As filed with the Securities and Exchange Commission on August 22, 1997
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------
AMENDMENT NO. 1 TO
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
--------------
RCN CORPORATION
(Exact name of registrant as specified in its charter)
--------------
DELAWARE 22-3498533
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
105 Carnegie Center
Princeton, New Jersey
(Address of Principal 08540-6215
executive offices) (Zip Code)
609-734-3700
(Registrant's telephone number, including area code)
--------------
Securities to be registered pursuant to
Section 12(b) of the Act: None
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities to be registered
pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
==============================================================================
RCN Corporation, Inc.
Information Included In Information Statement
And Incorporated In Form 10 By Reference
Cross-Reference Sheet Between Information Statement
And Items of Form 10
<TABLE>
<CAPTION>
Item Location In Information Statement
---- ---------------------------------
<S> <C> <C>
Item 1 Business......................................... Summary; Risk Factors; The Distribution;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Financial Statements
Item 2 Financial Information............................ Summary; Risk Factors; Pro Forma Capitalization;
Unaudited Pro Forma Consolidated Financial
Statements; Selected Historical Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Financial Statements
Item 3 Properties....................................... Business
Item 4 Security Ownership of Certain Beneficial
Owners and Management............................ Security Ownership of Certain Beneficial Owners
and Management
Item 5 Directors and Executive Officers................. Management
Item 6 Executive Compensation........................... Management; Security Ownership of Certain
Beneficial Owners and Management
Item 7 Certain Relationships and Related Transactions... Summary; Relationship Among the Company, C-
TEC and Cable Michigan; The Distribution
Item 8 Legal Proceedings................................ Business
Item 9 Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.............................. Summary; Risk Factors; The Distribution; Trading
Market; Dividends; Security Ownership of Certain
Beneficial Owners and Management; Description of
Capital Stock
Item 10 Recent Sales of Unregistered Securities.......... Description of Capital Stock
Item 11 Description of Registrant's Securities to be
Registered....................................... Risk Factors; Description of Capital Stock; Certain
Statutory, Charter and Bylaw Provisions
Item 12 Indemnification of Directors and Officers........ Certain Statutory, Charter and Bylaw Provisions
Item 13 Financial Statements and Supplementary Data...... Summary; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Financial Statements
Item 14 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... None
Item 15 Financial Statements and Exhibits
(a)Financial Statements.......................... See Index To Financial Statements
(b)Exhibits...................................... See Exhibit Index
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------
<S> <C>
2.1 Form of Distribution Agreement among C-TEC Corporation, Cable Michigan, Inc. and the Registrant
3.1 Form of Amended and Restated Articles of Incorporation of the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
4.1 Credit Agreement dated as of July 1, 1997 among C-TEC Cable Systems, Inc., ComVideo Systems,
Inc., C-TEC Cable Systems of New York, Inc. and First Union National Bank, as agent(*+)
10.1 Tax Sharing Agreement by and among C-TEC Corporation, Cable Michigan, Inc. and the Registrant
10.2 Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems/McCourt,
Inc. and RCN Telecom Services of Massachusetts, Inc.
10.3 Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems of New York,
Inc. and RCN Telecom Services of New York, Inc.
10.4 Telephone Service to Reseller Agreement for Boston among Metropolitan Fiber Systems/McCourt,
Inc. and RCN Telecom Services of Massachusetts, Inc.
10.5 Telephone Service to Reseller Agreement for New York among Metropolitan Fiber Systems of New
York, Inc. and RCN Telecom Services of New York, Inc.
10.6 OVS Agreement dated May 8, 1997 between RCN Telecom Services, Inc. and MFS Communication
Company, Inc.
10.7 Joint Venture Agreement dated as of December 23, 1996 between RCN Telecom Services, Inc. and
Boston Energy Technology Group, Inc.
10.8 Amended and Restated Operating Agreement of RCN-BecoCom, LLC dated as of June 17, 1997
10.9 Management Agreement dated as of June 17, 1997 among RCN Operating Services, Inc. and
BecoCom, Inc.
10.10 Construction and Indefeasible Right of Use Agreement dated as of June 17, 1997 between BecoCom,
Inc. and RCN-BecoCom, LLC
10.11 License Agreement dated as of June 17, 1997 between Boston Edison Company and BecoCom, Inc.
10.12 Joint Investment and Non-Competition Agreement dated as of June 17, 1997 among RCN Telecom
Services of Massachusetts, Inc., BecoCom, Inc. and RCN-BecoCom, LLC
21.1 Subsidiaries of the Registrant(*)
27.1 Financial Data Schedule
</TABLE>
(*) Previously filed
(+) Exhibits and schedules which have not been filed with Exhibit 4.1 will be
provided to the Commission by the Registrant upon request
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
RCN Corporation
By: /s/ Bruce Godfrey
-----------------------------------
Name: Bruce Godfrey
Title: Executive Vice President and
Chief Financial Officer
Date: August 22, 1997
<PAGE>
[C-TEC Corporation Letterhead]
, 1997
Dear Stockholder:
I am pleased to inform you that the Board of Directors of C-TEC Corporation has
conditionally approved two distributions to our common equity holders. One
distribution (the "RCN Distribution") involves the distribution of all the
outstanding shares of common stock of C-TEC's wholly owned subsidiary RCN
Corporation ("RCN"). Following the Distribution, RCN will own the following
C-TEC businesses: its competitive telecommunications services operations in
New York City and Boston (the "RCN Telecom Business"); its cable television
operations in New York, New Jersey and Pennsylvania; its 40% interest in
Megacable S.A. de C.V., Mexico's second largest cable operator; and its long
distance operations (other than the operations in certain areas of
Pennsylvania that will remain with C-TEC as described below).
The second distribution (the "Cable Michigan Distribution") involves the
distribution of all of the outstanding shares of common stock of C-TEC's wholly
owned subsidiary Cable Michigan, Inc. ("Cable Michigan"). Cable Michigan
operates cable television systems in the State of Michigan and will own a 62%
interest in Mercom, Inc., a publicly held Michigan cable television operator.
Both Distributions will be made to holders of record of C-TEC Common Stock
and C-TEC Class B Common Stock (collectively, the "C-TEC Common Equity") on
[____________], 1997. In the RCN Distribution, you will receive [___] shares
of RCN Common Stock for every [___] shares of C-TEC Common Equity you hold on
the record date. In the Cable Michigan Distribution, you will receive [___]
shares of Cable Michigan Common Stock for every [___] shares of C-TEC Common
Equity you hold on the record date. Shares of RCN Common Stock and Cable
Michigan Common Stock are expected to trade on the Nasdaq Stock Market under
the symbols "RCNC" and "CABL," respectively. Holders of C-
TEC Common Equity are not required to take any action to participate in the
Distributions.
In connection with the Distributions, C-TEC will change its name to
Commonwealth Telephone Enterprises, Inc. Following the Distributions,
Commonwealth Telephone Enterprises will own the following: Commonwealth
Telephone Company (C-TEC's rural LEC business); Commonwealth Communications
(C-TEC's communications engineering business); C-TEC's Pennsylvania CLEC
business; and C-TEC's long distance operations in certain areas of
Pennsylvania.
Your Board of Directors has concluded that the Distributions are in the best
interests of C-TEC, RCN, Cable Michigan and C-TEC's Common Equity holders
because the Distributions will, among other things, (i) permit C-TEC to raise
financing to fund the development of the RCN Telecom Business on more
advantageous economic terms than the other alternatives available, (ii)
facilitate possible future acquisitions and joint venture investments by RCN
and Cable Michigan and possible future offerings by RCN, (iii) allow the
management of each company to focus attention and financial resources on its
respective business and permit each company to offer employees incentives that
are more directly linked to the performance of its respective business, (iv)
facilitate the ability of each company to grow in both size and profitability;
and (v) permit investors and the financial markets to better understand and
evaluate C-TEC's various businesses.
The enclosed Information Statements explain the proposed RCN Distribution and
the proposed Cable Michigan Distribution in detail and provide important
financial and other information regarding RCN and Cable Michigan, respectively.
We urge you to read these Information Statements carefully. A stockholder vote
is not required in connection with the Distributions and, accordingly, your
proxy is not being sought.
Very truly yours,
David C. McCourt
Chairman and Chief
Executive Officer
<PAGE>
Preliminary and Subject to Completion, Dated August 22, 1997
INFORMATION STATEMENT [LOGO]
RCN CORPORATION
COMMON STOCK
(par value $1.00 per share)
This Information Statement relates to the distribution (the
"Distribution") by C-TEC Corporation ("C-TEC") of 100% of the shares of common
stock, par value $1.00 per share (the "Company Common Stock"), of RCN
Corporation, a Delaware corporation ("RCN" or the "Company"), outstanding on
the Distribution Date (as defined below) to holders of C-TEC's common stock,
par value $1.00 per share ("C-TEC Common Stock"), and holders of C-TEC's Class
B Common Stock, par value $1.00 per share ("C-TEC Class B Common Stock" and
together with the C-TEC Common Stock, the "C-TEC Common Equity"). Such shares
of Company Common Stock will represent all of the Company Common Stock owned
by C-TEC on the Distribution Date and will be distributed by C-TEC to the
holders of record of C-TEC Common Equity as of the close of business on [
] , 1997 (the "Record Date") on the basis of [ ] shares of
Company Common Stock for every [ ] shares of C-TEC Common Equity
held of record on the Record Date. No consideration will be paid to C-TEC or
the Company by C-TEC stockholders for the shares of Company Common Stock
received in the Distribution. Following the Distribution, C-TEC will own no
shares of Company Common Stock or other securities of the Company. See "The
Distribution."
The Distribution is currently expected to be effected on or
about [ ], 1997 (the date on which the Distribution is effected
being the "Distribution Date"). Certificates representing the shares of
Company Common Stock will be mailed on the Distribution Date or as soon
thereafter as practicable to holders of C-TEC Common Equity.
Concurrent with the Distribution, C-TEC will distribute (the
"Cable Michigan Distribution", and collectively with the Distribution, the
"Distributions") to the holders of C-TEC Common Equity 100% of the shares of
common stock of C-TEC's wholly owned subsidiary Cable Michigan, Inc., a
Pennsylvania corporation ("Cable Michigan"). Cable Michigan operates cable
television systems in the State of Michigan. The Cable Michigan Distribution
is described in a separate Information Statement that is being provided to the
holders of C-TEC Common Equity.
Prior to the time the Distribution is effected, C-TEC will
engage in a series of internal restructuring transactions that will result in
RCN owning C-TEC's competitive telecommunications services operations in New
York City and Boston (the "RCN Telecom Business"), its cable television
operations in the states of New York (other than New York City), New Jersey
and Pennsylvania, certain of its long distance operations and its 40% interest
in Megacable, S.A. de C.V. (collectively, the "Company Businesses") in
accordance with the terms of the Distribution Agreement dated [
], 1997, among C-TEC, the Company and Cable Michigan, the form of which is
filed as an exhibit to the Registration Statement on Form 10 (the "Form 10")
filed under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of which this Information Statement is a part. See "The Distribution"
and "Relationship Among The Company, C-TEC and Cable Michigan." At the time
of the Distribution, the Company will own the Company Businesses. C-TEC's
principal shareholder is Kiewit Telecom Holdings Inc., a Delaware corporation
("Kiewit Telecom"), which was formerly known as RCN Corporation and recently
changed its name. RCN is a separate company from Kiewit Telecom.
There has been no trading market for the Company Common
Stock, although it is expected that a "when-issued" trading market may
develop on or about the Record Date. Application has been made to list the
Company Common Stock on the Nasdaq Stock Market ("NASDAQ") under the symbol
"RCNC." See "Trading Market."
In reviewing this Information Statement, stockholders should
carefully consider the matters described under the section entitled "Risk
Factors" on page 11.
---------------
STOCKHOLDER APPROVAL IS NOT REQUIRED IN CONNECTION WITH THE DISTRIBUTION. WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is , 1997.
TABLE OF CONTENTS
Page
----
INTRODUCTION.................................................................1
SUMMARY......................................................................2
RISK FACTORS................................................................11
THE DISTRIBUTION............................................................20
RELATIONSHIP AMONG THE COMPANY, C-TEC AND CABLE MICHIGAN....................23
TRADING MARKET..............................................................29
DIVIDENDS...................................................................30
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.......................31
PRO FORMA CAPITALIZATION....................................................38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.............................39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................40
DESCRIPTION OF THE CREDIT AGREEMENT.........................................48
BUSINESS....................................................................51
MANAGEMENT..................................................................79
EMPLOYEE STOCK OWNERSHIP PLAN...............................................86
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT............................................87
DESCRIPTION OF CAPITAL STOCK................................................89
CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS.............................90
INDEPENDENT AUDITORS........................................................93
ADDITIONAL INFORMATION......................................................93
INTRODUCTION
On [ ], 1997, the Board of Directors of C-TEC
declared a dividend payable to holders of record of C-TEC Common Equity at the
close of business on the Record Date of [ ] shares of Company
Common Stock for every [ ] shares of C-TEC Common Equity owned of
record on the Record Date. It is expected that certificates representing
shares of Company Common Stock will be mailed on the Distribution Date or as
soon thereafter as practicable to holders of C-TEC Common Equity.
Prior to the Distribution Date, all of the outstanding capital
stock of the subsidiaries that own and operate the Company Businesses will
have been transferred by C-TEC to, and will be owned by, the Company. As a
result of the Distribution, 100% of the outstanding shares of Company Common
Stock will be distributed to holders of C-TEC Common Equity. C-TEC will not
own any securities of the Company immediately after the Distribution.
C-TEC stockholders with inquiries relating to the Distribution
should contact First Union National Bank (the "Distribution Agent"), Corporate
Trust Client Operations-NC1153, 1525 West W.T. Harris Boulevard - 3C3,
Charlotte, NC 28288-1153; or C-TEC Corporation, Valerie Haertel, Director of
Investor Relations, 105 Carnegie Center, Princeton, New Jersey 08540-6215.
The Distribution Agent's telephone number is 800-829-8432. C-TEC's telephone
number is (609) 734-3700. After the Distribution, stockholders of the Company
with inquiries relating to the Distribution should contact RCN Corporation,
105 Carnegie Center, Princeton, New Jersey 08540-6215. The Company's
telephone number is (609) 734-3700 and its Internet website is www.rcn.com.
No action is required by holders of C-TEC Common Equity in
order to receive the Company Common Stock to which they are entitled in the
Distribution.
SUMMARY
The following is a brief summary of the matters covered by this
Information Statement and is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto)
included elsewhere herein. Unless the context indicates otherwise, the
"Company" or "RCN" means RCN Corporation and its subsidiaries after giving
effect to the Distribution.
The Company
Overview
RCN Corporation ("RCN" or the "Company") is developing advanced
fiber optic networks to provide a wide range of telecommunications services
including local and long distance telephone, video programming and data
services (including high speed Internet access), primarily to residential
customers in selected markets in the Boston to Washington, D.C. corridor as
well as certain commercial accounts on or near its networks. RCN seeks to act
as a single-source provider of a wide range of voice, video and data services
offered individually or in bundled service packages, with superior customer
service and competitive prices as compared to incumbent service providers. The
Company currently utilizes a variety of owned and leased facilities including
advanced fiber optic networks, a wireless video system and hybrid
fiber/coaxial cable systems, although it intends to deploy advanced fiber
optic networks specifically designed to provide high speed, high capacity
telecommunications services for all new facilities. RCN's initial advanced
fiber optic networks have been established in New York City and, through a
joint venture, in Boston and surrounding communities, and formally commenced
operations in September 1996. RCN has recently announced that it plans to
develop an advanced fiber optic network in the Washington, D.C. area through a
joint venture. Since it formally commenced operation of its advanced fiber
optic networks in New York City and Boston, RCN has built or acquired through
long term lease arrangements approximately 300 route miles of fiber optic
cable and added approximately 1,500 customer connections to its advanced fiber
optic networks. In addition, during the same period the Company added
approximately 13,500 wireless video, resold telephone and other connections,
the majority of which represent customers that RCN expects to migrate to its
advanced fiber optic networks. At June 30, 1997, RCN had an aggregate of
approximately 234,600 connections (local telephone, video programming or
Internet access) among all facilities, approximately 48,400 of which were
attributable to customers in the New York City and Boston markets. See
"Business--RCN Services--Connections."
RCN seeks to exploit competitive opportunities which have
resulted from widespread changes in the U.S. telecommunications industry.
Industry sources estimate that annual revenues generated by the U.S.
telecommunications industry are approximately $220 billion, approximately 50%
of which is attributable to residential users. The Boston to Washington
corridor represents approximately 4% of the geography of the U.S. but accounts
for over 26% of the telecommunications market (as measured by telephone access
lines). RCN believes that density is a critical factor in the economic
deployment of advanced fiber optic networks, and that due to population
density, favorable demographics and the aging infrastructure of the
incumbents' facilities, the Boston to Washington corridor is a particularly
attractive market for development of advanced fiber optic facilities.
The opportunity to effectively deploy advanced fiber optic
networks and to compete with incumbent telephone and cable television service
providers results from several key factors, including the broad deregulation
of the telecommunications industry pursuant to the Telecommunications Act of
1996 and other developments, the need for more advanced, higher capacity
networks to meet growing consumer demands and the typically superior technology
of the Company's networks in contrast to the network and other limitations of
the incumbent providers. To address this opportunity, RCN is pursuing the
following key strategies:
bullet Developing Advanced Fiber Optic Networks. RCN is developing advanced
fiber optic networks specifically designed to provide a single source
for high speed, high capacity voice, video programming and data
services. RCN's ability to offer a wide range of services through
its advanced fiber optic networks greatly increases the size of its
potential market, as compared to the networks of incumbent service
providers which typically provide only single or limited services.
RCN seeks to be the first operator of an advanced fiber optic network
targeting residential customers in each of its target markets.
bullet Focus on Residential Customers in High Density Markets. The
Company's primary focus is on residential customers in high density
areas. The Company also serves certain commercial accounts which are
on or near its networks. Most of the other new competitive entrants,
including most competitive local exchange carriers ("CLECs"), have
focused their network development and sales efforts almost
exclusively on providing telephone service to large commercial
customers and have generally not offered their telephone services to
the residential marketplace. Additionally, these new competitors and
the incumbent service providers have generally not expanded their
offerings to include both voice and video programming services.
bullet Utilizing Strategic Alliances and Existing Facilities to Speed and
Reduce Cost of Entry. Utilizing existing facilities and entering
into strategic alliances enables RCN to enter the market quickly and
efficiently and to reduce its up-front capital investment. RCN has
established strategic relationships with MFS Communications Company,
Inc. (now a subsidiary of WorldCom, Inc.) ("MFS/WorldCom") and the
Boston Edison Company ("BECO"), both of which have extensive fiber
optic networks and other assets, and is utilizing its own existing
cable television infrastructure to help expedite and reduce the cost
of market entry and development of its business. RCN also benefits
from its interconnection and resale agreements with incumbent
telephone service providers. On August 1, 1997, RCN entered into a
letter of intent with Potomac Capital Investment Corporation ("PCI"),
a subsidiary of Potomac Electric Power Company ("PEPCO"), to form a
joint venture to develop an advanced fiber network in Washington,
D.C. and certain communities in Maryland and Virginia (the
"Washington, D.C. Market"). See "Business--Strategic
Relationships."
bullet Implementing Subscriber-Driven Investment Strategy. RCN attempts to
defer as much of its capital investment as possible by tying facility
development to the procurement of customer connections. In order to
help promote its presence in its markets and to develop a subscriber
base for its advanced fiber optic networks, the Company may provision
services to its customers by first reselling services, and then by
establishing leased facilities (such as unbundled local loops), in
advance of constructing or extending its network.
