior to the issuance of such Common Stock or securities, then such Exercise Price shall forthwith be lowered to a price equal to the price obtained by multiplying: (i) the Exercise Price in effect immediately prior to the issuance of such Common Stock or securities by (ii) a fraction of which (x) the denominator shall be the number of shares of Common Stock outstanding on a fully-diluted basis immediately after such issuance and (y) the numerator shall be the sum of (i) the number of shares of Common Stock outstanding on a fully-diluted basis immediately prior to the date of such issuance and (ii) the number of additional shares of Common Stock which the aggregate consideration for the number of shares of Common Stock so offered would purchase at the greater of the Exercise Price or the Fair Value per share of Common Stock. For purposes of this Section 4, "fully diluted basis" shall be determined in accordance with the treasury method of GAAP. 10 4.2 Upon Acquisition of Common Stock. If the Company or any -------------------------------- Subsidiary shall, at any time or from time to time after the Original Issuance Date, directly or indirectly, redeem, purchase or otherwise acquire any shares of Common Stock, options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock (other than shares of Series A Preferred Stock or Series B Preferred Stock that are redeemed according to their terms), or options to purchase or rights to subscribe for such convertible or exchangeable securities, for a consideration per share greater than the Fair Value (plus, in the case of such options, rights, or securities, the additional consideration required to be paid to the Company upon exercise, conversion or exchange) for shares of Common Stock in effect immediately prior to such event, then the Exercise Price shall forthwith be lowered to a price equal to the price obtained by multiplying: (i) the Exercise Price in effect immediately prior to such event by (ii) a fraction of which (x) the denominator shall be the Fair Value per share of Common Stock immediately prior to such event and (y) the numerator shall be the result of dividing: (A) (1) the product of (a) the number of shares of Common Stock outstanding on a fully-diluted basis and (b) the Fair Value per share of Common Stock, in each case immediately prior to such event, minus (2) the aggregate consideration paid by the Company in such event (plus, in the case of such options, rights, or convertible or exchangeable securities, the aggregate additional consideration to be paid by the Company upon exercise, conversion or exchange), by (B) the number of shares of Common Stock outstanding on a fully-diluted basis immediately after such event. 4.3 Provisions Applicable to Adjustments. For the purposes of any ------------------------------------ adjustment of an Exercise Price pursuant to Sections 4.1 and 4.2, the following provisions shall be applicable: (i) In the case of the issuance of Common Stock for cash in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor before deducting therefrom any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance and sale thereof. (ii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed 11 to be the Fair Value thereof as determined in accordance with the Appraisal Procedure. (iii) In the case of the issuance of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, except for shares of Series A Preferred Stock, shares of Series B Preferred Stock and options to acquire Excluded Stock: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subparagraphs (i) and (ii) above), if any, received by the Company upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange of any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities, options, or rights were issued and for a consideration equal to the consideration received by the Company for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in paragraphs (i) and (ii) above) and (C) on any change in the number of shares or exercise price of Common Stock deliverable upon exercise of any such options or rights or conversions of or exchanges for such securities, other than a change resulting from the antidilution provisions thereof, the applicable Exercise Price 12 shall forthwith be readjusted to such Exercise Price as would have been obtained had the adjustment made upon the issuance of such options, rights or securities not converted prior to such change or options or rights related to such securities not converted prior to such change been made upon the basis of such change. (D) No further adjustment of the Exercise Price adjusted upon the issuance of any such options, rights, convertible securities or exchangeable securities shall be made as a result of the actual issuance of Common Stock on the exercise of any such rights or options or any conversion or exchange of any such securities. 4.4 Upon Stock Dividends or Splits. If, at any time after the ------------------------------ Original Issuance Date, the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date for the determination of holders of Common Stock entitled to receive such stock dividend, or to be affected by such subdivision or split-up, the Exercise Price shall be appropriately decreased so that the number of shares of Common Stock purchasable on exercise of the Warrants shall be increased in proportion to such increase in outstanding shares. 4.5 Upon Combinations. If, at any time after the Original Issuance ----------------- Date, the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, following the record date to determine shares affected by such combination, the Exercise Price shall be appropriately increased so that the number of shares of Common Stock purchasable on exercise of each of the Warrants shall be decreased in proportion to such decrease in outstanding shares. 4.6 Upon Reclassifications, Reorganizations, Consolidations or ---------------------------------------------------------- Mergers. In the event of any capital reorganization of the Company, any - ------- reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or any consolidation or merger of the Company with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock), each Warrant shall after such reorganization, reclassification, consolidation, or merger be exercisable for the kind and number of shares of stock or other securities or property of the Company or of the successor corporation resulting from such consolidation or surviving such merger, if any, to which the holder of the number of shares of Common Stock deliverable (immediately prior to the time of such reorganization, reclassification, consolidation or merger) upon exercise of such Warrant would have been entitled upon such reorganization, reclassification, consolidation or merger. The provisions of this clause shall similarly apply to successive reorganizations, reclassifications, consolidations, or mergers. 13 4.7 Deferral in Certain Circumstances. In any case in which the --------------------------------- provisions of this Section 4 shall require that an adjustment shall become effective immediately after a record date of an event, the Company may defer until the occurrence of such event issuing to the holder of any Warrant exercised after such record date and before the occurrence of such event the shares of capital stock issuable upon such exercise by reason of the adjustment required by such event and issuing to such holder only the shares of capital stock issuable upon such exercise before giving effect to such adjustments; provided, however, that the Company shall deliver to such holder an appropriate - -------- ------- instrument or due bills evidencing such holder's right to receive such additional shares. 4.8 Other Anti-Dilution Provisions. If the Company has issued or ------------------------------ issues any securities on or after the Original Issuance Date containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to such holder or holders thereof than those set forth in this Section 4, such provisions (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Warrant and, to the extent inconsistent with any provision of this Warrant, shall be deemed to be substituted therefor. 4.9 Appraisal Procedure. In any case in which the provisions of this ------------------- Section 4 shall necessitate that the Appraisal Procedure be utilized for purposes of determining an adjustment to the Exercise Price, the Company may defer until the completion of the Appraisal Procedure and the determination of the adjustment (1) issuing to the holder of any Warrant exercised after the date of the event that requires the adjustment and before completion of the Appraisal Procedure and the determination of the adjustment, the shares of capital stock issuable upon such exercise by reason of the adjustment required by such event and issuing to such holder only the shares of capital stock issuable upon such exercise before giving effect to such adjustment and (2) paying to such holder any amount in cash in lieu of a fractional share of capital stock pursuant to Section 2.3 above; provided, however, that the Company shall deliver to such -------- ------- holder an appropriate instrument or due bills evidencing such holder's right to receive such additional shares or cash. 4.10 Adjustment of Number of Shares Purchasable. Upon any adjustment ------------------------------------------ of the Exercise Price as provided in Section 4.1, 4.2, 4.4, 4.5 or 4.6, the holders of the Warrants shall thereafter be entitled to purchase upon the exercise thereof, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable on the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. 4.11 Exceptions. Section 4 shall not apply to (i) any issuance of ---------- Common Stock upon exercise of any warrants or options (A) outstanding on the Original Issuance Date or (B) awarded to employees or directors of the Company pursuant to an employee stock option plan or stock incentive plan approved by the Board of Directors; (ii) any issuance of securities by 14 the Company in underwritten public offerings; and (iii) repurchases by the Company of Common Stock approved by the Board of Directors (collectively, the "Excluded Stock"). -------------- 4.12 Notice of Adjustment of Exercise Price. Whenever the Exercise -------------------------------------- Price is adjusted as herein provided: (i) the Company shall compute the adjusted Exercise Price in accordance with this Section 4 and shall prepare a certificate signed by the Treasurer or Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for such purpose or exercise of Warrants; and (ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be prepared by the Company, and as soon as practicable after it is prepared, such notice shall be mailed by the Company at its expense to all Holders at their last addresses as they shall appear in the stock register. 5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION -------------------------------------------------------------------------- (a) The Company shall not by any action, including, without limitation, amending its charter documents or through any reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, free and clear of all Liens, and shall use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. (b) The Company shall deliver to each Holder of Warrants on or before six months prior to the tenth anniversary of the Original Issue Date, but no earlier than nine months prior to the tenth anniversary of the Original Issue Date, advance notice of such tenth anniversary and of the anticipated Expiration Date. If the Company fails to fulfill in a timely manner the notice obligation set forth in the prior sentence, it shall provide such notice as soon as possible thereafter. 15 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGIS TRATION WITH OR -------------------------------------------------------------------- APPROVAL OF ANY GOVERNMENTAL AUTHORITY -------------------------------------- From and after the Original Issue Date, the Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock issuable pursuant to the terms hereof, when issued upon exercise of this Warrant with payment therefor in accordance with the terms hereof, shall be duly and validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free and clear of all Liens. Before taking any action that would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction over such action. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (other than under the Securities Act or any state securities law) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS ------------------------------------------------------------- 7.1 Notices of Corporate Actions. ---------------------------- In case: (a) the Company shall take an action or an event shall occur, that would require an Exercise Price adjustment pursuant to Section 4; or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class; or (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any 16 such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for such purpose, and shall cause to be mailed to all holders at their last addresses as they shall appear in the stock register, at least 30 days prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of the amendment thereto). Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Exercise Price and the number and kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of the Warrants. Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 7.1. 7.2 Taking of Record. In the case of all dividends or other ---------------- distributions by the Company to the holders of its Common Stock with respect to which any provision of any Section hereof refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. 7.3 Closing of Transfer Books. The Company shall not at any time, ------------------------- except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 8. TRANSFER RESTRICTIONS --------------------- The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 8. 8.1 Restrictions on Transfers. Neither this Warrant nor any shares ------------------------- of Restricted Common Stock issued upon the exercise hereof shall be transferred, sold, assigned, exchanged, mortgaged, pledged, hypothecated or otherwise disposed of or encumbered without compliance with the provisions of, and are otherwise restricted by the provisions of, the Securities Act, the 17 rules and regulations thereunder and this Warrant. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon any such Transfer, other than in a public offering pursuant to an effective registration statement, shall bear the restrictive legend set forth in Section 8.2(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 8.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the effect that such legend is not required for the purposes of compliance with the Securities Act. Holders of the Warrants or the Restricted Common Stock, as the case may be, shall not be entitled to Transfer such Warrants or such Restricted Common Stock except in accordance with this Section 8.1. 8.2 Restrictive Legends. (a) Except as otherwise provided in this ------------------- Section 8, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with two legends in substantially the following forms: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND REGULATIONS THEREUNDER." "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 1-A WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC. (THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED. A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF THE RARE MEDIUM GROUP, INC." (b) Except as otherwise provided in this Section 8, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "NEITHER THIS SERIES 1-A WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 1-A WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OF 18 OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT." 8.3 Termination of Securities Law Restrictions. Notwithstanding the ------------------------------------------ foregoing provisions of this Section 8, the restrictions imposed by Section 8.1(b) upon the transferability of the Warrants and the Restricted Common Stock and the legend requirements of Section 8.2 shall terminate as to any particular Warrant or shares of Restricted Common Stock when the Company shall have received from the Holder thereof an Opinion of Counsel to the effect that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Sections 8.1(b) and 8.2 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 1-A WARRANT CONTAINED IN SECTIONS 8.1(b) AND 8.2 HEREOF TERMINATED ON ______________, 20__, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 8.2(a). 9. LOSS OR MUTILATION ------------------ Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and an indemnity reasonably satisfactory to it (it being understood that the written indemnification agreement of or affidavit of loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, -------- however, that, in the case of mutilation, no indemnity shall be required if this - ------- Warrant in identifiable form is surrendered to the Company for cancellation. 19 10. OFFICE OF THE COMPANY --------------------- As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency, which may be the principal executive offices of the Company (the "Designated Office"), where the Warrants may be presented for ----------------- exercise, registration of transfer, division or combination as provided in this Warrant. Such Designated Office shall initially be the office of the Company at 44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from time to time change the Designated Office to another office of the Company or its agent within the United States by notice given to all registered Holders at least ten (10) Business Days prior to the effective date of such change. 11. FINANCIAL AND BUSINESS INFORMATION ---------------------------------- (a) Financial Reports. ----------------- Until (i) the Company shall no longer be required to deliver financial reports in connection with the Series A Preferred Stock, or (ii) the Expiration Date, whichever first occurs, the Company shall furnish to Apollo Investment Fund IV, L.P. the following: (i) Monthly Reports. As soon as available, but not later than --------------- 30 days after the end of each fiscal month, a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income of the Company for such period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied (except for the absence of footnotes and year-end adjustments). (ii) Quarterly Reports. As soon as available, but not later than ----------------- 45 days after the end of each quarterly accounting period, (A) a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income, cash flows and changes in shareholders' equity for such quarterly accounting period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied, subject to normal year-end adjustments and the absence of footnote disclosure, and (B) a report by management of the Company of the operating and financial highlights of the Company and its Subsidiaries for such period, which shall include (x) a comparison 20 between operating and financial results and budget and (y) an analysis of the operations of the Company and its Subsidiaries for such period. (iii) Annual Audit. As soon as available, but not later than 90 ------------ days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company, which shall include statements of income, cash flows and changes in shareholders' equity for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the report of a "Big 5" firm of independent certified public accountants selected by the Company's Board of Directors (the "Accountants"). The Company and its Subsidiaries shall maintain a system ----------- of accounting sufficient to enable its Accountants to render the report referred to in this Section 11(a)(iii). (iv) Miscellaneous. Promptly upon becoming available, each of ------------- the following: (A) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company or its Subsidiaries to its shareholders generally or released to the public and copies of all regular and periodic reports, if any, filed by the Company or its Subsidiaries with the SEC, any securities exchange or the NASD; (B) notification in writing of the existence of any default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound; (C) upon request, copies of all reports prepared for or delivered to the management of the Company or its Subsidiaries by its accountants; and (D) upon request, any other routinely collected financial or other information available to management of the Company or its Subsidiaries (including, without limitation, routinely collected statistical data). (b) Other Holders. Without duplication of any document or information ------------- provided pursuant to this Section 11, the Company shall provide to each Holder of Warrants or Warrant Stock the following: (i) as soon as available, but not later than 45 days after the end of each quarterly accounting period, a Form 10-Q or, if the Company does not then file quarterly reports with the SEC, the documents referred to in Section 11(a)(ii). 21 (ii) as soon as available, but not later than 90 days after the end of each fiscal year, a Form 10-K or, if the Company does not then file annual reports with the SEC, the audited consolidated financial statements referred to in Section 11(a)(iii). (iii) simultaneously with any distribution of any document to the stockholders of the Company generally, any such document so distributed. 12. DILUTION FEE ------------ In the event any dividends are declared with respect to the Common Stock, the holder of this Warrant as of the record date established by the Board of Directors for such dividend shall be entitled to receive as a dilution fee (the "Dilution Fee") an amount (whether in the form of cash, securities or other ------------ property) equal to the amount (and in the form) of the dividends that such holder would have received had this Warrant been exercised for purchase of Common Stock as of the record date of such dividend, such Dilution Fee to be payable on the payment date of the dividend established by the Board of Directors (the "Dilution Fee Payment Date"). The record date for any such ------------------------- Dilution Fee shall be the record date for the applicable dividend, and any such Dilution Fee shall be payable to the persons in whose name this Warrant is registered at the close of business on the applicable record date. 13. MISCELLANEOUS ------------- 13.1 Nonwaiver. No course of dealing or any delay or failure to --------- exercise any right hereunder on the part of the Company or the Holder shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of such Person. 13.2 Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) if to any Holder of this Warrant or of Warrant Stock issued upon the exercise hereof, at its last known address appearing on the books of the Company maintained for such purpose; (b) if to the Company, at the Designated Office; or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other 22 communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, or one (1) Business Day after the same shall have been sent by Federal Express or another recognized overnight courier service. 13.3 Indemnification. If the Company fails to make, when due, any --------------- payments provided for in this Warrant, the Company shall pay to the Holder hereof (a) interest at the Agreed Rate on any amounts due and owing to such Holder and (b) such further amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees and expenses incurred by such Holder in collecting any amounts due hereunder. The Company shall indemnify, save and hold harmless the Holder hereof and the Holders of any Warrant Stock issued upon the exercise hereof from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from any default hereunder by the Company. This indemnification provision shall be in addition to the rights of such Holder or Holders to bring an action against the Company for breach of contract based on such default hereunder. 13.4 Limitation of Liability. No provision hereof, in the absence of ----------------------- affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder to pay the Exercise Price for any Warrant Stock other than pursuant to an exercise of this Warrant or any liability as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 13.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in -------- addition to being entitled to exercise its rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights provided under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate. 13.6 Successors and Assigns. Subject to the provisions of Sections ---------------------- 3.1, 8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the permitted successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and to the extent applicable, all Holders of shares of Warrant Stock issued upon the exercise hereof (including transferees), and shall be enforceable by any such Holder. 13.7 Amendment. This Warrant and all other Warrants may be modified --------- or amended or the provisions hereof waived with the written consent of the Company and the Majority Warrant Holders, provided that no such Warrant may be -------- modified or amended to reduce the number of shares of Common Stock for which such Warrant is exercisable or to increase the 23 price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the written consent of the Holder thereof. 13.8 Severability. Wherever possible, each provision of this Warrant ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 13.9 Headings. The headings used in this Warrant are for the -------- convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 13.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL --------------------------- MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS -------- ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. RARE MEDIUM GROUP, INC. By:_________________________________ Name: Title: [SEAL] Attest: By:_____________________________ Name: Title: 25 ANNEX A ------- SUBSCRIPTION FORM ----------------- [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ______ shares Common Stock of Rare Medium Group, Inc. and herewith makes payment therefor in __________, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________ whose address is ___________________________________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. ___________________________________ (Name of Registered Owner) ___________________________________ (Signature of Registered Owner) ___________________________________ (Street Address) ___________________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. ANNEX B ------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all of the rights of the under signed under this Warrant, with respect to the number of shares of Common Stock set forth below: No. of Shares of Name and Address of Assignee Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint ________ _____________ attorney-in-fact to register such transfer onto the books of Rare Medium Group, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:___________________ Print Name:___________________ Signature:____________________ Witness:______________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. ================================================================================ SERIES 1-B WARRANT to Purchase Non-Voting Common Stock of RARE MEDIUM GROUP, INC. ================================================================================ Warrant No. [___] Original Issue Date: June 4, 1999 TABLE OF CONTENTS 1. DEFINITIONS ............................................................. 2 2. EXERCISE OF WARRANT ..................................................... 7 2.1 Manner of Exercise ................................................ 7 2.2 Payment of Taxes .................................................. 8 2.3 Fractional Shares ................................................. 8 2.4 Reduced Exercise Price ............................................ 9 3 TRANSFER, DIVISION AND COMBINATION....................................... 9 3.1 Transfer .......................................................... 9 3.2 Division and Combination .......................................... 9 3.3 Expenses .......................................................... 9 3.4 Maintenance of Books .............................................. 9 4. CONVERSION TO SERIES 1-A WARRANTS ....................................... 10 4.1 Conversion ........................................................ 10 5. ANTIDILUTION PROVISIONS ................................................. 10 5.1 General ........................................................... 10 5.2 Notice of Adjustment of Exercise Price ............................ 10 6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION .................................................... 11 7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY .................................................. 11 8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS .......................................................... 12 8.1 Notices of Corporate Actions....................................... 12 8.2 Taking of Record .................................................. 13 8.3 Closing of Transfer Books ......................................... 13 9. TRANSFER RESTRICTIONS ................................................... 13 9.1 Restrictions on Transfers ......................................... 13 9.2 Restrictive Legends ............................................... 14 9.3 Termination of Securities Law Restrictions ........................ 14 10. LOSS OR MUTILATION ...................................................... 15
-i- 11. OFFICE OF THE COMPANY ................................................... 15 12. FINANCIAL AND BUSINESS INFORMATION....................................... 16 13. DILUTION FEE ............................................................ 17 14. MISCELLANEOUS ........................................................... 18 14.1 Nonwaiver ....................................................... 18 14.2 Notice Generally ................................................ 18 14.3 Indemnification ................................................. 18 14.4 Limitation of Liability ......................................... 19 14.5 Remedies ........................................................ 19 14.6 Successors and Assigns .......................................... 19 14.7 Amendment ....................................................... 19 14.8 Severability .................................................... 19 14.9 Headings ........................................................ 19 14.10 GOVERNING LAW; JURISDICTION ..................................... 20 ANNEX A SUBSCRIPTION FORM........................................................ 22 ANNEX B ASSIGNMENT FORM ......................................................... 23