Operations
In addition to its initial advanced fiber optic networks in New
York City and Boston, RCN provides video programming and local and long
distance telephone services through other facilities including a wireless
video system in New York City, hybrid fiber/coaxial cable television systems
in the States of New York (outside New York City), New Jersey and
Pennsylvania, all within 75 miles of New York City, and resale agreements with
the incumbent telephone service providers. RCN's wireless video and resale
telephone services are offered primarily to customers located near RCN's
current or proposed advanced fiber optic networks. RCN intends to convert as
many of those customers as is economically feasible to advanced fiber optic
networks.
As of June 30, 1997, RCN had approximately 234,600 customer
connections. This amount includes approximately 48,400 connections in the New
York City and Boston markets (approximately 1,500 advanced fiber connections,
approximately 38,300 wireless video service connections and approximately
8,530 resold telephone and other connections). Also included within the total
customer connections as of June 30, 1997 were approximately 181,800 hybrid
fiber/coaxial cable connections. RCN had revenues of $104.9 million for the
year ended December 31, 1996 and $60.7 million for the six months ended June
30, 1997. Because it delivers multiple services, RCN reports the total number
of its various service connections (for local telephone, video programming or
Internet access) rather than the number of customers.
RCN owns a 40% interest in Megacable S.A. de C.V.
("Megacable"), the second largest cable television provider in Mexico with
approximately 176,000 subscribers and 622,000 homes passed by its systems as
of June 30, 1997. Megacable operates 22 wireline cable systems throughout
Mexico, principally in Guadalajara, Mexico's second largest city, and along
the Pacific and Gulf Coasts. Megacable is presently expanding the fiber
capacity of certain of its systems and has recently begun to offer high-speed
data services; it may in the future provide voice services. Megacable had
revenues of $23.2 million for the year ended December 31, 1996 and $14.2
million for the six months ended June 30, 1997.
The Company's management team and board of directors benefit
from experience gained in connection with the management of C-TEC, which has
100 years of experience in the telephone business and nearly 25 years of
experience in the cable television business. Both C-TEC and certain members
of management also have extensive experience in the design and development of
advanced telecommunications facilities. The Company also benefits from its
relationship with Peter Kiewit Sons' Inc. ("PKS"), the founder of MFS
Communications Company, Inc., and from the experience gained by certain of the
Company's key employees who participated in the development of MFS
Communications Company, Inc. Kiewit Telecom, an affiliate of PKS, will be the
Company's largest shareholder after the Distribution.
Competitive Strengths
RCN believes it benefits from the following competitive
strengths:
bullet Experience in Operating Telephone and Cable Networks. RCN's
extensive operating experience in both the telephone and video
industries and in the design and development of telecommunications
facilities provides it with expertise in systems operation and
development, an established infrastructure for customer service and
billing for both voice and video services and established
relationships with providers of equipment and video programming.
bullet State-of-the-art Technology. RCN's advanced fiber networks are
purpose-built using state-of-the-art technology. These networks are
designed to deliver a wide range of voice, video and data services
with superior quality and increased capacity.
bullet Ability to Offer Bundled Voice and Video Services. RCN believes
that, as a full service voice and video programming provider, it will
be able to offer a single-source package of voice, video and data
services which is not yet generally available from any incumbent
telephone, cable or other service provider.
bullet Superior Customer Service. RCN seeks to provide superior customer
service as compared to incumbent service providers, with service
features such as a 24-hour-a-day call center and quality control
system, on-time service guarantees and bundled service offerings,
providing the consumer with added choice and convenience. In
addition, services provided over RCN's advanced fiber networks are
generally priced at competitive rates as compared to the incumbent
service providers.
bullet Existing Customer Base in Attractive Markets. RCN benefits from an
existing base of 234,600 connections in New York City, Boston and
surrounding communities and in additional markets with favorable
customer demographics within 75 miles of New York City. RCN expects
that the majority of its wireless video and resale telephone
customers (an aggregate of approximately 43,000 connections) will
ultimately be connected to its advanced fiber optic networks. See
"Business--RCN Services--Connections."
The Distribution
The following is a brief summary of certain terms of the
Distribution.
Distributing Company................ C-TEC Corporation. After the
Distribution, C-TEC will own no
shares of Company Common Stock.
Primary Purposes of the
Distribution.................. C-TEC has concluded that the Distribution
and the Cable Michigan Distribution
are in the best interests of C-TEC,
the Company, Cable Michigan and the
holders of C-TEC's Common Equity
because the Distributions will,
among other things, (i) permit C-TEC
to raise equity or equity-linked
financing to fund the development of
the RCN Telecom Business on more
advantageous economic terms than the
other alternatives available, (ii)
allow for the establishment of an
employee stock ownership plan for the
employees of the Company with stock
that correlates more closely to the
performance of the Company
Businesses, (iii) facilitate
possible future acquisitions and
joint venture investments by Cable
Michigan; (iv) facilitate possible
future equity or equity-linked
offerings by the Company; (v)
facilitate possible future
acquisitions and joint venture
investments by the Company; (vi)
permit investors and the financial
markets to better understand and
evaluate C-TEC's various businesses;
(vii) facilitate the ability of each
company to grow in both size and
profitability; (viii) allow the
management of each company to focus
attention and financial resources on
its respective business and (ix)
permit each company to offer
employees incentives that are more
directly linked to the performance
of its respective business. See "The
Distribution--Background to and
Reasons for the Distribution."
Securities to Be Distributed........ All of the outstanding shares of
Company Common Stock. Based on the
number of shares of C-TEC Common
Equity outstanding as of [ ],
1997, it is estimated that
approximately [ ] shares of
Company Common Stock will be
distributed to holders of C-TEC
Common Equity in the Distribution.
After the Distribution, the Company
estimates that the Company Common
Stock will be held by approximately
[ ] stockholders of record,
although some of the shares may be
registered in nominee names
representing an additional number of
stockholders.
Distribution Ratio.................. [ ] shares of Company Common
Stock for every [ ] shares of
C-TEC Common Equity held of record
on the Record Date.
Record Date......................... [ ] , 1997 (4 p.m. New
York time).
Distribution Date................... [ ], 1997 (4 p.m. New York
time). Certificates representing
the shares of Company Common Stock
will be mailed on the Distribution
Date or as soon thereafter as
practicable.
Distribution Agent.................. Prior to the Distribution Date, the
Company will appoint First Union
National Bank to serve as
Distribution Agent in connection
with the Distribution.
Trading Market and Symbol........... There has been no trading market for
the Company Common Stock, although
it is expected that a "when-
issued" trading market may
develop on or about the Record
Date. Application has been made
to list the Company Common Stock
on NASDAQ under the symbol
"RCNC". See "Trading Market."
Tax Consequences.................... C-TEC has received a private letter
ruling from the Internal Revenue
Service to the effect that, among
other things, the Distributions will
qualify as tax-free distributions
for federal income tax purposes. It
is a condition precedent to C-TEC's
obligation to consummate the
Distributions that the letter ruling
not be withdrawn. See "The
Distribution--Certain Federal Income
Tax Consequences" for a more
detailed description of the federal
income tax consequences of the
Distribution.
Risk Factors........................ Stockholders should carefully consider
the matters discussed under the
section entitled "Risk Factors" in
this Information Statement.
No Fractional Shares................ [No fractional shares of Company Common
Stock will be distributed. All
fractional share interests will be
aggregated and sold by the
Distribution Agent on behalf of
stockholders and the cash proceeds
distributed to those stockholders
otherwise entitled to a fractional
interest. See "The Distribution--
Description of the Distribution."]
Relationship with C-TEC
and Cable Michigan After
the Distribution.............. In connection with the Distributions,
C-TEC, the Company and Cable
Michigan [will enter] into the
Distribution Agreement and the Tax
Sharing Agreement (as hereinafter
defined) described under
"Relationship Among the Company,
C-TEC and Cable Michigan". These
agreements are not the result of
arm's length negotiations between
unrelated parties as the Company,
C-TEC and Cable Michigan have certain
common officers and directors.
Nevertheless, the transitional
service arrangements in such
agreements are designed to reflect
arrangements that would have been
agreed upon by parties negotiating
at arm's length. See "Relationship
Among the Company, C-TEC and
Cable Michigan" and "Management-
Executive Officers and
Directors." Additional or
modified agreements, arrangements
and transactions may be entered
into between the Company and
either or both of C-TEC and Cable
Michigan after the Distribution,
which will be negotiated at arm's
length. Certain persons who
serve as executive officers and
directors of the Company will
also be officers and directors of
C-TEC and Cable Michigan
following the Distributions. See
"Management - Executive Officers
and Directors."
Change of Name by C-TEC............. In connection with the Distributions,
C-TEC will change its name to
Commonwealth Telephone Enterprises,
Inc.
Concurrent Distribution of the
Common Stock of Cable Michigan Concurrently with the Distribution,
C-TEC will distribute to the holders
of C-TEC Common Equity 100% of the
shares of common stock of C-TEC's
wholly owned subsidiary Cable
Michigan. Cable Michigan operates
cable television systems in the
State of Michigan. The Cable
Michigan Distribution is described
in a separate Information Statement
that is being provided to the
holders of C-TEC Common Equity.
Organization of C-TEC's Historical Businesses Following the
Distributions
Set forth below are charts illustrating the organization of the
historical businesses of C-TEC following the Distributions. (The charts are
not intended to set forth the corporate structure of any of the companies
comprising the various groups.)
<CHART>
Summary Selected Historical Consolidated Financial Data
Prior to the Distribution Date, the Company and the Company
Businesses have been operating as part of C-TEC. The table below sets forth
selected historical consolidated financial data for RCN. The historical
financial data presented below reflect periods during which the Company did
not operate as an independent company and, accordingly, certain assumptions
were made in preparing such financial data. Therefore, such data may not
reflect the results of operations or the financial condition which would have
resulted if the Company had operated as a separate, independent company during
such periods, and are not necessarily indicative of the Company's future
results of operation or financial condition.
The selected historical consolidated financial data for the
years ended December 31, 1993 and 1992 and as of December 31, 1994, 1993 and
1992 are derived from the Company's unaudited historical consolidated financial
statements not included in this Information Statement. The selected
historical consolidated financial data of the Company for the years ended
December 31, 1996, 1995 and 1994 and as of December 31, 1996 and 1995 are
derived from and should be read in conjunction with the Company's audited
historical consolidated financial statements (the "Financial Statements")
included elsewhere in this Information Statement. The selected historical
consolidated financial data for the six month periods ended June 30, 1997 and
1996 and as of those dates are derived from and should be read in conjunction
with the Company's unaudited historical consolidated financial statements
included elsewhere in this Information Statement. In the opinion of the
Company's management, these three month consolidated historical financial
statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. The results for such interim periods are not necessarily
indicative of the results for the full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and the Financial
Statements. Earnings per share data are presented elsewhere in this
Information Statement on a pro forma basis only. See "Unaudited Pro Forma
Consolidated Financial Statements."
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------ --------------------------------------------
(dollars in thousands)
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales.............................. $ 60,706 $ 49,017 $104,910 $ 91,997 $ 59,500 $ 49,504 $ 44,030
Costs and expenses, excluding
depreciation and amortization.... 55,703 37,041 79,107 75,003 49,747 30,821 25,725
Depreciation and amortization...... 25,455 17,830 38,881 22,336 9,803 9,922 9,984
Nonrecurring charges............... 10,000 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating (loss) income............ (30,452) (5,854) (13,078) (5,342) (50) 8,761 8,321
Interest income.................... 9,761 13,591 25,602 29,001 21,547 1,922 2,375
Interest expense................... (7,129) (7,758) (16,046) (16,517) (16,669) (1,167) (3,007)
Other (expense) income, net........ 600 (461) (546) (304) 1,343 1,195 6,015
(Benefit) provision for income
taxes............................ (7,143) 321 979 1,119 2,340 167 5,203
Minority interest in (income) loss
of consolidated entities......... 1,388 (90) 1,340 (144) (95) (85) (43)
Equity in (loss) of
unconsolidated entities.......... (1,561) (1,299) (2,282) (3,461) -- -- --
Cumulative effect of changes in
accounting principles............... -- -- -- -- (83) 1,628 --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income.................. $(20,250) $ (2,192) $ (5,989) $ 2,114 $ 3,653 $ 12,087 $ 8,458
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data:
Total assets....................... $671,430 $650,982 $628,085 $649,610 $568,586 $291,634 $289,833
Long-term liabilities.............. 131,250 135,250 131,250 135,250 154,000 181,500 191,070
Shareholder's equity............... 341,454 406,369 390,765 394,069 372,847 74,329 56,083
</TABLE>
Summary Selected Pro Forma Financial Data
The following summary pro forma financial data include
adjustments to the historical statements of operations of the Company for the
six months ended June 30, 1997 and the year ended December 31, 1996 as if the
Distribution had occurred on January 1, 1996 and to the historical balance
sheet of the Company as of June 30, 1997 as if the Distribution had occurred
on June 30, 1997. Such adjustments result primarily from changes in the
capital structure of the Company. See "Unaudited Pro Forma Consolidated
Financial Statements" and the notes thereto. The following pro forma
financial data are provided for information purposes only and should not be
construed to be indicative of the Company's results of operations or financial
conditions had the Distribution occurred on the dates assumed, may not reflect
the results of operations or financial condition which would have resulted had
the Company been operated as a separate, independent Company during such
period, and are not necessarily indicative of the Company's future results of
operations or financial condition.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
---------------- -----------------
(dollars in thousands)
<S> <C> <C>
Statement of Operations Data:
Sales........................................ $ 60,706 $110,116
Costs and expenses, excluding depreciation
and amortization........................... 55,703 86,570
Depreciation and amortization................ 26,705 49,525
Nonrecurring charges......................... 10,000 --
-------- --------
Operating (loss)............................. (31,702) (25,979)
Interest income.............................. 3,229 10,480
Interest expense............................. (3,731) (9,117)
Other (expense) income, net.................. 600 (546)
-------- --------
(Loss) before income taxes................... (31,604) (25,162)
(Benefit) for income taxes................... (8,677) (5,452)
Minority interest in loss of consolidated
entities................................... -- --
Equity in (loss) of unconsolidated entities.. (1,561) (2,282)
-------- --------
Net (Loss)................................... $(24,488) $(21,992)
======== ========
Balance Sheet Data:
Total assets................................. $600,797 N/A
Total long-term debt (including current
portion)................................... 110,000 N/A
Stockholders' equity......................... 399,237 N/A
</TABLE>
RISK FACTORS
In addition to the other information contained in this
Information Statement, stockholders should carefully review the following
factors.
The Information Statement contains certain forward looking
statements regarding the Company's operations, economic performance and
financial condition, including, in particular, statements made as to plans to
develop networks and upgrade facilities, the market opportunity presented by
markets targeted by the Company, the Company's intention to connect certain
wireless video and resale telephone customers to its advanced fiber networks,
the development of the Company's businesses, the markets for the Company's
services and products, the Company's anticipated capital expenditures, the
Company's anticipated sources of capital and effects of regulatory reform, and
competitive and technological developments. Such forward looking statements
are subject to known and unknown risks and uncertainties. Actual results
could differ materially from those currently anticipated due to a number of
factors, including those identified in this Section and elsewhere in this
Information Statement. Such risks include, but are not limited to, the
Company's ability to successfully market its services to current and new
customers, access markets, finance network development, design and construct
fiber optic networks, install or lease fiber optic cable and other facilities,
including switching electronics, and obtain rights-of-way, building access
rights and any required governmental authorizations, franchises and permits,
all in a timely manner, at reasonable costs and on satisfactory terms and
conditions, as well as regulatory, legislative, judicial, competitive and
technological developments that could cause actual results to vary materially
from the future results indicated, expressed or implied, in such
forward-looking statements.
Limited Operating History; Negative Cash Flow; Operating Losses
RCN has only recently begun operating its competitive New York
City and Boston voice, video and data services business (the "RCN Telecom
Business") and this business has only a limited operating history upon which
investors may base an evaluation of that business' performance. As a result
of operating expenses and development expenditures, this business has incurred
operating and net losses and negative cash flows to date. RCN expects that
the operating and net losses and negative cash flows from this business will
rise in the future as it expands and develops its network and customer base.
RCN had operating losses after depreciation and amortization of $(13,078,000)
and $(5,342,000) for the years ended December 31, 1996 and 1995. There can be
no assurance that RCN will achieve or sustain profitability or positive cash
flows from operating activities in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Significant Capital Requirements; Substantial Indebtedness
Expansion and development of RCN's networks and services will
require significant capital expenditures. In addition, the Company expects to
incur operating losses for a number of years. The Company estimates that its
capital requirements for planned capital expenditures and to fund anticipated
operating losses over the three year period through 1999 will be approximately
$340 million (excluding capital costs expected to be contributed by its joint
venture partners and capital costs associated with the development of
additional markets). The Company currently has budgeted capital expenditures
of approximately $90 million during 1997, approximately $145 million during
1998 and approximately $150 million during 1999, in order to expand its
network, develop its New York City, Boston and Washington, D.C. markets and
add service enhancements to certain of its hybrid fiber/coaxial cable
television systems. The Company expects to fund such capital requirements
through cash on hand, equity or debt financings and joint ventures. There
can be no assurance, however, that the Company will be successful in raising
sufficient additional capital on terms that it will consider acceptable.
Failure to raise and generate sufficient funds may require the Company to
delay or abandon some of its planned future expansion or expenditures, which
could have a material adverse effect on the Company's growth and its ability
to compete in the telecommunications industry. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company expects that it will fund its operations in part
with substantial indebtedness. Subject to market conditions, the Company
expects to raise approximately $200-250 million of additional debt financing
within six months following the Distribution. The extent of the Company's
leverage may have the following consequences: (i) limit the ability of the
Company to obtain necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes, (ii)
require that a substantial portion of the Company's cash flows from operations
be dedicated to the payment of principal and interest on its indebtedness and
therefore not be available for other purposes; (iii) limit the Company's
flexibility in planning for, or reacting to, changes in its business; (iv)
place the Company at a competitive disadvantage vis-a-vis less leveraged
competitors and (v) render the Company more vulnerable in the event of a
downturn in its business. The Company anticipates that it will have
substantial leverage for the foreseeable future. The Company believes that
cash flow generated by operations, cash balances and, if necessary,
borrowings, will enable the Company to meet its capital expenditure
requirements and to make scheduled payments of principal and interest on
indebtedness. There can, however, be no assurances in that regard.
Ability to Manage Growth
The expansion and development of the Company's operations
(including the construction and development of additional networks) will
depend on, among other things, the Company's ability to assess markets, design
fiber optic network backbone routes, install or lease fiber optic cable and
other facilities, including switches, and obtain rights-of-way, building
access rights and any required government authorizations, franchises and
permits, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions. There can be no assurance that the Company will be
able to expand its existing network. Furthermore, the Company's ability to
manage its expansion effectively will also require it to continue to
implement and improve its operating and administrative systems and attract
and retain qualified management and professional and technical personnel.
If the Company were not able to manage its planned expansion effectively it
could have a material adverse effect on the Company.
Rapid Technological Changes
The telecommunication industry is subject to rapid and
significant changes in technology. While the Company believes that for the
foreseeable future these changes will neither materially affect the continued
use of fiber optic telecommunications networks nor materially hinder its
ability to acquire necessary technologies, the effect of technological changes
on the business of the Company cannot be predicted. There can be no assurance
that technological developments in telecommunications will not have a material
adverse effect on the Company.
Dependence on Strategic Relationships; Right of BECO to Convert Joint Venture
Interest into RCN Common Stock
The Company has entered into a number of strategic alliances
and relationships in order to provide it with early entry into the market for
telecommunications services. As the Company's network is further developed,
it will be dependent on these arrangements to provide the full range of its
telecommunication service offerings. The key strategic relationships include
(1) RCN's arrangements with MFS/WorldCom to, among other things, lease
portions of MFS/WorldCom's fiber optic network in New York City and Boston,
(2) RCN's joint venture with BECO under which the Company has access to BECO's
extensive fiber optic network in Greater Boston and (3) RCN's proposed joint
venture with PCI, a subsidiary of PEPCO, to develop an advanced fiber optic
network in the Washington, D.C. market. The Company also has in place
arrangements to act as a reseller of Bell Atlantic local telephone services and
arrangements to lease Bell Atlantic unbundled local loop and T-1 facilities
(including Bell Atlantic services previously provided by NYNEX). Any
disruption of these relationships or arrangements could have a material
adverse effect on the Company. The Company has also executed comprehensive
telephone service co-carrier interconnection agreements with Bell Atlantic and
Sprint, covering, along with the District of Columbia, ten states in the
Northeast and New England-Middle Atlantic corridor areas, which the Company
has targeted as its initial geographic markets. The Company may be required
to negotiate new interconnection agreements as it enters new markets in the
future. There can be no assurance that the Company will successfully
negotiate such other agreements for interconnection with the incumbent local
exchange carrier or renewals of existing interconnection agreements. The
failure to negotiate or renew required interconnection agreements could have a
material adverse effect on the Company.
In connection with RCN's joint venture with BECO, BECO was
granted the right from time to time to convert its ownership interest in the
joint venture into Company Common Stock. The number of shares of Company
Common Stock to be issued to BECO would be based on the appraised value of the
joint venture, provided that if BECO exercises its conversion right within a
brief period of time after the Distribution, BECO may at its option, in lieu
of an appraisal proceeding, convert its interest in the joint venture into a
number of shares of Company Common Stock determined by dividing the amount of
BECO's cash contributions in 1997 (expected to be approximately $20-30
million) by 95% of the prevailing market price for Company Common Stock.
Conversion by BECO pursuant to these provisions would result in dilution to
existing stockholders of the Company. See "Business--Strategic
Relationships".
Competition
RCN competes with a wide range of service providers for each of
the services that it provides. Virtually all markets for voice and video
services are extremely competitive, and RCN expects that competition will
intensify in the future. In each of the markets in which it offers voice and
video programming services, RCN faces significant competition often from
larger, better-financed incumbent local telephone carriers and cable
companies, and RCN often competes directly with incumbent providers which have
historically dominated their respective local telephone and cable television
markets. These incumbents presently have numerous advantages as a result of
their historic monopoly control of their respective markets.
With respect to local telephone services, RCN competes with the
incumbent local exchange carriers ("LECs"), and alternative service providers
including CLECs and cellular and other wireless telephone service providers.
With respect to long distance telephone services, RCN faces, and expects to
continue to face, significant competition from the interexchange carriers
("IXCs"), including AT&T, Sprint and MCI, which account for the majority of
all long distance revenue. Certain of the IXCs, including AT&T, MCI and
Sprint, have announced their intention to offer local services in major U.S.
markets using their existing infrastructure in combination with resale of
incumbent LEC service, lease of unbundled local loops or other providers'
services.
All of the Company's video services face competition from
alternative methods of receiving and distributing television signals and from
other sources of news, information and entertainment. Among the alternative
video distribution technologies are home satellite dish earth stations,
private satellite master antenna television systems, direct broadcast
satellite services ("DBS") and wireless program distribution services such as
multi-channel multipoint distribution service systems. The Company expects
that its video programming service will face growing competition from current
and new DBS service providers.
RCN believes that among the existing competitors, the incumbent
LECs and the incumbent cable providers provide the most direct competition to
RCN in the delivery of "last mile" connections to residential consumers for
voice and video services. In each of its target markets for advanced fiber
optic networks, RCN faces, and expects to continue to face, significant
competition from the incumbent LEC (including Bell Atlantic in New York City
and Boston), which currently dominate their local telephone markets. RCN
competes with the incumbent LECs in its markets for local exchange services on
the basis of product offerings (including the ability to offer bundled voice
and video services), reliability, state-of-the-art technology and superior
customer service, as well as price. The incumbent LECs have begun to expand
the amount of fiber facilities in their networks and to prepare to re-enter
into the long distance telephone services market and, in addition, have
long-standing relationships with their customers. The Company expects that the
increased competition made possible by regulatory reform will result in
certain pricing and margin pressures in the telecommunications services
business.
The Telecommunications Act of 1996 (the "1996 Act") permits the
incumbent LECs and others to provide a wide variety of video services directly
to subscribers in competition with RCN. Various LECs currently are providing
video services within and outside their telephone service areas through a
variety of distribution methods, including both the deployment of broadband
wire facilities and the use of wireless transmission facilities. The Company
cannot predict the likelihood of success of video service ventures by LECs or
the impact on the Company of such competitive ventures.
Certain of RCN's video programming service businesses compete
with incumbent wireline cable companies in their respective service areas. In
particular, RCN's advanced fiber optic networks compete for cable subscribers
with the major wireline cable operators in New York City and Boston, primarily
Time-Warner Cable in New York City and Cablevision in Boston. RCN's wireless
video service in New York City competes with Time Warner Cable, Cablevision
Systems and Comcast. RCN's Pennsylvania hybrid fiber/coaxial cable television
system competes with an alternate service provider, Service Electric Cable TV,
which also holds a franchise for the relevant service area.
RCN also faces, and expects to continue to face, competition
from other potential competitors in certain of the markets in which RCN offers
its services. Other CLECs such as Teleport Communications Group, compete for
local telephone services, although they have to date focused primarily on the
market for commercial customers. In addition, potential competitors capable
of offering private line and special access services also include other
smaller long distance carriers, cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end-users, including Winstar, Dualstar and New Vision.
Cellularvision, a provider of local multipoint distribution service ("LMDS"),
recently began offering wireless Internet and video programming services in
New York City and has announced plan to offer telephone service in the future.
Other new technologies may become competitive with services
that RCN offers. Advances in communications technology as well as changes in
the marketplace and the regulatory and legislative environment are constantly
occurring. In addition, a continuing trend toward business combinations and
alliances in the telecommunications industry may also create significant new
competitors to RCN. The Company cannot predict whether competition from such
developing and future technologies or from such future competitors will have a
material impact on its operations.
For additional information on the competitive environment in
which the Company operates, see "Business--Competition."
Regulation
The telephone and video programming transmission services
offered by the Company are subject to federal, state, and local government
regulation. The 1996 Act, which became effective in February 1996, introduced
widespread changes in the regulation of the communications industry, including
the local telephone, long distance telephone, data services, and television
entertainment segments in which the Company operates.
Telecommunications Act of 1996
The 1996 Act eliminates many of the pre-existing legal barriers
to competition in the telephone and video programming communications
businesses, preempts many of the state barriers to local telephone service
competition that previously existed in state and local laws and regulations,
and sets basic standards for relationships between telecommunications
providers.
Among other things, the 1996 Act removes barriers to entry in
the local telephone exchange market by preempting state and local laws that
restrict competition and by requiring LECs to provide nondiscriminatory access
and interconnection to potential competitors, such as cable operators,
wireless telecommunications providers, and long distance companies. In
addition, the 1996 Act provides relief from the earnings restrictions and
price controls that have governed the local telephone business for many years.
The 1996 Act will also, once certain thresholds are met, allow incumbent LECs
to enter the long distance market within their own local service regions.
Regulations promulgated by the Federal Communications
Commission (the "FCC") under the 1996 Act require LECs to open their telephone
networks to competition by providing competitors interconnection, access to
unbundled network elements and retail services at wholesale rates. Numerous
parties have appealed certain aspects of these regulations. The appeals have
been consolidated and are being reviewed by the U.S. Court of Appeals for the
Eighth Circuit, which has stayed certain of the FCC's pricing and
nondiscrimination regulations. RCN has entered into competitive
interconnection agreements using the federal guidelines established in the
FCC's interconnection order, which agreements remain in effect notwithstanding
the stay of the FCC's regulations.
The 1996 Act also makes far-reaching changes in the regulation
of the video programming transmission services offered by RCN, including
changes to the regulations applicable to video operators, the elimination of
restrictions on telephone company entry into the video business, and the
establishment of a new "open video systems" ("OVS") regulatory structure for
telephone companies and others to offer such services. Under the 1996 Act,
local telephone companies, including both incumbent LECs such as Bell
Atlantic, and CLECs such as RCN, may provide service as traditional cable
television operators subject to municipal cable television franchises, or they
may opt to provide their programming over non-franchised open video systems
subject to certain conditions, including, but not limited to, making available
a portion of their channel capacity for use by unaffiliated program
distributors and satisfying certain other requirements, including providing
capacity for public, educational and government channels, and payment of a
gross receipts fee equivalent to the franchise fee paid by the incumbent cable
television operator. RCN is one of the first CLECs to provide television
programming over an advanced fiber optic network pursuant to the OVS
regulations implemented by the FCC under the 1996 Act.
RCN's voice business is subject to regulation by the FCC at the
federal level with respect to interstate telephone services (i.e. those that
originate in one state and terminate in separate states). State regulatory
commissions have jurisdiction over intrastate communications; (i.e. those that
originate and terminate in the same state). See
"Business--Regulation--Regulation of Voice Services." Municipalities also
regulate limited aspects of RCN's voice business by, for example, imposing
various zoning requirements and, in some instances, requiring
telecommunications licenses or franchise agreements and/or installation
permits for access to local streets and rights-of-way. In New York City, for
example, RCN will be required to obtain a telephone franchise in order to
provide voice services using its advanced fiber optic network facilities
located in the streets of New York City.
In February, 1997, RCN subsidiaries were certified to operate
OVS networks in the five boroughs of New York City and, as part of a joint
venture with Boston Edison, in Boston and 47 surrounding communities.
Initiation of OVS services is subject to negotiation of certain agreements
with local governments. RCN executed an agreement with the City of Boston on
June 2, 1997, and initiated OVS service in the City on that day. RCN is still
in the process of negotiating agreements with the other 47 Boston-area
municipalities, either to offer OVS services or franchised cable television
services, and it is also continuing to negotiate an OVS agreement with the
City of New York.
In areas where it offers video programming services as an OVS
operator, RCN will be required to hold a 90-day open enrollment period every
three years, during which times RCN will be required to offer capacity on its
network to other video programming providers ("VPPs"). Under the OVS
regulations, RCN must offer at least two-thirds of its capacity to
unaffiliated parties, if demand for such capacity exists during the open
enrollment period. In certain areas, RCN is in discussions with local
municipal authorities to explore the feasibility of obtaining a cable franchise
in lieu of an OVS agreement, and will consider providing RCN video service
pursuant to franchise agreements rather than OVS certification, if franchise
agreements can be obtained on terms and conditions acceptable to RCN. However,
RCN will consider the relative benefits of OVS certification versus local
franchise agreements, including the possible imposition of universal service
requirements, before making any such decisions. In addition, the current FCC
rules concerning OVS are subject to appeal in the United States Court of
appeals and, to the extent that certain favorable aspects of the FCC's rules
are overturned on appeal, the determination of whether to operate as an OVS
provider versus as a franchised cable television operator may be affected.
Moreover, the incumbent cable television provider in Boston, Cablevision
Systems, has requested that the FCC permit it to obtain capacity on RCN's
Boston area OVS network, and Time Warner has indicated that it may make the
same type of request for capacity on both the New York and Boston OVS
networks. RCN intends to oppose any such request made to the FCC, but to the
extent that the FCC were to grant the request, such a result would likely
affect the Company's determination as to whether to operate as an OVS provider
versus as a franchised cable television operator.
Prior to its certification as an OVS provider, RCN offered
limited video programming services using the video dialtone ("VDT") services
offered by MFS/WorldCom in Manhattan and the City of Boston. In February,
1997, the FCC held that MFS/WorldCom's facilities did not qualify as video
dialtone facilities entitled to an extension of time to comply with the
newly-adopted OVS rules; nonetheless, the FCC did not direct MFS/WorldCom and
RCN to cease video programming distribution operations over the MFS/WorldCom
platform. This FCC order has been appealed by MFS/WorldCom. It is too soon
to predict the likely outcome of that proceeding, but should the court uphold
the FCC, it is likely that MFS/WorldCom and RCN will need to resolve
challenges to their former (pre-OVS) operations which were brought before the
New York Public Service Commission and the Massachusetts Cable Television
Commission by the incumbent cable television companies in the two cities where
MFS/WorldCom and RCN operated under the VDT framework.
RCN's 18 GHz wireless video services in New York City are
distributed using microwave facilities provided by Bartholdi Cable Company (
"Bartholdi Cable") pursuant to licenses issued to Bartholdi Cable by the FCC.
Bartholdi Cable has agreed to provide transmission services to RCN until RCN
has either converted the wireless video subscribers to its advanced fiber
optic network facilities or has obtained FCC authority to provide such
services pursuant to its own wireless radio licenses. In addition, Bartholdi
Cable has agreed to transfer to RCN the transmission equipment on demand.
Bartholdi Cable's obligation to provide transmission services is subject to
Bartholdi Cable having licenses from the FCC to provide such services. The
qualifications of Bartholdi Cable to hold certain of the licenses needed to
provide transmission services to RCN are currently being examined by the FCC.
It is too early to judge the likely outcome of that proceeding. Because of
the uncertainty as to Bartholdi Cable's right in the future to offer
transmission services to RCN, the Company has filed its own license
applications at the FCC for all of the microwave transmission paths which are
currently being used by Bartholdi Cable to provide transmission services to
RCN.
There can be no assurance that RCN will be able to obtain or
retain all necessary authorizations needed to construct advanced fiber optic
network facilities, to convert its wireless video subscribers to an advanced
fiber optic network or to offer wireless video services pursuant to its own
FCC licenses.
RCN's hybrid fiber/coaxial cable systems are subject to
regulation under the Cable Television Consumer Protection and Competition Act
of 1992, as amended (the "1992 Act"), which provide, among other things, for
rate regulation for cable services in communities that are not subject to
"effective competition." With the passage of the 1996 Act, however, all cable
systems rates will be deregulated as effective competition is shown to exist
in the franchise area, or by March 31, 1999, whichever date is sooner. RCN
anticipates that the remaining provisions of the 1992 Act that do not relate
to rate regulation, such as the provisions relating to retransmission consent
and customer service standards, will remain in place and may serve to reduce
the future operating margins of RCN's hybrid fiber/coaxial cable television
businesses as video programming competition develops in its cable television
service markets. Federal requirements also impose certain broadcast signal
carriage requirements that allow local commercial television broadcast
stations to require a cable system to carry the station, and that require
cable operators to set aside certain channels for public, educational and
governmental access programming. Because a cable communications system uses
local streets and rights-of-way, such cable systems are generally subject to
state and local regulation, typically imposed through the franchising process.
The terms and conditions of state or local government franchises vary
materially from jurisdiction to jurisdiction and generally contain provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, customer service standards,
franchise renewal, sale or transfer of the franchise, territory of the
franchisee and use and occupancy of public streets and types of cable services
provided.
RCN's ability to provide franchised cable television services
is dependent to a large extent on its ability to obtain and renew its
franchise agreements from local government authorities on generally acceptable
terms. RCN currently has 91 franchise agreements relating to the hybrid
fiber/coaxial cable systems' networks in New York (outside New York City), New
Jersey and Pennsylvania. These franchises typically contain many conditions,
such as time limitations on commencement and completion of construction,
conditions of service, including the number of channels, the provision of free
service to schools and certain other public institutions, and the maintenance
of insurance and indemnity bonds. These franchises provide for the payment of
fees to the issuing authorities and generally range from 3% to 5% of revenues.
The duration of these outstanding franchises presently varies up to the year
2011. To date, all of RCN's cable franchises have been renewed or extended,
generally at or prior to their stated expirations and on acceptable terms.
During 1996, RCN completed negotiations with three communities resulting in
franchise renewals on terms which are acceptable to it. A total of 34 of
RCN's hybrid fiber/coaxial cable system's franchises are due for renewal
within the next three years. No assurances can be given that RCN will be able
to renew its franchises on acceptable terms. No one franchise accounts for
more than 7% of RCN's total revenue. RCN's five largest franchises account
for approximately 27% of RCN's total revenue.
The foregoing does not purport to describe all present and
proposed federal, state, and local regulations and legislation affecting
the telephone and video programming industries. Other existing federal
regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which communications companies
operate. The ultimate outcome of these proceedings, and the ultimate
impact of the 1996 Act or any final regulations adopted pursuant to the new
law on RCN or its businesses cannot be determined at this time. For
additional information on the regulatory environment in which the Company
operates, see "Business--Regulation."
Need to Obtain and Maintain Permits, Building Access Agreements and
Rights-of-Way
In order to develop its networks, the Company must obtain local
franchises and other permits, as well as building access agreements and rights
to utilize underground conduit and pole space and other rights-of-way and
fiber capacity from entities such as incumbent LECs and other utilities,
railroads, long distance companies, state highway authorities, local
governments and transit authorities. There can be no assurance that the
Company will be able to maintain its existing franchises, permits and rights
or to obtain and maintain the other franchises, permits, building access
agreements and rights needed to implement its business plan on acceptable
terms. Although the Company does not believe that any of the existing
arrangements will be canceled or will not be renewed as needed in the near
future, cancellation or non-renewal of certain of such arrangements could
materially adversely affect the Company's business in the affected area. In
addition, the failure to enter into and maintain any such required
arrangements for a particular network, including a network which is already
under development, may affect the Company's ability to acquire or develop that
network.
Ability to Procure Programming Services
The Company's video programming services are dependent upon
management's ability to procure programming that is attractive to its
customers at reasonable commercial rates. The Company is dependent upon third
parties for the development and delivery of programming services. These
programming suppliers charge the Company for the right to distribute the
channels to the Company's customers. The costs to the Company for programming
services is determined through negotiations with these programming suppliers.
Management believes that the availability of sufficient programming on a
timely basis will be important to the Company's future success. There can be
no assurance that the Company will have access to programming services or that
management can secure rights to such programming on commercially acceptable
terms.