-ii- NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT. Warrant No. [___] SERIES 1-B WARRANT TO PURCHASE ____ SHARES OF NON-VOTING COMMON STOCK (SUBJECT TO ADJUSTMENT) OF RARE MEDIUM GROUP, INC. THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its registered assigns, is entitled, at any time prior to the Expiration Date (such term, and certain other capitalized terms used herein being hereinafter defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"), thirteen and one-half (13.5) shares of the Non-Voting Common Stock ------- of the Company (subject to adjustment as provided herein), at a purchase price per share (the initial "Exercise Price", subject to adjustment as provided -------------- herein) set forth in the table below (or, if the Fair Value falls between any of the prices in the left column, then the Exercise Price will be calculated by linear interpolation between the corresponding prices in the right column): FAIR VALUE OF ONE SHARE OF COMMON STOCK ON EXERCISE DATE EXERCISE PRICE ---------------------- -------------- $4.00 or less $4.20 $5.00 $3.59 $6.00 $1.61 $7.00 or more $0.01 1. DEFINITIONS ----------- As used in this Warrant, the following terms have the respective meanings set forth below: "Affiliate" of any Person means any other Person (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person. The term "control" (including the terms "controlled by" and "under common control with") as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "After-Tax Basis" when referring to a payment that is required hereunder (the "target amount"), shall mean a total payment (the "total amount") that, after deduction of all federal, state and local taxes that are required to be paid by the recipient in respect of the receipt or accrual of such total amount, is equal to the target amount. "Agreed Rate" shall mean the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate. Apollo Stockholders" shall mean Apollo Investment Fund IV, L.P. or any of its Affiliates. "Appraised Value" per share of Common Stock as of a date specified herein shall mean the value of such a share as of such date as determined by an investment bank of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company. If the investment bank selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment bank, then the Company and the Majority Warrant Holders shall each choose one such investment bank and the respective chosen firms shall jointly select a third investment bank, which shall make the determination. The Company shall pay the costs and fees of each such investment bank (including any such investment bank selected by the Majority Warrant Holders), and the decision of the investment bank making such determination of Appraised Value shall be final and binding on the Company and all affected holders of Warrants 2 or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion of the value of the Company taken as a whole, based on the higher of (A) the value derived from a hypothetical sale of the entire Company as a going concern by a willing seller to a willing buyer (neither acting under any compulsion) and (B) the liquidation value of the entire Company. No discount shall be applied on account of (i) any Warrants or Warrant Stock representing a minority interest, (ii) any lack of liquidity of the Common Stock or the Warrants, (iii) the fact that the Warrants or Warrant Stock may constitute "restricted securities" for securities law purposes, (iv) the existence of any call option or (v) any other grounds. "Book Value" per share of Common Stock as of a date specified herein shall mean the consolidated book value of the Company and its Subsidiaries as of such date divided by the number of shares of Common Stock Outstanding on such date. Such book value shall be determined in accordance with GAAP, except that there shall be no reduction in such book value by reason of any amount that may be required either as an offset to or reserve against retained earnings or as a deduction from book value as a result of the issuance, existence, anticipated exercise of, or anticipated cost to the Company of the repurchase of, any of the Warrants. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean the Common Stock of the Company, par value $0.01 per share, as constituted on the Original Issue Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of any Common Stock upon any reclassification thereof which is also not preferred as to dividends or liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 5 hereof. "Company" means Rare Medium Group, Inc., a Delaware corporation, and any successor corporation. "Current Market Price" shall mean as of any specified date the average of the daily market price of one share of the Common Stock for the shorter of (x) the twenty (20) consecutive Business Days immediately preceding such date or (y) the period commencing on the Business Day next following the first public announcement by the Company of any event giving rise to an adjustment of the Exercise Price pursuant to Section 5 below and ending on such date. The "daily market price" of one share of Common Stock for each such Business Day shall be: (i) if the Common Stock is then listed on a national securities exchange or is listed on NASDAQ and is 3 designated as a National Market System security, the last sale price of one share of Common Stock, regular way, on such day on the principal stock exchange or market system on which such Common Stock is then listed or admitted to trading, or, if no such sale takes place on such day, the average of the closing bid and asked prices for one share of Common Stock on such day as reported on such stock exchange or market system or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange or designated as a National Market System security on NASDAQ but is traded over-the-counter, the average of the closing bid and asked prices for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as applicable. "Designated Office" shall have the meaning set forth in Section 11 hereof. "Dilution Fee" shall have the meaning set forth in Section 13 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Date" shall have the meaning set forth in Section 2.1 hereof. "Exercise Notice" shall have the meaning set forth in Section 2.1 hereof. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1 hereof. "Exercise Price" shall mean, in respect of a share of Non-Voting Common Stock at any date herein specified, the initial Exercise Price set forth in the preamble of this Warrant as adjusted from time to time pursuant to Sections 2.4 and 5 hereof. "Expiration Date" shall mean the tenth anniversary of the Original Issue Date. "Fair Value" per share of Common Stock as of any specified date shall mean (A) if the Common Stock is publicly traded on such date, the Current Market Price per share or (B) if the Common Stock is not publicly traded on such date, (1) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to each Holder or (2) if the Majority Warrant Holders object in writing to such price as determined by the Board of Directors within thirty (30) days after receiving notice of same, the Appraised Value per share as of such date. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. 4 "Holder" shall mean (a) with respect to this Warrant, the Person in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose and (b) with respect to any other Warrant or shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock is registered on the books of the Company maintained for such purpose. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Majority Warrant Holders", with respect to a given determination, shall mean the Holders of Warrants representing more than fifty percent (50%) of all then outstanding Warrants. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "NASDAQ" shall mean the NASDAQ quotation system, or any successor reporting system. "Non-Voting Common Stock" shall mean the non-voting common stock, par value $0.01 per share, of the Company. "Opinion of Counsel" means a written opinion of outside counsel experienced in Securities Act matters chosen by the Holder of this Warrant or Warrant Stock issued upon the exercise hereof and reasonably acceptable to the Company. "Original Issue Date" shall mean the date on which this Warrant was issued, as set forth on the cover page of this Warrant. "Original Warrants" shall mean the Warrants originally issued by the Company on June 4, 1999 to the Apollo Stockholders. "Outside Date" shall mean the date that is 120 days after the Original Issue Date. "Outstanding" shall mean, when used with reference to Common Stock or Non-Voting Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock or Non-Voting Common Stock, as the case may be, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall 5 include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock or Non-Voting Common Stock, as the case may be. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Restricted Common Stock" shall mean shares of Non-Voting Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.2(a) hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company. "Series B Preferred Stock" shall mean the Series B Preferred Stock of the Company. "Share Withholding Option" has the meaning set forth in Section 2.1 hereof. "Subsidiary" shall mean any corporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled directly or indirectly by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest therein, which would constitute a "sale" thereof or a transfer of a beneficial interest therein within the meaning of the Securities Act. "Warrant Price" shall mean an amount equal to (i) the number of shares of Non-Voting Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such exercise. "Warrants" shall mean the Original Warrants and all warrants issued upon transfer, division or combination of, or in substitution for, such Original Warrants, and any additional Warrants issued together with shares of Series B Preferred Stock paid as dividends, or any other such Warrant. All Warrants shall at all times be identical as to terms and conditions, except as to 6 the number of shares of Non-Voting Common Stock for which they may be exercised and their date of issuance. "Warrant Stock" generally shall mean the shares of Non-Voting Common Stock issued, issuable or both (as the context may require) upon the exercise of Warrants. 2. EXERCISE OF WARRANT ------------------- 2.1 Manner of Exercise. (a) From and after the Original Issue Date ------------------ and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this Warrant may from time to time exercise this Warrant, on any Business Day, for all or any part of the number of shares of Non-Voting Common Stock purchasable hereunder (as determined pursuant to Section 2.2 below); provided, however, if -------- ------- after the Outside Date, any Holder of this Warrant elects to exercise such warrant for Non-Voting Common Stock pursuant to this Section 2 and it is determined that the Company cannot issue Non-Voting Common Stock, the Company shall use its reasonable efforts to deliver to such Holder securities, cash or other property to provide such Holder with the economic equivalent of an exercise of the Series 1-B Warrant for, and an immediate sale of, the Non-Voting Common Stock. In order to exercise this Warrant, in whole or in part, the Holder shall (i) deliver to the Company at its Designated Office a written notice of the Holder's election to exercise this Warrant (an "Exercise Notice"), --------------- which Exercise Notice shall be irrevocable and specify the number of shares of Non-Voting Common Stock to be purchased, together with this Warrant and (ii) pay to the Company the Warrant Price (the date on which both such delivery and payment shall have first taken place being hereinafter sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in the form of the subscription form appearing at the end of this Warrant as Annex A, duly executed ------- by the Holder or its duly authorized agent or attorney. (b) Upon receipt by the Company of such Exercise Notice, Warrant and payment, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the aggregate number of full shares of Non-Voting Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Notice and shall be registered in the name of the Holder or, subject to Section 9 below, such other name as shall be designated in the Exercise Notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the Exercise Date. (c) Payment of the Warrant Price shall be made at the option of the Holder by one or more of the following methods: (i) by delivery of a certified or official bank check in the 7 amount of such Warrant Price payable to the order of the Company, (ii) by instructing the Company to withhold a number of shares of Warrant Stock then issuable upon exercise of this Warrant with an aggregate Fair Value equal to such Warrant Price (the "Share Withholding Option"), or (iii) by surrendering to ------------------------ the Company shares of Non-Voting Common Stock previously acquired by the Holder with an aggregate Fair Value equal to such Warrant Price. In the event of any withholding of Warrant Stock or surrender of Non-Voting Common Stock pursuant to clause (ii) or (iii) above where the number of shares whose Fair Value is equal to the Warrant Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount determined in accordance with Section 2.3 hereof. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares of Non-Voting Common Stock in the name of any Person who acquired this Warrant (or part hereof) or any shares of Warrant Stock otherwise than in accordance with this Warrant. (d) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing the shares of Non-Voting Common Stock being issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Non-Voting Common Stock called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant. (e) All Warrants delivered for exercise shall be canceled by the Company. 2.2 Payment of Taxes. All shares of Non-Voting Common Stock issuable ---------------- upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, issued without violation of any preemptive rights and free and clear of all Liens (other than any created by actions of the Holder). The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder and the Company shall reimburse the Holder therefor on an After-Tax Basis. The Company shall not, however, be required to pay any tax or governmental charge which may be payable in respect of any Transfer involved in the issue and delivery of shares of Non-Voting Common Stock issuable upon exercise of this Warrant in a name other than that of the holder of the Warrants to be exercised, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. 2.3 Fractional Shares. The Company shall not be required to issue a ----------------- fractional share of Non-Voting Common Stock upon exercise of any Warrant. As to any fraction of a share that the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay 8 to such Holder an amount in cash equal to such fraction multiplied by (i) the Current Market Price of one share of Non-Voting Common Stock on the Exercise Date, if the Non-Voting Common Stock is then publicly traded, or (ii) the Book Value per share of Non-Voting Common Stock based on the most recent available consolidated balance sheet of the Company, if the Non-Voting Common Stock is not then publicly traded. 2.4 Reduced Exercise Price. In the event that the Company shall not ---------------------- have obtained the approval of its stockholders of the conversion of the Series 1-B Warrants into Series 1-A Warrants (the "Series 1-B-to-1-A Conversion") on or ---------------------------- prior to the Outside Date, the Exercise Price herein shall be reduced to $0.01. 3. TRANSFER, DIVISION AND COMBINATION ---------------------------------- 3.1 Transfer. Subject to compliance with Section 9 hereof, each -------- transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the ------- Holder or its agent or attorney and funds sufficient to pay any transfer taxes described in Section 2.2 in connection with the making of such transfer. Upon such surrender and delivery and, if required, such payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by the new Holder for the purchase of shares of Non- Voting Common Stock without having a new Warrant issued. 3.2 Division and Combination. Subject to compliance with the ------------------------ applicable provisions of this Warrant including, without limitation, Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the Designated Office, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with the applicable provisions of this Warrant as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 Expenses. The Company shall prepare, issue and deliver at its own -------- expense any new Warrant or Warrants required to be issued under this Section 3 (other than pursuant to Section 2.2 hereof). 3.4 Maintenance of Books. The Company agrees to maintain, at the -------------------- Designated Office, books for the registration and transfer of the Warrants. 9 4. CONVERSION TO SERIES 1-A WARRANTS --------------------------------- 4.1 Conversion. The Company will, as soon as practicable, duly call, ---------- give notice of, convene and hold a meeting of its stockholders for the purpose of approving, among other things, the Series 1-B-to-1-A Conversion and the creation of the Non-Voting Common Stock. The Company shall use its best efforts to secure such approval on or prior to the Outside Date. Upon stockholder approval of the Series 1-B-to-1-A Conversion, whenever obtained, this Warrant shall, without any action on the part of the Holder hereof or the Company, be automatically converted into one Series 1-A Warrant (a "Series 1-A Warrant") in ------------------ the form attached as Annex 2-A to the Amended and Restated Securities Purchase Agreement dated as of June 4, 1999 among the Company, the Apollo Stockholders and certain other parties thereto, to purchase the same number of shares of Common Stock (subject to adjustment) as could be purchased upon the exercise of this Warrant immediately prior to such conversion. 4.2 Promptly following any conversion of this Warrant into a Series 1-A Warrant pursuant to Section 4.1 above, the Holder of this Warrant shall (i) surrender this Warrant, at the office of the Company or of the transfer agent for this Warrant and (ii) state in writing the name or names in which the Series 1-A Warrant is to be registered. As soon as practical following receipt of the foregoing, the Company shall deliver to such former Holder of this Warrant one or more Series 1-A Warrants in denominations acceptable to such Holder. Such conversion shall be deemed to have been effected as of the close of business on the date on which the stockholders of the Company approve the Series 1-B-to-1-A Conversion. 5. ANTIDILUTION PROVISIONS ----------------------- 5.1 General. The number of shares of Non-Voting Common Stock for ------- which this Warrant is exercisable and the Exercise Price shall be subject to adjustment from time to time in the same manner as the number of shares of Common Stock issuable upon exercise of the Series 1-A Warrant and the "Exercise Price" as set forth in the Series 1-A Warrant are adjusted pursuant to Section 5 thereof. 5.2 Notice of Adjustment of Exercise Price. Whenever the Exercise -------------------------------------- Price is adjusted as herein provided: (i) the Company shall compute the adjusted Exercise Price in accordance with this Section 5 and shall prepare a certificate signed by the Treasurer or Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for such purpose or exercise of Warrants; and 10 (ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be prepared by the Company, and as soon as practicable after it is prepared, such notice shall be mailed by the Company at its expense to all Holders at their last addresses as they shall appear in the stock register. 6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION -------------------------------------------------------------------------- (a) The Company shall not by any action, including, without limitation, amending its charter documents or through any reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, free and clear of all Liens, and shall use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. (b) The Company shall deliver to each Holder of Warrants on or before six months prior to the tenth anniversary of the Original Issue Date, but no earlier than nine months prior to the tenth anniversary of the Original Issue Date, advance notice of such tenth anniversary and of the anticipated Expiration Date. If the Company fails to fulfill in a timely manner the notice obligation set forth in the prior sentence, it shall provide such notice as soon as possible thereafter. 7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK; -------------------------------------------------------- REGISTRATION WITH OR APPROVAL OF ANY ------------------------------------- GOVERNMENTAL AUTHORITY ---------------------- From and after the Original Issue Date, the Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants such number of its authorized but unissued shares of Non-Voting Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Non-Voting Common Stock issuable pursuant to the terms hereof, when issued upon exercise of this Warrant with payment therefor in accordance with the terms hereof, shall be duly and validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free and clear of all Liens. Before taking any action that would result in an adjustment in the number of shares of Non-Voting Common Stock for which 11 this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction over such action. If any shares of Non-Voting Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (other than under the Securities Act or any state securities law) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS ------------------------------------------------------------- 8.1 Notices of Corporate Actions. ---------------------------- In case: (a) the Company shall take an action or an event shall occur, that would require an Exercise Price adjustment pursuant to Section 5; or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class; or (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for such purpose, and shall cause to be mailed to all holders at their last addresses as they shall appear in the stock register, at least 30 days prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which such reclassification, 12 consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of the amendment thereto). Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Exercise Price and the number and kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of the Warrants. Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 8.1. 8.2 Taking of Record. In the case of all dividends or other ---------------- distributions by the Company to the holders of its Common Stock with respect to which any provision of any Section hereof refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. 8.3 Closing of Transfer Books. The Company shall not at any time, ------------------------- except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. TRANSFER RESTRICTIONS --------------------- The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1 Restrictions on Transfers. Neither this Warrant nor any shares ------------------------- of Restricted Common Stock issued upon the exercise hereof shall be transferred, sold, assigned, exchanged, mortgaged, pledged, hypothecated, or otherwise disposed of or encumbered without compliance with the provisions of, and are otherwise restricted by the provisions of, the Securities Act, the rules and regulations thereunder and this Warrant. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon any such Transfer, other than in a public offering pursuant to an effective registration statement, shall bear the restrictive legend set forth in Section 9.2(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the effect that such legend is not required for the purposes of compliance with the Securities Act. Holders of the Warrants or the Restricted Common Stock, as the case may be, shall not be entitled to Transfer such Warrants or such Restricted Common Stock except in accordance with this Section 9.1. 13 9.2 Restrictive Legends. (a) Except as otherwise provided in this ------------------- Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with two legends in substantially the following forms: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND REGULATIONS THEREUNDER." "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 1-B WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC. (THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED. A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF RARE MEDIUM GROUP, INC." (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "NEITHER THIS SERIES 1-B WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 1-B WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT." 9.3 Termination of Securities Law Restrictions. Notwithstanding the ------------------------------------------ foregoing provisions of this Section 9, the restrictions imposed by Section 9.1(b) upon the transferability of the Warrants and the Restricted Common Stock and the legend requirements of Section 9.2 shall terminate as to any particular Warrant or shares of Restricted Common Stock when the Company shall have received from the Holder thereof an Opinion of Counsel to the effect that such legend is 14 not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Sections 9.1(b) and 9.2 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 1-B WARRANT CONTAINED IN SECTIONS 9.1(b) AND 9.2 HEREOF TERMINATED ON ______________, 20__, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 9.2(a). 10. LOSS OR MUTILATION ------------------ Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and an indemnity reasonably satisfactory to it (it being understood that the written indemnification agreement of or affidavit of loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, -------- however, that, in the case of mutilation, no indemnity shall be required if this - ------- Warrant in identifiable form is surrendered to the Company for cancellation. 11. OFFICE OF THE COMPANY --------------------- As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency, which may be the principal executive offices of the Company (the "Designated Office"), where the Warrants may be presented for ----------------- exercise, registration of transfer, division or combination as provided in this Warrant. Such Designated Office shall initially be the office of the Company at 44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from time to time change the Designated Office to another office of the Company or its agent within the United States by notice given to all registered Holders at least ten (10) Business Days prior to the effective date of such change. 15 12. FINANCIAL AND BUSINESS INFORMATION ---------------------------------- (a) Financial Reports. ----------------- Until (i) the Company shall no longer be required to deliver financial reports in connection with the Series A Preferred Stock, or (ii) the Expiration Date, whichever first occurs, the Company shall furnish to Apollo Investment Fund IV, L.P. the following: (i) Monthly Reports. As soon as available, but not later than --------------- 30 days after the end of each fiscal month, a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income of the Company for such period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied (except for the absence of footnotes and year-end adjustments). (ii) Quarterly Reports. As soon as available, but not later ----------------- than 45 days after the end of each quarterly accounting period, (A) a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income, cash flows and changes in shareholders' equity for such quarterly accounting period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied, subject to normal year-end adjustments and the absence of footnote disclosure, and (B) a report by management of the Company of the operating and financial highlights of the Company and its Subsidiaries for such period, which shall include (x) a comparison between operating and financial results and budget and (y) an analysis of the operations of the Company and its Subsidiaries for such period. (iii) Annual Audit. As soon as available, but not later than 90 ------------ days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company, which shall include statements of income, cash flows and changes in shareholders' equity for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the report of a "Big 5" firm of independent certified public accountants selected by the Company's Board of Directors (the "Accountants"). The Company and its Subsidiaries shall maintain a system ----------- of accounting sufficient to enable its Accountants to render the report referred to in this Section 12(a)(iii). 16 (iv) Miscellaneous. Promptly upon becoming available, each of ------------- the following: (A) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company or its Subsidiaries to its shareholders generally or released to the public and copies of all regular and periodic reports, if any, filed by the Company or its Subsidiaries with the SEC, any securities exchange or the NASD; (B) notification in writing of the existence of any default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound; (C) upon request, copies of all reports prepared for or delivered to the management of the Company or its Subsidiaries by its accountants; and (D) upon request, any other routinely collected financial or other information available to management of the Company or its Subsidiaries (including, without limitation, routinely collected statistical data). (b) Other Holders. Without duplication of any document or information ------------- provided pursuant to this Section 12, the Company shall provide to each Holder of Warrants or Warrant Stock the following: (i) as soon as available, but not later than 45 days after the end of each quarterly accounting period, a Form 10-Q or, if the Company does not then file quarterly reports with the SEC, the documents referred to in Section 12(a)(ii). (ii) as soon as available, but not later than 90 days after the end of each fiscal year, a Form 10-K or, if the Company does not then file annual reports with the SEC, the audited consolidated financial statements referred to in Section 12(a)(iii). (iii) simultaneously with any distribution of any document to the stockholders of the Company generally, any such document so distributed. 13. DILUTION FEE ------------ In the event any dividends are declared with respect to the Common Stock, the holder of this Warrant as of the record date established by the Board of Directors for such dividend shall be entitled to receive as a dilution fee (the "Dilution Fee") an amount (whether in the form of cash, securities or other ------------ property) equal to the amount (and in the form) of the dividends that such holder would have received had this Warrant been exercised for purchase of 17 Non-Voting Common Stock (on the basis of one share of Common Stock for each share of Non-Voting Common Stock for which this Warrant is then exercisable) as of the record date of such dividend, such Dilution Fee to be payable on the payment date of the dividend established by the Board of Directors (the "Dilution Fee Payment Date"). The record date for any such Dilution Fee shall be ------------------------- the record date for the applicable dividend, and any such Dilution Fee shall be payable to the persons in whose name this Warrant is registered at the close of business on the applicable record date. 14. MISCELLANEOUS ------------- 14.1 Nonwaiver. No course of dealing or any delay or failure to --------- exercise any right hereunder on the part of the Company or the Holder shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of such Person. 14.2 Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) if to any Holder of this Warrant or of Warrant Stock issued upon the exercise hereof, at its last known address appearing on the books of the Company maintained for such purpose; (b) if to the Company, at the Designated Office; or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, or one (1) Business Day after the same shall have been sent by Federal Express or another recognized overnight courier service. 14.3 Indemnification. If the Company fails to make, when due, any --------------- payments provided for in this Warrant, the Company shall pay to the Holder hereof (a) interest at the Agreed Rate on any amounts due and owing to such Holder and (b) such further amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees and expenses incurred by such Holder in collecting any amounts due hereunder. The Company shall indemnify, save and hold harmless the Holder hereof and the Holders of any Warrant Stock issued upon the exercise hereof from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out- 18 of-pocket expenses incurred in connection with or arising from any default hereunder by the Company. This indemnification provision shall be in addition to the rights of such Holder or Holders to bring an action against the Company for breach of contract based on such default hereunder. 14.4 Limitation of Liability. No provision hereof, in the absence of ----------------------- affirmative action by the Holder to purchase shares of Non-Voting Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder to pay the Exercise Price for any Warrant Stock other than pursuant to an exercise of this Warrant or any liability as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in -------- addition to being entitled to exercise its rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights provided under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate. 14.6 Successors and Assigns. Subject to the provisions of Sections ---------------------- 3.1, 9.1 and 9.2, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the permitted successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and to the extent applicable, all Holders of shares of Warrant Stock issued upon the exercise hereof (including transferees), and shall be enforceable by any such Holder. 14.7 Amendment. This Warrant and all other Warrants may be modified --------- or amended or the provisions hereof waived with the written consent of the Company and the Majority Warrant Holders, provided that no such Warrant may be -------- modified or amended to reduce the number of shares of Non-Voting Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the written consent of the Holder thereof. 14.8 Severability. Wherever possible, each provision of this Warrant ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.9 Headings. The headings used in this Warrant are for the -------- convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 19 14.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL --------------------------- MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS -------- ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK. 20 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. RARE MEDIUM GROUP, INC. By:_________________________________ Name: Title: [SEAL] Attest: By:_____________________________ Name: Title: 21 ANNEX A ------- SUBSCRIPTION FORM ----------------- [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ______ shares Non-Voting Common Stock of Rare Medium Group, Inc. and herewith makes payment therefor in __________, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Non-Voting Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________ whose address is _______________________________ and, if such shares of Non-Voting Common Stock shall not include all of the shares of Non-Voting Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Non-Voting Common Stock issuable hereunder be delivered to the undersigned. _______________________________ (Name of Registered Owner) _______________________________ (Signature of Registered Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 22 ANNEX B ------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all of the rights of the under signed under this Warrant, with respect to the number of shares of Non-Voting Common Stock set forth below: No. of Shares of Name and Address of Assignee ____ Non-Voting Common Stock - ---------------------------- and does hereby irrevocably constitute and appoint ________ _____________ attorney-in-fact to register such transfer onto the books of Rare Medium Group, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:___________________ Print Name:___________________ Signature:____________________ Witness:______________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 23 ================================================================================ SERIES 2-A WARRANT to Purchase Common Stock of RARE MEDIUM GROUP, INC. ================================================================================ Warrant No. [___] Original Issue Date: June 4, 1999 TABLE OF CONTENTS 1. DEFINITIONS ........................................................... 1 2. EXERCISE OF WARRANT ................................................... 7 2.1 Manner of Exercise ................................................ 7 2.2 Payment of Taxes .................................................. 8 2.3 Fractional Shares ................................................. 8 2.4 Reduced Exercise Price ............................................ 8 3. TRANSFER, DIVISION AND COMBINATION .................................... 9 3.1 Transfer .......................................................... 9 3.2 Division and Combination .......................................... 9 3.3 Expenses .......................................................... 9 3.4 Maintenance of Books .............................................. 9 4. ANTIDILUTION PROVISIONS ............................................... 9 4.1 Upon Issuance of Common Stock ..................................... 9 4.2 Upon Acquisition of Common Stock .................................. 10 4.3 Provisions Applicable to Adjustments .............................. 11 4.4 Upon Stock Dividends or Splits12 4.5 Upon Combinations ................................................. 12 4.6 Upon Reclassifications, Reorganizations, Consolidations or Mergers 13 4.7 Deferral in Certain Circumstances ................................. 13 4.8 Other Anti-Dilution Provisions13 4.9 Appraisal Procedure ............................................... 13 4.10 Adjustment of Number of Shares Purchasable ....................... 14 4.11 Exceptions. 14 4.12 Notice of Adjustment of Exercise Price ........................... 14 5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION .................................................. 14 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY ............................................................. 15 7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS ........................................................ 15 7.1 Notices of Corporate Actions....................................... 15 7.2 Taking of Record .................................................. 16 7.3 Closing of Transfer Books ......................................... 16 8. TRANSFER RESTRICTIONS ................................................. 17