Reliance on Key Personnel
The Company believes that its continued success will depend in
large part on its ability to attract and retain highly skilled and qualified
personnel. The Company believes that the Distribution will, among other
things, permit the Company to offer equity-based compensation that is more
directly linked to the Company's performance, which the Company believes will
facilitate the attraction, retention and motivation of highly skilled and
qualified personnel. In this regard, the Company will form an Employee Stock
Ownership Plan ("ESOP") and make available competitive employee benefit
programs providing benefits substantially comparable to benefits provided
immediately prior to the Distribution Date. There can be no assurance that
the Company will retain or, as necessary, attract qualified management
personnel.
Dividend Policy
The Company anticipates that future revenues will be used
principally to support operations and finance growth of the business and,
thus, the Company does not intend to pay cash dividends on the Company Common
Stock in the foreseeable future. The payment of any cash dividends in the
future will be at the discretion of the Company's Board of Directors (the
"Company Board"). The declaration of any dividends and the amount thereof
will depend on a number of factors, including the Company's financial
condition, capital requirements, funds from operations, future business
prospects and such other factors as the Company Board may deem relevant.
After the Distribution, the Company will be a holding company and its ability
to pay cash dividends will be dependent on its ability to receive cash
dividends, advances and other payments from its subsidiaries. In addition,
the Credit Agreement (as defined below) into which certain of the Company's
subsidiaries have entered contains restrictions on the payment of dividends by
these subsidiaries. See "Description of the Credit Agreement" and "Dividends."
No Prior Market for Common Stock
Prior to the Distribution, there has been no public market for
the Company Common Stock, and there can be no assurance that an active trading
market will develop or be sustained in the future. The Company has applied
for listing of the Company Common Stock on NASDAQ. A condition to C-TEC's
obligation to consummate the Distributions is that the Company Common Stock to
be issued in the Distribution and the common stock of Cable Michigan to be
distributed in the Cable Michigan Distribution shall have been approved for
listing on NASDAQ. There can be no assurance as to the price at which the
Company Common Stock will trade. See "Trading Market."
There can be no assurance that the Company Common Stock will
not experience substantial price volatility, particularly as a result of
quarter to quarter variations in the actual or anticipated financial results
of the Company or other companies in the markets served by the Company. In
addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of many telecommunications
stocks and that have often been unrelated or disproportionate to the operating
performance of individual companies. These and other factors may adversely
affect the market price of the Company Common Stock.
Variability of Operating Results
As a result of factors such as the significant expenses
associated with the development of its networks and services, the Company
anticipates that its operating results could vary significantly from period to
period.
Control by Kiewit Telecom; Conflicts of Interest
Following the Distribution, Kiewit Telecom will beneficially
own approximately 48.5% of the Company Common Stock. Consequently, Kiewit
Telecom will effectively have the power to elect a majority of the Company's
directors and to determine the outcome of substantially all matters to be
decided by a vote of shareholders. The control of the Company by Kiewit
Telecom may tend to deter non-negotiated tender offers or other efforts to
obtain control of the Company and thereby deprive shareholders of
opportunities to sell shares at prices higher than those prevailing in the
market. Moreover, a disposition by Kiewit Telecom of a significant portion of
its Company Common Stock, or the perception that such a disposition may occur,
could affect the trading price of the Company Common Stock and could affect
the control of the Company. The common stock of Kiewit Telecom is owned 90%
by Kiewit Diversified Group, Inc. ("KDG") and 10% by David C. McCourt, the
Chairman and Chief Executive Officer of the Company. KDG is a wholly owned
subsidiary of PKS.
After the Distribution, there will exist relationships that may
lead to conflicts of interest. After the Distribution, Kiewit Telecom will
effectively control the Company, C-TEC and Cable Michigan. In addition, the
majority of the Company's named executive officers will also be acting as
directors and/or executive officers of C-TEC or Cable Michigan following the
Distribution. See "Management." In particular, David C. McCourt, Chairman
and Chief Executive Officer of the Company, will also serve as a director and
Chairman and Chief Executive Officer of Cable Michigan as of the Distribution
and will remain as a director and Chairman and Chief Executive Officer of
C-TEC. Mr. McCourt expects to devote approximately 70% of his time to
managing the affairs of the Company. In addition, Michael J. Mahoney, who
will be President and Chief Operating Officer, as well as a director, of the
Company as of the Distribution, will also remain a director of C-TEC. Mr.
Mahoney expects to devote approximately 85-90 % of his time to managing the
affairs of the Company. The Company's other named executive officers expect
to devote the following approximate portions of their time to managing the
affairs of the Company: Mr. Godfrey (80%); Mr. Haverkate (75%) and Mr. Adams
(100%). The success of the Company may be affected by the degree of
involvement of its officers and directors in the Company's business and the
abilities of the Company's officers, directors and employees in managing both
the Company and the operations of Cable Michigan and/or C-TEC. Potential
conflicts of interest will be dealt with on a case-by-case basis taking into
consideration relevant factors including the requirements of NASDAQ and
prevailing corporate practices.
In connection with the Distributions, C-TEC has agreed to
provide or cause to be provided to the Company and to Cable Michigan certain
specified services for a transitional period after the Distribution. The fees
for such services will be an allocated portion (based on relative usage) of
the cost incurred by C-TEC to provide such services to the Company, Cable
Michigan and C-TEC. Based on this allocation arrangement, the fee for such
services to the Company would have been approximately $372,000 for 1996.
See "Relationship Among the Company, C-TEC and Cable Michigan--Transitional
Services and Arrangements." The aforementioned arrangements are not the
result of arm's length negotiation between unrelated parties as the Company
and C-TEC have certain common officers and directors. Although the
transitional service arrangements in such agreements are designed to reflect
arrangements that would have been agreed upon by parties negotiating at arm's
length, there can be no assurance that the Company would not be able to
obtain better terms from unrelated third parties. Additional or modified
agreements, arrangements and transactions may be entered into between the
Company and either or both of C-TEC and Cable Michigan after the Distribution,
which will be negotiated at arm's length.
Possibility of Substantial Sales of Common Stock
The Distribution will involve the distribution of an aggregate
of approximately [ ] million shares of Company Common Stock to the holders
of C-TEC Common Equity. Approximately one-half of such shares would be
eligible for immediate resale in the public market. The Company is unable to
predict whether substantial amounts of Company Common Stock will be sold in
the open market in anticipation of, or following, the Distribution. Any sales
of substantial amounts of Company Common Stock in the public market, or the
perception that such sales might occur, whether as a result of the
Distribution or otherwise, could materially adversely affect the market price
of the Company Common Stock.
Anti-Takeover Effects of Certain Statutory, Charter, Bylaw and Contractual
Provisions
Several provisions of the Company's Certificate of
Incorporation and Bylaws (as will be in effect as of the Distribution) and the
Delaware General Corporation Law could discourage potential acquisition
proposals and could deter or delay unsolicited changes in control of the
Company, including provisions of the Certificate of Incorporation and Bylaws
creating a classified Board of Directors, limiting the stockholders' powers to
remove directors, and prohibiting the taking of action by written consent in
lieu of a stockholders' meeting. In addition, the Company Board has the
authority, without further action by the stockholders, to fix the rights and
preferences of and to issue preferred stock. The issuance of preferred stock
could adversely affect the voting power of the owners of Company Common Stock,
including the loss of voting control to some.
The Credit Agreement into which certain subsidiaries of the
Company have entered includes as an event of default certain changes in
control of the Company. See "Description of the Credit Agreement." Certain
of the Company's Agreements with MFS/WorldCom permit MFS/WorldCom to terminate
those agreements on a change of control of RCN. BECO is entitled to
purchase RCN's interest in their joint venture upon change of control of
RCN. Under the letter of intent with PCI, upon a change of control of RCN,
PCI would have the right to sell to RCN its interest, or to buy RCN's
interest, in the joint venture to be formed between the parties. See
"Business--Strategic Relationships".
These provisions and others that could be adopted or entered
into in the future could discourage unsolicited acquisition proposals or delay
or prevent changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions could
limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. See "Description of Capital Stock" and
"Certain Statutory, Charter and Bylaw Provisions."
THE DISTRIBUTION
Background to and Reasons for the Distribution
C-TEC is a diversified, international telecommunications and
high technology company with interests in local telephone, video programming,
long distance telephone, communications engineering, and competitive telephone,
video and data services. In November 1995, C-TEC announced that it had
engaged Merrill Lynch & Co. to assist with evaluating strategic options for
its various business units with a view toward enhancing shareholder value.
Specifically, C-TEC announced that it would evaluate the advisability and
feasibility of separating or restructuring its local telephone business, its
cable television business and its various other communications businesses.
In March 1996, C-TEC announced that it intended to distribute
to its shareholders in a tax-free spin-off its Pennsylvania-based local
telephone operations, its communications engineering operations, and certain
other assets, and that following the spin-off, it intended to combine its
domestic cable television operations with a third party pursuant to a tax-free
stock-for-stock transaction (collectively, the "Prior Restructuring Plan").
Also in March 1996, in connection with and in order to facilitate the Prior
Restructuring Plan, C-TEC signed a definitive agreement (the "Stock Purchase
Agreement") for the sale to Kiewit Telecom of the following businesses
(collectively, the "Businesses Transferred Under Contractual Arrangement"):
(i) C-TEC International, Inc., the subsidiary that owns the 40% interest in
Megacable; (ii) TEC-Air, Inc., which owns a corporate jet aircraft; (iii)
C-TEC's long distance operations; and (iv) C-TEC's interest in the RCN Telecom
Business, (the "RCN Telecom Interest").
The Businesses Transferred Under Contractual Arrangement were
to be sold at two separate closings. In April 1996, at the first closing, RCN
sold the RCN Telecom Interest to Kiewit Telecom for $17.5 million in cash in
accordance with the Stock Purchase Agreement. In addition, C-TEC retained a
warrant to purchase approximately 6% of the equity of RCN Telecom (the "RCN
Warrant"). The second closing, involving the sale of the other Businesses
Transferred Under Contractual Arrangement (the "Other Businesses"), was
expected to take place in the second half of 1996 subject to certain
conditions. The purchase price for the Other Businesses was expected to be
approximately $106 million.
The Stock Purchase Agreement provided C-TEC an option, at its
election, to repurchase from Kiewit Telecom any or all of the Businesses
Transferred Under Contractual Arrangement, if C-TEC did not restructure its
domestic cable television and local telephone operations by January 1, 1997.
The Stock Purchase Agreement further provided that if C-TEC elected to
exercise its option to rescind the sale of the Businesses Transferred Under
Contractual Arrangement, it would have the right and the obligation to
purchase Kiewit Telecom's 80.1% interest in Freedom New York, L.L.C.
("Freedom") and all related rights and liabilities (collectively, the "Freedom
Interest"). The Stock Purchase Agreement provided that the repurchase price
for the RCN Interest and the purchase price for the Freedom Interest would be
equal to Kiewit Telecom's investment in those assets plus an amount to
compensate for forgone interest on the amount invested. In March 1996,
Freedom had acquired the wireless video services business of Liberty Cable
Television of New York from Bartholdi Cable.
In August 1996, in the wake of the newly issued rules under the
1996 Act, depressed cable stock prices and other changed circumstances, C-TEC
determined not to proceed with the Prior Restructuring Plan. Following that
determination, (i) C-TEC exercised its option under the Stock Purchase
Agreement to reacquire the RCN Interest and to acquire from Kiewit Telecom the
Freedom Interest and (ii) C-TEC and Kiewit Telecom agreed that the closing of
the purchase and sale of the Other Businesses would not be consummated. The
repurchase price for the RCN Interest was approximately $28 million and the
purchase price for the Freedom Interest was approximately $29 million. In
connection with the closing of those transactions, C-TEC acquired from Kiewit
Telecom a note issued by Freedom in connection with a loan from Kiewit Telecom
to Freedom. The purchase price for the note was approximately $1.5 million,
an amount equal to the accreted value of the note. Shortly after the closing
of these transactions, the RCN Warrant was canceled.
The Stock Purchase Agreement, the exercise of the repurchase
option and all of the related transactions were approved by a special
committee of the Board of Directors of C-TEC composed of directors
unaffiliated with Kiewit Telecom.
At the time C-TEC announced that it would not pursue the Prior
Restructuring Plan, it also announced that it would continue to explore ways
to increase its profitability and value including other possible restructuring
transactions. Following that announcement, and at the direction of the C-TEC
Board of Directors, management of C-TEC and Merrill Lynch continued to analyze
the structure and strategy of C-TEC and its business groups. In the course of
that analysis, management determined that two of the primary goals to be
achieved in any restructuring would be the following: (i) facilitating the
raising of capital necessary for the development of the RCN Telecom Business
and (ii) facilitating the creation of targeted equity-based incentives for RCN
employees. The C-TEC Board of Directors was updated by management and
provided direction to management as the analysis and the restructuring plans
developed.
On February 12, 1997, the C-TEC Board of Directors approved a
plan to restructure C-TEC (the "Restructuring"). Under the Restructuring,
C-TEC will be separated into three different, publicly traded companies
engaged, respectively, in the following businesses:
(i) the Company Businesses, which will be owned by the Company and will
consist of the RCN Telecom Business, C-TEC's New Jersey, New York
(excluding New York City) and Pennsylvania cable television
operations, C-TEC's long distance business (other than the portion of
such business that consists of providing long distance services to
customers in the franchise area of Commonwealth Telephone Company and
in the Pennsylvania communities of Wilkes-Barre, Scranton and
Harrisburg (the "Commonwealth Service Territory")) and C-TEC
International, which owns the 40% interest in Megacable;
(ii) the Cable Michigan Business, which will be owned by Cable
Michigan and will consist of C-TEC's cable television business in
Michigan, including C-TEC's 61.92% interest in Mercom, Inc.; and
(iii) the Pennsylvania Telephone and Engineering Business, which will be
owned by C-TEC and will consist of C-TEC's Commonwealth Telephone
Company business (Pennsylvania rural LEC operations), C-TEC's
Pennsylvania CLEC operations, Commonwealth Communications, Inc.
(communications engineering) and C-TEC's long distance business in
the Commonwealth Service Territory.
The Restructuring will include the following transactions: (i)
the incurrence of certain indebtedness by C-TEC and certain of its
subsidiaries, (ii) an internal restructuring to segregate C-TEC's businesses
as set forth in the preceding paragraph, (iii) following such internal
restructuring, a distribution by C-TEC to its common equity holders of all of
the outstanding capital stock of the Company (referred to herein as the
"Distribution") and Cable Michigan (referred to herein as the "Cable Michigan
Distribution") and (iv) within one year of the Distributions, an equity or
equity-linked financing by C-TEC. As part of the Restructuring, C-TEC will be
renamed Commonwealth Telephone Enterprises, Inc.
The C-TEC Board of Directors determined that the Restructuring
and the Distributions would be in the best interests of C-TEC, the Company,
Cable Michigan and the holders of the C-TEC Common Equity because it will,
among other things, (i) permit C-TEC to raise financing to fund the
development of the RCN Telecom Business on more advantageous economic terms
than the other alternatives available, (ii) facilitate possible future
acquisitions and joint venture investments by RCN and Cable Michigan and
possible future offerings by RCN, (iii) allow the management of each company
to focus attention and financial resources on its respective business and
permit each company to offer employees incentives that are more directly
linked to the performance of its respective business, (iv) facilitate the
ability of each company to grow in both size and profitability, and (v) permit
investors and the financial markets to better understand and evaluate C-TEC's
various businesses.
As described above, C-TEC purchased from Kiewit Telecom in
August 1996 the 80.1% interest in Freedom held by Kiewit Telecom. In March
1997, C-TEC purchased the remaining 19.9% interest in Freedom from Bartholdi
Cable, the former owner of the Liberty Cable Television of New York business.
The February 12, 1997 approval of the Restructuring by the
C-TEC Board of Directors was subject to further action by the C-TEC Board of
Directors to determine and approve the record date for shareholders entitled
to participate in, and the distribution date for, the Distribution and the
Cable Michigan Distribution. On [ ], 1997, the C-TEC Board of
Directors set the Record Date as [ ], 1997, the Distribution Date as
[ ], 1997, and the distribution ratios as [ ] shares of the
Company's Common Stock for every [ ] shares of C-TEC Common Equity
held as of the Record Date and [ ] shares of CCS Michigan Common
Stock for every [ ] shares of C-TEC Common Equity held as of the
Record Date.
Description of the Distribution
The general terms and conditions relating to the Distribution
are set forth in the Distribution Agreement among C-TEC, Cable Michigan and
the Company. See "Relationship Among the Company, C-TEC and Cable
Michigan--Terms of Distribution Agreement."
C-TEC will effect the Distribution on [__________], 1997 (the
"Distribution Date") by the delivery of the shares of Company Common Stock to
the Distribution Agent for distribution to the holders of record of C-TEC
Common Stock and C-TEC Class B Common Stock on [__________], 1997 (the "Record
Date"). The Distribution will be made on the basis of [_____] shares of
Company Common Stock for every [_____] shares of C-TEC Common Equity
outstanding on the Record Date. The actual total number of shares of Company
Common Stock to be distributed will depend on the number of shares of C-TEC
Common Equity outstanding on the Record Date. Based upon the number of shares
of C-TEC Common Equity outstanding on [__________], 1997, approximately
[_____] shares of Company Common Stock will be distributed to holders of C-TEC
Common Equity, which will constitute all of the shares of Company Common Stock
owned by C-TEC. As a result of the Distribution, 100% of the outstanding
shares of Company Common Stock will be distributed to holders of C-TEC Common
Equity. The shares of Company Common Stock will be fully paid and
nonassessable, and the holders thereof will not be entitled to preemptive
rights. See "Description of Capital Stock." Certificates representing the
shares of the Company Common Stock will be mailed on the Distribution Date or
as soon as practicable thereafter to holders of C-TEC Common Equity.
[No certificates or scrip representing fractional shares of
Company Common Stock will be issued to holders of C-TEC Common Equity as part
of the Distribution. The Distribution Agent will aggregate fractional shares
into whole shares and sell them in the open market at then prevailing prices
on behalf of holders who otherwise would be entitled to receive fractional
share interests, and such persons will receive instead a cash payment in the
amount of their pro rata share of the total sale proceeds thereof. Proceeds
from sales of fractional shares will be paid by the Distribution Agent based
upon the average gross selling price per share of Company Common Stock of all
such sales. See "Certain Federal Income Tax Consequences." Such sales are
expected to be made as soon as practicable after the Distribution Date. None
of C-TEC , the Company or the Distribution Agent will guarantee any minimum
sale price for the fractional shares of Company Common Stock, and no interest
will be paid on the proceeds of such shares.]
Concurrently with the Distribution, C-TEC will distribute to
the holders of C-TEC Common Equity 100% of the shares of common stock of
C-TEC's wholly owned subsidiary Cable Michigan. Cable Michigan operates cable
television systems in the State of Michigan. The Cable Michigan Distribution
is described in a separate Information Statement that is being provided to the
holders of C-TEC Common Equity.
Certain Federal Income Tax Consequences
The following is a summary of the material federal income tax
consequences of the Distribution to C-TEC and the holders of C-TEC Common
Equity ("Holders"). C-TEC has received a ruling from the Internal Revenue
Service to the effect that the Distribution will generally qualify as tax-free
to C-TEC and the Holders under Section 355 of the Internal Revenue Code of
1986, as amended (the "Code") and accordingly, for federal income tax purposes:
(i) Except as described below with respect to fractional
shares, a Holder will not recognize gain or loss as a result of the
Distribution. Cash received in lieu of a fractional share will be
treated as received in redemption of such fractional share. Gain or
loss will be recognized to the recipient Holder to the extent of the
difference between the Holder's basis in the fractional share and
the amount received for the fractional share. Provided the
fractional share interest is held as a capital asset by the
recipient Holder, such gain or loss will constitute capital gain or
loss.
(ii) A Holder will apportion its tax basis for its C-TEC
Common Equity among such C-TEC Common Equity, shares of common stock
of Cable Michigan received in the Cable Michigan Distribution, and
the Company Common Stock received in the Distribution in proportion
to the relative fair market values of such C-TEC Common Equity,
common stock of Cable Michigan and Company Common Stock on the
Distribution Date.
(iii) A Holder's holding period for the Company Common Stock
received in the Distribution will include the period during which
such Holder held the C-TEC Common Equity with respect to which the
Distribution was made, provided that such C-TEC Common Equity is
held as a capital asset by such Holder as of the Distribution Date.
(iv) Generally, no gain or loss will be recognized to C-TEC
as a result of the Distribution, except, for example, to the extent
of any excess loss accounts or deferred intercompany gains.
Current Treasury regulations require each Holder who receives
Company Common Stock pursuant to the Distribution to attach to its federal
income tax return for the year in which the Distribution occurs a descriptive
statement concerning the Distribution. C-TEC (or the Company on its behalf)
will make available requisite information to each such Holder.
ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE
PARTICULAR FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE
DISTRIBUTION TO THEM.
For a description of agreements pursuant to which C-TEC, Cable
Michigan and the Company have provided for certain tax sharing and other tax
matters, see "Relationship Among the Company, C-TEC and Cable Michigan--Tax
Sharing Agreement."
RELATIONSHIP AMONG THE COMPANY, C-TEC AND CABLE MICHIGAN
This section of the Information Statement describes certain
agreements among the Company, C-TEC and Cable Michigan that will govern
certain of the on-going relationships among C-TEC, Cable Michigan and the
Company after the Distribution and will provide for an orderly transition to
the status of three separate, independent companies. To the extent that they
relate to the Distribution Agreement or the Tax Sharing Agreement
(collectively, the "Distribution Documents"), the following descriptions
describe the Distribution Documents as they will be in effect as of the
Distribution, do not purport to be complete and are qualified in their
entirety by reference to the Distribution Documents, which are filed as
exhibits to the Company's Registration Statement on Form 10 (the "Company Form
10") filed with the Securities and Exchange Commission (the "Commission") of
which this Information Statement (the "Company Information Statement") is a
part and as exhibits to Cable Michigan's Registration Statement on Form 10
(the "Cable Michigan Form 10") filed with the Commission of which Cable
Michigan's Information Statement (the "Cable Michigan Information Statement")
is a part, and are incorporated herein by reference. All stockholders should
read the Distribution Documents in their entirety.
The Distribution Documents will be entered into in connection
with the Distributions and are, therefore, not the result of arm's length
negotiation between unrelated parties as the Company, C-TEC and Cable Michigan
have certain common officers and directors. Nevertheless, the transitional
service arrangements in such agreements are designed to reflect arrangements
that would have been agreed upon by parties negotiating at arm's length.
Additional or modified agreements, arrangements and transactions may be
entered into between the Company and either or both of C-TEC and Cable
Michigan after the Distribution, which will be negotiated at arm's length.
Terms of Distribution Agreement
C-TEC, Cable Michigan and the Company [will enter] into a
Distribution Agreement (the "Distribution Agreement") prior to the
Distributions, among other things, to provide for the principal corporate
transactions and certain procedures for effecting the Distributions, to define
certain aspects (other than those with respect to taxes, which shall be
governed by the Tax Sharing Agreement) of the relationship among C-TEC, Cable
Michigan and the Company after the Distributions and to provide for the
allocation of certain assets and liabilities (other than those with respect
to taxes, which shall be governed by the Tax Sharing Agreement) among C-TEC,
Cable Michigan and the Company.
Conditions to the Distribution
The Distribution Agreement provides that the Distributions are
subject to the following conditions being satisfied prior to or as of the
Distribution Date: (i) the Company Form 10 and the Cable Michigan Form 10
shall have become effective under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"); (ii) the Company Common Stock and the common
stock, par value $1.00 per share, of Cable Michigan (the "Cable Michigan
Common Stock") shall, in each case, have been approved for trading on NASDAQ,
subject to official notice of issuance; (iii) the Board of Directors of C-TEC
shall be satisfied that (A) both before and after giving effect to the
Distributions, C-TEC is not and would not be insolvent, (B) after giving
effect to the Distributions, C-TEC would be able to pay its liabilities as
they mature and become absolute, and C-TEC would not have unreasonably small
capital with which to engage in its business and (C) the Distributions will be
permitted under Section 1551 of the Pennsylvania Business Corporations Act;
(iv) C-TEC's Board of Directors shall have approved the Distributions and
shall not have abandoned, deferred or modified the Distributions at any time
prior to the Distribution Date; (v) (A) the Company Board, as named in this
Information Statement, shall have been elected by C-TEC, as sole stockholder
of the Company, and the Company's Certificate of Incorporation and Bylaws
(each as defined under "Description of Capital Stock" below) shall be in effect
and (B) Cable Michigan's Board of Directors, as named in the Cable Michigan
Information Statement, shall have been elected by C-TEC, as sole shareholder
of Cable Michigan, and Cable Michigan's articles of incorporation and bylaws
(each as defined under "Description of Capital Stock" in the Cable Michigan
Information Statement) shall be in effect; (vi) the Tax Sharing Agreement
(defined below) shall have been duly executed and delivered by the parties
thereto; (vii) the private letter ruling issued by the Internal Revenue
Service as to the tax-free nature of the Distribution shall not have been
withdrawn; and (viii) the Internal Restructuring (as defined below) shall have
been consummated in all material respects. The C-TEC Board of Directors may
abandon, amend or defer the Distributions at any time prior to the
Distribution Date.
As used herein, the term "Internal Restructuring" means the
series of transactions necessary to prepare for the Distributions and includes
certain borrowing transactions, the making of certain contributions to certain
C-TEC subsidiaries and the making of certain internal distributions by certain
C-TEC subsidiaries (the "Internal Distributions"). The Internal Distributions
are in each case subject to the condition that the Board of Directors of each
distributing company shall be satisfied that (A) both before and after giving
effect to the distribution, the distributing company is not and would not be
insolvent, (B) after giving effect to the distribution, the distributing
company would be able to pay its liabilities as they mature and become
absolute, and the distributing company would not have unreasonably small
capital with which to engage in its business and (C) the distribution will be
permitted under applicable state corporate law.
Indemnification
The Company, Cable Michigan and C-TEC have agreed to indemnify
one another against certain liabilities. The Company has agreed to indemnify
C-TEC and its subsidiaries at the time of the Distribution (collectively, the
"C-TEC Group") and the respective directors, officers, employees and
affiliates of each person in the C-TEC Group (collectively, the "C-TEC
Indemnitees") and Cable Michigan and its subsidiaries at the time of the
Distribution (collectively, the "Cable Michigan Group") and the respective
directors, officers, employees and affiliates of each person in the Cable
Michigan Group (collectively, the "Cable Michigan Indemnitees") from and
against any and all damage, loss, liability and expense ("Losses") incurred or
suffered by any of the C-TEC Indemnitees or the Cable Michigan Indemnitees,
respectively, (i) arising out of, or due to the failure of the Company or any
of its subsidiaries at the time of the Distribution (collectively, the
"Company Group") to pay, perform or otherwise discharge any of the Company
Liabilities (as defined below), (ii) arising out of the breach by any member
of the Company Group of any obligation under the Distribution Agreement or any
of the other Distribution Documents and (iii) in the case of the C-TEC
Indemnitees, arising out of the provision by the C-TEC Group of the services
described below to the Company Group except to the extent that such Losses
result from the gross negligence or willful misconduct of a C-TEC Indemnitee.
"Company Liabilities" refers to (i) all liabilities of the Company Group under
the Distribution Agreement or any of the other Distribution Documents, (ii)
all other liabilities of the Company, Cable Michigan or C-TEC (or their
respective subsidiaries), except as specifically provided in the Distribution
Agreement or any of the other distribution documents and whether arising
before, on or after the Distribution Date, to the extent such liabilities
arise primarily from or relate primarily to the management or conduct of the
Company Businesses prior to the effective time of the Distribution (the
liabilities in clauses (i) and (ii) collectively, the "True Company
Liabilities") and (iii) 30% of the Shared Liabilities (as defined below).
Cable Michigan has agreed to indemnify the Company Group and
the respective directors, officers, employees and Affiliates of each Person in
the Company Group (collectively, the "Company Indemnitees") and the C-TEC
Indemnitees from and against any and all Losses incurred or suffered by any of
the Company Indemnitees or the C-TEC Indemnitees, respectively, (i) arising
out of, or due to the failure of any Person in the Cable Michigan Group to
pay, perform or otherwise discharge any of the Cable Michigan Liabilities (as
defined below), (ii) arising out of the breach by any member of the Cable
Michigan Group of any obligation under the Distribution Agreement or any of
the other Distribution Documents, (iii) in the case of the C-TEC Indemnitees,
arising out of the provision by the C-TEC Group of Services (as defined below)
to the Cable Michigan Group except to the extent that such Losses result from
the gross negligence or willful misconduct of a C-TEC Indemnitee and (iv) in
the case of the Company Indemnitees, arising out of the provision by the
Company of the services described below to the Cable Michigan Group except to
the extent that such Losses result from the gross negligence or willful
misconduct of a Company Indemnitee. "Cable Michigan Liabilities" refers to
(i) all liabilities of the Cable Michigan Group under the Distribution
Agreement or any of the other Distribution Documents, (ii) all other
liabilities of the Company, Cable Michigan or C-TEC (or their respective
subsidiaries), except as specifically provided in the Distribution Agreement
or any of the other distribution documents and whether arising before, on or
after the Distribution Date, to the extent such liabilities arise primarily
from or relate primarily to the management or conduct of the business of the
Cable Michigan Group prior to the effective time of the Distribution (the
liabilities in clauses (i) and (ii) collectively, the "True Cable Michigan
Liabilities") and (iii) 20% of the Shared Liabilities (as defined below).
C-TEC has agreed to indemnify the Company Indemnitees and the
Cable Michigan Indemnitees from and against any and all Losses incurred or
suffered by any of the Company Indemnitees or the Cable Michigan Indemnitees,
respectively, (i) arising out of, or due to the failure of any Person in the
C-TEC Group to pay, perform or otherwise discharge any of the C-TEC
Liabilities (as defined below), (ii) arising out of the breach by any member
of the C-TEC Group of any obligation under the Distribution Agreement or any
of the other distribution documents and (iii) in the case of the Company
Indemnitees, arising out of the provision by the Company of the services
described below to the C-TEC Group except to the extent that such Losses
result from the gross negligence or willful misconduct of a Company
Indemnitee. "C-TEC Liabilities" refers to (i) all liabilities of the C-TEC
Group under the Distribution Agreement or any of the other distribution
documents, (ii) all other liabilities of the Company, Cable Michigan or C-TEC
(or their respective subsidiaries), except as specifically provided in the
Distribution Agreement or any of the other distribution documents and whether
arising before, on or after the Distribution Date, to the extent such
liabilities arise primarily from or relate primarily to the management or
conduct of the business of the C-TEC Group prior to the effective time of the
Distribution (the liabilities in clauses (i) and (ii) collectively, the "True
C-TEC Liabilities") and (iii) 50% of the Shared Liabilities (as defined below).
"Shared Liability" means any liability (whether arising before,
on or after the Distribution Date) of the Company, Cable Michigan or C-TEC or
their respective subsidiaries which (i) (a) arises from the conduct of the
corporate overhead function with respect to C-TEC and its subsidiaries prior
to the effective time of the Distribution with certain exceptions or (b) is
one of certain fees and expenses incurred in connection with the Restructuring
and (ii) is not a True C-TEC Liability, a True Cable Michigan Liability or a
True Company Liability.
The Company, Cable Michigan and C-TEC have also generally
agreed to indemnify each other and each other's affiliates and controlling
persons from certain liabilities under the securities laws in connection with
the Company Form 10 and this Information Statement and the Cable Michigan Form
10 and Cable Michigan Information Statement. For information regarding
indemnification for tax liabilities, see "-- Tax Sharing Agreement."
The Company does not believe that any of the foregoing
indemnities will have a material adverse effect on the business, financial
condition or results of operations of the Company.
The Distribution Agreement also includes procedures for notice
and payment of indemnification claims and provides that the indemnifying party
may assume the defense of claims or suits brought by third parties for
non-Shared Liabilities and may participate in the defense of claims or suits
brought by third parties for Shared Liabilities. RCN is entitled to assume
the defense of claims or suits brought by third parties for Shared
Liabilities. Any indemnification paid under the foregoing indemnities is to
be paid net of the amount of any insurance or other amounts that would be
payable by any third party to the indemnified party in the absence of such
indemnity.
Employee Matters
Under the Distribution Agreement, Cable Michigan, RCN and C-TEC
agreed generally to assume employee benefits-related liabilities with respect
to its current and, in some cases, former employees. Each of Cable Michigan,
RCN and C-TEC also agreed to an allocation of employee-related liabilities
arising out of certain shared operations prior to the Distribution in the same
proportions as Shared Liabilities.
Transitional Services and Arrangements
The Company has agreed to provide or cause to be provided to
the C-TEC Group certain specified services for a transitional period after the
Distribution. The transitional services to be provided are the following: (i)
accounting, (ii) payroll, (iii) management supervision, (iv) cash management,
(v) human resources and benefit plan administration, (vi) insurance
administration, (vii) legal, (viii) tax, (ix) internal audit, (x) investor
and public relations and (xi) other miscellaneous administrative services.
The fee per year for these services will be 3.5% of the first $175 million of
revenue of the C-TEC Group and 1.75% of any additional revenue. Based on the
C-TEC Group's revenue for 1996, the fee for that year would have been
$6,376,000.
The Company has also agreed to provide or cause to be provided
to the Cable Michigan Group certain specified services for a transitional
period after the Distribution. The transitional services to be provided are
the following: (i) customer service, (ii) marketing, (iii) accounting, (iv)
payroll, (v) management supervision, (vi) cash management, (vii) human
resources and benefit plan administration, (viii) insurance administration,
(ix) legal, (x) tax, (xi) internal audit, (xii) programming administration,
(xiii) billing, (xiv) monthly cable guides, (xv) investor and public
relations, (xvi) provision of third party programming and (xvii) other
miscellaneous administrative services. Subject to certain limitations, the
fee per year for services listed in items (ii)-(xii), (xv) and (xvii) will be
4.0% of the revenues of the Cable Michigan Group plus a direct allocation of
certain consolidated cable administrative functions. Based on the Cable
Michigan Group's revenue for 1996 and the allocation of certain consolidated
cable administrative functions, the charge for such services for that year
would have been $4,418,000. The charge for customer service listed in item
(i) along with the billing service listed in item (xiii) will be a pro rata
share (based on the relative number of subscribers) of the fees and expenses
incurred by the Company to provide such customer and billing services for the
Company and the Cable Michigan Group. Based on the this allocation
arrangement, the charge to Cable Michigan for such customer and billing
services would have been $3,114,000 in 1996. The third party expense
incurred by RCN to obtain third party programming and monthly cable guides
for Cable Michigan referred to in items (xiv) and (xvi) will be reimbursed
to RCN by Cable Michigan, and no additional fee will be charged with
respect thereto.
C-TEC has agreed to provide or cause to be provided to the
Company Group and the Michigan Group financial data processing applications,
lockbox services, storage facilities, LAN and WAN support services, building
maintenance and other miscellaneous administrative services for a transitional
period after the Distribution. The fees for such services and arrangements
will be an allocated portion (based on relative usage) of the cost incurred by
the Company to provide such services and arrangements to all three groups.
Based on this allocation arrangement, the fee for providing such services and
arrangements to the Company Group and the Cable Michigan Group would have been
approximately $372,000 and $69,000, respectively, for 1996.
The nature, scope and timing of the foregoing services are to
be substantially consistent with the nature, scope and timing of the service
provider's services prior to the Distribution, provided that the service
provider shall not be obligated to hire additional or replacement employees,
or increase the compensation of its existing employees, in order to provide
the services. The services are to commence on the Distribution Date and will
terminate upon 60 days notice by either the service provider or the relevant
service recipient, except that the billing, customer service, programming
administration and provision of third party programming services provided by
RCN to Cable Michigan may not be terminated by RCN on less than one year
advance notice to Cable Michigan. A service recipient may also terminate
individual services by giving 60 days notice to the applicable service
provider.
The aforementioned arrangements are not the result of arm's
length negotiation between unrelated parties as the Company, C-TEC and RCN
have certain common officers and directors. Although the transitional service
arrangements in such agreements are designed to reflect arrangements that
would have been agreed upon by parties negotiating at arm's length, there can
be no assurance that the Company would not be able to obtain better terms from
unrelated third parties. Additional or modified agreements, arrangements and
transactions may be entered into between the Company and either or both of
C-TEC and Cable Michigan after the Distribution, which will be negotiated at
arm's length.
Access to Information
Pursuant to the Distribution Agreement, each of the Company
Group, the Cable Michigan Group and the C-TEC Group (each a "Group") will
provide to each other Group all records in its possession relating to such
other Group or such other Group's business and affairs immediately prior to or
as soon as practicable following the Distribution. If records relate to more
than one Group, true and complete copies will be provided to the other Group
or Groups. After the Distribution, each Group will also afford to each other
Group and certain of such other Group's agents reasonable access during normal
business hours to all records in its possession relating to such other Group's
business and affairs as reasonably required, including, for auditing,
accounting, litigation, disclosure and reporting purposes, subject to limited
exceptions. Finally, each Group will use its best efforts to make available
to each other Group, upon written request, its officers, directors, employees
and representatives as witnesses, and will otherwise cooperate with each other
Group, in connection with any proceeding arising out of the business or
operations of any Group prior to the Distribution. In each case, the provider
of information or witnesses under the above provisions is entitled to
reimbursement for reasonable expenses from the recipient of such information
or witnesses.
Except as otherwise provided in the Distribution Agreement,
each of the Company, Cable Michigan and C-TEC, and its respective directors,
officers, employees, agents, consultants and advisors will hold all
information concerning each other party or its Affiliates in strict confidence.
Intercompany Accounts; Intellectual Property Rights and Licenses
Except as otherwise provided in the Tax Sharing Agreement or
the Distribution Agreement, all intercompany receivable, payable and loan
balances among the Company Group, the Cable Michigan Group and the C-TEC Group
will be settled prior to the Distribution by payment in full by the party or
parties owing any such obligation. The Distribution Agreement provides that
all arrangements and agreements between the parties will terminate as of the
Distribution Date other than the Distribution Documents and certain commercial
contracts on terms that management believes to be arm's-length. These
contracts comprise switch and facilities leases, an Internet access resale
agreement, an interim carrier agreement, local and long distance phone service
agreements, a maintenance agreement and switch monitoring and traffic capacity
services agreements.