-i- 8.1 Restrictions on Transfers ......................................... 17 8.2 Restrictive Legends ............................................... 17 8.3 Termination of Securities Law Restrictions ........................ 18 9. LOSS OR MUTILATION .................................................... 18 10. OFFICE OF THE COMPANY ................................................. 19 11. FINANCIAL AND BUSINESS INFORMATION .................................... 19 12. DILUTION FEE .......................................................... 21 13. MISCELLANEOUS ......................................................... 21 13.1 Nonwaiver ........................................................ 21 13.2 Notice Generally ................................................. 21 13.3 Indemnification .................................................. 21 13.4 Limitation of Liability .......................................... 22 13.5 Remedies ......................................................... 22 13.6 Successors and Assigns ........................................... 22 13.7 Amendment ........................................................ 22 13.8 Severability ..................................................... 22 13.9 Headings ......................................................... 22 13.10 GOVERNING LAW; JURISDICTION ..................................... 23 ANNEX A SUBSCRIPTION FORM ..................................................... 25 ANNEX B ASSIGNMENT FORM ....................................................... 26
-ii- NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT. Warrant No. [___] SERIES 2-A WARRANT TO PURCHASE ____ SHARES OF COMMON STOCK (SUBJECT TO ADJUSTMENT) OF RARE MEDIUM GROUP, INC. THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its registered assigns, is entitled, at any time prior to the Expiration Date (such term, and certain other capitalized terms used herein being hereinafter defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"), one (1) share of the Common Stock of the Company (subject to ------- adjustment as provided herein), at a purchase price per share (the initial "Exercise Price", subject to adjustment as provided herein) equal to $7.00. -------------- 1. DEFINITIONS ----------- As used in this Warrant, the following terms have the respective meanings set forth below: "Affiliate" of any Person means any other Person (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person. The term "control" (including the terms "controlled by" and "under common control with") as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "After-Tax Basis" when referring to a payment that is required hereunder (the "target amount"), shall mean a total payment (the "total amount") that, after deduction of all federal, state and local taxes that are required to be paid by the recipient in respect of the receipt or accrual of such total amount, is equal to the target amount. "Agreed Rate" shall mean the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate. "Appraisal Procedure" if applicable, shall mean the following procedure to determine the fair market value, as to any security, for purposes of the definition of "Fair Value" or the fair market value, as to any other property (in either case, the "valuation amount"). So long as Apollo Investment Fund IV, L.P. or any of its Affiliates (the "Apollo Stockholders") beneficially ------------------- own sufficient Warrants to constitute the Majority Warrant Holders, the valuation amount shall be determined in good faith jointly by the Board of Directors and the Majority Warrant Holders; provided, however, that if such -------- ------- parties are not able to agree on the valuation amount within a reasonable period of time (not to exceed twenty (20) days) the valuation amount shall be determined by an investment banking firm of national recognition, which firm shall be reasonably acceptable to the Board of Directors and the Majority Warrant Holders. If the Board of Directors and the Majority Warrant Holders are unable to agree upon an acceptable investment banking firm within ten (10) days after the date either party proposed that one be selected, the investment banking firm will be selected by an arbitrator located in New York City, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the investment banking firm (within ten (10) days of his appointment) from a list, jointly prepared by the Board of Directors and the Majority Warrant Holders, of not more than six investment banking firms of national standing in the United States, of which no more than three may be named by the Board of Directors and no more than three may be named by the Majority Warrant Holders. The arbitrator may consider, within the ten- day period allotted, arguments from the parties regarding which investment banking firm to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Board of Directors and the Majority Warrant Holders shall submit their respective valuations and other relevant data to the investment banking firm, and the investment banking firm shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the investment banking firm, from among the valuation amounts submitted by the Company and the Majority Warrant Holders and the valuation amount calculated by the investment banking firm. The determination of the final valuation amount by such investment- banking firm shall be final and binding upon the parties. The Company shall pay the fees and expenses of the investment banking firm and arbitrator (if any) used to determine the valuation amount. If required by any such investment banking firm or arbitrator, the Company shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such investment banking firm or arbitrator and its officers, directors, partners, employees, agents and Affiliates. If the Apollo Stockholders no longer constitute the Majority Warranty Holders, the valuation amount shall be determined in good faith by the Board of Directors. 2 "Appraised Value" per share of Common Stock as of a date specified herein shall mean the value of such a share as of such date as determined by an investment bank of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company. If the investment bank selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment bank, then the Company and the Majority Warrant Holders shall each choose one such investment bank and the respective chosen firms shall jointly select a third investment bank, which shall make the determination. The Company shall pay the costs and fees of each such investment bank (including any such investment bank selected by the Majority Warrant Holders), and the decision of the investment bank making such determination of Appraised Value shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion of the value of the Company taken as a whole, based on the higher of (A) the value derived from a hypothetical sale of the entire Company as a going concern by a willing seller to a willing buyer (neither acting under any compulsion) and (B) the liquidation value of the entire Company. No discount shall be applied on account of (i) any Warrants or Warrant Stock representing a minority interest, (ii) any lack of liquidity of the Common Stock or the Warrants, (iii) the fact that the Warrants or Warrant Stock may constitute "restricted securities" for securities law purposes, (iv) the existence of any call option or (v) any other grounds. "Book Value" per share of Common Stock as of a date specified herein shall mean the consolidated book value of the Company and its Subsidiaries as of such date divided by the number of shares of Common Stock Outstanding on such date. Such book value shall be determined in accordance with GAAP, except that there shall be no reduction in such book value by reason of any amount that may be required either as an offset to or reserve against retained earnings or as a deduction from book value as a result of the issuance, existence, anticipated exercise of, or anticipated cost to the Company of the repurchase of, any of the Warrants. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean the Common Stock of the Company, par value $0.01 per share, as constituted on the Original Issue Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of any Common Stock upon any reclassification thereof which is also not preferred as to dividends or liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.6 hereof) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.6 hereof. 3 "Company" means Rare Medium Group, Inc., a Delaware corporation, and any successor corporation. "Current Market Price" shall mean as of any specified date the average of the daily market price of one share of the Common Stock for the shorter of (x) the twenty (20) consecutive Business Days immediately preceding such date or (y) the period commencing on the Business Day next following the first public announcement by the Company of any event giving rise to an adjustment of the Exercise Price pursuant to Section 4 below and ending on such date. The "daily market price" of one share of Common Stock for each such Business Day shall be: (i) if the Common Stock is then listed on a national securities exchange or is listed on NASDAQ and is designated as a National Market System security, the last sale price of one share of Common Stock, regular way, on such day on the principal stock exchange or market system on which such Common Stock is then listed or admitted to trading, or, if no such sale takes place on such day, the average of the closing bid and asked prices for one share of Common Stock on such day as reported on such stock exchange or market system or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange or designated as a National Market System security on NASDAQ but is traded over-the-counter, the average of the closing bid and asked prices for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as applicable. "Designated Office" shall have the meaning set forth in Section 10 hereof. "Dilution Fee" shall have the meaning set forth in Section 12 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Excluded Stock" shall have the meaning set forth in Section 4.11 hereof. "Exercise Date" shall have the meaning set forth in Section 2.1 hereof. "Exercise Notice" shall have the meaning set forth in Section 2.1 hereof. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1 hereof. "Exercise Price" shall mean, in respect of a share of Common Stock at any date herein specified, the initial Exercise Price set forth in the preamble of this Warrant as adjusted from time to time pursuant to Sections 2.4 and 4 hereof. "Expiration Date" shall mean the tenth anniversary of the Original Issue Date. "Fair Value" per share of Common Stock as of any specified date shall mean (A) if the Common Stock is publicly traded on such date, the Current Market Price per share or (B) if 4 the Common Stock is not publicly traded on such date, (1) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to each Holder or (2) if the Majority Warrant Holders object in writing to such price as determined by the Board of Directors within thirty (30) days after receiving notice of same, the Appraised Value per share as of such date. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "Holder" shall mean (a) with respect to this Warrant, the Person in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose and (b) with respect to any other Warrant or shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock is registered on the books of the Company maintained for such purpose. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Majority Warrant Holders", with respect to a given determination, shall mean the Holders of Warrants representing more than fifty percent (50%) of all then outstanding Warrants. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "NASDAQ" shall mean the NASDAQ quotation system, or any successor reporting system. "Opinion of Counsel" means a written opinion of outside counsel experienced in Securities Act matters chosen by the Holder of this Warrant or Warrant Stock issued upon the exercise hereof and reasonably acceptable to the Company. "Original Issue Date" shall mean the date on which this Warrant was issued, as set forth on the cover page of this Warrant. "Original Warrants" shall mean the Warrants originally issued by the Company on June 4, 1999 to the Apollo Stockholders. "Outside Date" shall mean the date that is 120 days after the Original Issue Date. 5 "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 8.2(a) hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company. "Series B Preferred Stock" shall mean the Series B Preferred Stock of the Company. "Share Withholding Option" has the meaning set forth in Section 2.1 hereof. "Subsidiary" shall mean any corporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled directly or indirectly by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest therein, which would constitute a "sale" thereof or a transfer of a beneficial interest therein within the meaning of the Securities Act. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such exercise. "Warrants" shall mean the Original Warrants and all warrants issued upon transfer, division or combination of, or in substitution for, such Original Warrants, and any additional Warrants issued together with shares of Series A Preferred Stock paid as dividends, or any other such Warrant. All Warrants shall at all times be identical as to terms and conditions, except as to 6 the number of shares of Common Stock for which they may be exercised and their date of issuance. "Warrant Stock" generally shall mean the shares of Common Stock issued, issuable or both (as the context may require) upon the exercise of Warrants. 2. EXERCISE OF WARRANT ------------------- 2.1 Manner of Exercise. (a) From and after the Original Issue Date ------------------ and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this Warrant may from time to time exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder (as determined pursuant to Section 2.2 below). In order to exercise this Warrant, in whole or in part, the Holder shall (i) deliver to the Company at its Designated Office a written notice of the Holder's election to exercise this Warrant (an "Exercise Notice"), which Exercise Notice shall be irrevocable and --------------- specify the number of shares of Common Stock to be purchased, together with this Warrant and (ii) pay to the Company the Warrant Price (the date on which both such delivery and payment shall have first taken place being hereinafter sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in ------------- the form of the subscription form appearing at the end of this Warrant as Annex ----- A, duly executed by the Holder or its duly authorized agent or attorney. - - (b) Upon receipt by the Company of such Exercise Notice, Warrant and payment, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Notice and shall be registered in the name of the Holder or, subject to Section 8 below, such other name as shall be designated in the Exercise Notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the Exercise Date. (c) Payment of the Warrant Price shall be made at the option of the Holder by one or more of the following methods: (i) by delivery of a certified or official bank check in the amount of such Warrant Price payable to the order of the Company, (ii) by instructing the Company to withhold a number of shares of Warrant Stock then issuable upon exercise of this Warrant with an aggregate Fair Value equal to such Warrant Price (the "Share Withholding Option"), or ------------------------ (iii) by surrendering to the Company shares of Common Stock previously acquired by the Holder with an aggregate Fair Value equal to such Warrant Price. In the event of any withholding of Warrant Stock or surrender of Common Stock pursuant to clause (ii) or (iii) above where the number of shares whose Fair Value is equal to the Warrant Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to 7 the nearest whole share and the Company shall make a cash payment to the Holder based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount determined in accordance with Section 2.3 hereof. (d) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing the shares of Common Stock being issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares of Common Stock in the name of any Person who acquired this Warrant (or part hereof) or any shares of Warrant Stock otherwise than in accordance with this Warrant. (e) All Warrants delivered for exercise shall be canceled by the Company. 2.2 Payment of Taxes. All shares of Common Stock issuable upon the ---------------- exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, issued without violation of any preemptive rights and free and clear of all Liens (other than any created by actions of the Holder). The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder and the Company shall reimburse the Holder therefor on an After-Tax Basis. The Company shall not, however, be required to pay any tax or governmental charge which may be payable in respect of any Transfer involved in the issue and delivery of shares of Common Stock issuable upon exercise of the Warrant in a name other than that of the holder of the Warrants to be exercised, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. 2.3 Fractional Shares. The Company shall not be required to issue a ----------------- fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share that the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash equal to such fraction multiplied by (i) the Current Market Price of one share of Common Stock on the Exercise Date, if the Common Stock is then publicly traded, or (ii) the Book Value per share of Common Stock based on the most recent available consolidated balance sheet of the Company, if the Common Stock is not then publicly traded. 2.4 Reduced Exercise Price. On the Outside Date, in the event that ---------------------- the Company shall not have obtained the approval of its stockholders of the conversion of the Series B Preferred Stock to Series A Preferred Stock, the Exercise Price herein shall be reduced to $0.01. 8 3. TRANSFER, DIVISION AND COMBINATION ---------------------------------- 3.1 Transfer. Subject to compliance with Section 8 hereof, each -------- transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the ------- Holder or its agent or attorney and funds sufficient to pay any transfer taxes described in Section 2.2 in connection with the making of such transfer. Upon such surrender and delivery and, if required, such payment, the Company shall, subject to Section 8, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 8, may be exercised by the new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2 Division and Combination. Subject to compliance with the ------------------------ applicable provisions of this Warrant including, without limitation, Section 8, this Warrant may be divided or combined with other Warrants upon presentation hereof at the Designated Office, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with the applicable provisions of this Warrant as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 Expenses. The Company shall prepare, issue and deliver at its -------- own expense any new Warrant or Warrants required to be issued under this Section 3. 3.4 Maintenance of Books. The Company agrees to maintain, at the -------------------- Designated Office, books for the registration and transfer of the Warrants (other than pursuant to Section 2.2 hereof). 4. ANTIDILUTION PROVISIONS ----------------------- The number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 4. 4.1 Upon Issuance of Common Stock. If the Company shall, at any time ----------------------------- or from time to time after the Original Issuance Date, issue any shares of Common Stock, options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, other than shares of Series A Preferred Stock, Series B Preferred Stock or Excluded Stock, without consideration or for consideration per share less than either (x) the Exercise Price or (y) the Fair Value of the Common Stock, in effect immediately 9 prior to the issuance of such Common Stock or securities, then such Exercise Price shall forthwith be lowered to a price equal to the price obtained by multiplying: (i) the Exercise Price in effect immediately prior to the issuance of such Common Stock or securities by (ii) a fraction of which (x) the denominator shall be the number of shares of Common Stock outstanding on a fully-diluted basis immediately after such issuance and (y) the numerator shall be the sum of (i) the number of shares of Common Stock outstanding on a fully- diluted basis immediately prior to the date of such issuance and (ii) the number of additional shares of Common Stock which the aggregate consideration for the number of shares of Common Stock so offered would purchase at the greater of the Exercise Price or the Fair Value per share of Common Stock. For purposes of this Section 4, "fully diluted basis" shall be determined in accordance with the treasury method of GAAP. 4.2 Upon Acquisition of Common Stock. If the Company or any -------------------------------- Subsidiary shall, at any time or from time to time after the Original Issuance Date, directly or indirectly, redeem, purchase or otherwise acquire any shares of Common Stock, options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock (other than shares of Series A Preferred Stock or Series B Preferred Stock that are redeemed according to their terms), or options to purchase or rights to subscribe for such convertible or exchangeable securities, for a consideration per share greater than the Fair Value (plus, in the case of such options, rights, or securities, the additional consideration required to be paid to the Company upon exercise, conversion or exchange) for shares of Common Stock in effect immediately prior to such event, then the Exercise Price shall forthwith be lowered to a price equal to the price obtained by multiplying: (i) the Exercise Price in effect immediately prior to such event by (ii) a fraction of which (x) the denominator shall be the Fair Value per share of Common Stock immediately prior to such event and (y) the numerator shall be the result of dividing: (A) (1) the product of (a) the number of shares of Common Stock outstanding on a fully-diluted basis and (b) the Fair Value per share of Common Stock, in each case immediately prior to such event, minus (2) the aggregate consideration paid by the Company in such event (plus, in the case of such options, rights, or convertible or exchangeable securities, the aggregate additional 10 consideration to be paid by the Company upon exercise, conversion or exchange), by (B) the number of shares of Common Stock outstanding on a fully-diluted basis immediately after such event. 4.3 Provisions Applicable to Adjustments. For the purposes of any ------------------------------------ adjustment of an Exercise Price pursuant to Sections 4.1 and 4.2, the following provisions shall be applicable: (i) In the case of the issuance of Common Stock for cash in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor before deducting therefrom any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance and sale thereof. (ii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the Fair Value thereof as determined in accordance with the Appraisal Procedure. (iii) In the case of the issuance of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, except for shares of Series A Preferred Stock, shares of Series B Preferred Stock and options to acquire Excluded Stock: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subparagraphs (i) and (ii) above), if any, received by the Company upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange of any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities, options, or rights 11 were issued and for a consideration equal to the consideration received by the Company for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in paragraphs (i) and (ii) above) and (C) on any change in the number of shares or exercise price of Common Stock deliverable upon exercise of any such options or rights or conversions of or exchanges for such securities, other than a change resulting from the antidilution provisions thereof, the applicable Exercise Price shall forthwith be readjusted to such Exercise Price as would have been obtained had the adjustment made upon the issuance of such options, rights or securities not converted prior to such change or options or rights related to such securities not converted prior to such change been made upon the basis of such change. (D) No further adjustment of the Exercise Price adjusted upon the issuance of any such options, rights, convertible securities or exchangeable securities shall be made as a result of the actual issuance of Common Stock on the exercise of any such rights or options or any conversion or exchange of any such securities. 4.4 Upon Stock Dividends or Splits. If, at any time after the ------------------------------ Original Issuance Date, the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date for the determination of holders of Common Stock entitled to receive such stock dividend, or to be affected by such subdivision or split-up, the Exercise Price shall be appropriately decreased so that the number of shares of Common Stock purchasable on exercise of the Warrants shall be increased in proportion to such increase in outstanding shares. 4.5 Upon Combinations. If, at any time after the Original Issuance ----------------- Date, the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, following the record date to determine shares affected by such combination, the Exercise Price shall be appropriately increased so that the number of shares of Common Stock purchasable on exercise of each of the Warrants shall be decreased in proportion to such decrease in outstanding shares. 12 4.6 Upon Reclassifications, Reorganizations, Consolidations or ---------------------------------------------------------- Mergers. In the event of any capital reorganization of the Company, any - ------- reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or any consolidation or merger of the Company with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock), each Warrant shall after such reorganization, reclassification, consolidation, or merger be exercisable for the kind and number of shares of stock or other securities or property of the Company or of the successor corporation resulting from such consolidation or surviving such merger, if any, to which the holder of the number of shares of Common Stock deliverable (immediately prior to the time of such reorganization, reclassification, consolidation or merger) upon exercise of such Warrant would have been entitled upon such reorganization, reclassification, consolidation or merger. The provisions of this clause shall similarly apply to successive reorganizations, reclassifications, consolidations, or mergers. 4.7 Deferral in Certain Circumstances. In any case in which the --------------------------------- provisions of this Section 4 shall require that an adjustment shall become effective immediately after a record date of an event, the Company may defer until the occurrence of such event issuing to the holder of any Warrant exercised after such record date and before the occurrence of such event the shares of capital stock issuable upon such exercise by reason of the adjustment required by such event and issuing to such holder only the shares of capital stock issuable upon such exercise before giving effect to such adjustments; provided, however, that the Company shall deliver to such holder an appropriate - -------- ------- instrument or due bills evidencing such holder's right to receive such additional shares. 4.8 Other Anti-Dilution Provisions. If the Company has issued or ------------------------------ issues any securities on or after the Original Issuance Date containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to such holder or holders thereof than those set forth in this Section 4, such provisions (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Warrant and, to the extent inconsistent with any provision of this Warrant, shall be deemed to be substituted therefor. 4.9 Appraisal Procedure. In any case in which the provisions of this ------------------- Section 4 shall necessitate that the Appraisal Procedure be utilized for purposes of determining an adjustment to the Exercise Price, the Company may defer until the completion of the Appraisal Procedure and the determination of the adjustment (1) issuing to the holder of any Warrant exercised after the date of the event that requires the adjustment and before completion of the Appraisal Procedure and the determination of the adjustment, the shares of capital stock issuable upon such exercise by reason of the adjustment required by such event and issuing to such holder only the shares of capital stock issuable upon such exercise before giving effect to such adjustment and (2) paying to such holder any amount in cash in lieu of a fractional share of capital stock pursuant to Section 2.3 above; provided, however, that the Company shall deliver to such -------- ------- holder an appropriate instrument or due bills evidencing such holder's right to receive such additional shares or cash. 13 4.10 Adjustment of Number of Shares Purchasable. Upon any adjustment ------------------------------------------ of the Exercise Price as provided in Section 4.1, 4.2, 4.4, 4.5 or 4.6, the holders of the Warrants shall thereafter be entitled to purchase upon the exercise thereof, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable on the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. 4.11 Exceptions. Section 4 shall not apply to (i) any issuance of ---------- Common Stock upon exercise of any warrants or options (A) outstanding on the Original Issuance Date or (B) awarded to employees or directors of the Company pursuant to an employee stock option plan or stock incentive plan approved by the Board of Directors; (ii) any issuance of securities by the Company in underwritten public offerings; and (iii) repurchases by the Company of Common Stock approved by the Board of Directors (collectively, the "Excluded Stock"). -------------- 4.12 Notice of Adjustment of Exercise Price. Whenever the Exercise -------------------------------------- Price is adjusted as herein provided: (i) the Company shall compute the adjusted Exercise Price in accordance with this Section 4 and shall prepare a certificate signed by the Treasurer or Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for such purpose or exercise of Warrants; and (ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be prepared by the Company, and as soon as practicable after it is prepared, such notice shall be mailed by the Company at its expense to all Holders at their last addresses as they shall appear in the stock register. 5. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION -------------------------------------------------------------------------- (a) The Company shall not by any action, including, without limitation, amending its charter documents or through any reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, free and clear of all Liens, and shall use its best efforts to obtain all such authorizations, exemptions or consents from 14 any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. (b) The Company shall deliver to each Holder of Warrants on or before six months prior to the tenth anniversary of the Original Issue Date, but no earlier than nine months prior to the tenth anniversary of the Original Issue Date, advance notice of such tenth anniversary and of the anticipated Expiration Date. If the Company fails to fulfill in a timely manner the notice obligation set forth in the prior sentence, it shall provide such notice as soon as possible thereafter. 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGIS TRATION WITH OR -------------------------------------------------------------------- APPROVAL OF ANY GOVERNMENTAL AUTHORITY -------------------------------------- From and after the Original Issue Date, the Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock issuable pursuant to the terms hereof, when issued upon exercise of this Warrant with payment therefor in accordance with the terms hereof, shall be duly and validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free and clear of all Liens. Before taking any action that would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction over such action. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (other than under the Securities Act or any state securities law) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS ------------------------------------------------------------- 7.1 Notices of Corporate Actions. ---------------------------- In case: (a) the Company shall take an action or an event shall occur, that would require an Exercise Price adjustment pursuant to Section 4; or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class; or (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any 15 consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for such purpose, and shall cause to be mailed to all holders at their last addresses as they shall appear in the stock register, at least 30 days prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of the amendment thereto). Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Exercise Price and the number and kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of the Warrants. Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 7.1. 7.2 Taking of Record. In the case of all dividends or other ---------------- distributions by the Company to the holders of its Common Stock with respect to which any provision of any Section hereof refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. 7.3 Closing of Transfer Books. The Company shall not at any time, ------------------------- except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 16 8. TRANSFER RESTRICTIONS --------------------- The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 8. 8.1 Restrictions on Transfers. Neither this Warrant nor any shares ------------------------- of Restricted Common Stock issued upon the exercise hereof shall be transferred, sold, assigned, exchanged, mortgaged, pledged, hypothecated or otherwise disposed of or encumbered without compliance with the provisions of, and are otherwise restricted by the provisions of, the Securities Act, the rules and regulations thereunder and this Warrant. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon any such Transfer, other than in a public offering pursuant to an effective registration statement, shall bear the restrictive legend set forth in Section 8.2(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 8.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the effect that such legend is not required for the purposes of compliance with the Securities Act. Holders of the Warrants or the Restricted Common Stock, as the case may be, shall not be entitled to Transfer such Warrants or such Restricted Common Stock except in accordance with this Section 8.1. 8.2 Restrictive Legends. (a) Except as otherwise provided in this ------------------- Section 8, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with two legends in substantially the following forms: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND REGULATIONS THEREUNDER." "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 2-A WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC. (THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED. A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF RARE MEDIUM GROUP, INC." (b) Except as otherwise provided in this Section 8, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: 17 "NEITHER THIS SERIES 2-A WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 2-A WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT." 8.3 Termination of Securities Law Restrictions. Notwithstanding the ------------------------------------------ foregoing provisions of this Section 8, the restrictions imposed by Section 8.1(b) upon the transferability of the Warrants and the Restricted Common Stock and the legend requirements of Section 8.2 shall terminate as to any particular Warrant or shares of Restricted Common Stock when the Company shall have received from the Holder thereof an Opinion of Counsel to the effect that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Sections 8.1(b) and 8.2 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 2-A WARRANT CONTAINED IN SECTIONS 8.1(b) AND 8.2 HEREOF TERMINATED ON ______________, 20__, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 8.2(a). 9. LOSS OR MUTILATION ------------------ Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and an indemnity reasonably satisfactory to it (it being understood that the written indemnification agreement of or affidavit of loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, -------- however, that, in the case of mutilation, no indemnity shall be required if this - ------- Warrant in identifiable form is surrendered to the Company for cancellation. 18 10. OFFICE OF THE COMPANY --------------------- As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency, which may be the principal executive offices of the Company (the "Designated Office"), where the Warrants may be presented for ----------------- exercise, registration of transfer, division or combination as provided in this Warrant. Such Designated Office shall initially be the office of the Company at 44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from time to time change the Designated Office to another office of the Company or its agent within the United States by notice given to all registered Holders at least ten (10) Business Days prior to the effective date of such change. 11. FINANCIAL AND BUSINESS INFORMATION ---------------------------------- (a) Financial Reports. ----------------- Until (i) the Company shall no longer be required to deliver financial reports in connection with the Series A Preferred Stock, or (ii) the Expiration Date, whichever first occurs, the Company shall furnish to Apollo Investment Fund IV, L.P. the following: (i) Monthly Reports. As soon as available, but not later than --------------- 30 days after the end of each fiscal month, a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income of the Company for such period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied (except for the absence of footnotes and year-end adjustments). (ii) Quarterly Reports. As soon as available, but not later than ----------------- 45 days after the end of each quarterly accounting period, (A) a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income, cash flows and changes in shareholders' equity for such quarterly accounting period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied, subject to normal year-end adjustments and the absence of footnote disclosure, and (B) a report by management of the Company of the operating and financial highlights of the Company and its Subsidiaries for such period, which shall include (x) a comparison between operating and financial results and budget and (y) an analysis of the operations of the Company and its Subsidiaries for such period. 19 (iii) Annual Audit. As soon as available, but not later than 90 ------------ days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company, which shall include statements of income, cash flows and changes in shareholders' equity for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the report of a "Big 5" firm of independent certified public accountants selected by the Company's Board of Directors (the "Accountants"). The Company and its Subsidiaries shall maintain a system ----------- of accounting sufficient to enable its Accountants to render the report referred to in this Section 11(b)(iii). (iv) Miscellaneous. Promptly upon becoming available, each of ------------- the following: (A) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company or its Subsidiaries to its shareholders generally or released to the public and copies of all regular and periodic reports, if any, filed by the Company or its Subsidiaries with the SEC, any securities exchange or the NASD; (B) notification in writing of the existence of any default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound; (C) upon request, copies of all reports prepared for or delivered to the management of the Company or its Subsidiaries by its accountants; and (D) upon request, any other routinely collected financial or other information available to management of the Company or its Subsidiaries (including, without limitation, routinely collected statistical data). (b) Other Holders. Without duplication of any document or information ------------- provided pursuant to this Section 12, the Company shall provide to each Holder of Warrants or Warrant Stock the following: (i) as soon as available, but not later than 45 days after the end of each quarterly accounting period, a Form 10-Q or, if the Company does not then file quarterly reports with the SEC, the documents referred to in Section 11(a)(ii). (ii) as soon as available, but not later than 90 days after the end of each fiscal year, a Form 10-K or, if the Company does not then file annual reports with the SEC, the audited consolidated financial statements referred to in Section 11(a)(iii). (iii) simultaneously with any distribution of any document to the stockholders of the Company generally, any such document so distributed. 20 12. DILUTION FEE ------------ In the event any dividends are declared with respect to the Common Stock, the holder of this Warrant as of the record date established by the Board of Directors for such dividend shall be entitled to receive as a dilution fee (the "Dilution Fee") an amount (whether in the form of cash, securities or other ------------ property) equal to the amount (and in the form) of the dividends that such holder would have received had this Warrant been exercised for purchase of Common Stock as of the record date of such dividend, such Dilution Fee to be payable on the payment date of the dividend established by the Board of Directors (the "Dilution Fee Payment Date"). The record date for any such ------------------------- Dilution Fee shall be the record date for the applicable dividend, and any such Dilution Fee shall be payable to the persons in whose name this Warrant is registered at the close of business on the applicable record date. 13. MISCELLANEOUS ------------- 13.1 Nonwaiver. No course of dealing or any delay or failure to --------- exercise any right hereunder on the part of the Company or the Holder shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of such Person. 13.2 Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) if to any Holder of this Warrant or of Warrant Stock issued upon the exercise hereof, at its last known address appearing on the books of the Company maintained for such purpose; (b) if to the Company, at the Designated Office; or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, or one (1) Business Day after the same shall have been sent by Federal Express or another recognized overnight courier service. 13.3 Indemnification. If the Company fails to make, when due, any --------------- payments provided for in this Warrant, the Company shall pay to the Holder hereof (a) interest at the Agreed Rate on any amounts due and owing to such Holder and (b) such further amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees and expenses incurred by such Holder in collecting any amounts due hereunder. The 21 Company shall indemnify, save and hold harmless the Holder hereof and the Holders of any Warrant Stock issued upon the exercise hereof from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from any default hereunder by the Company. This indemnification provision shall be in addition to the rights of such Holder or Holders to bring an action against the Company for breach of contract based on such default hereunder. 13.4 Limitation of Liability. No provision hereof, in the absence of ----------------------- affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder to pay the Exercise Price for any Warrant Stock other than pursuant to an exercise of this Warrant or any liability as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 13.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in -------- addition to being entitled to exercise its rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights provided under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate. 13.6 Successors and Assigns. Subject to the provisions of Sections ---------------------- 3.1, 8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the permitted successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and to the extent applicable, all Holders of shares of Warrant Stock issued upon the exercise hereof (including transferees), and shall be enforceable by any such Holder. 13.7 Amendment. This Warrant and all other Warrants may be modified --------- or amended or the provisions hereof waived with the written consent of the Company and the Majority Warrant Holders, provided that no such Warrant may be -------- modified or amended to reduce the number of shares of Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the written consent of the Holder thereof. 13.8 Severability. Wherever possible, each provision of this Warrant ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 13.9 Headings. The headings used in this Warrant are for the -------- convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 22 13.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL --------------------------- MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS -------- ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK. 23 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. RARE MEDIUM GROUP, INC. By:_________________________________ Name: Title: [SEAL] Attest: By:_____________________________ Name: Title: 24 ANNEX A -------- SUBSCRIPTION FORM ----------------- [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ______ shares Common Stock of Rare Medium Group, Inc. and herewith makes payment therefor in ______________, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________ whose address is ___________________________________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. _______________________________ (Name of Registered Owner) _______________________________ (Signature of Registered Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. ANNEX B -------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all of the rights of the under signed under this Warrant, with respect to the number of shares of Common Stock set forth below: No. of Shares of Name and Address of Assignee Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint ________ _____________ attorney-in-fact to register such transfer onto the books of Rare Medium Group, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:___________________ Print Name:___________________ Signature:____________________ Witness:______________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. ============================================================================ SERIES 2-B WARRANT to Purchase Non-Voting Common Stock of RARE MEDIUM GROUP, INC. ============================================================================ Warrant No. [___] Original Issue Date: June 4, 1999 TABLE OF CONTENTS 1. DEFINITIONS .......................................................... 1 2. EXERCISE OF WARRANT .................................................. 6 2.1 Manner of Exercise .......................................... 6 2.2 Payment of Taxes ............................................ 7 2.3 Fractional Shares ........................................... 8 2.4................................................................... 8 3. TRANSFER, DIVISION AND COMBINATION ................................... 8 3.1 Transfer .................................................... 8 3.2 Division and Combination .................................... 8 3.3 Expenses .................................................... 9 3.4 Maintenance of Books ........................................ 9 4. CONVERSION TO SERIES 2-A WARRANTS .................................... 9 5. ANTIDILUTION PROVISIONS .............................................. 9 5.1 General ..................................................... 9 5.2 Notice of Adjustment of Exercise Price ...................... 9 6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION ................................................. 10 7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY .......... 10 8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS ....................................................... 11 8.1 Notices of Corporate Actions ................................ 11 8.2 Taking of Record ............................................ 12 8.3 Closing of Transfer Books ................................... 12 9. TRANSFER RESTRICTIONS ................................................ 12 9.1 Restrictions on Transfers ................................... 12 9.2 Restrictive Legends ......................................... 13 9.3 Termination of Securities Law Restrictions .................. 13 10. LOSS OR MUTILATION ................................................... 14 11. OFFICE OF THE COMPANY ................................................ 14
-i- 12. FINANCIAL AND BUSINESS INFORMATION ................................... 15 13. DILUTION FEE ......................................................... 16 14. MISCELLANEOUS ........................................................ 17 14.1 Nonwaiver ..................................................... 17 14.2 Notice Generally .............................................. 17 14.3 Indemnification ............................................... 17 14.4 Limitation of Liability ....................................... 18 14.5 Remedies ...................................................... 18 14.6 Successors and Assigns ........................................ 18 14.7 Amendment ..................................................... 18 14.8 Severability .................................................. 18 14.9 Headings ...................................................... 18 14.10 GOVERNING LAW; JURISDICTION 18 ANNEX A SUBSCRIPTION FORM..................................................... 21 ANNEX B ASSIGNMENT FORM ...................................................... 22
-ii- NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE WARRANTS REPRESENTED BY THIS CERTIFI CATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT. Warrant No. [___] SERIES 2-B WARRANT TO PURCHASE ____ SHARES OF NON-VOTING COMMON STOCK (SUBJECT TO ADJUSTMENT) OF RARE MEDIUM GROUP, INC. THIS IS TO CERTIFY THAT APOLLO INVESTMENT FUND IV, L.P., or its registered assigns, is entitled, at any time prior to the Expiration Date (such term, and certain other capitalized terms used herein being hereinafter defined), to purchase from RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"), one (1) share of the Non-Voting Common Stock of the Company (subject ------- to adjustment as provided herein), at a purchase price per share (the initial "Exercise Price", subject to adjustment as provided herein) equal to $7.00. - --------------- 1. DEFINITIONS ----------- As used in this Warrant, the following terms have the respective meanings set forth below: "Affiliate" of any Person means any other Person (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person. The term "control" (including the terms "controlled by" and "under common control with") as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "After-Tax Basis" when referring to a payment that is required hereunder (the "target amount"), shall mean a total payment (the "total amount") that, after deduction of all federal, state and local taxes that are required to be paid by the recipient in respect of the receipt or accrual of such total amount, is equal to the target amount. "Agreed Rate" shall mean the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate. "Apollo Stockholders" shall mean Apollo Investment Fund IV, L.P. or any of its Affiliates. "Appraised Value" per share of Common Stock as of a date specified herein shall mean the value of such a share as of such date as determined by an investment bank of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company. If the investment bank selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment bank, then the Company and the Majority Warrant Holders shall each choose one such investment bank and the respective chosen firms shall jointly select a third investment bank, which shall make the determination. The Company shall pay the costs and fees of each such investment bank (including any such investment bank selected by the Majority Warrant Holders), and the decision of the investment bank making such determination of Appraised Value shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion of the value of the Company taken as a whole, based on the higher of (A) the value derived from a hypothetical sale of the entire Company as a going concern by a willing seller to a willing buyer (neither acting under any compulsion) and (B) the liquidation value of the entire Company. No discount shall be applied on account of (i) any Warrants or Warrant Stock representing a minority interest, (ii) any lack of liquidity of the Common Stock or the Warrants, (iii) the fact that the Warrants or Warrant Stock may constitute "restricted securities" for securities law purposes, (iv) the existence of any call option or (v) any other grounds. "Book Value" per share of Common Stock as of a date specified herein shall mean the consolidated book value of the Company and its Subsidiaries as of such date divided by the number of shares of Common Stock Outstanding on such date. Such book value shall be determined in accordance with GAAP, except that there shall be no reduction in such book value by reason of any amount that may be required either as an offset to or reserve against retained earnings or as a deduction from book value as a result of the issuance, existence, anticipated exercise of, or anticipated cost to the Company of the repurchase of, any of the Warrants. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. 2 "Common Stock" shall mean the Common Stock of the Company, par value $0.01 per share, as constituted on the Original Issue Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of any Common Stock upon any reclassification thereof which is also not preferred as to dividends or liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 5 hereof. "Company" means Rare Medium Group, Inc., a Delaware corporation, and any successor corporation. "Current Market Price" shall mean as of any specified date the average of the daily market price of one share of the Common Stock for the shorter of (x) the twenty (20) consecutive Business Days immediately preceding such date or (y) the period commencing on the Business Day next following the first public announcement by the Company of any event giving rise to an adjustment of the Exercise Price pursuant to Section 5 below and ending on such date. The "daily market price" of one share of Common Stock for each such Business Day shall be: (i) if the Common Stock is then listed on a national securities exchange or is listed on NASDAQ and is designated as a National Market System security, the last sale price of one share of Common Stock, regular way, on such day on the principal stock exchange or market system on which such Common Stock is then listed or admitted to trading, or, if no such sale takes place on such day, the average of the closing bid and asked prices for one share of Common Stock on such day as reported on such stock exchange or market system or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange or designated as a National Market System security on NASDAQ but is traded over-the-counter, the average of the closing bid and asked prices for one share of Common Stock as reported on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as applicable. "Designated Office" shall have the meaning set forth in Section 11 hereof. "Dilution Fee" shall have the meaning set forth in Section 13 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Date" shall have the meaning set forth in Section 2.1 hereof. "Exercise Notice" shall have the meaning set forth in Section 2.1 hereof. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1 hereof. 3 "Exercise Price" shall mean, in respect of a share of Non-Voting Common Stock at any date herein specified, the initial Exercise Price set forth in the preamble of this Warrant as adjusted from time to time pursuant to Sections 2.4 and 5 hereof. "Expiration Date" shall mean the tenth anniversary of the Original Issue Date. "Fair Value" per share of Common Stock as of any specified date shall mean (A) if the Common Stock is publicly traded on such date, the Current Market Price per share or (B) if the Common Stock is not publicly traded on such date, (1) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to each Holder or (2) if the Majority Warrant Holders object in writing to such price as determined by the Board of Directors within thirty (30) days after receiving notice of same, the Appraised Value per share as of such date. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "Holder" shall mean (a) with respect to this Warrant, the Person in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose and (b) with respect to any other Warrant or shares of Warrant Stock, the Person in whose name such Warrant or Warrant Stock is registered on the books of the Company maintained for such purpose. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Majority Warrant Holders", with respect to a given determination, shall mean the Holders of Warrants representing more than fifty percent (50%) of all then outstanding Warrants. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "NASDAQ" shall mean the NASDAQ quotation system, or any successor reporting system. "Non-Voting Common Stock" shall mean the non-voting common stock, par value $0.01 per share, as the Company. 4 "Opinion of Counsel" means a written opinion of outside counsel experienced in Securities Act matters chosen by the Holder of this Warrant or Warrant Stock issued upon the exercise hereof and reasonably acceptable to the Company. "Original Issue Date" shall mean the date on which this Warrant was issued, as set forth on the cover page of this Warrant. "Original Warrants" shall mean the Warrants originally issued by the Company on June 4 1999 to the Apollo Stockholders. "Outside Date" shall mean the date which is 120 days after the Original Issue Date. "Outstanding" shall mean, when used with reference to Common Stock or Non-Voting Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock or Non-Voting Common Stock, as the case may be, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock or Non-Voting Common Stock, as the case may be. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Restricted Common Stock" shall mean shares of Non-Voting Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.2(a) hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company. "Series B Preferred Stock" shall mean the Series B Preferred Stock of the Company. "Share Withholding Option" has the meaning set forth in Section 2.1 hereof. "Subsidiary" shall mean any corporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled directly or indirectly by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. 5 "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest therein, which would constitute a "sale" thereof or a transfer of a beneficial interest therein within the meaning of the Securities Act. "Warrant Price" shall mean an amount equal to (i) the number of shares of Non-Voting Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such exercise. "Warrants" shall mean the Original Warrants and all warrants issued upon transfer, division or combination of, or in substitution for, such Original Warrants, and any additional Warrants issued together with shares of Series A Preferred Stock paid as dividends, or any other such Warrant. All Warrants shall at all times be identical as to terms and conditions, except as to the number of shares of Non-Voting Common Stock for which they may be exercised and their date of issuance. "Warrant Stock" generally shall mean the shares of Non-Voting Common Stock issued, issuable or both (as the context may require) upon the exercise of Warrants. 2. EXERCISE OF WARRANT ------------------- 2.1 Manner of Exercise. (a) From and after the Original Issue Date ------------------ and until 5:00 P.M., New York time, on the Expiration Date, the Holder of this Warrant may from time to time exercise this Warrant, on any Business Day, for all or any part of the number of shares of Non-Voting Common Stock purchasable hereunder (as determined pursuant to Section 2.2 below); provided, however, if -------- ------- after the Outside Date, any Holder of this Warrant elects to convert such warrant to Non-Voting Common Stock pursuant to this Section 2 and it is determined that the Company cannot issue Non-Voting Common Stock, the Company shall use its reasonable efforts to deliver to such Holder securities, cash or other property to provide such Holder with the economic equivalent of an exercise of the Series 2-B Warrant into, and an immediate sale of, the Non- Voting Common Stock. In order to exercise this Warrant, in whole or in part, the Holder shall (i) deliver to the Company at its Designated Office a written notice of the Holder's election to exercise this Warrant (an "Exercise Notice"), --------------- which Exercise Notice shall be irrevocable and specify the number of shares of Non-Voting Common Stock to be purchased, together with this Warrant and (ii) pay to the Company the Warrant Price (the date on which both such delivery and payment shall have first taken place being hereinafter sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in the form of the subscription form appearing at the end of this Warrant as Annex A, duly executed ------- by the Holder or its duly authorized agent or attorney. (b) Upon receipt by the Company of such Exercise Notice, Warrant and payment, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the aggregate number of full shares of Non-Voting Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, 6 as hereafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Notice and shall be registered in the name of the Holder or, subject to Section 9 below, such other name as shall be designated in the Exercise Notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the Exercise Date. (c) Payment of the Warrant Price shall be made at the option of the Holder by one or more of the following methods: (i) by delivery of a certified or official bank check in the amount of such Warrant Price payable to the order of the Company, (ii) by instructing the Company to withhold a number of shares of Warrant Stock then issuable upon exercise of this Warrant with an aggregate Fair Value equal to such Warrant Price (the "Share Withholding Option"), or ------------------------ (iii) by surrendering to the Company shares of Non-Voting Common Stock previously acquired by the Holder with an aggregate Fair Value equal to such Warrant Price. In the event of any withholding of Warrant Stock or surrender of Non-Voting Common Stock pursuant to clause (ii) or (iii) above where the number of shares whose Fair Value is equal to the Warrant Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount determined in accordance with Section 2.3 hereof. (d) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing the shares of Non-Voting Common Stock being issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Non-Voting Common Stock called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares of Non-Voting Common Stock in the name of any Person who acquired this Warrant (or part hereof) or any shares of Warrant Stock otherwise than in accordance with this Warrant. (e) All Warrants delivered for exercise shall be canceled by the Company. 2.2 Payment of Taxes. All shares of Non-Voting Common Stock issuable ---------------- upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, issued without violation of any preemptive rights and free and clear of all Liens (other than any created by actions of the Holder). The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder and the Company shall reimburse the Holder therefor on an After-Tax Basis. The Company shall not, however, be required to pay any tax or governmental charge which may be payable in respect of any Transfer involved in the issue and delivery of shares of Non-Voting Common Stock issuable upon exercise of this Warrant in a name other than that of the holder of the Warrants to be exercised, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the 7 amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. 2.3 Fractional Shares. The Company shall not be required to issue a ----------------- fractional share of Non-Voting Common Stock upon exercise of any Warrant. As to any fraction of a share that the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash equal to such fraction multiplied by (i) the Current Market Price of one share of Non-Voting Common Stock on the Exercise Date, if the Non-Voting Common Stock is then publicly traded, or (ii) the Book Value per share of Non-Voting Common Stock based on the most recent available consolidated balance sheet of the Company, if the Non-Voting Common Stock is not then publicly traded. 2.4 Reduced Exercise Price. In the event that the Company shall not ---------------------- have obtained the approval of its stockholders of the conversion of the Series 2-B Warrants into Series 2-A Warrants (the "Series 2-B-to-2-A Conversion"), on ---------------------------- or prior to the Outside Date the Exercise Price herein shall be reduced to $0.01. 3. TRANSFER, DIVISION AND COMBINATION ---------------------------------- 3.1 Transfer. Subject to compliance with Section 9 hereof, each -------- transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the ------- Holder or its agent or attorney and funds sufficient to pay any transfer taxes described in Section 2.2 in connection with the making of such transfer. Upon such surrender and delivery and, if required, such payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by the new Holder for the purchase of shares of Non- Voting Common Stock without having a new Warrant issued. 3.2 Division and Combination. Subject to compliance with the ------------------------ applicable provisions of this Warrant including, without limitation, Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the Designated Office, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with the applicable provisions of this Warrant as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 8 3.3 Expenses. The Company shall prepare, issue and deliver at its -------- own expense any new Warrant or Warrants required to be issued under this Section 3 (other than pursuant to Section 2.2 hereof). 3.4 Maintenance of Books. The Company agrees to maintain, at the -------------------- Designated Office, books for the registration and transfer of the Warrants. 4. CONVERSION TO SERIES 2-A WARRANTS --------------------------------- 4.1 Conversion. The Company will, as soon as practicable, duly call, ---------- give notice of, convene and hold a meeting of its stockholders for the purpose of approving, among other things, the Series 2-B-to-2-A Conversion. The Company shall use its best efforts to secure such approval on or prior to the Outside Date. Upon stockholder approval of the Series 2-B-to-2-A Conversion, whenever obtained, this Warrant shall, without any action on the part of the Holder hereof or the Company, be automatically converted into one Series 2-A Warrant (a "Series 2-A Warrant") in the form attached as Annex 2-C to the Amended and ------------------ Restated Securities Purchase Agreement dated as of June 4 1999 among the Company, the Apollo Stockholders and certain other parties thereto, to purchase the same number of shares of Common Stock (subject to adjustment) as could be purchased upon the exercise of this Warrant immediately prior to such conversion. 4.2 Promptly following any conversion of this Warrant into a Series 2-A Warrant pursuant to Section 4.1 above, the Holder of this Warrant shall (i) surrender this Warrant, at the office of the Company or of the transfer agent for this Warrant and (ii) state in writing the name or names in which the Series 2-A Warrant is to be registered. As soon as practical following receipt of the foregoing, the Company shall deliver to such former Holder of this Warrant one or more Series 2-A Warrants in denominations acceptable to such Holder. Such conversion shall be deemed to have been effected as of the close of business on the date on which the stockholders of the Company approve the Series 2-B-to-2-A Conversion. 5. ANTIDILUTION PROVISIONS ----------------------- 5.1 General. The number of shares of Non-Voting Common Stock ------- Common Stock for which this Warrant is exercisable and the Exercise Price shall be subject to adjustment from time to time in the same manner as the number of shares of Common Stock issuable upon exercise of the Series 1-A Warrant and the "Exercise Price" as set forth in the Series 1-A Warrant and adjusted pursuant to Section 5 thereof. 