None of the Groups will have any right or license in or to any
technology, software, intellectual property, know-how or other proprietary
right owned, licensed or held for use by another Group.
Miscellaneous
Any dispute arising out of or in connection with the
Distribution Agreement will be submitted to arbitration in accordance with the
procedures described in the Agreement.
After the Distribution, there will exist relationships that may
lead to conflicts of interest. Each of the Company, C-TEC and Cable Michigan
will effectively be controlled by Kiewit Telecom. In addition, the majority
of the Company's named executive officers will also be acting as directors
and/or executive officers of C-TEC or Cable Michigan following the
Distribution. See "Management." In particular, David C. McCourt, Chairman
and Chief Executive Officer of the Company, will also serve as a director and
Chairman and Chief Executive Officer of Cable Michigan as of the Distribution
and will remain as a director and Chairman and Chief Executive Officer of
C-TEC. Mr. McCourt expects to devote approximately 70% of his time to
managing the affairs of the Company. In addition, Michael J. Mahoney, who
will be President and Chief Operating Officer, as well as a director, of the
Company as of the Distribution, will also remain a director of C-TEC. Mr.
Mahoney expects to devote approximately 85-90 % of his time to managing the
affairs of the Company. The Company's other named executive officers expect
to devote the following approximate portions of their time to managing the
affairs of the Company: Mr. Godfrey (80%); Mr. Haverkate (75%) and Mr. Adams
(100%). The success of the Company may be affected by the degree of
involvement of its officers and directors in the Company's business and the
abilities of the Company's officers, directors and employees in managing both
the Company and the operations of Cable Michigan and/or C-TEC. Potential
conflicts of interest will be dealt with on a case-by-case basis taking into
consideration relevant factors including the requirements of NASDAQ and
prevailing corporate practices.
Tax Sharing Agreement
The Tax Sharing Agreement, by and among the Company, Cable
Michigan and C-TEC (the "Tax Sharing Agreement"), governs contingent tax
liabilities and benefits, tax contests and other tax matters with respect to
tax returns filed with respect to tax periods, in the case of the Company,
ending or deemed to end on or before the Distribution Date. Under the Tax
Sharing Agreement, Adjustments (as defined in the Tax Sharing Agreement) to
taxes that are clearly attributable to the Company Group, the Cable Michigan
Group, or the C-TEC Group will be borne solely by such Group. Adjustments to
all other tax liabilities will be borne 50% by C-TEC, 30% by the Company and
20% by Cable Michigan.
Notwithstanding the above, if as a result of the acquisition of
all or a portion of the capital stock or assets of the Company, the
Distribution or the Cable Michigan Distribution fails to qualify as a tax-free
distribution under Section 355 of the Code, then the Company will be liable
for any and all increases in tax attributable thereto.
Notwithstanding the above, if as a result of the acquisition of
all or a portion of the capital stock or assets of Cable Michigan, the
Distribution or the Cable Michigan Distribution fails to qualify as a tax-free
distribution under Section 355 of the Code, then Cable Michigan will be liable
for any and all increases in tax attributable thereto.
TRADING MARKET
There has been no trading market for the Company Common Stock,
and there can be no assurances as to the establishment or continuity of any
such market. However, it is expected that a "when-issued" trading market may
develop on or about the Record Date. The Company has applied for listing of
the Company Common Stock on NASDAQ under the symbol "RCNC." It is a condition
to the obligation of C-TEC to consummate the Distributions that the Company
Common Stock to be issued in the Distribution and the common stock of Cable
Michigan to be distributed in the Cable Michigan Distribution shall have been
approved for listing on NASDAQ, subject to official notice of issuance. See
"Relationship Among the Company, C-TEC and Cable Michigan--Terms of
Distribution Agreement."
Prices at which the Company Common Stock may trade prior to the
Distribution on a "when-issued" basis or after the Distribution cannot be
predicted. Nor can there be any assurance that such prices will not be
significantly below the book value per share of the Company Common Stock.
Prices at which trading in shares of Company Common Stock occurs may fluctuate
significantly. See "Risk Factors--No Prior Market for Common Stock." The
prices at which the Company Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
quarter to quarter variations in the actual or anticipated financial results
of the Company or other companies in the markets served by the Company. In
addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of many telecommunications
stocks and that have often been unrelated or disproportionate to the operating
performance of individual companies. These and other factors may adversely
affect the market price of the Company Common Stock.
The Company Common Stock received by holders of C-TEC Common
Equity pursuant to the Distribution will be freely transferable, except for
shares of such Company Common Stock received by any person who may be deemed
an "affiliate" of the Company within the meaning of Rule 144 ("Rule 144")
under the Securities Act of 1933, as amended (the "Securities Act"). Persons
who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that directly, or indirectly through
one or more intermediaries, control, are controlled by, or are under common
control with, the Company, and may include the directors and principal
executive officers of the Company as well as Kiewit Telecom, the principal
stockholder of the Company. Persons who are affiliates of the Company will be
permitted to sell their Company Common Stock received pursuant to the
Distribution only pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration under the
Securities Act, such as the exemption afforded by Rule 144.
The Company anticipates that options to purchase _____ shares
of Company Common Stock will be outstanding immediately following the
Distribution, which options will be granted pursuant to the Company's plans.
See "Management -- Executive Compensation". Shares of Company Common Stock
issued upon exercise of all such options will be registered on Form S-8 under
the Securities Act and will, therefore, be freely transferable, except by
affiliates as described above. Except for the shares of Company Common Stock
distributed in the Distribution and such stock options, no securities of the
Company will be outstanding as of or immediately following the Distribution.
Except for the Exchange Agreement referred to in "Business -- Strategic
Relationships -- BECO Joint Venture", the Company has not entered into any
agreement or otherwise committed to register any shares of Company Common
Stock under the Securities Act of 1933 for sale by security holders. Except
for the shares registered on this Registration Statement in connection with
the Distribution and common equity offered pursuant to employee benefit plans,
no common equity of the Company is being, or has been publicly proposed to be,
publicly registered or offered by the Company.
DIVIDENDS
The Company anticipates that future revenues will be used
principally to support operations and finance growth of the business and,
thus, the Company does not intend to pay cash dividends on the Company Common
Stock in the foreseeable future. The payment of any cash dividends in the
future will be at the discretion of the Company Board. The declaration of any
dividends and the amount thereof will depend on a number of factors, including
the Company's financial condition, capital requirements, funds from
operations, future business prospects and such other factors as the Company
Board may deem relevant. After the Distribution, the Company will be a
holding company and its ability to pay cash dividends will be dependent on its
ability to receive cash dividends, advances and other payments from its
subsidiaries. The Credit Agreement into which certain subsidiaries of the
Company have entered contains restrictions on the payment of dividends by
those subsidiaries. See "Description of the Credit Agreement."
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Prior to the Distribution Date, the Company and the Company
Businesses have been operated as part of C-TEC. The following Unaudited Pro
Forma Consolidated Statement of Operations sets forth the historical
statements of operations of the Company for the year ended December 31, 1996,
and the six months ended June 30, 1997 and as adjusted for the Distribution
and the related transactions and events described in the Notes thereto as if
the Distribution and such transactions and events had been consummated on
January 1, 1996. The following Unaudited Pro Forma Consolidated Balance Sheet
sets forth the historical balance sheet of the Company as of June 30, 1997,
and as adjusted for the Distribution and the related transactions and events
described in the Notes thereto as if the Distribution and such transactions
and events had been consummated on June 30, 1997.
Management believes that the assumptions used provide a
reasonable basis on which to present such Unaudited Pro Forma Condensed
Consolidated Financial Statements. The Unaudited Pro Forma Consolidated
Financial Statements should be read in conjunction with the historical
Financial Statements and Notes thereto included elsewhere in this Information
Statement and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Unaudited Pro Forma Consolidated Financial
Statements are provided for information purposes only and should not be
construed to be indicative of the Company's results of operations or financial
condition had the Distribution and the transactions and events described above
been consummated on the dates assumed, may not reflect the results of
operations or financial condition which would have resulted had the Company
been operated as a separate, independent Company during such period, and are
not necessarily indicative of the Company's future results of operations or
financial condition.
RCN Corporation
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1996
($ in thousands, except per share
amounts and number of shares)
<TABLE>
<CAPTION> col 132
Adjustments Pro Forma Adjustments
for for for Liberty/ Acquisition
Historical Distribution Distribution Freedom(1) Adjustments Pro Forma
---------- ------------ ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales.................................. $104,910 $104,910 $ 5,206 (17) $110,116
Cost and expenses, excluding
depreciation and amortization....... 79,107 79,107 7,463 (17) 86,570
Depreciation and amortization.......... 38,881 38,881 5,644 (18) $ 5,000(19) 49,525
-------- -------- -------- -------- -------- --------
Operating (loss)....................... $(13,078) $(13,078) $(7,901) $ (5,000) $(26,979)
Interest income........................ $ 25,602 $(15,127)(1) $ 10,475 $ 5 (20) $ 10,480
Interest expense....................... (16,046) (7,461)(2) (737)(20) (9,117)
15,127 (3) (8,380)
Other (expense), net................... (546) (546) (546)
-------- -------- -------- -------- -------- --------
(Loss) before income taxes,............ $ (4,068) $ (7,461) $(11,529) $(18,633) $ (5,000) $(25,162)
(Benefit) provision for income taxes... 979 (2,611) (1,632) (2,420)(21) (1,400)(21) (5,452)
-------- -------- -------- -------- -------- --------
(Loss) before minority interest and
equity in unconsolidated entities..... $ (5,047) $ (4,850) $ (9,897) $ (6,213) $ (3,600) $(19,710)
Minority interest in loss of
consolidated entities................ 1,340 1,340 1,718 (22) (3,058)(23) 0
Equity in (loss) of unconsolidated
entities............................. (2,282) (2,282) (2,282)
-------- -------- -------- -------- -------- --------
(Loss) before extraordinary item....... $ (5,989) $ (4,850) $(10,839) $ (4,495) $ (6,658) $(21,992)
======== ======== ======== ======== ======== ========
Unaudited pro forma net (loss) per
common share before extraordinary
item................................... [($ )]
Weighted average number of common
shares outstanding..................... [ ](5)
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
RCN Corporation
Unaudited Pro Forma Consolidated Statement of Operations
Six Months Ended June 30, 1997
($ in thousands, except per share
amounts and number of shares)
<TABLE>
<CAPTION>
Adjustments Pro Forma
for for Acquisition Pro Forma
Historical Distribution Distribution Adjustments Adjusted
---------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales....................................... $ 60,706 $60,706 $60,706
Cost and expenses, excluding depreciation
and amortization........................... 55,703 55,703 55,703
Depreciation and amortization............... 25,455 25,455 $ 1,250 (10) 26,705
Nonrecurring charges........................ 10,000 10,000 10,000
-------- ------- -------- ------- --------
Operating (loss)............................ $(30,452) $(30,452) $(1,250) $(31,702)
Interest income............................. 9,761 $(6,532)(1) 3,229 3,229
Interest expense............................ (7,129) (3,731)(2) (3,731) (3,731)
7,129 (3)
Other (expense) income, net................. 600 600 600
-------- ------- -------- ------- --------
(Loss) before income taxes.................. $(27,220) $(3,134) $(30,354) $(1,250) $(31,604)
(Benefit) for income taxes.................. (7,143) (1,097)(4) (8,240) (437)(21) (8,677)
-------- ------- -------- ------- --------
(Loss) before minority interest and equity
in unconsolidated entities................. (20,077) (2,037) (22,114) (813) (22,927)
Minority interest in loss of consolidated
entities.................................... 1,388 1,388 (1,388)(23) 0
Equity in (loss) of unconsolidated entities. (1,561) (1,561) (1,561)
-------- ------- -------- ------- --------
Net (loss).................................. $(20,250) $(2,037) $(22,287) $(2,201) $(24,488)
======== ======= ======== ======= ========
Unaudited pro forma net (loss) per common
share....................................... [($ )]
Weighted average number of common shares
outstanding................................. [ ](5)
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
RCN Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1997
($ in thousands)
<TABLE>
<CAPTION>
Adjustments Pro Forma for
Historical for Distribution Distribution
---------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments........................ $41,478 $171,168 (6) $212,646
Short-term investments..................................... 4,003 4,003
Accounts receivable affiliates............................. 16,577 (16,577)(7) --
Accounts receivable, net of reserve for doubtful accounts
of $1,809................................................... 13,999 13,999
Unbilled revenues.......................................... 1,109 1,109
Material and supply inventory, at average cost............. 1,323 1,323
Prepayments and other...................................... 1,731 780 (8) 2,511
Deferred income taxes......................................
4,468 4,468
-------- -------- --------
Total current assets........................................ 84,688 155,371 240,059
Notes receivable - affiliates............................... 145,592 (110,000)(9)
(35,592)(7) --
Property, Plant and Equipment
Hybrid Fiber/Coaxial Cable plant........................... 166,919 166,919
Other property, plant and equipment........................ 73,534 73,534
-------- -------- --------
Total property, plant and equipment......................... 240,453 -- 240,453
Accumulated depreciation................................... 95,457 95,457
-------- -------- --------
Net property, plant and equipment.......................... 144,996 -- 144,996
-------- -------- --------
Investments................................................. 72,135 72,135
Intangible assets, net...................................... 121,030 121,030
Deferred Charges and other assets........................... 25,209 728 (10)
(3,360)(11) 22,577
-------- -------- --------
Total Assets................................................ $593,650 $ 7,147 $600,797
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable affiliates................................ $ 9,726 $ (9,726)(7)
Accounts payable........................................... 13,520 $ 13,520
Advance billings and customer deposits..................... 8,482 8,482
Accrued taxes.............................................. 900 (1,680)(12)
780 (8) --
Accrued interest........................................... 4,293 (4,286)(13) 7
Accrued contract settlements............................... 3,127 3,127
Accrued cable programming expense.......................... 3,339 3,339
Accrued expenses........................................... 19,748 19,748
-------- -------- --------
Total current liabilities.................................. 63,135 (14,912) 48,223
-------- -------- --------
Long-Term Debt.............................................. 131,250 (131,250)(13) --
110,000 (14) 110,000
Notes payable affiliates.................................... 13,346 (13,346)(7)
Deferred Income Taxes....................................... 26,913 26,913
Other Deferred Credits...................................... 4,151 (1,128)(15) 3,023
Commitments and Contingencies...............................
Minority Interest........................................... 13,401 13,401
Common Shareholder's Equity................................. 341,454 (3,120)(12)
90,000 (16)
(29,097)(7) 399,237
-------- -------- --------
Total Liabilities and Shareholder's Equity.................. $593,650 $ 7,147 $600,797
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
RCN Corporation
Notes to Unaudited Pro Forma
Consolidated Financial Statements
(dollars in thousands)
The Unaudited Pro Forma Consolidated Statements of Operations
and Balance Sheet of RCN assume that the Company was an autonomous entity
rather than a wholly owned subsidiary of C-TEC at the dates and for the periods
shown. The Pro Forma adjustments, as described below, are keyed to the
corresponding amounts shown in the "Adjustments for Distribution" column in
the relevant statement.
(1) Adjustment to eliminate interest income of $6,532 for the six months ended
June 30, 1997 and $15,127 for the year ended December 31, 1996, net of
income taxes of $(2,286) for the six months ended June 30, 1997 and
$(5,294) for the year ended December 31, 1996, on outstanding intercompany
notes payable owed to the Company of which $110,000 is assumed to be repaid
and the remaining balance is assumed to be treated as capital contributions
from the Company to the borrower.
(2) Adjustment to reflect interest expense and amortization of debt issuance
costs of $3,731 for the six months ended June 30, 1997 and $7,461 for the
year ended December 31, 1996, net of income taxes of $(1,306) for the six
months ended June 30, 1997 and $(2,611) for the year ended December 31,
1996, on new third party debt of $110,000, which is assumed to be incurred.
(3) Adjustment to eliminate interest expense and amortization of debt issuance
costs of $7,129 for the six months ended June 30, 1997 and $15,127 for the
year ended December 31, 1996 and related income taxes of $2,495 for the six
months ended June 30, 1997 and $5,294 for the year ended December 31, 1996
on existing outstanding third party debt which is assumed to be repaid and
on outstanding intercompany notes payable owed by the Company which are
assumed to be treated as capital contributions to the Company from the
borrower.
(4) Income tax effects are summarized as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Benefit (provision)
Elimination of interest expense and amortization of debt issuance on existing
outstanding third party debt (see Note 3)..................................... $ 2,495 $ 5,294
Incurrence of interest expense and amortization of debt issuance costs on new
third party debt (see Note 2)................................................. (1,306) (2,611)
Elimination of interest income on outstanding intercompany notes (see (2,286) (5,294)
Note 1)........................................................................ ------- -------
Total....................................................................... $(1,097) $(2,611)
======= =======
</TABLE>
(5) The weighted average number of common shares outstanding reflects the
product of (i) the Distribution ratio times (ii) the number of shares of
Company Common Stock outstanding as of [ ], 1997.
(6) Reflects the following Pro Forma adjustments: (i) Receipt of $110,000 in
respect of repayment of outstanding intercompany notes (See Note 9); (ii)
repayment by RCN of $135,536 of existing third party debt (See Note 13);
(iii) receipt of $90,000 of equity contributions from C-TEC (See Note 16);
(iv) incurrence of $110,000 of new third-party debt (See Note 14); (v) the
transfer of $3,360 of pre-paid pension costs (See Note 11); (vi) incurrence
of $728 of debt issuance costs related to new third party debt (See Note
10); (viii) payment of $4,800 in respect of a prepayment penalty on
existing third-party debt (See Note 12); and (ix) the transfer of $1,128 of
employee benefit liabilities (See Note 15).
(7) Adjustment to reflect the assumed treatment of remaining receivables and
payables balances with affiliates as capital contributions to (from) the
respective affiliates.
(8) Adjustment to reclassify prepaid taxes.
(9) Adjustment to reflect the assumed partial payment of notes receivable
affiliate by Cable Michigan. Cable Michigan will incur new third party
debt for the purpose of repaying $110,000 of the total amount of outstanding
intercompany notes payable owed to the Company.
(10) Adjustment to reflect debt issuance costs of $728 in connection with the
assumed incurrence of new third party debt (see Note 14).
(11) In connection with the restructuring, C-TEC completed a comprehensive
study of its employee benefit plans in 1996. As a result of this study,
effective December 31, 1996, in general, employees of RCN will no longer
accrue benefits under the defined benefit pension plan. The defined
benefit pension plan will be continued for employees of the C-TEC Group.
This adjustment reflects the assumed transfer of the prepaid pension cost
of $3,360 from RCN's books to C-TEC.
(12) Adjustment to reflect the penalty of approximately $4,800 (excluding an
income tax benefit of approximately $1,680), on the assumed prepayment of
existing outstanding third party debt (see Note 13).
(13) Adjustment to reflect the assumed repayment of third-party debt of
$131,250 and accrued interest of $4,286, primarily using the proceeds from
repayment by Cable Michigan of a portion of the total amount of outstanding
intercompany notes payable owed to the Company (see Note 9) and from the
assumed contribution by C-TEC of equity capital to the Company (see Note
16).
(14) Adjustment to reflect the assumed incurrence of new third party debt of
$110,000 by the Company.
(15) Adjustment to reflect the transfer of certain employee benefit
liabilities aggregating $1,128 from RCN's books to C-TEC.
(16) Adjustment to reflect the assumed contribution by C-TEC, of equity
capital of $90,000 to the Company from new C-TEC borrowings.
(17) Adjustment to reflect revenues of $1,330 and expenses of $2,598 of
Liberty Cable Television and affiliates for the period January 1996 to
March 1996 and revenues of $3,876 and expenses of $4,865 of Freedom for the
period March 1996 to August 1997 to present information as if the
acquisition of Freedom had occurred at the beginning of 1996.
(18) Adjustment to reflect depreciation and amortization of Liberty Cable and
Freedom for the period as if the acquisition of Freedom had occurred at the
beginning of 1996 and to reflect the increase in depreciation and
amortization applicable as a result of the allocation of the purchase price
paid on the basis of the fair value of assets acquired and liabilities
assumed.
(19) Adjustment to reflect the additional depreciation and amortization of
$5,000 in 1996 and $1,250 in 1997 resulting from the acquisition of the
minority interest of Freedom in March 1997 and to present the information
as if the acquisition of the minority interest of Freedom had occurred at
the beginning of 1996.
(20) Adjustment to reflect interest expense and income of Liberty Cable and
Freedom as if the acquisition of Freedom occurred at the beginning of 1996.
(21) Adjustment to income taxes summarized as follows:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31 Ended
1996 June 30, 1997
----------- -------------
<S> <C> <C>
Losses of Liberty Cable and Freedom for period January 1996 to August 1996 $(1,757) $ 0
Additional depreciation and amortization (see Note 18) (663) 0
Additional depreciation and amortization of acquisition in 1997 of 19.9%
minority interest in March 1997 (see Note 19) $(1,400) $(437)
------- -----
$(3,820) $(437)
</TABLE>
(22) To reflect the minority interest in losses of $1,718 for losses of
Liberty and Freedom as if the acquisition of Freedom had occurred at the
beginning of 1996.
(23) Elimination of minority interest to reflect "step" acquisitions of
Freedom as if the acquisitions had occurred at the beginning of 1996.
PRO FORMA CAPITALIZATION
Prior to the Distribution Date, the Company and the Company
Businesses have been operated as part of C-TEC. The following table sets
forth the capitalization of the Company as of June 30, 1997, and as adjusted
to give effect to the Distribution and the related transactions and events
described in the notes hereto and the Notes to the Unaudited Pro Forma
Consolidated Balance Sheet included in this Information Statement as if the
Distribution and such transactions and events had been consummated on June 30,
1997.
Management believes that the assumptions used provide a
reasonable basis on which to present such Pro Forma Capitalization. The Pro
Forma Capitalization table below should be read in conjunction with the
historical Financial Statements and Notes thereto included elsewhere in this
Information Statement, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma Consolidated
Financial Statements." The Pro Forma Capitalization table below is provided
for information purposes only and should not be construed to be indicative of
the Company's capitalization or financial condition had the Distribution and
such related transactions and events been consummated on the date assumed, may
not reflect the capitalization or financial condition which would have
resulted had the Company been operated as a separate, independent Company
during such period, and are not necessarily indicative of the Company's future
capitalization or financial condition.
<TABLE>
<CAPTION>
June 30, 1997
($ in thousands)
-----------------------------
Pro Forma
Historical for Distribution
---------- ----------------
<S> <C> <C>
Cash, temporary cash investments and short-term investments $ 45,481 $216,649
======== ========
Long-term debt................................................... 131,250 110,000
Notes payable-affiliates......................................... 91,126 --
-------- --------
Total indebtedness............................................... 222,376 110,000
-------- --------
Common shareholder's equity...................................... 341,454 399,237
-------- --------
Total capitalization....................................... $563,830 $509,237
======== ========
</TABLE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Prior to the Distribution Date, the Company and the Company
Businesses have been operated as part of C-TEC. The table below sets forth
selected historical consolidated financial data for the Company. The
historical consolidated financial data presented below reflect periods during
which the Company did not operate as an independent company and, accordingly,
certain assumptions were made in preparing such financial data. Therefore,
such data may not reflect the results of operations or the financial condition
which would have resulted if the Company had operated as a separate,
independent company during such periods, and are not necessarily indicative of
the Company's future results of operation or financial condition.
The selected historical consolidated financial data for the
years ended December 31, 1993 and 1992 and as of December 31, 1994, 1993 and
1992 are derived from the Company's unaudited historical consolidated financial
statements not included in this Information Statement. The selected
historical consolidated financial data of the Company for the years ended
December 31, 1996, 1995 and 1994 and as of December 31, 1996 and 1995 are
derived from and should be read in conjunction with the Company's audited
historical consolidated financial statements included elsewhere in this
Information Statement. The selected historical consolidated financial data
for the six month periods ended June 30, 1997 and 1996 and as of those dates
are derived from and should be read in conjunction with the Company's
unaudited historical consolidated financial statements included elsewhere in
this Information Statement. In the opinion of the Company's management, these
three month consolidated historical financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods. The results for
such interim periods are not necessarily indicative of the results for the full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements. Earnings per share data
are presented elsewhere in this Information Statement on a pro forma basis
only. See "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------ -------------------------------------------------------
(dollars in thousands)
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales.............................. $ 60,706 $ 49,017 $104,910 $91,997 $ 59,500 $ 49,504 $ 44,030
Costs and expenses, excluding
depreciation and amortization.... 55,703 37,041 79,107 75,003 49,747 30,821 25,725
Depreciation and amortization...... 25,455 17,830 38,881 22,336 9,803 9,922 9,984
Nonrecurring charges............... 10,000 -- -- -- -- -- --
-------- -------- -------- ------- -------- -------- --------
Operating (loss) income............ (30,452) (5,854) (13,078) (5,342) (50) 8,761 8,321
Interest income.................... 9,761 13,591 25,602 29,001 21,547 1,922 2,375
Interest expense................... (7,129) (7,758) (16,046) (16,517) (16,669) (1,167) (3,007)
Other (expense) income, net........ 600 (461) (546) (304) 1,343 1,195 6,015
(Benefit) provision for income
taxes............................ (7,143) 321 979 1,119 2,340 167 5,203
Minority interest in (income) loss
of consolidated entities......... 1,388 (90) 1,340 (144) (95) (85) (43)
Equity in (loss) of
unconsolidated entities.......... (1,561) (1,299) (2,282) (3,461) -- -- --
Cumulative effect of changes in
accounting principles............ -- -- -- -- (83) 1,628 --
-------- -------- -------- ------- -------- -------- --------
Net (loss) income............... $(20,250) $ (2,192) $ (5,989) $ 2,114 $ 3,653 $ 12,087 $ 8,458
======== ======== ======== ======= ======== ======== ========
Balance Sheet Data:
Total assets....................... $671,430 $650,982 $628,085 $649,610 $568,586 $291,634 $289,833
Long-term liabilities.............. 131,250 135,250 131,250 135,250 154,000 181,500 191,070
Shareholder's equity............... 341,454 406,369 390,765 394,069 372,847 74,329 56,083
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's historical Financial Statements and Unaudited Pro Forma Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Information Statement.
General
Prior to the Distribution Date, the Company and the Company
Businesses have been operated as part of C-TEC. The historical financial
information presented herein reflects periods during which the Company did not
operate as an independent company and accordingly, certain assumptions were
made in preparing such financial information. Such information, therefore,
may not necessarily reflect the results of operations or the financial
condition of the Company which would have resulted had the Company been an
independent, public company during the reporting periods, and are not
necessarily indicative of the Company's future operating results or financial
condition.
The Company is developing advanced fiber optic networks to
provide a wide range of telecommunications services in the Northeastern United
States. Such networks are networks that are capable of providing a full range
of high speed, high capacity telecommunications services, including voice,
video programming and data services including Internet access. The Company
intends to provide these services singly or in bundled services packages
primarily to residential customers in high-density areas and also seeks to
serve certain commercial accounts on or near it networks. The Company has
recently commenced providing service through advanced fiber optic network
facilities in New York City and Boston. Through 1996, the revenue from
services provided over such networks has not been material. The Company also
has hybrid fiber/coaxial cable television operations in New York (outside New
York City) New Jersey and Pennsylvania ("Hybrid Fiber/Coaxial"), wireless
video operations in New York City ("Wireless Video"), and certain other
operations, including long distance telephone (collectively, "Other
Operations"). Financial results related to advanced fiber and wireless
facilities are included in the "Advanced Fiber, Wireless Video and Other
Operating" segment data which follows. The Company has historically managed
its business along these lines and the discussion which follows addresses
those lines accordingly. As the development of the Company's advanced fiber
networks continues, in the future the Company may reflect such operations as a
separate segment. The Company expects that the operating and net losses and
negative cash flows from this business will rise in the future as it expands
and develops its network and customer base. There can be no assurance that
RCN will achieve or sustain profitability or positive cash flows from
operating activities in the future as it develops its advanced fiber optic
network.
Selected segment data was as follows for the years ended
December 31, 1996, 1995 and 1994 and for the six months ended June 30, 1997
and 1996:
<TABLE>
<CAPTION>
Six Months ended June 30, Year ended December 31,
------------------------- ---------------------------------
(dollars in thousands)
1997 1996 1996 1995 1994
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales
Hybrid Fiber/Coaxial.............. $45,872 $41,437 $ 84,096 $66,404 $45,937
Advanced Fiber, Wireless Video
and Other Operating............. 14,829 7,560 20,768 25,528 13,514
Corporate......................... 5 20 46 65 49
------- ------- -------- ------- -------
Total........................... $60,706 $49,017 $104,910 $91,997 $59,500
======= ======= ======== ======= =======
</TABLE>
Operating Income Before Depreciation and Amortization:
<TABLE>
<CAPTION>
Six Months ended June 30, Year ended December 31,
------------------------- ---------------------------------
(dollars in thousands)
1997 1996 1996 1995 1994
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Hybrid Fiber/Coaxial............. $21,267 $19,085 $40,094 $28,458 $22,279
Advanced Fiber, Wireless Video
and Other Operating............ (12,621) (4,170) (11,711) (8,416) (11,542)
Corporate................... (13,643) (2,939) (2,580) (3,048) (984)
------- ------- -------- ------- -------
Total.......................... $(4,997) $11,976 $25,803 $16,994 $ 9,753
======= ======= ======== ======= =======
</TABLE>
Results of Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended
June 30, 1996
For the six months ended June 30, 1997, operating income before
depreciation and amortization was $(4,997) as compared to $11,976 for the six
months ended June 30, 1996. Sales increased 23.9% to $60,706 for the six
months ended June 30, 1997 from $49,017 for the same period in 1996.
Sales. Sales are primarily comprised of subscription fees for
basic, premium and pay per view cable television services, long distance
telephone service fees based on minutes of traffic and tariffed rates or
contracted fees, and Internet access fees billed at contracted rates. For the
six months ended June 30, 1997, sales were $60,706, an increase of $11,689 due
to higher Hybrid Fiber/Coaxial sales of $4,435 and higher Advanced Fiber,
Wireless Video and Other Operating sales of $7,269. The increase in Hybrid
Fiber/Coaxial sales principally results from higher basic service revenue
resulting from approximately 4,600 additional average monthly subscribers over
the same period in 1996 and the effects of a rate increase in the first
quarter of 1997. Advanced Fiber, Wireless Video and Other Operating sales
increased primarily due to the acquisition of an 80.1% interest in Freedom in
August 1996 (the "Freedom Acquisition"). The Freedom Acquisition resulted in
the addition of approximately 25,000 video subscribers, primarily in the New
York City market, and was the principal reason for the increase of
approximately 43,000 video subscribers as compared to the same period of the
prior year. The increase in Advanced Fiber, Wireless Video and Other
Operating Sales also includes increases of approximately $1,500 related to
expansion of the long distance business.
The Company recognizes that managing customer turnover is an
important factor in maximizing revenues and cash flow. The Company's average
monthly customer turnover rate for its Hybrid Fiber/Coaxial segment was
approximately 1.2% in the six months ended June 30, 1997. In the six months
ended June 30, 1997, the Company's average monthly customer turnover in its
Advanced Fiber, Wireless Video and Other Operating segment (excluding long
distance) was approximately 1.1%, in part due to the relatively brief
operating history of the segment and development stage characteristics of the
industry. Accordingly, these initial turnover rates may not be indicative of
future performance.
Costs and Expenses, Excluding Depreciation and Amortization.
Cost and expenses, excluding depreciation and amortization, are comprised of
direct costs of providing services, primarily cable programming and franchise
costs, network access fees, video transmission licensing fees, salaries and
benefits, and customer service costs; sales and marketing costs; and general
and administrative expenses. For the six months ended June 30, 1997, costs
and expenses, excluding depreciation, amortization, and nonrecurring charges,
were $55,703, an increase of $18,662 or 50.4% as compared to the same period
in 1996. The increase is primarily attributable to higher Advanced Fiber,
Wireless Video and Other Operating costs and expenses, excluding depreciation
and amortization, of approximately $15,700, resulting principally from the
Freedom Acquisition in August 1996 and expansion of the business in the Boston
and New York City markets. The most significant increases occurred in market
development costs, including personnel and related costs, origination and
programming costs, and advertising expenses. Expansion of the long distance
business contributed approximately $2,800 of the remaining increase in
Advanced Fiber, Wireless Video and Other Operating costs and expenses,
excluding depreciation and amortization. Hybrid Fiber/Coaxial costs and
expenses, excluding depreciation and amortization, increased approximately
$2,200 primarily due to higher basic programming costs resulting from higher
rates, additional channels and subscriber increases.
Depreciation and Amortization. Depreciation and amortization
is comprised principally of depreciation relating to the Company's Hybrid
Fiber/Coaxial facilities and amortization of subscriber lists, building access
rights and goodwill. Depreciation and amortization increased $7,625 or 42.8%
to $25,455 for the six months ended June 30, 1997 as compared to $17,830 for
the comparable period in 1996. The increase is due to the additional
depreciation and amortization resulting from the Freedom Acquisition and
depreciation related to the Company's advanced fiber optic networks in New
York City and Boston.
In future periods, depreciation and amortization are expected
to exceed amounts recorded in 1996 and during the six months ended June 30,
1997 due to the Freedom Acquisition (as well as the acquisition in March 1997
of the remaining 19.9% ownership interest in Freedom), and depreciation with
respect to the Company's advanced fiber optic networks in New York City and
Boston.
Nonrecurring Charges. Nonrecurring charges of $10,000
represent non-capitalizable costs incurred in connection with a series of
transactions in March 1997 which resulted in the Company having a 100%
ownership interest in Freedom.
Interest Income. For the six months ended June 30, 1997,
interest income was $9,761 a decrease of $3,830 or 28.2% primarily due to
lower average cash balances and lower average notes receivable-affiliates.
Average cash balances decreased principally as a result of the Freedom
Acquisition in August 1996.
Interest Expense. For the six months ended June 30, 1997,
interest expense was $7,129, a decrease of $629 or 8.1% primarily due to the
required principal payment of $18,750 on long-term debt in December 1996.
Income Tax. Income tax expense decreased $7,464 primarily due
to the decrease of $24,598 in operating income.
Minority Interest. Minority interest in the loss of
consolidated entities increased $1,433 as a result of the minority share of
the losses of Freedom from January 1 through March 21. The Company acquired
the 19.9% minority ownership of Freedom on March 21, 1997.
Year Ended December 31, 1996 Compared to Year Ended December
31, 1995
For the year ended December 31, 1996, operating income before
depreciation and amortization was $25,803 as compared to $16,994 for the year
ended December 31, 1995. Sales increased 14.0% to $104,910 for 1996 from
$91,997 in 1995. The improvement in operating income before depreciation and
amortization of $8,809 was offset by higher depreciation and amortization of
$16,545, as discussed below, resulting in a net loss of $(5,989) for the year
ended December 31, 1996 as compared to net income of $2,114 in 1995.
Sales. For 1996, sales were $104,910, an increase of $12,913,
or 14.0%, due to higher Hybrid Cable Television sales partially offset by
lower Advanced Fiber, Wireless Video and Other Operating sales, principally
long distance. Hybrid Fiber/Coaxial sales increased $17,692, or 26.6%,
primarily due to the acquisition of the Pennsylvania cable system (formerly
Twin County Trans Video, Inc.) in May 1995, which resulted in $13,530 of the
increase in Hybrid Fiber/Coaxial sales in 1996. The Pennsylvania cable system
serves approximately 74,000 subscribers in the Greater Lehigh Valley area of
Pennsylvania. The 14.0% increase in sales in 1996 was lower than the increase
of 54.6% in 1995, principally due to the consolidation of the Pennsylvania
cable system for seven months (from acquisition in May 1995). Since the
Pennsylvania cable system was consolidated for seven months in 1995,
consolidation for a full year in 1996 reflects only an incremental five months
revenue as compared to an incremental seven months revenue in 1995.
Additionally, long distance revenues decreased approximately 30% from 1995 to
1996, principally as a result of termination of AT&T Tariff 12 production in
1996, as compared to increases of 77% from 1994 to 1995, which resulted from
the resale of AT&T Tariff 12 long distance services and increases in long
distance switched business and 800 services sales in 1995. The remaining
increase in Hybrid Fiber/Coaxial sales is due to higher basic service revenues
resulting from an increase in average subscribers of 4,995 or 5.3% and the
full year impact, in 1996, of the 9.6% rate increase in April 1995 and the
impact of a 5.9% rate increase in February 1996. These increases were
partially offset by lower Advanced Fiber, Wireless Video and Other Operating
sales of $4,760 primarily resulting from the termination in the second quarter
of 1995 of an agreement for the resale of AT&T Tariff 12 long distance
services to another long distance reseller. Included in Advanced Fiber,
Wireless Video and Other Operating sales for 1996 were Wireless Video sales of
$3,532, compared to zero for 1995 reflecting the Freedom Acquisition. In
1996, the Company's average monthly turnover rate in its Hybrid Fiber/Coaxial
segment was approximately 1.2%.
Cost and Expenses, Excluding Depreciation and Amortization. In
1996, costs and expenses, excluding depreciation and amortization, were
$79,107, an increase of $4,104 or 5.5% as compared to 1995. Hybrid
Fiber/Coaxial programming expense increased $3,930 due to license fee
increases, channel additions, and subscriber growth, primarily due to the
acquisition of the Pennsylvania cable system. Additionally, Hybrid
Fiber/Coaxial salaries and benefits expense increased $1,862 primarily due to
the acquisition of the Pennsylvania cable system. Corporate costs and
expenses, excluding depreciation and amortization, decreased $487. This
decrease is primarily due to the corporate allocable share of the gain on the
partial curtailment and settlement of C-TEC's defined benefit pension plan of
$992 (See Note 12 to the Financial Statements) partially offset by the
Company's allocable portion of costs associated with the investigation of the
feasibility of various restructuring alternatives to enhance shareholder
value. Advanced Fiber, Wireless Video and Other Operating costs and expenses,
excluding depreciation and amortization, decreased $1,465 primarily due to
lower expenses associated with the 97% reduction in AT&T Tariff 12 long
distance revenues partially offset by an increase of $2,320 representing costs
associated with the development of the Company's advanced fiber optic networks
in New York City and Boston and Wireless Video costs and expenses of $8,303 in
1996 compared to zero in 1995 reflecting the Freedom Acquisition.