5.2 Notice of Adjustment of Exercise Price. Whenever the Exercise -------------------------------------- Price is adjusted as herein provided: (i) the Company shall compute the adjusted Exercise Price in accordance with this Section 5 and shall prepare a certificate signed by the 9 Treasurer or Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for such purpose or exercise of Warrants; and (ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be prepared by the Company, and as soon as practicable after it is prepared, such notice shall be mailed by the Company at its expense to all Holders at their last addresses as they shall appear in the stock register. 6. NO IMPAIRMENT; REGULATORY COMPLIANCE AND COOPERATION; NOTICE OF EXPIRATION -------------------------------------------------------------------------- (a) The Company shall not by any action, including, without limitation, amending its charter documents or through any reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, free and clear of all Liens, and shall use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. (b) The Company shall deliver to each Holder of Warrants on or before six months prior to the tenth anniversary of the Original Issue Date, but no earlier than nine months prior to the tenth anniversary of the Original Issue Date, advance notice of such tenth anniversary and of the anticipated Expiration Date. If the Company fails to fulfill in a timely manner the notice obligation set forth in the prior sentence, it shall provide such notice as soon as possible thereafter. 7. RESERVATION AND AUTHORIZATION OF NON-VOTING COMMON STOCK; REGISTRATION WITH --------------------------------------------------------------------------- OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY ----------------------------------------- From and after the Original Issue Date, the Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants such number of its authorized but unissued shares of Non-Voting Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Non-Voting Common Stock issuable pursuant to the terms hereof, when issued upon exercise of this Warrant with payment therefor in accordance 10 the terms hereof, shall be duly and validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free and clear of all Liens. Before taking any action that would result in an adjustment in the number of shares of Non-Voting Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction over such action. If any shares of Non-Voting Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (other than under the Securities Act or any state securities law) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS ------------------------------------------------------------- 8.1 Notices of Corporate Actions. ---------------------------- In case: (a) the Company shall take an action or an event shall occur, that would require an Exercise Price adjustment pursuant to Section 5; or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class; or (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for such purpose, and shall cause to be mailed to all holders at their last addresses as they shall appear in the stock register, at least 30 days prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, 11 distribution, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of the amendment thereto). Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Exercise Price and the number and kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of the Warrants. Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 8.1. 8.2 Taking of Record. In the case of all dividends or other ---------------- distributions by the Company to the holders of its Common Stock with respect to which any provision of any Section hereof refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. 8.3 Closing of Transfer Books. The Company shall not at any time, ------------------------- except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. TRANSFER RESTRICTIONS --------------------- The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1 Restrictions on Transfers. Neither this Warrant nor any shares ------------------------- of Restricted Common Stock issued upon the exercise hereof shall be transferred, sold, assigned, exchanged, mortgaged, pledged, hypothecated or otherwise disposed of or encumbered without compliance with the provisions of, and are otherwise restricted by the provisions of, the Securities Act, the rules and regulations thereunder and this Warrant. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon any such Transfer, other than in a public offering pursuant to an effective registration statement, shall bear the restrictive legend set forth in Section 9.2(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the effect that such legend is not required for the purposes of compliance with the Securities Act. Holders of the Warrants or the Restricted Common Stock, as the case may be, shall not be entitled to Transfer such Warrants or such Restricted Common Stock except in accordance with this Section 9.1. 12 9.2 Restrictive Legends. (a) Except as otherwise provided in this ------------------- Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with two legends in substantially the following forms: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGE, MORTGAGE, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT AND THE RULES AND REGULATIONS THEREUNDER." "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN A CERTAIN SERIES 2-B WARRANT DATED JUNE 4, 1999, ORIGINALLY ISSUED BY RARE MEDIUM GROUP, INC. (THE "WARRANT") PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED. A COPY OF THE WARRANT IS AVAILABLE AT THE EXECUTIVE OFFICES OF RARE MEDIUM GROUP, INC." (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "NEITHER THIS SERIES 2-B WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THE SERIES 2-B WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OF OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE ACT, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT." 9.3 Termination of Securities Law Restrictions. Notwithstanding the ------------------------------------------ foregoing provisions of this Section 9, the restrictions imposed by Section 9.1(b) upon the transferability of the Warrants and the Restricted Common Stock and the legend requirements of Section 9.2 shall terminate as to any particular Warrant or shares of Restricted Common Stock when the Company shall have received from the Holder thereof an Opinion of Counsel to the effect that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Sections 9.1(b) and 9.2 shall terminate as to this Warrant, as hereinabove provided, 13 the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN SERIES 2-B WARRANT CONTAINED IN SECTIONS 9.1(b) AND 9.2 HEREOF TERMINATED ON ______________, 20__, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Non- Voting Common Stock not bearing the restrictive legend set forth in Section 9.2(a). 10. LOSS OR MUTILATION ------------------ Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and an indemnity reasonably satisfactory to it (it being understood that the written indemnification agreement of or affidavit of loss of the Apollo Stockholders, shall be a sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, -------- however, that, in the case of mutilation, no indemnity shall be required if this - ------- Warrant in identifiable form is surrendered to the Company for cancellation. 11. OFFICE OF THE COMPANY --------------------- As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency, which may be the principal executive offices of the Company (the "Designated Office"), where the Warrants may be presented for ---------- ------ exercise, registration of transfer, division or combination as provided in this Warrant. Such Designated Office shall initially be the office of the Company at 44 West 18th Street, 6th Floor, New York, New York 10011. The Company may from time to time change the Designated Office to another office of the Company or its agent within the United States by notice given to all registered Holders at least ten (10) Business Days prior to the effective date of such change. 14 12. FINANCIAL AND BUSINESS INFORMATION ---------------------------------- (a) Financial Reports. ----------------- Until (i) the Company shall no longer be required to deliver financial reports in connection with the Series A Preferred Stock, or (ii) the Expiration Date, whichever first occurs, the Company shall furnish to Apollo Investment Fund IV, L.P. the following: (i) Monthly Reports. As soon as available, but not later than --------------- 30 days after the end of each fiscal month, a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income of the Company for such period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied (except for the absence of footnotes and year-end adjustments). (ii) Quarterly Reports. As soon as available, but not later ----------------- than 45 days after the end of each quarterly accounting period, (A) a consolidated balance sheet of the Company as of the end of such period and consolidated statements of income, cash flows and changes in shareholders' equity for such quarterly accounting period and for the period commencing at the end of the previous fiscal year and ending with the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, and including comparisons to the budget or business plan and an analysis of the variances from the budget or plan, all prepared in accordance with generally accepted accounting principals consistently applied, subject to normal year-end adjustments and the absence of footnote disclosure, and (B) a report by management of the Company of the operating and financial highlights of the Company and its Subsidiaries for such period, which shall include (x) a comparison between operating and financial results and budget and (y) an analysis of the operations of the Company and its Subsidiaries for such period. (iii) Annual Audit. As soon as available, but not later than 90 ------------ days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company, which shall include statements of income, cash flows and changes in shareholders' equity for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the report of a "Big 5" firm of independent certified public accountants selected by the Company's Board of Directors (the "Accountants"). The Company and its Subsidiaries shall maintain a system ----------- of accounting sufficient to enable its Accountants to render the report referred to in this Section 12(a)(iii). 15 (iv) Miscellaneous. Promptly upon becoming available, each of ------------- the following: (A) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company or its Subsidiaries to its shareholders generally or released to the public and copies of all regular and periodic reports, if any, filed by the Company or its Subsidiaries with the SEC, any securities exchange or the NASD; (B) notification in writing of the existence of any default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound; (C) upon request, copies of all reports prepared for or delivered to the management of the Company or its Subsidiaries by its accountants; and (D) upon request, any other routinely collected financial or other information available to management of the Company or its Subsidiaries (including, without limitation, routinely collected statistical data). (b) Other Holders. Without duplication of any document or information ------------- provided pursuant to this Section 12, the Company shall provide to each Holder of Warrants or Warrant Stock the following: (i) as soon as available, but not later than 45 days after the end of each quarterly accounting period, a Form 10-Q or, if the Company does not then file quarterly reports with the SEC, the documents referred to in Section 12(a)(ii). (ii) as soon as available, but not later than 90 days after the end of each fiscal year, a Form 10-K or, if the Company does not then file annual reports with the SEC, the audited consolidated financial statements referred to in Section 12(a)(iii). (iii)simultaneously with any distribution of any document to the stockholders of the Company generally, any such document so distributed. 13. DILUTION FEE ------------ In the event any dividends are declared with respect to the Common Stock, the holder of this Warrant as of the record date established by the Board of Directors for such dividend shall be entitled to receive as a dilution fee (the "Dilution Fee") an amount (whether in the form of cash, securities or other ------------ property) equal to the amount (and in the form) of the dividends that such holder would have received had this Warrant been exercised for purchase of Non- Voting Common Stock (on the basis of one share of Common Stock for each share of Non-Voting Common Stock for which this Warrant is then exercisable) as of the record date of such 16 dividend, such Dilution Fee to be payable on the payment date of the dividend established by the Board of Directors (the "Dilution Fee Payment Date"). The ------------------------- record date for any such Dilution Fee shall be the record date for the applicable dividend, and any such Dilution Fee shall be payable to the persons in whose name this Warrant is registered at the close of business on the applicable record date. 14. MISCELLANEOUS ------------- 14.1 Nonwaiver. No course of dealing or any delay or failure to --------- exercise any right hereunder on the part of the Company or the Holder shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of such Person. 14.2 Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) if to any Holder of this Warrant or of Warrant Stock issued upon the exercise hereof, at its last known address appearing on the books of the Company maintained for such purpose; (b) if to the Company, at the Designated Office; or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, or one (1) Business Day after the same shall have been sent by Federal Express or another recognized overnight courier service. 14.3 Indemnification. If the Company fails to make, when due, any --------------- payments provided for in this Warrant, the Company shall pay to the Holder hereof (a) interest at the Agreed Rate on any amounts due and owing to such Holder and (b) such further amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees and expenses incurred by such Holder in collecting any amounts due hereunder. The Company shall indemnify, save and hold harmless the Holder hereof and the Holders of any Warrant Stock issued upon the exercise hereof from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from any default hereunder by the Company. This indemnification provision shall be in addition to the rights of such Holder or Holders to bring an action against the Company for breach of contract based on such default hereunder. 17 14.4 Limitation of Liability. No provision hereof, in the absence of ----------------------- affirmative action by the Holder to purchase shares of Non-Voting Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder to pay the Exercise Price for any Warrant Stock other than pursuant to an exercise of this Warrant or any liability as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in -------- addition to being entitled to exercise its rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights provided under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate. 14.6 Successors and Assigns. Subject to the provisions of Sections ---------------------- 3.1, 9.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the permitted successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and to the extent applicable, all Holders of shares of Warrant Stock issued upon the exercise hereof (including transferees), and shall be enforceable by any such Holder. 14.7 Amendment. This Warrant and all other Warrants may be modified --------- or amended or the provisions hereof waived with the written consent of the Company and the Majority Warrant Holders, provided that no such Warrant may be -------- modified or amended to reduce the number of shares of Non-Voting Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the written consent of the Holder thereof. 14.8 Severability. Wherever possible, each provision of this Warrant ----------- shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.9 Headings. The headings used in this Warrant are for the -------- convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL --------------------------- MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND 18 THE RIGHTS AND DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE GOVERNED BY THE LAWS OF DELAWARE. THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, -------- THAT IT IS ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK. 19 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. RARE MEDIUM GROUP, INC. By:_______________________ Name: Title: [SEAL] Attest: By:_____________________________ Name: Title: 20 ANNEX A ------- SUBSCRIPTION FORM ----------------- [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ______ shares Non-Voting Common Stock of Rare Medium Group, Inc. and herewith makes payment therefor in ______________, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Non-Voting Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________ whose address is ___________________________________________________ and, if such shares of Non- Voting Common Stock shall not include all of the shares of Non-Voting Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Non-Voting Common Stock issuable hereunder be delivered to the undersigned. _______________________________ (Name of Registered Owner) _______________________________ (Signature of Registered Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. ANNEX B ------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all of the rights of the under signed under this Warrant, with respect to the number of shares of Non-Voting Common Stock set forth below: No. of Shares of Name and Address of Assignee Non-Voting Common Stock - ---------------------------- ----------------------- and does hereby irrevocably constitute and appoint ________ _____________ attorney-in-fact to register such transfer onto the books of Rare Medium Group, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:___________________ Print Name:___________________ Signature:____________________ Witness:______________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-3 4 CERTIFICATE OF DESIGNATION Exhibit 3 CERTIFICATE OF DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK OF RARE MEDIUM GROUP, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"), ------- hereby certifies that the following resolution was adopted by the Board of Directors of the Company: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company (the "Board of Directors") by ------------------ the provisions of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there is hereby created, out of the 10,000,000 ---------------------------- shares of Preferred Stock, par value $0.01 per share, of the Company authorized and unissued in Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred Stock consisting of 2,000,000 --------------- shares, which series shall have the following powers, designations, preferences and relative, participating, optional or other rights, and the following qualifications, limitations and restrictions (in addition to any powers, designations, preferences and relative, participating, optional or other rights, and any qualifications, limitations and restrictions, set forth in the Certificate of Incorporation which are applicable to the Preferred Stock): Section 1. Designation of Amount. The 2,000,000 shares of Preferred --------------------- Stock shall be designated the "Series A Convertible Preferred Stock" (the "Series A Preferred Stock") and the authorized number of shares constituting ------------------------ such series shall be 2,000,000. Section 2. Dividends. --------- (a) The holders of the then outstanding shares of Series A Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, cumulative dividends, accruing on a daily basis from the Original Issuance Date through and including the date on which such dividends are paid at the annual rate of (A) 7.50% from the Original Issuance Date through June 30, 2002 and (B) thereafter, 4.65% (in either case, the "Applicable Rate"), of the Liquidation Preference (as --------------- hereinafter defined) per share of the Series A Preferred Stock, payable in arrears on the last day of each of December, March, June and September, commencing on June 30, 1999; provided that: (i) if any such payment date is not a Business Day then such - -------- dividend shall be payable on the next Business Day, and (ii) accumulated and unpaid dividends for any prior quarterly period may be paid at any time. Such dividends shall be deemed to accrue on the Series A Preferred Stock from the Original Issuance Date and be cumulative whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. The term "Business Day" means a day ------------ other than a Saturday, Sunday or day on which banking institutions in New York are authorized or required to remain closed. The term "Original Issuance Date" ---------------------- means, with respect to the Series A Preferred Stock, the first date of issuance, i.e., June 4, 1999, and, with respect to any Additional Securities (as hereinafter defined), the date upon which they are issued or, if not issued, the applicable dividend payment date on which the Additional Securities were to have been issued. (b) On any dividend payment date occurring on or prior to June 30, 2002, the Company shall pay a dividend on such Series A Preferred Stock through the issuance of additional shares of Series A Preferred Stock ("Additional ---------- Securities"). On any dividend payment date occurring after June 30, 2002 and on - ---------- or prior to June 30, 2004, the Company shall pay a dividend on such Series A Preferred Stock through the issuance of Additional Securities, provided that at the option of either the holders of a majority of the then outstanding shares of Series A Preferred Stock (the "Requisite Holders") or the Company, the Company ----------------- shall pay the dividends in whole in cash. In the event the Company or the Requisite Holders, as the case may be, elect to have such dividends paid in cash, they shall provide the other party written notice of such election not less than ten days prior to the applicable dividend payment date. On any dividend payment date occurring after June 30, 2004, all dividends on such Series A Preferred Stock shall be paid in cash. Shares of Series A Preferred Stock issued in payment of dividends shall be valued at all times at $100 per share and each such share shall be issued with a detachable ten-year warrant (each a "Series 1-A Warrant") that entitles its holder to purchase from the ------------------ Company thirteen and one-half (13.5) shares of the Company's common stock, par value $0.01 per share (the "Common Stock"). The number of Additional Securities ------------ that are issued to the holders of the Series A Preferred Stock under this paragraph (b) will be the number obtained by dividing (i) the total dollar amount of cumulative dividends due and payable on the applicable dividend payment date by (ii) the Liquidation Preference, provided, that the Company -------- shall not be required to issue fractional shares of Series A Preferred Stock, but in lieu thereof shall pay in cash the portion of any dividend payable in shares of Series A Preferred Stock that would otherwise require the issuance of a fractional share, provided further, that in any such case, the Company shall -------- ------- issue the holders fractional Series 1-A Warrants in an amount appropriate to reflect the fractional share of Series A Preferred Stock. (c) Holders of shares of the Series A Preferred Stock shall be entitled full cumulative dividends, as herein provided, on the Series A Preferred Stock and no additional amounts. Except as set forth in paragraph (f) below, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may be in arrears. -2- (d) If dividends are not paid in full, or declared in full and sums set apart for the payment thereof, upon the shares of Series A Preferred Stock and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Series A Preferred Stock ("Parity Stock"), all dividends ------------ declared upon shares of Series A Preferred Stock and upon all Parity Stock shall be paid or declared pro rata so that in all cases the amount of dividends paid or declared per share on the Series A Preferred Stock and such Parity Stock shall bear to each other the same ratio that unpaid accumulated dividends per share, including dividends accrued or in arrears, if any, on the shares of Series A Preferred Stock and such other shares of Parity Stock, bear to each other. Unless and until full cumulative dividends on the shares of Series A Preferred Stock in respect of all past quarterly dividend periods have been paid, and the full amount of dividends on the shares of Series A Preferred Stock in respect of the then current quarterly dividend period shall have been or are contemporaneously declared in full and sums set aside for the payment thereof, (i) no dividends shall be paid or declared or set aside for payment or other distribution upon the Common Stock, or any other capital stock of the Company ranking junior to the Series A Preferred Stock as to dividends (together with the Common Stock, "Junior Stock"), other than in shares of, or warrants or ------------ rights to acquire, Junior Stock; and (ii) no shares of Junior Stock or Parity Stock shall be redeemed, retired, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any such shares) by the Company or any Subsidiary of the Company (except by conversion into or exchange for shares of Junior Stock). For the purposes hereof, a "Subsidiary" shall mean any corporation, association or other ---------- business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. Holders of shares of Series A Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or shares of capital stock, in excess of full accrued and cumulative dividends as herein provided. The terms "accrued dividends," "dividends accrued" and "dividends in arrears," whenever used herein with reference to shares of Series A Preferred Stock shall be deemed to mean an amount which shall be equal to dividends thereon at the Applicable Rate per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such Preferred Stock (or, in the case of redemption, to the date of redemption), whether or not earned or declared and whether or not assets for the Company are legally available therefor, and if full dividends are not declared or paid (whether in cash or in Additional Securities), then such dividends shall cumulate, with additional dividends thereon, compounded quarterly, at the Applicable Rate, for each quarterly period during which such dividends remain unpaid, less the amount of all such dividends paid, or declared in full and sums set aside for the payment thereof, upon such shares of Preferred Stock. (e) The amount of any dividends per share of Series A Preferred Stock for any full quarterly period shall be computed by multiplying the Applicable Rate for such quarterly dividend period by the Liquidation Preference per share and dividing the result by four. Dividends payable on the shares of Series A Preferred Stock for any period less than a full quarterly dividend -3- period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed for any period less than one month. (f) In the event any dividends are declared with respect to the Common Stock, the holders of the Series A Preferred Stock as of the record date established by the Board of Directors for such dividend shall be entitled to receive as additional dividends (the "Additional Dividends") an amount (whether -------------------- in the form of cash, securities or other property) equal to the amount (and in the form) of the dividends that such holder would have received had the Series A Preferred Stock been converted into Common Stock as of the date immediately prior to the record date of such dividend, such Additional Dividends to be payable on the payment date of the dividend established by the Board of Directors (the "Additional Dividend Payment Date"). The record date for any -------------------------------- such Additional Dividends shall be the record date for the applicable dividend, and any such Additional Dividends shall be payable to the persons in whose name this Series A Preferred Stock is registered at the close of business on the applicable record date. Section 3. Liquidation Preference. In the event of a liquidation, ---------------------- dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series A Preferred Stock then outstanding shall be entitled to receive out of the available assets of the Company, whether such assets are stated capital or surplus of any nature, an amount on such date equal to $100 per share of Series A Preferred Stock (the "Liquidation Preference") plus the ---------------------- amount of any accrued and unpaid dividends as of such date, calculated pursuant to Section 2 hereinabove. Such payment shall be made before any payment shall be made or any assets distributed to the holders of any class or series of the Common Stock or any other class or series of the Company's capital stock ranking junior as to liquidation rights to the Series A Preferred Stock. If upon any such liquidation, dissolution or winding up of the Company the assets available for payment of the Liquidation Preference are insufficient to permit the payment to the holders of the Series A Preferred Stock of the full preferential amounts described in this paragraph, then all the remaining available assets shall be distributed among the holders of the then outstanding Series A Preferred Stock pro rata according to the number of then outstanding shares of Series A Preferred Stock held by each holder thereof. No event that constitutes a Change of Control (as defined in Section 5(b) below) shall be considered a liquidation, dissolution or winding up of the Company for purposes of this Section 3 (unless in connection therewith the liquidation of the Company is specifically approved). Section 4. Mandatory Redemption. On June 30, 2012 (the "Redemption -------------------- ---------- Date"), the Company shall redeem for cash all shares of Series A Preferred Stock - ---- that are then outstanding and any shares of Series A Preferred Stock then issuable in respect of accrued but unpaid dividends, in each case, at a redemption price per share equal to the Liquidation Preference thereof plus the amount of any accrued and unpaid dividends as of such date ("Redemption Price"). ---------------- Not more than sixty (60) nor less than thirty (30) days prior to the Redemption Date, notice by first class mail, postage prepaid, shall be given to each holder of record of the Series A Preferred Stock, at such holder's address as it shall appear upon the stock transfer books of the Company on such date. Each such notice of redemption shall be irrevocable and shall specify the -4- date that is the Redemption Date, the Redemption Price, the identification of the shares to be redeemed, the place or places of payment and that payment will be made upon presentation and surrender of the certificate(s) evidencing the shares of Series A Preferred Stock to be redeemed and that dividends on the shares of the Series A Preferred Stock cease to accrue on the Redemption Date. On or after the Redemption Date, each holder of shares of Series A Preferred Stock shall surrender the certificate evidencing such shares to the Company at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption Price in the manner set forth in the notice. If, on the Redemption Date, funds in cash in an amount sufficient to pay the aggregate Redemption Price for all outstanding shares of Series A Preferred Stock shall be available therefor and shall have been irrevocably set aside and deposited with a bank or trust company in trust for purposes of payment of such Redemption Price, then, notwithstanding that the certificates evidencing any shares so called for redemption shall not have been surrendered, the shares shall no longer be deemed outstanding, the holders thereof shall cease to be stockholders, and all rights whatsoever with respect to the shares so called for redemption (except the right of the holders to receive the Redemption Price upon surrender of their certificates therefor) shall terminate. If at the Redemption Date, the Company does not have sufficient funds legally available to redeem all the outstanding shares of Series A Preferred Stock, the Company shall take all measures permitted under the Delaware General Corporation Law to increase the amount of its capital and surplus legally available, and the Company shall purchase as many shares of Series A Preferred Stock as it may legally redeem, ratably from the holders thereof in proportion to the number of shares held by them, and shall thereafter from time to time, as soon as it shall have funds available therefor, redeem as many shares of Series A Preferred Stock as it legally may until it has redeemed all of the outstanding shares of Series A Preferred Stock. Section 5. Optional Redemption. ------------------- (a) Change of Control. In the event that any Change of Control (as ----------------- hereinafter defined) shall occur at any time while any shares of Series A Preferred Stock are outstanding, the Requisite Holders shall have the right to give notice that they are exercising a Change of Control election (a "Change of --------- Control Election"), with respect to all or any number of such holders' shares of - ---------------- Series A Preferred Stock, during the period (the "Exercise Period") beginning on --------------- the 20th day and ending on the 90th day after the date of such Change of Control. Upon any such election, the Company shall redeem for cash each of such holders' shares (including any shares then issuable in respect of accrued but unpaid dividends) for which such an election is made, to the extent permitted by applicable law, at the Redemption Price. (b) As used herein, "Change of Control" means the occurrence of any ----------------- of the following events: (1) the acquisition by any individual, entity or group other than Apollo Management, L.P. or its affiliates (a "Person"), or any ------ Holder (as such term is defined in the Amended and Restated Securities Purchase Agreement (the "Agreement") dated as of June 4, 1999 among --------- the Company, Apollo Investment -5- Fund IV, L.P., Apollo Overseas Partners IV, L.P. and AIF IV/RRRR LLC), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule ------------ 13d-3 promulgated under the Exchange Act, of more than 50% of either (i) the then outstanding shares of Common Stock (the "Outstanding ----------- Company Common Stock") or (ii) the combined voting power of the then -------------------- outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting -------------------------- Securities"); excluding, however, the following: (A) any acquisition ---------- directly from the Company of Common Stock (excluding any acquisition resulting from an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition of Common Stock by the Company, (C) any acquisition of Common Stock by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition of Common Stock by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this Section 5(b); (2) a majority of the individuals who, as of the Original Issuance Date of the Series A Preferred Stock, constitute the members of the Board of Directors not elected by the holders of Series A Preferred Stock (the "Incumbent Board") cease for any reason to serve --------------- on such Board of Directors; provided that any individual who becomes a director of the Company subsequent to such Original Issuance Date, whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who -------- ------- was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board of Directors shall not be deemed a member of the Incumbent Board; or (3) approval by the stockholders of the Company of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate --------------------- Transaction pursuant to which (i) the individuals or entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities entitled to vote generally in the election of directors, as the case may be, of the corporation -6- resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns 100% of the Outstanding Company Common Stock or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 30% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, 30% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will continue to serve as members of the board of directors of the corporation resulting from such Corporate Transaction. (c) On or before the tenth (10th) day after a Change of Control, the Company shall mail to all holders of record of the Series A Preferred Stock at their respective addresses as the same shall appear on the books of the Company as of such date, a notice disclosing (i) the Change of Control, (ii) the Redemption Price per share of the Series A Preferred Stock applicable hereunder, (iii) the determination of the Requisite Holders to exercise a Change of Control Election (or the date on which such a determination is scheduled to be made) and (iv) the procedure which the holder must follow to exercise the redemption right provided above. To exercise the Change of Control Election, if applicable, a holder of the Series A Preferred Stock must deliver during the Exercise Period written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of the Change of Control Election, accompanied by each certificate evidencing shares of the Series A Preferred Stock with respect to which the Change of Control Election is being exercised, duly endorsed for transfer. On or prior to the fifth (5th) business day after receipt of delivery of such written notice, the Company shall accept for payment all shares of Series A Preferred Stock properly surrendered to the Company (or an agent designated by the Company for such purpose) during the Exercise Period for redemption in connection with the exercise of the Change of Control Election and shall cause payment to be made in cash for such shares of Series A Preferred Stock. If at the time of any Change of Control, the Company does not have sufficient capital and surplus legally available to purchase all of the outstanding shares of Series A Preferred Stock, the Company shall take all measures permitted under the Delaware General Corporation Law to increase the amount of its capital and surplus legally available, and the Company shall offer in its written notice of such Change of Control to purchase as many shares of Series A Preferred Stock as it has capital and surplus legally available therefor, ratably from the holders thereof in proportion to the total -7- number of shares tendered, and shall thereafter from time to time, as soon as it shall have capital and surplus legally available therefor, offer to purchase as many shares of Series A Preferred Stock as it has capital and surplus available therefor until it has offered to purchase all of the outstanding shares of Series A Preferred Stock. (d) Optional Redemption by Company. (A) At any time (i) after June ------------------------------ 30, 2004 or (ii) after June 30, 2002 if the closing price of the Common Stock quoted on the NASDAQ National Market System (or the primary national securities exchange on which the Common Stock is then listed) on each of the preceding thirty (30) trading days is greater than $12.00 per share (the "Redemption ---------- Threshold"), the Company may, upon sixty (60) days notice, redeem all, but not - --------- less than all, of the then outstanding shares of Series A Preferred Stock (including shares issuable in respect of accrued but unpaid dividends) for cash in an amount per share equal to 103% of the Redemption Price. (B) The Redemption Threshold is subject to adjustment from time to time, in the event of any increase or decrease by way of a subdivision or split- up of the outstanding shares of Common Stock or any decrease by way of a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock. In any such case, an appropriate adjustment shall be made to the Redemption Threshold in a manner and on terms that effect the intent of paragraph (A) above. (e) Status of Redeemed Shares. Any shares of Series A Preferred Stock ------------------------- which shall at any time have been redeemed pursuant to Section 4 or 5 hereof shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series. Section 6. Voting Rights. (a) Except as otherwise provided by ------------- applicable law and in addition to any voting rights provided by law, the holders of Series A Preferred Stock: (i) shall be entitled to vote together with the holders of the Common Stock as a single class on all matters submitted for a vote of holders of Common Stock (except for matters submitted to the holders of Common Stock in connection with the transaction contemplated by the Agreement); (ii) shall have such other voting rights as are specified in the Certificate of Incorporation or as otherwise provided by Delaware law; and (iii) shall be entitled to receive notice of any stockholders' meeting in accordance with the Certificate of Incorporation and By- laws of the Company. Each share of Series A Preferred Stock shall entitle the holder thereof to cast 0.875 votes for each whole vote that such holder would be entitled to cast had such holder converted its Series A Preferred Stock into shares of Common Stock as of the date immediately -8- prior to the record date for determining the stockholders of the Company eligible to vote on any such matter; provided that the total voting power of the -------- holders of the Series A Preferred Stock shall in no event exceed the voting power of 2,120,000 shares of Common Stock prior to the obtaining of stockholder approval (the "Stockholder Approval") for the transactions pursuant to which the -------------------- Series A Preferred Stock was issued, as contemplated by the Agreement, and shall in no event exceed the voting power of 9,750,000 shares of Common Stock in the event Stockholder Approval is obtained. (b) In addition to the other voting rights set forth herein, for so long as the Apollo Stockholders (as such term is defined below) beneficially own not less than 100,000 shares of Series A Preferred Stock, the following provisions shall apply: The holders of Series A Preferred Stock shall have the exclusive right, voting separately as a single class, to elect one person to serve on the Board of Directors (such director is referred to as a "Preferred Stock Director"); provided, that if the size of the Board ------------------------ -------- of Directors shall be increased, then the holders of Series A Preferred Stock shall have the right to elect that number of Preferred Stock Directors such that the number of Preferred Stock Directors divided by the total number of members of the Board of Directors (the "Preferred Director Percentage") is at least equal to the Preferred ----------------------------- Director Percentage immediately prior to the increase in the size of the Board of Directors (without regard to any vacancy that shall exist from time to time). On or after the date of Stockholder Approval (if such approval is obtained), the holders of Series A Preferred Stock shall have the right to elect two Preferred Stock Directors. In any such election the holders of Series A Preferred Stock shall be entitled to cast one vote per share of Series A Preferred Stock held of record on the record date for the determination of the holders of Series A Preferred Stock entitled to vote on such election. The initial Preferred Stock Director shall be appointed by the Board of Directors on the Original Issuance Date to serve until his or her successor is duly elected; in the event Stockholder Approval is obtained, the second Preferred Stock Director shall be appointed immediately after Stockholder Approval to serve until his or her successor is duly elected; and thereafter the Preferred Stock Directors shall be elected at the same time as other members of the Board of Directors. A Preferred Stock Director may only be removed by the vote of the Requisite Holders, at a vote of the then outstanding shares of Series A Preferred Stock, voting as a single class, at a meeting called for such purpose. If for any reason a Preferred Stock Director shall resign or otherwise be removed from the Board of Directors, then his or her replacement shall be a person elected by the holders of the Series A Preferred Stock, in accordance with the voting procedures set forth in this Section 6(b). The Preferred Stock Directors shall be appointed by the Board of Directors to serve on each committee of the Board of Directors in the same proportions that the number of Preferred Stock Directors bears to the total number of directors then comprising the Board of Directors. -9- (c) So long as any Series A Preferred Stock remains outstanding, the Company shall not, without the written consent or affirmative vote of the Requisite Holders, at a meeting of the holders called for that purpose, amend, alter or repeal, whether by merger, consolidation, combination, reclassification or otherwise, the Certificate of Incorporation, By-Laws of the Company or any provision thereof (including the adoption of a new provision thereof) which would adversely affect the voting power of the Series A Preferred Stock or any other rights or privileges of the holders of the Series A Preferred Stock hereunder. Section 7. Conversion Rights. ----------------- (a) General. Subject to and upon compliance with the provisions of ------- this Section 7, the holders of the shares of Series A Preferred Stock shall be entitled, at their option, at any time prior to the date fixed for redemption of such shares, to convert all or any such shares of Series A Preferred Stock into a number of fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock. The number of shares of Common Stock to which a holder of Series A Preferred Stock shall be entitled upon conversion shall be determined by dividing (x) the Liquidation Preference of such Series A Preferred Stock (including shares issuable in respect of accrued but unpaid dividends), plus the amount of any accrued but ---- unpaid dividends as of the Conversion Date by (y) the Conversion Price in effect at the close of business on the Conversion Date (determined as provided in this Section 7). (b) Conversion Price. The conversion price (the "Conversion Price") ---------------- ---------------- shall initially be $7.00 per share of Common Stock, subject to adjustment from time to time in accordance with Section 7(d). (c) Fractions of Shares. No fractional share of Common Stock shall be ------------------- issued upon conversion of shares of Series A Preferred Stock. If more than one share of Series A Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock to be issued and which shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the Company shall pay a cash adjustment in respect of such fractional share in an amount equal to the product of such fraction multiplied by the Fair Market Value (as hereinafter defined) of one share of Common Stock on the Conversion Date (as hereinafter defined). (d) Adjustments to Conversion Price. The Conversion Price shall be -------------------------------- subject to adjustment from time to time as follows: (i) Upon Issuance of Common Stock. If the Company shall, at any ----------------------------- time or from time to time after the Original Issuance Date, issue any shares of Common Stock, -10- options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, other than Additional Securities, Series B Preferred Stock or Excluded Stock, without consideration or for consideration per share less than either (x) the Conversion Price or (y) the Fair Market Value of the Common Stock, in effect immediately prior to the issuance of such Common Stock or securities, then such Conversion Price shall forthwith be lowered to a price equal to the price obtained by multiplying: (A) the Conversion Price in effect immediately prior to the issuance of such Common Stock or securities by (B) a fraction of which (x) the denominator shall be the number of shares of Common Stock outstanding on a fully-diluted basis immediately after such issuance and (y) the numerator shall be the sum of (i) the number of shares of Common Stock outstanding on a fully- diluted basis immediately prior to the date of such issuance and (ii) the number of additional shares of Common Stock which the aggregate consideration for the number of shares of Common Stock so offered would purchase at the greater of the Conversion Price or the Fair Market Value per share of Common Stock. For purposes of this Section 7(d), "fully diluted basis" shall be determined in accordance with the treasury method of GAAP. (ii) Upon Acquisition of Common Stock. If the Company or any -------------------------------- Subsidiary shall, at any time or from time to time after the Original Issuance Date, directly or indirectly, redeem, purchase or otherwise acquire any shares of Common Stock, options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock (other than shares of Series A Preferred Stock or Series B Preferred Stock that are redeemed according to their terms), or options to purchase or rights to subscribe for such convertible or exchangeable securities, for a consideration per share greater than the Fair Market Value (plus, in the case of such options, rights, or securities, the additional consideration required to be paid to the Company upon exercise, conversion or exchange) for shares of Common Stock in effect immediately prior to such event, then the Conversion Price shall forthwith be lowered to a price equal to the price obtained by multiplying: (A) the Conversion Price in effect immediately prior to such event by (B) a fraction of which (x) the denominator shall be the Fair Market Value per share of Common Stock immediately prior to such event and (y) the numerator shall be the result of dividing: -11- a) (1) the product of (A) the number of shares of Common Stock outstanding on a fully-diluted basis and (B) the Fair Market Value per share of Common Stock, in each case immediately prior to such event, minus (2) the aggregate consideration paid by the Company in such event (plus, in the case of such options, rights, or convertible or exchangeable securities, the aggregate additional consideration to be paid by the Company upon exercise, conversion or exchange), by b) the number of shares of Common Stock outstanding on a fully-diluted basis immediately after such event. (iii) For the purposes of any adjustment of a Conversion Price pursuant to paragraphs (i) and (ii) of this Section 7(d), the following provisions shall be applicable: (1) In the case of the issuance of Common Stock for cash in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor before deducting therefrom any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance and sale thereof. (2) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the Fair Market Value thereof as determined in accordance with the Appraisal Procedure. (3) In the case of the issuance of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, except for Additional Securities, Shares of Series B Preferred Stock or options to acquire Excluded Stock: (a) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subparagraphs (1) and (2) above), if any, received by the Company upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; -12- (b) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange of any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities, options, or rights were issued and for a consideration equal to the consideration received by the Company for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in paragraphs (1) and (2) above) and (c) on any change in the number of shares or exercise price of Common Stock deliverable upon exercise of any such options or rights or conversions of or exchanges for such securities, other than a change resulting from the anti-dilution provisions thereof, the applicable Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustment made upon the issuance of such options, rights or securities not converted prior to such change or options or rights related to such securities not converted prior to such change been made upon the basis of such change. (d) No further adjustment of the Conversion Price adjusted upon the issuance of any such options, rights, convertible securities or exchangeable securities shall be made as a result of the actual issuance of Common Stock on the exercise of any such rights or options or any conversion or exchange of any such securities. (iv) Upon Stock Dividends, Subdivisions or Splits. If, at any -------------------------------------------- time after the Original Issuance Date, the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date for the determination of holders of Common Stock entitled to receive such stock dividend, or to be affected by such subdivision or split-up, the Conversion Price shall be appropriately decreased so that -13- the number of shares of Common Stock issuable on conversion of Series A Preferred Stock shall be increased in proportion to such increase in outstanding shares. (v) Upon Combinations. If, at any time after the Original ----------------- Issuance Date, the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, following the record date to determine shares affected by such combination, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (vi) Upon Reclassifications, Reorganizations, Consolidations or ---------------------------------------------------------- Mergers. In the event of any capital reorganization of the Company, any ------- reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or any consolidation or merger of the Company with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock), each share of Series A Preferred Stock shall after such reorganization, reclassification, consolidation, or merger be convertible into the kind and number of shares of stock or other securities or property of the Company or of the successor corporation resulting from such consolidation or surviving such merger, if any, to which the holder of the number of shares of Common Stock deliverable (immediately prior to the time of such reorganization, reclassification, consolidation or merger) upon conversion of such Series A Preferred Stock would have been entitled upon such reorganization, reclassification, consolidation or merger. The provisions of this clause shall similarly apply to successive reorganizations, reclassifications, consolidations, or mergers. (viii) Deferral in Certain Circumstances. In any case in which --------------------------------- the provisions of this Section 7(d) shall require that an adjustment shall become effective immediately after a record date of an event, the Company may defer until the occurrence of such event (1) issuing to the holder of any Series A Preferred Stock converted after such record date and before the occurrence of such event the shares of capital stock issuable upon such conversion by reason of the adjustment required by such event and issuing to such holder only the shares of capital stock issuable upon such conversion before giving effect to such adjustments, and (2) paying to such holder any amount in cash in lieu of fractional share of capital stock pursuant to Section 7(c) above; provided, however, that the Company shall -------- ------- deliver to such holder an appropriate instrument or due bills evidencing such holder's right to receive such additional shares and such cash. (viii) Other Anti-Dilution Provisions. If the Company has issued ------------------------------ or issues any securities on or after the Original Issuance Date containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to -14- such holder or holders thereof than those set forth in this Section 7(d), such provisions (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Certificate of Designation and, to the extent inconsistent with any provision of this Certificate of Designation, shall be deemed to be substituted therefor. (ix) Appraisal Procedure. In any case in which the provisions of ------------------- this Section 7(d) shall necessitate that the Appraisal Procedure be utilized for purposes of determining an adjustment to the Conversion Price, the Company may defer until the completion of the Appraisal Procedure and the determination of the adjustment (1) issuing to the holder of any share of Series A Preferred Stock converted after the date of the event that requires the adjustment and before completion of the Appraisal Procedure and the determination of the adjustment, the shares of capital stock issuable upon such conversion by reason of the adjustment required by such event and issuing to such holder only the shares of capital stock issuable upon such conversion before giving effect to such adjustment and (2) paying to such holder any amount in cash in lieu of a fractional share of capital stock pursuant to Section 7(c) above; provided, however, that the Company -------- ------- shall deliver to such holder an appropriate instrument or due bills evidencing such holder's right to receive such additional shares and such cash. (x) Exceptions. Section 7(d) shall not apply to (i) any ---------- issuance of Common Stock upon exercise of any warrants or options (A) outstanding on the Original Issuance Date of the Series A Preferred Stock or (B) awarded to employees or directors of the Company pursuant to an employee stock option plan or stock incentive plan approved by the Board of Directors; (ii) any issuance of securities by the Company in underwritten public offerings; and (iii) repurchases by the Company of Common Stock approved by the Board of Directors (collectively, the "Excluded Stock"). -------------- Notwithstanding the foregoing, in the case of shares of Series A Preferred Stock called for redemption, conversion rights will expire at the close of business on the last Business Day preceding any redemption date unless the Company defaults in making the payment due upon redemption. (e) Exercise of Conversion Privilege. In order to exercise the -------------------------------- conversion privilege, the holder of any share of Series A Preferred Stock shall surrender such Series A Preferred Stock, duly endorsed or assigned to the Company in blank, at any office or agency of the Company maintained for such purpose, accompanied by written notice to the Company at such office or agency that the holder elects to convert such Series A Preferred Stock or, if less than the entire amount thereof is to be converted, the portion thereof to be converted. Series A Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the day (the "Conversion Date") of --------------- surrender of such shares of Series A Preferred Stock for conversion in accordance with the foregoing provisions, and at such time the rights of the holders of such shares of Series A Preferred Stock as holder shall cease, and -15- the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as and after such time. As promptly as practicable on or after the Conversion Date, the Company shall issue and shall deliver at any office or agency of the Company maintained for the surrender of Series A Preferred Stock a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 7(c). In the case of any Series A Preferred Stock which is converted in part only, upon such conversion the Company shall execute and deliver a new share of Series A Preferred Stock of authorized denomination in aggregate principal amount equal to the unconverted portion of the principal amount of such share of Series A Preferred Stock. (f) Notice of Adjustment of Conversion Price. Whenever the Conversion ---------------------------------------- Price is adjusted as herein provided: (i) the Company shall compute the adjusted Conversion Price in accordance with Section 7(d) and shall prepare a certificate signed by the Treasurer or Chief Financial Officer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for such purpose or conversion of shares of Series A Preferred Stock; and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be prepared by the Company, and as soon as practicable after it is prepared, such notice shall be mailed by the Company at its expense to all holders at their last addresses as they shall appear in the stock register. (g) Notice of Certain Corporate Action. ---------------------------------- In case: (a) the Company shall take an action or an event shall occur, that would require a Conversion Price adjustment pursuant to Section 7(d); or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class; (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for -16- which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for such purpose, and shall cause to be mailed to all holders at their last addresses as they shall appear in the stock register, at least 30 days prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of the amendment thereto). Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of the Series A Preferred Stock. Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 7(g). (h) Company to Reserve Common Stock. ------------------------------- The Company shall at all times reserve and keep available, free from preemptive rights, out of the authorized but unissued Common Stock or out of the Common Stock held in treasury, for the purpose of effecting the conversion of Series A Preferred Stock, the full number of shares of Common Stock then issuable upon the conversion of all outstanding shares of Series A Preferred Stock. Before taking any action that would cause an adjustment reducing the conversion price below the then par value (if any) of the shares of Common Stock deliverable upon conversion of the Series A Preferred Stock, the Company will take any corporate action that, in -17- the opinion of its counsel, is necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted conversion price. (i) Taxes on Conversions. -------------------- The Company will pay any and all original issuance, transfer, stamp and other similar taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Series A Preferred Stock pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of the share(s) of Series A Preferred Stock to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. (j) Cancellation of Converted Series A Preferred Stock. -------------------------------------------------- All Series A Preferred Stock delivered for conversion shall be delivered to the Company to be canceled. (k) Certain Definitions. ------------------- As used in this Section 7, the following terms shall have the following respective meanings: "Appraisal Procedure" if applicable, shall mean the following ------------------- procedure to determine the fair market value, as to any security, for purposes of the definition of "Fair Market Value" or the fair market value, as to any other property (in either case, the "valuation amount"). So long as Apollo Investment Fund IV, L.P. or any of its affiliates (the "Apollo Stockholders") ------------------- beneficially own sufficient shares of Series A Preferred Stock to constitute the Requisite Holders, the valuation amount shall be determined in good faith jointly by the Board of Directors and the Requisite Holders; provided, however, -------- ------- that if such parties are not able to agree on the valuation amount within a reasonable period of time (not to exceed twenty (20) days), the valuation amount shall be determined by an investment banking firm of national recognition, which firm shall be reasonably acceptable to the Board of Directors and the Requisite Holders. If the Board of Directors and the Requisite Holders are unable to agree upon an acceptable investment banking firm within ten (10) days after the date either party proposed that one be selected, the investment banking firm will be selected by an arbitrator located in New York City, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the investment banking firm (within ten (10) days of his appointment) from a list, jointly prepared by the Board of Directors and the Requisite Holders, of not more than six investment banking firms of national standing in the United States, of which no more than three may be named by the Board of Directors and no more than three may be named by the Requisite Holders. The arbitrator may -18- consider, within the ten-day period allotted, arguments from the parties regarding which investment banking firm to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Board of Directors and the Requisite Holders shall submit their respective valuations and other relevant data to the investment banking firm, and the investment banking firm shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the investment banking firm, from among the valuation amounts submitted by the Company and the Requisite Holders and the valuation amount calculated by the investment banking firm. The determination of the final valuation amount by such investment-banking firm shall be final and binding upon the parties. The Company shall pay the fees and expenses of the investment banking firm and arbitrator (if any) used to determine the valuation amount. If required by any such investment banking firm or arbitrator, the Company shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such investment banking firm or arbitrator and its officers, directors, partners, employees, agents and affiliates. If the Apollo Stockholders no longer constitute the Requisite Holders, the valuation amount shall be determined in good faith by the Board of Directors. "Fair Market Value" means, as to any security, the Twenty Day Average ----------------- of the average closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ National Market System as of 4:00 P.M., New York City time, on such day, or, if on any day such security is not quoted in the NASDAQ National Market System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar or successor organization (and in each such case excluding any trades that are not bona fide, arm's length transactions). If at any time such security is not listed on any domestic securities exchange or quoted in the NASDAQ National Market System or the domestic over-the-counter market, the "Fair Market Value" of such security shall be the fair market value thereof as determined in accordance with the Appraisal Procedure, using any appropriate valuation method, assuming an arms-length sale to an independent party. In determining the fair market value of any class or series of Common Stock, a sale of all of the issued and outstanding Common Stock will be assumed, without giving regard to the lack of liquidity of such stock due to any restrictions (contractual or otherwise) applicable thereto or any discount for minority interests and assuming the conversion or exchange of all securities then outstanding that are convertible into or exchangeable for Common Stock and the exercise of all rights and warrants then outstanding and exercisable to purchase shares of such stock or securities convertible into or exchangeable for shares of such stock; provided, however that such assumption will not include those -------- ------- securities, rights and warrants convertible into Common Stock where the conversion, exchange or exercise price per share is greater than the fair market value; provided, further, however, that fair market -------- ------- ------- -19- value shall be determined with regard to the relative priority of each class or series of Common Stock (if more than one class or series exists.) "Fair Market Value" means with respect to property other than securities, the "fair market value" determined in accordance with the Appraisal Procedure. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, which are in effect from time to time. "Twenty Day Average" means, with respect to any prices and in ------------------ connection with the calculation of Fair Market Value, the average of such prices over the twenty Business Days ending on the Business Day immediately prior to the day as of which "Fair Market Value" is being determined. Section 8. Preemptive Rights. Holders of shares of Series A Preferred ----------------- Stock will have the right to purchase their pro rata portions of any future private placements by the Company of equity or equity-linked securities, other than (i) securities issued pursuant to the exercise of options or warrants currently outstanding, options awarded to employees or directors of the Company after the date hereof pursuant to currently existing employee incentive plans, and options hereinafter issued under new employee incentive plans approved by the Board of Directors and by the Apollo Stockholders and (ii) securities issued as consideration in acquisitions by the Company. Section 9. Limitations. In addition to any other rights provided by ----------- applicable law, so long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without the affirmative vote, or the written consent as provided by law, of the Requisite Holders, at a vote of the holders of Series A Preferred Stock, voting separately as a class, (a) create, authorize or issue any class, series or shares of Preferred Stock (other than Additional Securities issued pursuant to Section 2(b) hereof and Series B Preferred Stock issued as dividends) or any other class of capital stock ranking either as to payment of dividends or distribution of assets upon liquidation (i) prior to the Series A Preferred Stock, or (ii) on a parity with the Series A Preferred Stock, or (iii) junior to the Series A Preferred Stock, if such junior securities may be redeemed, in any circumstance, on or prior to the Redemption Date; or (b) change the preferences, rights or powers with respect to the Series A Preferred Stock so as to affect the Series A Preferred Stock adversely. Section 10. Dividend Received Deduction. For federal income tax --------------------------- purposes, the Company shall report distributions on the Series A Preferred Stock as dividends, to the extent of -20- the Company's current and accumulated earnings and profits (as determined for federal income tax purposes). Section 11. Event of Non-Compliance. Whenever an Event of Non- ----------------------- Compliance (as hereinafter defined) shall have occurred and be continuing, the holders of Series A Preferred Stock shall have the exclusive right, voting separately as a class, to elect a sufficient number of additional directors such that the Preferred Stock Directors constitute a majority of the Board of Directors, at the Company's next annual meeting of stockholders and at each subsequent annual meeting of stockholders; provided, however, that if such -------- ------- voting rights shall become vested more than 90 days or less than 20 days before the date prescribed for such meeting of stockholders, thereupon the holders of the shares of Series A Preferred Stock shall be entitled to exercise their voting rights at a special meeting of the holders of Series A Preferred Stock as hereinafter set forth. At elections for Preferred Stock Directors, each holder of Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock held. Upon the vesting of such right of the holders of Series A Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by such number as is required for the Preferred Stock Directors to constitute a majority of the Board of Directors and the vacancies so created shall be filled by vote of the holders of outstanding Series A Preferred Stock as hereinabove set forth. The right of holders of Series A Preferred Stock, voting separately as a class, to elect members of the Board of Directors as aforesaid shall continue until such time as all Events of Non-Compliance shall have been cured, at which time such rights shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent Event of Non-Compliance. Whenever such voting right shall have vested, such right may be exercised initially either, as provided above, at a special meeting of the holders of Series A Preferred Stock called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the Delaware General Corporation Law. The Preferred Stock Directors elected pursuant to Section 11 shall serve until the next annual meeting of stockholders of the Company or until their respective successors shall be elected and shall qualify. Any director elected by the holders of Series A Preferred Stock may be removed by, and shall not be removed otherwise than by, the vote of the Requisite Holders, at a vote of the then outstanding shares of Series A Preferred Stock, voting as a separate class, at a meeting called for such purpose or by written consent as permitted by law and the Certificate of Incorporation and By-Laws of the Company. If the office of any Preferred Stock Director becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, such vacancy shall be filled by the holders of Series A Preferred Stock voting as a class as herein provided. Upon any termination of the right of the holders of Series A Preferred Stock to vote for directors as herein provided, the term of office of the Preferred Stock Director then in office shall terminate immediately. Whenever the terms of office of a Preferred Stock Director shall so terminate and the special voting powers vested in the holders of Series A Preferred Stock shall have expired, the number of directors shall be such number as may be provided for pursuant to the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this Section 11, and such Preferred Stock Director or Directors shall forthwith resign or the holders of Series A -21- Preferred Stock shall promptly vote, or act by written consent, to remove such Preferred Stock Director or Directors pursuant to the procedures set forth above. The term "Event of Non-Compliance" shall mean (A) any breach by the ----------------------- Company of any of its agreements and covenants set forth (i) in Section 7.12, Section 8.2 or Article 9 of the Agreement, (ii) in Sections 2, 4, 5, 6, 7 or 8 of this Certificate of Designation, or (B) any obligation of the Company, whether as principal, guarantor, surety or other obligor, for the payment of indebtedness for borrowed money in excess of $10,000,000 (i) shall become or shall be declared due and payable prior to the expressed maturity thereof, or (ii) shall not be paid when due or within any grace period for the payment thereof, and such default shall remain uncured for 15 days, or (C) the Common Stock shall no longer be listed for trading on a United States national securities exchange or the NASDAQ National Market (provided, that such Event of -------- Non-Compliance shall be deemed to be cured immediately on the date upon which the Common Stock is again listed for trading on a United States national securities exchange or the NASDAQ National Market). -22- IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be signed by __________________, its _________, and attested by ________________, its Secretary, this ____ day of __________, 1999. By:_____________________________________ Name: Title: Attested: By:_________________________ Secretary -23- EX-4 5 CERTIFICATE OF DESIGNATION OF SERIES B EXHIBIT 4 CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED STOCK OF RARE MEDIUM GROUP, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) RARE MEDIUM GROUP, INC., a Delaware corporation (the "Company"), ------- hereby certifies that the following resolution was adopted by the Board of Directors of the Company: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company (the "Board of Directors") by ------------------ the provisions of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there is hereby created, out of the 10,000,000 ---------------------------- shares of Preferred Stock, par value $0.01 per share, of the Company authorized and unissued in Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred Stock consisting of 1,500,000 --------------- shares, which series shall have the following powers, designations, preferences and relative, participating, optional or other rights, and the following qualifications, limitations and restrictions (in addition to any powers, designations, preferences and relative, participating, optional or other rights, and any qualifications, limitations and restrictions, set forth in the Certificate of Incorporation which are applicable to the Preferred Stock): Section 1. Designation of Amount. The 1,500,000 shares of Preferred --------------------- Stock shall be designated the "Series B Preferred Stock" (the "Series B -------- Preferred Stock") and the authorized number of shares constituting such series - --------------- shall be 1,500,000. Section 2. Dividends. --------- (a) The holders of the then outstanding shares of Series B Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, cumulative dividends, accruing on a daily basis from the Original Issuance Date through and including the date on which such dividends are paid at the annual rate of (A) 7.50% from the Original Issuance Date through June 30, 2002 and (B) thereafter, 4.65% (in either case, the "Applicable Rate"), of the Liquidation Preference (as --------------- hereinafter defined) per share of the Series B Preferred Stock, payable in arrears on the last day of each of December, March, June and September, commencing on June 30, 1999; provided that: (i) the Applicable Rate shall be -------- 12.50% of the Liquidation Preference beginning on the Outside Date and continuing until the stockholders of the Company shall have approved the matters described in Section 7(a) hereof, (ii) if any such payment date is not a Business Day then such dividend shall be payable on the next Business Day, and (iii) accumulated and unpaid dividends for any prior quarterly period may be paid at any time. Such dividends shall be deemed to accrue on the Series B Preferred Stock from the Original Issuance Date and be cumulative whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. The term "Business Day" means a day other than a Saturday, Sunday or day on which banking ------------ institutions in New York are authorized or required to remain closed. The term "Original Issuance Date" means, with respect to the Series B Preferred Stock, ---------------------- the first date of issuance, i.e., June 4, 1999, and, with respect to any Additional Securities (as hereinafter defined), the date upon which they are issued. The term "Outside Date" means October 2, 1999. ------------ (b) On any dividend payment date occurring on or prior to June 30, 2002, the Company shall pay a dividend on such Series B Preferred Stock through the issuance of additional shares of Series B Preferred Stock ("Additional ---------- Securities"). On any dividend payment date occurring after June 30, 2002 and on - ---------- or prior to June 30, 2004, the Company shall pay a dividend on such Series B Preferred Stock through the issuance of Additional Securities, provided that at the option of either the holders of a majority of the then outstanding shares of Series B Preferred Stock (the "Requisite Holders") or the Company, the Company ----------------- shall pay the dividends in whole in cash. In the event the Company or the Requisite Holders, as the case may be, elect to have such dividends paid in cash, they shall provide the other party written notice of such election not less than ten days prior to the applicable dividend payment date. On any dividend payment date occurring after June 30, 2004, all dividends on such Series B Preferred Stock shall be paid in cash. Shares of Series B Preferred Stock issued in payment of dividends shall be valued at all times at $100 per share and each such share shall be issued with a detachable ten-year warrant (each a "Series 1-B Warrant") that entitles its holder to purchase from the ------------------ Company thirteen and one-half (13.5) shares of the Company's non-voting common stock, par value $0.01 par share (the "Non-Voting Common Stock"). The number of ----------------------- Additional Securities that are issued to the holders of the Series B Preferred Stock under this paragraph (b) will be the number obtained by dividing (i) the total dollar amount of cumulative dividends due and payable on the applicable dividend payment date by (ii) the Liquidation Preference, provided, that the -------- Company shall not be required to issue fractional shares of Series B Preferred Stock, but in lieu thereof shall pay in cash the portion of any dividend payable in shares of Series B Preferred Stock that would otherwise require the issuance of a fractional share, provided further, that in any such case, the Company -------- ------- shall issue to the holders fractional Series 1-B Warrants in an amount appropriate to reflect the fractional share of Series 1-B Preferred Stock. (c) Holders of shares of the Series B Preferred Stock shall be entitled to full cumulative dividends, as herein provided, on the Series B Preferred Stock and no additional -2- amounts. Except as set forth in paragraph (f) below, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B Preferred Stock that may be in arrears. (d) If dividends are not paid in full, or declared in full and sums set apart for the payment thereof, upon the shares of Series B Preferred Stock and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Series B Preferred Stock ("Parity Stock"), all dividends ------------ declared upon shares of Series B Preferred Stock and upon all Parity Stock shall be paid or declared pro rata so that in all cases the amount of dividends paid or declared per share on the Series B Preferred Stock and such Parity Stock shall bear to each other the same ratio that unpaid accumulated dividends per share, including dividends accrued or in arrears, if any, on the shares of Series B Preferred Stock and such other shares of Parity Stock, bear to each other. Unless and until full cumulative dividends on the shares of Series B Preferred Stock in respect of all past quarterly dividend periods have been paid, and the full amount of dividends on the shares of Series B Preferred Stock in respect of the then current quarterly dividend period shall have been or are contemporaneously declared in full and sums set aside for the payment thereof, (i) no dividends shall be paid or declared or set aside for payment or other distribution upon the Company's common stock, par value $0.01 per share (the "Common Stock"), the Non-Voting Common Stock or any other capital stock of the ------------ Company ranking junior to the Series B Preferred Stock as to dividends (together with the Common Stock and the Non-Voting Common Stock, "Junior Stock"), other ------------ than in shares of, or warrants or rights to acquire, Junior Stock; and (ii) no shares of Junior Stock or Parity Stock shall be redeemed, retired, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any such shares) by the Company or any Subsidiary of the Company (except by conversion into or exchange for shares of Junior Stock). For the purposes hereof, a "Subsidiary" shall mean any ---------- corporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such person. Holders of shares of Series B Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or shares of capital stock, in excess of full accrued and cumulative dividends as herein provided. The terms "accrued dividends," "dividends accrued" and "dividends in arrears," whenever used herein with reference to shares of Series B Preferred Stock shall be deemed to mean an amount which shall be equal to dividends thereon at the Applicable Rate per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such Preferred Stock (or, in the case of redemption, to the date of redemption), whether or not earned or declared and whether or not assets for the Company are legally available therefor, and if full dividends are not declared or paid (whether in cash or in Additional Securities), then such dividends shall cumulate, with additional dividends thereon, compounded quarterly, at the Applicable Rate, for each quarterly period during -3- which such dividends remain unpaid, less the amount of all such dividends paid, or declared in full and sums set aside for the payment thereof, upon such shares of Preferred Stock. (e) The amount of any dividends per share of Series B Preferred Stock for any full quarterly period shall be computed by multiplying the Applicable Rate for such quarterly dividend period by the Liquidation Preference per share and dividing the result by four. Dividends payable on the shares of Series B Preferred Stock for any period less than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed for any period less than one month. (f) In the event any dividends are declared with respect to the Common Stock, the holders of the Series B Preferred Stock as of the record date established by the Board of Directors for such dividend shall be entitled to receive as additional dividends (the "Additional Dividends") an amount (whether -------------------- in the form of cash, securities or other property) equal to the amount (and in the form) of the dividends that such holder would have received had the Series B Preferred Stock been converted into Common Stock (on the basis of one share of Common Stock for each share of Non-Voting Common Stock into which the Series B Preferred Stock is then convertible) as of the date immediately prior to the record date of such dividend (whether or not the Series B Preferred Stock may be converted into Non-Voting Common Stock on such date), such Additional Dividends to be payable on the payment date of the dividend established by the Board of Directors (the "Additional Dividend Payment Date"). The record date for any -------------------------------- such Additional Dividends shall be the record date for the applicable dividend, and any such Additional Dividends shall be payable to the persons in whose name this Series B Preferred Stock is registered at the close of business on the applicable record date. Section 3. Liquidation Preference. In the event of a liquidation, ---------------------- dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series B Preferred Stock then outstanding shall be entitled to receive out of the available assets of the Company, whether such assets are stated capital or surplus of any nature, an amount on such date equal to $100 per share of Series B Preferred Stock (the "Liquidation Preference") plus the ---------------------- amount of any accrued and unpaid dividends as of such date, calculated pursuant to Section 2 hereinabove. Such payment shall be made before any payment shall be made or any assets distributed to the holders of any class or series of the Common Stock or the Non-Voting Common Stock or any other class or series of the Company's capital stock ranking junior as to liquidation rights to the Series B Preferred Stock. If upon any such liquidation, dissolution or winding up of the Company the assets available for payment of the Liquidation Preference are insufficient to permit the payment to the holders of the Series B Preferred Stock of the full preferential amounts described in this paragraph, then all the remaining available assets shall be distributed among the holders of the then outstanding Series B Preferred Stock pro rata according to the number of then outstanding shares of Series B Preferred Stock held by each holder thereof. No event that constitutes a Change in Control (as defined in Section 5(b) below) shall be considered a liquidation, dissolution or winding up of the Company for purposes of this Section 3 (unless in connection therewith the liquidation of the Company is specifically approved). -4- Section 4. Mandatory Redemption. (a) On June 30, 2012 (the -------------------- "Redemption Date"), the Company shall redeem for cash all shares of Series B --------------- Preferred Stock that are then outstanding and any shares of Series B Preferred Stock then issuable in respect of accrued but unpaid dividends, in each case, at a redemption price per share equal to the Liquidation Preference thereof plus the amount of any accrued and unpaid dividends as of such date (the "Redemption ---------- Price"). Not more than sixty (60) nor less than thirty (30) days prior to the - ----- Redemption Date, notice by first class mail, postage prepaid, shall be given to each holder of record of the Series B Preferred Stock, at such holder's address as it shall appear upon the stock transfer books of the Company on such date. Each such notice of redemption shall be irrevocable and shall specify the date that is the Redemption Date, the Redemption Price, the identification of the shares to be redeemed, the place or places of payment and that payment will be made upon presentation and surrender of the certificate(s) evidencing the shares of Series B Preferred Stock to be redeemed and that dividends on the shares of the Series B Preferred Stock cease to accrue on the Redemption Date. On or after the Redemption Date, each holder of shares of Series B Preferred Stock shall surrender the certificate evidencing such shares to the Company at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption Price in the manner set forth in the notice. If, on the Redemption Date, funds in cash in an amount sufficient to pay the aggregate Redemption Price for all outstanding shares of Series B Preferred Stock shall be available therefor and shall have been irrevocably set aside and deposited with a bank or trust company in trust for purposes of payment of such Redemption Price, then, notwithstanding that the certificates evidencing any shares so called for redemption shall not have been surrendered, the shares shall no longer be deemed outstanding, the holders thereof shall cease to be stockholders, and all rights whatsoever with respect to the shares so called for redemption (except the right of the holders to receive the Redemption Price upon surrender of their certificates therefor) shall terminate. If at the Redemption Date, the Company does not have sufficient funds legally available to redeem all the outstanding shares of Series B Preferred Stock, the Company shall take all measures permitted under the Delaware General Corporation Law to increase the amount of its capital and surplus legally available, and the Company shall purchase as many shares of Series B Preferred Stock as it may legally redeem, ratably from the holders thereof in proportion to the number of shares held by them, and shall thereafter from time to time, as soon as it shall have funds available therefor, redeem as many shares of Series B Preferred Stock as it legally may until it has redeemed all of the outstanding shares of Series B Preferred Stock. (b)(i) Right to Require Redemption. If the Series B Preferred Stock --------------------------- shall not have been automatically converted into Series A Preferred Stock on or prior to the Outside Date (such failure, a "Redemption Event") and upon the ---------------- delivery to the Company of a written request executed by the Requisite Holders, the Company shall be required to redeem all outstanding Series B Preferred Stock, on the date (the "Repurchase Date") that is 30 days after the date of the --------------- Company Notice (as defined below). The redemption price per share (the "Repurchase Price") shall be 110% of the Liquidation Preference thereof plus the ---------------- ---- amount of any accrued and unpaid dividends thereon through the Repurchase Date. -5- (ii) Notices; Method of Exercising Redemption Right, etc. (A) Not later than 15 days following the Outside Date, the Company shall mail to all holders of record of the Series B Preferred Stock a notice (the "Company Notice") stating that the Redemption Event has -------------- occurred and describing the redemption right set forth herein arising as a result thereof. Each Company Notice of a redemption right shall also set forth: (I) the Repurchase Date (assuming that the notice of the Requisite Holders is delivered in accordance with paragraph (B) below); (II) the date by which the redemption right must be exercised; (III) the Repurchase Price; (IV) a description of the procedure which a holder must follow to exercise a redemption right including a form of the irrevocable written notice referred to in Section 4(b)(ii)(B) hereof; and (V) the place or places where such shares of Series B Preferred Stock may be surrendered for repurchase. No failure of the Company to give the foregoing notices or any defect therein shall limit any holder's right to exercise a redemption right or affect the validity of the proceedings for the redemption of Series B Preferred Stock. (B) To exercise a redemption right, the Requisite Holders must deliver to the Company on or before the Series B-to-A Conversion Date (as defined in Section 7) (i) irrevocable written notice of the Requisite Holders' exercise of such rights, which notice shall include a statement that an election to exercise the redemption right is being made thereby, and (ii) the certificates representing the Series B Preferred Stock with respect to which the redemption right is being exercised, duly endorsed for transfer to the Company. Such written notice shall be irrevocable. Subject to the provisions of Section 4(b)(ii)(D) below, Series B Preferred Stock surrendered for redemption together with such irrevocable written notice shall cease to be convertible from the date of delivery of such notice. (C) In the event a redemption right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the Repurchase Price in cash, to the holder of the Series B Preferred Stock being redeemed on the Repurchase Date. The source of such payment will be (i) first, from the Escrow Account established pursuant to the Amended and Restated Securities Purchase Agreement dated as of June 4, 1999 among the Company, Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P. and AIF IV/RRRR LLC (the "Agreement"), and (ii) thereafter, from the --------- Company out of funds legally available therefor. (D) If any Series B Preferred Stock surrendered for redemption shall not be so redeemed on the Repurchase Date, such Series B Preferred Stock shall be convertible at any time from the Repurchase Date until redeemed and, until -6- such shares are redeemed by the Company, continue to accrue dividends to the extent permitted by applicable law from the Repurchase Date at the same rate borne by such Series B Preferred Stock. The Company shall pay to the holder of such Series B Preferred Stock the additional amounts arising from this Section 4(b)(ii)(D) at the same time that it pays the Repurchase Price, and if applicable such Series B Preferred Stock shall remain convertible into Series A Preferred Stock or Non-Voting Common Stock until the Repurchase Price plus any additional amounts owing on such Series B Preferred Stock shall have been paid or duly provided for. (E) Any Series B Preferred Stock which is to be redeemed only in part shall be surrendered at any office or agency of the Company designated for that purpose pursuant to Section 4(b)(ii)(A)(V) and the Company shall execute and deliver to the holder of such Series B Preferred Stock without service charge, a new certificate or certificates representing the Series B Preferred Stock, of any authorized denomination as requested by such holder, in aggregate amount equal to and in exchange for the unredeemed portion of the Series B Preferred Stock so surrendered. Section 5. Optional Redemption. ------------------- (a) Change of Control. In the event that any Change of Control (as ----------------- hereinafter defined) shall occur at any time while any shares of Series B Preferred Stock are outstanding, the Requisite Holders shall have the right to give notice that they are exercising a Change of Control election (a "Change of --------- Control Election"), with respect to all or any number of such holders' shares of - ---------------- Series B Preferred Stock, during the period (the "Exercise Period") beginning on --------------- the 20th day and ending on the 90th day after the date of such Change of Control. Upon any such election, the Company shall redeem for cash each of such holders' shares (including any shares then issuable in respect of accrued but unpaid dividends) for which such an election is made, to the extent permitted by applicable law, at the Redemption Price. (b) As used herein, "Change of Control" means the occurrence of any of ----------------- the following events: (1) the acquisition by any individual, entity or group other than Apollo Management, L.P. or its affiliates (a "Person"), or any ------ Holder (as such term is defined in the Agreement), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of ------------ beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of more than 50% of either (i) the then outstanding shares of Common Stock (the "Outstanding Company Common -------------------------- Stock") or (ii) the combined voting power of the then outstanding ----- securities of the Company entitled to vote generally in the election of directors (the "Outstanding ----------- -7- Company Voting Securities"); excluding, however, the following: (A) ------------------------- any acquisition directly from the Company of Common Stock (excluding any acquisition resulting from an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition of Common Stock by the Company, (C) any acquisition of Common Stock by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition of Common Stock by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this Section 5(b); (2) a majority of the individuals who, as of the Original Issuance Date of the Series B Preferred Stock, constitute the members of the Board of Directors not elected by the holders of Series A Preferred Stock (the "Incumbent Board") cease for any reason to serve --------------- on such Board of Directors; provided that any individual who becomes a director of the Company subsequent to such Original Issuance Date whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who ---------------- was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board of Directors shall not be deemed a member of the Incumbent Board; or (3) approval by the stockholders of the Company of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate --------------------- Transaction pursuant to which (i) the individuals or entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns 100% of the Outstanding Company Common Stock or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than: the Company; any -8- employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 30% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, 30% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will continue to serve as members of the board of directors of the corporation resulting from such Corporate Transaction. (c) On or before the tenth (10th) day after a Change of Control, the Company shall mail to all holders of record of the Series B Preferred Stock at their respective addresses as the same shall appear on the books of the Company as of such date, a notice disclosing (i) the Change of Control, (ii) the Redemption Price per share of the Series B Preferred Stock applicable hereunder, (iii) the determination of the Requisite Holders to exercise a Change of Control Election (or the date on which such a determination is scheduled to be made) and (iv) the procedure which the holder must follow to exercise the redemption right provided above. To exercise the Change of Control Election, if applicable, a holder of the Series B Preferred Stock must deliver during the Exercise Period written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of the Change of Control Election, accompanied by each certificate evidencing shares of the Series B Preferred Stock with respect to which the Change of Control Election is being exercised, duly endorsed for transfer. On or prior to the fifth (5th) business day after receipt of delivery of such written notice, the Company shall accept for payment all shares of Series B Preferred Stock properly surrendered to the Company (or an agent designated by the Company for such purpose) during the Exercise Period for redemption in connection with the exercise of the Change of Control Election and shall cause payment to be made in cash for such shares of Series B Preferred Stock. If at the time of any Change of Control, the Company does not have sufficient capital and surplus legally available to purchase all of the outstanding shares of Series B Preferred Stock, the Company shall take all measures permitted under the Delaware General Corporation Law to increase the amount of its capital and surplus legally available, and the Company shall offer in its written notice of such Change of Control to purchase as many shares of Series B Preferred Stock as it has capital and surplus legally available therefor, ratably from the holders thereof in proportion to the total number of shares tendered, and shall thereafter from time to time, as soon as it shall have capital and surplus legally available therefor, offer to purchase as many shares of Series B Preferred Stock as it has capital and surplus available therefor until it has offered to purchase all of the outstanding shares of Series B Preferred Stock. (d) Status of Redeemed Shares. Any shares of Series B Preferred Stock ------------------------- which shall at any time have been redeemed pursuant to Section 4 or 5 hereof shall, after such -9- redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series. Section 6. Consent Rights. So long as any Series B Preferred Stock -------------- remains outstanding, the Company shall not, without the written consent or affirmative vote of the Requisite Holders, at a meeting of the holders called for that purpose, amend, alter or repeal, whether by merger, consolidation, combination, reclassification or otherwise, the Certificate of Incorporation, By-Laws of the Company or any provision thereof (including the adoption of a new provision thereof) which would adversely affect the voting power of the Series B Preferred Stock or any other rights or privileges of the holders of the Series B Preferred Stock hereunder. Section 7. Conversion to Series A Preferred Stock. -------------------------------------- (a) The Company will, as soon as practicable, duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of approving, among other things, the conversion of the Series B Preferred Stock into Series A Preferred Stock (the "Series B-to-A Conversion") and the creation of the Non- ------------- ---------- Voting Common Stock. The Company shall use its best efforts to secure such approval on or prior to the Outside Date. Upon stockholder approval of the Series B-to-A Conversion, whenever obtained, each outstanding share of Series B Preferred Stock shall, without any action on the part of the holder thereof or the Company, be automatically converted into one fully-paid and non-assessable share of Series A Preferred Stock. Any accrued and unpaid dividends shall be credited and transferred so that a holder is in the same economic position following such conversion. (b) Promptly following any Series B-to-A Conversion, the holder of the Series B Preferred Stock shall (i) surrender the certificates or certificates evidencing the shares of Series B Preferred Stock, duly endorsed in a form reasonably satisfactory to the Company, at the office of the Company or of the transfer agent for the Series B Preferred Stock and (ii) state in writing the name or names in which the certificate or certificates for shares of Series A Preferred Stock are to be issued. As soon as practical following receipt of the foregoing, the Company shall deliver to such former holder of Series B Preferred Stock, a certificate or certificates in denominations acceptable to such holder representing the shares of Series A Preferred Stock. Such conversion shall be deemed to have been effected as of the close of business on the date on which the stockholders of the Company approve the Series B-to-A Conversion. Section 8. Conversion Rights. ----------------- (a) General. Subject to and upon compliance with the provisions of ------- this Section 8, the holders of the shares of Series B Preferred Stock shall be entitled, at their option, at any time prior to the date fixed for redemption of such shares to convert all or any such shares of Series B Preferred Stock into a number of fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Non-Voting Common Stock. The number of shares of Non-Voting Common Stock to which a holder of Series B Preferred Stock shall be -10- entitled upon conversion shall be determined by dividing (x) the Liquidation Preference of such Series B Preferred Stock (including shares issuable in respect of accrued but unpaid dividends), plus the amount of any accrued but ---- unpaid dividends as of the Conversion Date by (y) the Conversion Price in effect at the close of business on the Conversion Date (determined as provided in this Section 8); provided, however, if after the Outside Date any holder of Series B -------- Preferred Stock elects to convert such shares to Non-Voting Common Stock pursuant to this Section 8 and it is determined that the Company cannot issue Non-Voting Common Stock, the Company shall use its reasonable efforts to deliver to such holders securities, cash or other property that would provide such investors with the economic equivalent of a conversion of the Series B Preferred Stock into, and an immediate sale of, the Non-Voting Common Stock. (b) Conversion Price. The conversion price (the "Conversion Price") ---------------- ---------------- shall initially be $7.00 per share of Non-Voting Common Stock, subject to adjustment from time to time in accordance with Section 8(d). (c) Fractions of Shares. No fractional share of Non-Voting Common ------------------- Stock shall be issued upon conversion of shares of Series B Preferred Stock. If more than one share of Series B Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Non- Voting Common Stock to be issued and which shall be computed on the basis of the aggregate number of shares of Series B Preferred Stock so surrendered. Instead of any fractional shares of Non-Voting Common Stock which would otherwise be issuable upon conversion of any shares of Series B Preferred Stock, the Company shall pay a cash adjustment in respect of such fractional share in an amount equal to the product of such fraction multiplied by the Fair Market Value (as hereinafter defined) of one share of Non-Voting Common Stock on the Conversion Date (as hereinafter defined). (d) Adjustments to Conversion Price. In order to prevent dilution of -------------------------------- the conversion rights granted hereunder, the number of shares of Non-Voting Common Stock issuable upon conversion and the Conversion Price shall each be adjusted from time to time in the same manner as the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock and the "Conversion Price" as set forth in the Certificate of Designation of Series A Preferred Stock are adjusted pursuant to the Series A Certificate of Designation. (e) Exercise of Conversion Privilege. In order to exercise the -------------------------------- conversion privilege, the holder of any share of Series B Preferred Stock shall surrender such Series B Preferred Stock, duly endorsed or assigned to the Company in blank, at any office or agency of the Company maintained for such purpose, accompanied by written notice to the Company at such office or agency that the holder elects to convert such Series B Preferred Stock or, if less than the entire amount thereof is to be converted, the portion thereof to be converted. Series B Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the day (the "Conversion Date") of --------------- surrender of such shares of Series B Preferred Stock for conversion in accordance with the foregoing provisions, and at such -11- time the rights of the holders of such shares of Series B Preferred Stock as holder shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as and after such time. As promptly as practicable on or after the Conversion Date, the Company shall issue and shall deliver at any office or agency of the Company maintained for the surrender of Series B Preferred Stock a certificate or certificates for the number of full shares of Non-Voting Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 8(c). In the case of any Series B Preferred Stock which is converted in part only, upon such conversion the Company shall execute and deliver a new share of Series B Preferred Stock of authorized denomination in aggregate principal amount equal to the unconverted portion of the principal amount of such share of Series B Preferred Stock. (f) Notice of Adjustment of Conversion Price. Whenever the Conversion ---------------------------------------- Price is adjusted as herein provided: (i) the Company shall compute the adjusted Conversion Price in accordance with Section 8(d) and shall prepare a certificate signed by the Treasurer or Chief Financial Officer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for such purpose or conversion of shares of Series B Preferred Stock; and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be prepared by the Company, and as soon as practicable after it is prepared, such notice shall be mailed by the Company at its expense to all holders at their last addresses as they shall appear in the stock register. (g) Notice of Certain Corporate Action. ---------------------------------- In case: (a) the Company shall take an action or an event shall occur, that would require a Conversion Price adjustment pursuant to Section 8(d); or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class; (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any -12- consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for such purpose, and shall cause to be mailed to all holders at their last addresses as they shall appear in the stock register, at least 30 days prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of the amendment thereto). Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of the Series B Preferred Stock. Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 8(g). (h) Company to Reserve Common Stock. ------------------------------- The Company shall at all times reserve and keep available, free from preemptive rights, out of the authorized but unissued Non-Voting Common Stock or out of the Non-Voting Common Stock held in treasury, for the purpose of effecting the conversion of Series B Preferred Stock, the full number of shares of Non-Voting Common Stock then issuable upon the conversion of all outstanding shares of Series B Preferred Stock. Before taking any action that would cause an adjustment reducing the conversion price below the then par value (if any) of the shares of Non-Voting Common Stock deliverable -13- upon conversion of the Series B Preferred Stock, the Company will take any corporate action that, in the opinion of its counsel, is necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Non-Voting Common Stock at such adjusted conversion price. (i) Taxes on Conversions. -------------------- The Company will pay any and all original issuance, transfer, stamp and other similar taxes that may be payable in respect of the issue or delivery of shares of Non-Voting Common Stock on conversion of Series B Preferred Stock pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Non-Voting Common Stock in a name other than that of the holder of the share(s) of Series B Preferred Stock to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. (j) Cancellation of Converted Series B Preferred Stock. -------------------------------------------------- All Series B Preferred Stock delivered for conversion shall be delivered to the Company to be canceled. (k) Certain Definitions. ------------------- As used in this Section 8, the following terms shall have the following respective meanings: "Appraisal Procedure" if applicable, shall mean the following ------------------- procedure to determine the fair market value, as to any security, for purposes of the definition of "Fair Market Value" or the fair market value, as to any other property (in either case, the "valuation amount"). So long as Apollo Investment Fund IV, L.P. or any of its affiliates (the "Apollo Stockholders") ------------------- beneficially own sufficient shares of Series B Preferred Stock to constitute the Requisite Holders, the valuation amount shall be determined in good faith jointly by the Board of Directors and the Requisite Holders; provided, however, -------- ------- that if such parties are not able to agree on the valuation amount within a reasonable period of time (not to exceed twenty (20) days), the valuation amount shall be determined by an investment banking firm of national recognition, which firm shall be reasonably acceptable to the Board of Directors and the Requisite Holders. If the Board of Directors and the Requisite Holders are unable to agree upon an acceptable investment banking firm within ten (10) days after the date either party proposed that one be selected, the investment banking firm will be selected by an arbitrator located in New York City, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the investment banking firm (within ten (10) days of his appointment) from a list, jointly prepared by the Board of -14- Directors and the Requisite Holders, of not more than six investment banking firms of national standing in the United States, of which no more than three may be named by the Board of Directors and no more than three may be named by the Requisite Holders. The arbitrator may consider, within the ten-day period allotted, arguments from the parties regarding which investment banking firm to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Board of Directors and the Requisite Holders shall submit their respective valuations and other relevant data to the investment banking firm, and the investment banking firm shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the investment banking firm, from among the valuation amounts submitted by the Company and the Requisite Holders and the valuation amount calculated by the investment banking firm. The determination of the final valuation amount by such investment-banking firm shall be final and binding upon the parties. The Company shall pay the fees and expenses of the investment banking firm and arbitrator (if any) used to determine the valuation amount. If required by any such investment banking firm or arbitrator, the Company shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such investment banking firm or arbitrator and its officers, directors, partners, employees, agents and affiliates. If the Apollo Stockholders no longer constitute the Requisite Holders, the valuation amount shall be determined in good faith by the Board of Directors. "Fair Market Value" means, as to any security, the Twenty Day Average ----------------- of the average closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York City time, on such day, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar or successor organization (and in each such case excluding any trades that are not bona fide, arm's length transactions). If at any time such security is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the- counter market, the "Fair Market Value" of such security shall be the fair market value thereof as determined in accordance with the Appraisal Procedure, using any appropriate valuation method, assuming an arms-length sale to an independent party. In determining the fair market value of any class or series of Common Stock, a sale of all of the issued and outstanding Common Stock will be assumed, without giving regard to the lack of liquidity of such stock due to any restrictions (contractual or otherwise) applicable thereto or any discount for minority interests and assuming the conversion or exchange of all securities then outstanding that are convertible into or exchangeable for Common Stock and the exercise of all rights and warrants then outstanding and exercisable to purchase shares of such stock or securities convertible into or exchangeable for shares of such stock; provided, however that such -------- ------- -15- assumption will not include those securities, rights and warrants convertible into Common Stock where the conversion, exchange or exercise price per share is greater than the fair market value; provided, further, however, that fair market -------- ------- ------- value shall be determined with regard to the relative priority of each class or series of Common Stock (if more than one class or series exists.) "Fair Market Value" means with respect to property other than securities, the "fair market value" determined in accordance with the Appraisal Procedure. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, which are in effect from time to time. "Twenty Day Average" means, with respect to any prices and in ------------------ connection with the calculation of Fair Market Value, the average of such prices over the twenty Business Days ending on the Business Day immediately prior to the day as of which "Fair Market Value" is being determined. Section 9. Preemptive Rights. Holders of shares of Series B ----------------- Preferred Stock will have the right to purchase their pro rata portions of any future private placements by the Company of equity or equity-linked securities, other than (i) securities issued pursuant to the exercise of options or warrants currently outstanding, options awarded to employees or directors of the Company after the date hereof pursuant to currently existing employee incentive plans, and options hereinafter issued under new employee incentive plans approved by the Board of Directors and by the Apollo Stockholders and (ii) securities issued as consideration in acquisitions by the Company. Section 10. Limitations. In addition to any other rights provided by ----------- applicable law, so long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote, or the written consent as provided by law, of the Requisite Holders, at a vote of the holders of Series B Preferred Stock, voting separately as a class, (a) create, authorize or issue any class, series or shares of Preferred Stock (other than Additional Securities issued pursuant to Section 2(b) hereof and Series B Preferred Stock issued as dividends) or any other class of capital stock ranking either as to payment of dividends or distribution of assets upon liquidation (i) prior to the Series B Preferred Stock, or (ii) on a parity with the Series B Preferred Stock, or (iii) junior to the Series B Preferred Stock, if such junior securities may be redeemed, in any circumstance, on or prior to the Redemption Date; or (b) change the preferences, rights or powers with respect to the Series B Preferred Stock so as to affect the Series B Preferred Stock adversely. -16- Section 11. Dividend Received Deduction. For federal income tax --------------------------- purposes, the Company shall report distributions on the Series B Preferred Stock as dividends, to the extent of the Company's current and accumulated earnings and profits (as determined for federal income tax purposes). -17- IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be signed by __________________, its _________, and attested by ________________, its Secretary, this ____ day of __________, 1999. By:_________________________________ Name: Title: Attested: By:_________________________ Secretary -18- EX-5 6 LIMITED LIABILITY COMPANY AGREEMENT EXHIBIT 5 LIMITED LIABILITY COMPANY AGREEMENT OF AIF IV/RRRR LLC This Limited Liability Company Agreement (the "Agreement") of AIF IV/RRRR LLC, is entered into by the persons named as Members on Annex A hereto (the "Members") and the Manager (as defined herein) as of June 3, 1999. WHEREAS, the Members hereby desire to form a limited liability company under the Delaware Limited Liability Company Act (6 Del. C. (S)18-101, et seq.), as amended from time to time (the "Act"), pursuant to this Agreement and the Certificate of Formation which is being filed with the Secretary of State of the State of Delaware in connection with the execution of this Agreement; and WHEREAS, the Members desire to form this limited liability company for the purpose of holding certain securities in Rare Medium Group, Inc. (the "Company") and the parties hereto hereby acknowledge that the limited liability company formed hereby is acquiring and holding certain securities in the Company, as set forth on Annex B hereto (the "Securities") on the same basis and subject to the same terms, conditions and restrictions, whether contractual or legal, as those terms, conditions and restrictions applicable to the Apollo Funds (as defined herein); NOW THEREFORE, the parties hereto hereby agree as follows: 1. Name. (a) The name of the limited liability company is AIF IV/RRRR LLC (the "LLC"). The business of the LLC may be conducted under any other name deemed necessary or desirable by the Manager. (b) The Members hereby agree to form the LLC as a limited liability company pursuant to the provisions of the Act and of this Agreement. The rights, duties and liabilities of the Members and the Manager shall be as provided in the Act for members and managers except as provided herein. 2. Purpose. The LLC is formed for the principal purpose of engaging in acquiring, holding, protecting and disposing of the Securities, and distributions and proceeds thereon and engaging in any and all activities necessary or incidental to the foregoing. 3. Registered Office; Registered Agent. The address of the registered office of the LLC in the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name and address of the registered agent of the LLC for service of process on the LLC in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. 4. Principal Office. The principal office address of the LLC should be c/o Apollo Management IV, L.P., 2 Manhattanville Road, Purchase, NY 10577, or such other place as the Members may determine from time to time. 5. Members. The name and the mailing address of each Member is as set forth in Annex A hereto. Each Member is hereby admitted as a member of the LLC and agrees to be bound by the terms of this Agreement. 6. Authorized Persons; Power of Attorney. (a) Each of John J. Hannan, Michael D. Weiner, Andrew D. Africk, Michelle Hsu and Anthony Tortorelli is hereby designated as an authorized person, within the meaning of the Act, to execute, deliver and file the Certificate of Formation of the LLC (and any amendments and/or restatements thereof) and any other certificates (and any amendments and/or restatements thereof) necessary for the LLC to qualify to do business in any jurisdiction in which the LLC may wish to conduct business. (b) Each Member does hereby constitute and appoint the Manager as the true and lawful representative and attorney-in-fact of such Member, in the name, place and stead of such Member, with full power of substitution, to make, execute, sign and file the Certificate, any amendment thereof, any amendments to this Agreement made in accordance with Section 21 and such other instruments, documents and certificates which may from time to time be required by the laws of the United States of America, the State of Delaware or any other state or country in which the LLC shall determine to do business or any political subdivision or agency thereof, to effectuate, implement and continue the valid and subsisting existence or qualification to do business of the LLC or in connection with any tax returns, filings or related matters. 7. Management. (a) The management of the LLC shall be vested exclusively in one or more managers. The Members, in such capacity, shall have no part in the management of the LLC and shall have no authority to or right to act on behalf of or bind the LLC in connection with any matter, nor have any further voting rights except as to certain matters as deemed necessary or appropriate by the Manager. The Members hereby irrevocably appoint Apollo Management IV, L.P., a Delaware limited partnership, as the manager of the LLC (the "Manager") and the Manager hereby accepts such appointment and agrees to be bound by the provisions of this Agreement. To the extent permitted by law, the Manager shall be authorized to act on behalf of and to bind the LLC in all respects, without any further consent, vote or approval of the Members, and the Manager's powers shall include, without limitation, the authority to negotiate, complete, execute and deliver any and all agreements, deeds, instruments, receipts, certificates and other documents on behalf of the LLC, and to take all such other actions on behalf of the LLC as the Manager may consider necessary or advisable in connection with the management of the LLC. (b) Any Manager appointed pursuant to Section 7(a) may resign at any time upon written notice to the Members, provided, that prior -------- to the effectiveness of any such resignation, the Manager shall provide for the substitution of a new manager that is reasonably acceptable to the Members, or for the liquidation of the LLC. (c) The Members agree that all determinations, decisions and actions made or taken by the Manager in accordance with this Agreement shall be conclusive and absolutely binding upon the LLC, the Members and their respective successors, assigns and personal representatives. (d) Persons dealing with the LLC are entitled to rely conclusively upon the power and authority of the Manager as herein set forth. (e) The Manager and Members hereby acknowledge that certain entities managed by the Manager and its affiliates, including Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (collectively the "Apollo Funds") also hold interests in the Securities. The Manager hereby agrees that whenever the Manager makes any disposition or transfer or takes any other action (a "Transaction") with respect to the Securities held by the Apollo Funds, the LLC will participate in any such Transaction on a pro rata basis in accordance with the aggregate amount invested by each of the Apollo Funds and the LLC in the Securities. 8. Capital Contributions. The Members have made or will make a contribution to the capital of the LLC in the amounts set forth on a schedule maintained by the Manager. The Members shall have no obligation to make any additional capital contributions to the LLC. The Manager may, but is not required to, contribute capital to the LLC. The LLC may, from time to time, participate with the Apollo Funds in certain co-investment opportunities respecting the Company's securities and/or follow-on investment opportunities in which the Company participates. Such co-investment opportunities, if any, will be subject to, among other things, the contribution by Members of additional capital to the LLC. In that regard, the Members acknowledge and understand that in the event such additional capital is not made available to the LLC, the LLC may be precluded from participating with the Apollo Funds in any such additional investment opportunity. 9. Additional Contributions. The Members, with the consent of the Manager, may make such additional capital contributions to the LLC as the Members in their discretion may deem necessary or advisable in connection with the business of the LLC. 10. Capital Accounts. The LLC shall maintain for each Member a capital account in accordance with this Section 10 and in accordance with the rules of Treasury Regulation Section 1.704- 1(b)(2)(iv). The Member's capital account shall have an initial balance equal to the amount of cash constituting the Member's initial contribution to the capital of the LLC. The Member's capital account shall be increased by the same of (a) the amount of cash constituting additional contributions by the Members to the capital of the LLC, plus (b) any profits allocated to the Member's capital account pursuant to Section 11. The Member's capital account shall be reduced by the sum of (a) the amount of cash and the fair value of any property distributed by the LLC to the Members, plus (b) any losses allocated to the Member's capital account pursuant to Section 11. 11. Allocations. The LLC's profits and losses shall be allocated to the Members pro rata in accordance with their relative capital account balances as established by Section 10 hereof, taking into account any variation between the adjusted tax basis and book value of the LLC's property in accordance with the principles of Section 704(c) of the Internal Revenue Code (the "Code") (and Treasury Regulation (S)1.704(b)(2)(iv)(f)). 12. Distributions. (a) The Members shall not (i) be entitled to interest on their capital contributions to the LLC or (ii) have the right to distributions or the return of any contribution to the capital of the LLC except (A) for distributions in accordance with this Section 12 or (B) upon dissolution of the LLC. The entitlement to any such return at such time shall be limited to the value of the capital account of the Member. To the fullest extent permitted by the Act, the Members shall not be liable for the return of any such amounts. The Company shall not make a distribution to a Member if such distribution would violate Section 18-607 of the Act. (b) Distributions shall be made to the Members at the times and in the aggregate amounts determined by the Manager. The Manager hereby agrees that, to the extent considered feasible by the Manager, any distributions made to the Members by the Manager with respect to Transactions involving the Securities shall be made on the same terms as those distributions made to the Apollo Funds with respect to Transactions involving the Securities. (c) If the LLC incurs a withholding tax or other tax obligation with respect to the share of LLC income allocable to any Member, then the Manager, without limitation of any other rights of the LLC, may cause the amount of such obligation to be offset against any amounts then distributable to such Member. Any amount offset pursuant to the preceding sentence shall be treated, for purposes of Section 12(b) and 17, as having been distributed to the affected Member. If the amount of such taxes is greater than any such then distributable amounts, then such Member and any successor to such Member's interest shall indemnify and hold harmless the LLC and the Manager against, and shall reimburse the LLC within 10 days after the demand of the Manager, the amount of such excess. 13. Fiscal Year. The Fiscal Year of the LLC for accounting and tax purposes shall begin on January 1 and end on December 31 of each year, except for the short taxable years in the years of the LLC's formation and termination and as otherwise required by the Code. 14. Assignments and Transfers of Interests. (a) A Member may not transfer, dispose, withdraw or otherwise pledge any portion of its interest in the LLC to any person at any time without the prior written consent of the Manager, which consent shall not be unreasonably withheld or delayed. (b) A permitted transferee shall be entitled to the allocations and distributions attributable to the interest in the LLC transferred to such transferee and to transfer such interest in accordance with the term of this Agreement; provided, however, that such transferee shall not be entitled to the other rights of a Member as a result of such transfer until it becomes a substituted Member. No transferee may become a substituted Member except with the consent of the Manager (which consent may be withheld in its sole and absolute discretion). Such transferee shall be admitted to the LLC as a substituted Member upon execution of a counterpart of this Agreement or such other instrument evidencing, to the satisfaction of the Manager, such Member's intent to become a Member. Notwithstanding the above, the LLC and the Manager shall incur no liability for allocations and distributions made in good faith to the transferring Member until a written instrument of transfer has been received and accepted by the LLC and recorded on its books and the effective date of the Transfer has passed. 15. Admissions of Additional Members. The Manager may at any time cause the LLC to admit additional Members in its discretion; provided, however, that no such admission shall result in the diminution of any existing Member's participation percentage or capital account without such existing Member's consent. An additional Member shall be deemed admitted as a Member upon the execution by such Member of this Agreement or any other instrument manifesting, to the satisfaction of the Manager, such additional Member's intent to become a Member. Upon admission, such additional Member shall be bound by all provisions of this Agreement. The Schedule of Members shall be subsequently amended to reflect the admission of any new Member. 16. Liability of Members A Member shall not have any liability for the obligations or liabilities of the LLC except to the extent provided in the Act. 17. Dissolution. (a) Subject to the occurrence of an event of dissolution pursuant to Section 17(b), the LLC shall have perpetual existence. (b) The Company shall dissolve, and its affairs shall be wound up upon the first to occur of the following: (i) the written consent of the Manager, (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Act or (iii) 90 days after the occurrence of any of the following events: the death, insanity, retirement, resignation, expulsion, or bankruptcy of the Manager or the occurrence of any other event which terminates the continued status of the Manager as such under the Act unless, within 90 days of the occurrence of such event, a majority of the Members consent to continue the business of the LLC in accordance with this Agreement and in the event of such continuation, the LLC shall not be dissolved. 18. Indemnification. To the fullest extent permitted by law, the LLC shall (a) indemnify any person or such person's heirs, distributees, next of kin, successors, appointees, executors, administrators, legal representatives or assigns 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 by reason of the fact that such person is or was a member, manager, director, officer, authorized person, employee or agent of the LLC or is or was serving at the request of the LLC or its members as a member, manager, director, officer, authorized person, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, domestic or foreign, against expenses, attorneys' fees, court costs, judgments, fines, amounts paid in settlement and other losses actually and reasonably incurred by such person in connection with such action, suit or proceedings and (b) advance expenses incurred by a member, manager, officer, authorized person or director in defending such civil or criminal action, suit or proceeding to the full extent authorized or permitted by the laws of the State of Delaware. A manager shall have no personal liability to the LLC or its members for monetary damages for breach of fiduciary duty as a manager; provided, however, that the foregoing provision shall not eliminate the liability of a manager for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or for any transaction from which the manager derived an improper personal benefit. 19. Information. (a) To the extent the Manager receives financial reports or other information from the Company, pursuant to Section 7.3 of the Securities Purchase Agreement among the LLC, the Apollo Funds, the Company and certain other parties thereto, dated as of May 7, 1999, as amended and restated, the Manager shall furnish any Member with such information at the Member's request. a. Each Member hereby agrees to maintain the confidentiality of any confidential and proprietary information regarding the Company and its subsidiaries; provided, however, that the foregoing shall in no way -------- ------- limit or otherwise restrict the ability of such Member or any of its representatives to disclose any such information concerning the Company and each Subsidiary which it may be required to disclose (i) to its partners to the extent required to satisfy its fiduciary obligations to such persons, or (ii) otherwise pursuant to or as required by law. Each member acknowledges that the U.S. securities laws restrict any person who has material non-public information about a company from purchasing or selling securities of such company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. (c) A member and its duly authorized representatives may, for any reason reasonably related to its interest as a Member of the LLC, examine the LLC's books of account and make copies and extracts therefrom at its own expense. The Manager shall maintain the records of the LLC for three years following the termination of the LLC. The Manager shall be permitted to keep information confidential from the Members pursuant to 18-305(c) of the Act. 20. Acknowledgments by Members. Each Member hereby acknowledges and agrees that (i) his interest in the LLC and his underlying interest in the Securities represent an illiquid investment, (ii) he does not hold nor is he entitled to hold any voting, dispositive or investment determination rights with respect to the Securities, and that such rights are vested exclusively in the Manager, (iii) the Manager has sole and exclusive voting, dispositive and investment determination rights over the Securities held by the LLC and (iv) his appointment of the Manager as the "manager" of the LLC made herein is irrevocable except that the Manager may be removed by the Members for "cause." For purposes of this agreement "cause" as it relates to the removal of the Manager shall mean that such Manager has been found by a court of competent jurisdiction to have committed any act (or to have failed to take any action) which constitutes a material breach by the Manager of its obligations to the LLC under this Agreement resulting in material financial harm to the LLC or which constitutes fraud, gross negligence or willful malfeasance resulting in material financial harm to the LLC. 21. Amendments. Amendments to this Agreement may be made from time to time by the Manager without the consent of the Members; provided, however, that without the consent of each Member affected -------- ------- thereby, no such amendment shall require any Member to make additional capital contributions without its consent, or permit the admission of additional Members or increase the liability, or reduce the interest, of any Member hereunder. 22. Agreement Binding Upon Successors and Assigns. This Agreement shall be binding and inure to the benefit of the Members hereto and to their respective successors, but the rights and obligations of the Members hereunder shall not be assignable, transferable or delegable except as expressly provided herein, and any attempted assignment, transfer or delegation thereof which is not made in accordance with such express provisions shall be void. 23. Not for Benefit of Creditors. The provisions of this Agreement are intended only for the regulation of relations among Members and between Members and former or prospective Members and the LLC. This Agreement is not intended for the benefit of non-Member creditors and no rights are granted to non-Member creditors under this Agreement. 24. Counterparts. This Agreement may be executed in any number of counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. 25. Governing Law. This Agreement shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws. The Members intend the provisions of the Act to be controlling as to any matters not set forth in this Agreement. IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Limited Liability Company Agreement as of the day first above written. Manager: APOLLO MANAGEMENT IV, L.P. By: AIF IV Management, Inc. its General Partner By: __________________________ Name: Michael D. Weiner Title: Vice President Members: Each of the persons hereafter admitted to the LLC as Members, as of the date hereof as set forth in the Schedule of Members, pursuant to the powers of attorney executed by such persons in favor of, and delivered to, the undersigned. By: Apollo Management IV, L.P., Attorney-in-Fact By: __________________________ Michael D. Weiner Vice President -----END PRIVACY-ENHANCED MESSAGE-----