Depreciation and Amortization. For 1996, depreciation and
amortization expense was $38,881, an increase of $16,545 or 74.1% as compared
to 1995 primarily due to purchase accounting effects of the acquisition of
Pennsylvania cable system in May 1995 and the Freedom Acquisition on August
30, 1996. (See Note 4 to 1996 Consolidated Financial Statements.) In
addition, the Company incurred $3,756 in depreciation related to the Company's
advanced fiber optic networks in New York City and Boston.
Interest Income. For the year ended December 31, 1996,
interest income was $25,602, a decrease of $3,399 or 11.7% due primarily to a
reduction in average cash balances in 1996 as compared to 1995 and a decrease
in the average yield on invested cash, partially offset by interest income of
$2,222 accrued on a $13,088 note receivable acquired from Mazon Corporativo
S.A. de C.V. in January 1996. Average cash balances decreased in 1996
primarily due to cash used in the Freedom Acquisition and the purchase of the
loan receivable from Mazon Corporativo S.A. de C.V. Additionally, lower
balances on notes receivable-affiliates contributed to the decrease.
Interest Expense. Interest expense for 1996 was $16,046, a
decrease of $471 or 2.9% in 1996 as compared to 1995. This decrease is due to
lower average rates on outstanding debt and includes approximately $922 paid
to Kiewit Telecom, the Company's controlling shareholder, in connection with
the Freedom Acquisition. This portion of the consideration represents an
amount to compensate Kiewit Telecom for forgone interest on the amount
invested in Freedom.
Income Taxes. The Company's effective income tax rate was
(19.5%) in 1996 and 34.6% in 1995. For an analysis of the change in income
taxes, see the reconciliation of the effective income tax rate in Note 11 to
the 1996 consolidated financial statements.
Minority Interest. As a result of the Freedom Acquisition,
Freedom's financial results are consolidated with the Company since August 30,
1996, the date of acquisition. This resulted in minority interest in the loss
of Freedom of $1,546 for 1996. Additionally, the 20% minority interest in the
income of HomeLink Limited Partnership, a Hybrid Fiber/Coaxial subsidiary, was
$(206) in 1996 as compared to $(144) in 1995.
Equity in (loss) of Unconsolidated Entities. The Company's
equity in the (loss) of unconsolidated entities was $(2,282) in 1996 and
$(3,461) in 1995, and is comprised principally of the Company's share of the
operating results of Megacable. In January 1995, the Company purchased a
forty percent equity position in Megacable, a Mexican cable television
provider, for cash of $84,115. The Company is exposed to foreign currency
translation adjustments resulting from translation into U.S. dollars of the
financial statements of Megacable, which through December 1996 utilize the
peso as the local and functional currency. Such adjustments have historically
been included as a separate component of common shareholders' equity and
reflected losses of $449 and $2,606, net of income taxes, in 1996 and 1995,
respectively. Effective January 1, 1997, since the three year cumulative rate
of inflation at December 31, 1996 exceeded 100 percent, Mexico will be treated
for accounting purposes as having a highly inflationary economy. Therefore,
the U.S. dollar will be treated as the functional currency and translation
adjustments will be included in income. The Company is also exposed to
foreign currency transaction losses resulting from transactions of Megacable
which are made in currencies different from its own. The Company's
proportionate share of transaction gains (losses) are included in income as
they occur. It is not possible to determine what effect future currency
fluctuations will have on the Company's operating results. The Company's
proportionate share of such gains (losses) in 1996 and 1995 were approximately
$247 and $(932), respectively. Megacable reduced its exposure to such losses
by utilizing a portion of the Company's cash investment to repay U.S. dollar
denominated debt of approximately $55,000 in 1995.
In 1996, Megacable had sales of $23,244, operating income
before depreciation and amortization of $10,187 and net income of $10,221. In
1995, Megacable had sales of $20,841, operating income before depreciation and
amortization of $8,154 and net income of $5,802. Year end subscriber counts
were 178,664 at December 31, 1996 as compared to 177,317 at December 31, 1995.
In 1996 and 1995, the Company's share of the income of Megacable was $4,090
and $2,696, respectively, which includes foreign currency transaction losses
as noted above. The Company's investment in Megacable exceeded its underlying
equity in the net assets of Megacable when acquired by approximately $94,000,
which goodwill is being amortized on a straight-line basis over 15 years. In
1996 and 1995, amortization of the Company's excess purchase price over the
net assets of Megacable when acquired was $6,280 and $5,757, respectively.
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994
For the year ended December 31, 1995, operating income before
depreciation and amortization was $16,994 as compared to $9,753 for the year
ended December 31, 1994. Sales increased 54.6% to $91,997 for 1995 from
$59,500 in 1994. The improvement in operating income before depreciation and
amortization of $7,241 and the increase in interest income of $7,454 were
offset by higher depreciation and amortization of $12,533 and a loss in the
equity of consolidated entities of $(3,461) resulting in lower net income of
$2,114 in 1995 as compared to $3,653 in 1994.
Sales. Sales for 1995 were $91,997, an increase of $32,497 or
54.6% primarily due to higher Hybrid Fiber/Coaxial sales of $20,467. Hybrid
Fiber/Coaxial sales increases resulted primarily from the acquisition of the
Pennsylvania cable system, effective May 1, 1995. The Pennsylvania cable
system accounts for $18,384 of the increase in Hybrid Fiber/Coaxial sales of
$20,467, or 44.6%, as compared to 1994. Additionally, average subscriber
increases of approximately 4,386 over the same period in 1994 and a rate
increase effective in April 1995 account for the remaining increase in Hybrid
Fiber/Coaxial sales. Advanced Fiber, Wireless Video and Other Operating sales
increased $12,014, or 88.9% in 1995 as compared to 1994. This increase
included revenues of $4,070 from the resale of AT&T Tariff 12 long distance
services to another long distance reseller under an arrangement which
terminated during the second quarter of 1995. Increases in long distance
switched business sales and 800 services sales account for the majority of the
remaining increase. In 1995, the Company's average monthly turnover rate in
its Hybrid Fiber/Coaxial operations was 1.1%.
Cost and Expenses, Excluding Depreciation and Amortization. In
1995, costs and expenses, excluding depreciation and amortization, were
$75,003, an increase of $25,256, or 50.8% in 1995 as compared to 1994. Hybrid
Fiber/Coaxial programming expense increased $6,079 due to license fee
increases, channel additions, and subscriber growth, primarily due to the
acquisition of the Pennsylvania cable system. Additionally, Hybrid
Fiber/Coaxial salaries and benefits increased $5,272, primarily due to the
acquisition of the Pennsylvania cable system. The remaining increase in costs
and expenses for Hybrid Fiber/Coaxial of $2,937 is attributable to various
increases in other general operating expenses resulting from the consolidation
of approximately 75,420 Pennsylvania cable system subscribers as a result of
the acquisition. Advanced Fiber, Wireless Video and Other Operating costs and
expenses, excluding depreciation and amortization, increased $8,888, or 35.5%
in 1995 as compared to 1994. The primary increases occurred in expenses
associated with Tariff 12 long distance sales of $4,068 and long distance
carrier expense. Costs and expenses associated with the start-up of the
Company's fiber optic network business in Boston and New York City increased
$3,648 in 1995. Partially offsetting these increases were decreases of
approximately $5,300 in charges related to long distance contract settlement
and termination resulting from management's determination that it had
adequately provided for such matters in 1994.
Corporate costs and expenses, excluding depreciation and
amortization, increased $2,080, due to the Company's allocable share of
professional fees associated with the evaluation of strategic alternatives for
enhancing shareholder value, higher salary expense resulting from additional
corporate personnel to support the Company's growing operations, and higher
bonus expense resulting primarily from the improvement in operating income
before depreciation and amortization.
Depreciation and Amortization. For 1995, depreciation and
amortization expense was $22,336, an increase of $12,533 or 127.8% as compared
to 1994, primarily due to the consolidation of the Pennsylvania cable system
since May 1, 1995.
Interest Income. Interest income for 1995 was $29,001, an
increase of $7,454 or 34.6% as compared to the prior year. The increase is
the result of both higher average cash balances and higher yields in 1995.
Average cash balances increased primarily as a result of cash transfers by
C-TEC to the Company of proceeds received from the sale of C-TEC's cellular
operations in September 1994 and from C-TEC's common stock rights offering,
which concluded in December 1994. The Company utilized a portion of these
fundings from C-TEC for the 1995 acquisition of a 40% interest in Megacable
for approximately $84,000 and for the cash portion of the purchase price
for the Pennsylvania cable system of approximately $37,000.
Interest Expense. Interest expense was $16,517 in 1995 as
compared to $16,669 in 1994, as debt levels and interest rates were relatively
stable.
Other (Expense) Income, Net. Other expense for 1995 was $304,
compared to other income of $1,343 in 1994. The change in other (expense)
income in 1995 as compared to 1994 is primarily due to the inclusion in 1994
of a gain of approximately $900 on the sale of certain of the Company's Hybrid
Fiber/Coaxial operations.
Income Taxes. The Company's effective income tax rate was
34.6% in 1995 and 38.5% in 1994. For an analysis of the change in income
taxes, see the reconciliation of the effective income tax rate in Note 11 to
accompanying consolidated financial statements.
Minority Interest. The 20% minority interest in the income of
HomeLink Limited Partnership, a Hybrid Fiber/Coaxial subsidiary, was $(144) in
1995 and $(95) in 1994.
Equity in (Loss) of Unconsolidated Entities. The equity in the
loss of unconsolidated entities in 1995 relates to the Company's share of the
losses of Megacable, in which the Company acquired a 40% interest in January
1995. In 1995, Megacable had sales of $20,841, operating income before
depreciation and amortization of $8,154 and net income of $5,802.
Liquidity and Capital Resources
The Company expects that it will require a significant amount
of capital to fund its operations and development in its existing New York
City and Boston markets. These capital requirements include the following:
development of advanced fiber optic networks in Boston and New York City;
expansion and upgrade of Hybrid Fiber/Coaxial plant and other capital
expenditures; funding of operating losses of Boston and New York operations;
and repayment of existing outstanding third-party debt.
Planned capital expenditures for development of advanced fiber
networks in New York City and Boston include costs related to connecting
customers to the advanced optic network which will be incurred on a
per-connection basis. The Company currently has budgeted capital expenditures
(excluding capital costs expected to be contributed by its joint venture
partners) of approximately $90 million during 1997, approximately $145 million
during 1998 and approximately $150 million during 1999, in order to expand
its network, develop its New York City, Boston and Washington, D.C. markets
and add service enhancements to certain of its Hybrid Fiber/Coaxial cable
television systems. These estimates exclude approximately $150 million of
capital expenditures in the Company's joint ventures which are expected to be
funded by the Company's joint venture partners. The Company anticipates that
it may also incur other discretionary capital requirements related to the
development of additional markets during this three year period. The
development of such networks, however, will be contingent upon the degree of
success achieved in the Boston and New York City markets and the likelihood
and degree of success expected in the relevant markets chosen for development.
The Company currently anticipates the following sources of
funding:
<TABLE>
<CAPTION>
Thousands of
Dollars
------------
<S> <C>
Repayment of existing outstanding intercompany indebtedness by
Cable Michigan in connection with the Restructuring........... $110,000
Equity contribution by Commonwealth Telephone Enterprises in
connection with the Restructuring............................. 75,000
New third-party debt........................................... 110,000
Cash on hand................................................... 65,000
Operating cash flow of Hybrid Fiber/Coaxial.................... 100,000
--------
$460,000
========
</TABLE>
In order to further fund its anticipated capital requirements
through the end of 1999, the Company is considering raising additional debt
financing. Subject to market conditions, the Company expects to raise
approximately $200-250 million of additional debt financing within six months
following the Distribution. However, the likelihood, success and amount of
any such debt incurrence offering would depend on market conditions and other
factors, including the continued need for capital based on the success based
buildout of its current and future markets. The Company believes that cash
flow generated by operations, cash balances and, if necessary, borrowings,
will enable the Company to meet its capital expenditure requirements and to
make scheduled payments of principal and interest on indebtedness. There can,
however, be no assurances in that regard. The Company expects that it and
its subsidiaries will be in compliance with all provisions and covenants of
its and their debt agreements following the Distribution.
Additionally, the Company may enter into other relationships
such as joint ventures, with appropriate partners in possible new markets
chosen by the Company for development. Such relationships should enable the
Company to limit its expenditures for network development by utilizing
existing facilities as well as by the potential capital contributions by
partners or investors in return for profit participation or equity. The
Company may also take advantage of the expertise of appropriate partners in
the relevant market in order to reduce its start-up costs in those markets.
For the six months ended June 30, 1997, the Company's net cash
provided by operating activities was $4,283, comprised primarily of a net loss
of $20,250 adjusted by non-cash depreciation and amortization of $25,456,
other non-cash items totaling $223 and working capital changes of $(1,199).
Net cash used in investing activities of $7,978 consisted primarily of
additions to property, plant and equipment of $20,914 and acquisitions of
$30,475 (primarily acquisition of the minority interest of Freedom)
partially offset by sales and maturities of short-term investments of
$42,934. Net cash used in financing activities of $16,670 consisted of
transfers to C-TEC of $28,051 partially offset by a change in affiliate
notes of $11,381.
For 1996, the Company's net cash provided by operating
activities was $23,831 comprised primarily of a net loss of $5,989 adjusted by
non-cash depreciation and amortization of $38,881 and other non-cash items
totaling $(7,184). Net cash used in investing activities of $9,377 consisted
primarily of additions to property, plant and equipment of $40,369, the
purchase of a loan receivable of $13,088 and acquisitions of $30,090
(primarily the Freedom Acquisition), partially offset by net sales and
maturities of short-term investments of $73,995. Net cash provided by
financing activities of $9,391 included the issuance of long-term debt of
$19,000, and change in affiliate notes of $32,802, partially offset by the
redemption of long-term debt of $44,750.
There can be no assurance that the Company will be successful
in raising sufficient additional capital on terms that it will consider
acceptable. Failure to raise and generate sufficient funds may require the
Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's
growth and its ability to compete in the telecommunications industry and limit
the Company's flexibility in planning for, or reacting to, changes in its
business.
DESCRIPTION OF THE CREDIT AGREEMENT
This section of the Information Statement describes the terms
and conditions of the Credit Agreement that certain subsidiaries of the
Company have in place. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Credit Agreement, which is filed as an exhibit to
the Form 10 and is incorporated herein by reference. Capitalized terms used
in this Section and not otherwise defined herein are used as defined in the
Credit Agreement.
Certain of the Company's direct and indirect subsidiaries,
namely, C-TEC Cable Systems, Inc. ("Cable Systems"), ComVideo Systems, Inc.
("ComVideo") and C-TEC Cable Systems of New York, Inc. ("Cable Systems New
York") (collectively, the "Borrowers"), have in place two secured credit
facilities (the "Credit Facilities") pursuant to a single credit agreement
with a group of lenders for which First Union National Bank acts as agent (the
"Credit Agreement"), which was effective as of July 1, 1997 (the "Closing
Date"). The first is a five-year revolving credit facility in the amount of
$25 million (the "Revolving Credit Facility"). The second is an eight-year
term credit facility in the amount of $100 million (the "Term Credit
Facility").
Borrowings under the Credit Facilities are available for the
following purposes: (i) to refinance existing indebtedness of the Borrowers,
(ii) to finance an equity investment by Cable Systems in RCN Telecom Services,
Inc. (a member of the RCN Group), (iii) to finance permitted acquisitions, and
(iv) for capital expenditures, working capital and general corporate purposes.
Borrowings under the Credit Agreement are subject to the conditions that there
can be no default or event of default under the Credit Agreement and that the
representations and warranties of the Borrowers contained in the Credit
Agreement and related pledge agreements must be true. Each Borrower is jointly
and severally liable for all borrowings and other obligations under the Credit
Facilities.
The interest rate on the Credit Facilities will be, at the
election of the Borrowers, based on either a LIBOR or a Base Rate option
(each as defined in the Credit Agreement). In the case of the LIBOR option,
the interest rate will include a spread that varies, based on Cable Systems's
Leverage Ratio (defined as the ratio of Total Debt at the last day of the most
recently ended fiscal quarter to Operating Cash Flow for the four fiscal
quarters then ended), from 50 basis points to 125 basis points. In the case
of the Revolving Credit Facility, a fee of 20 basis points on the unused
revolving commitment will accrue from the Closing Date and will be payable
quarterly in arrears. In the case of the term credit facility, a fee of 20
basis points on the unused term commitment will accrue from the forty-sixth
day after the Closing Date through the earlier of the date on which the term
commitment is fully drawn and the ninetieth day after the Closing Date and
will be payable ninety days after the Closing Date.
The Term Credit Facility is available in up to two
installments, and to the extent not borrowed during the ninety-day
period described above will cease to be available. One installment of $50
million of the Term Credit Facility was drawn on August 1, 1997. The
entire amount of the Revolving Credit Facility is available to the Borrowers
until June 30, 2002. As of August 1, 1997, no principal was outstanding
thereunder. Revolving loans may be repaid and reborrowed from time to time.
The term loan must be repaid over six years in quarterly
installments, at the end of September, December, March and June of each year
from September 30, 1999 through June 30, 2005. The aggregate annual
installments payable on the term loan are as follows (assuming the entire $100
million is drawn, and if less then pro rata to the amounts given below):
1999 $3,750,000
2000 $11,250,000
2001 $16,250,000
2002 $17,500,000
2003 $19,374,000
2004 $21,250,000
2005 $10,626,000
The Borrowers have the option to repay the term loan in whole
or in part at any time, without penalty, subject to customary "breakage"
charges. Any amount of the term loan that is repaid may not be reborrowed.
The Borrowers are required to apply 100% of the net cash
proceeds realized from certain asset sales, certain payments under insurance
policies and certain incurrences of additional debt to repay the revolving
loans. Any excess amounts of such net cash proceeds not applied to repay
revolving loans are applied to reduce the scheduled installments of the term
loan on a pro rata basis.
All borrowings under the Credit Facilities will be pari passu,
and will be secured under a common collateral package including (i) a first
priority pledge by Cable Systems of 100% of the stock in ComVideo (which will
be given only after approval from the appropriate regulatory authority in New
Jersey is granted) and in Cable Systems New York; (ii) a first priority pledge
by ComVideo of 100% of its partnership interests in Home Link Communications of
Princeton, L.P. ("Home Link") at such time that ComVideo has acquired 100% of
the partnership interests in Home Link (at which time Home Link will become a
Borrower) and subject also to approval of the appropriate regulatory authority
in New Jersey being granted; (iii) a first priority pledge by each Borrower of
100% of the stock owned by it in each other material subsidiary of such
Borrower created after the Closing Date; and (iv) a first priority pledge by
RCN of 100% of the stock of Cable Systems (which will be given within 30 days
of the Distribution Date). In addition, the Borrowers are subject to a
prohibition on granting other negative pledges to other parties on the assets
of Cable Systems and certain of its subsidiaries (subject to customary
exceptions). The stock and assets of C-TEC Cable Systems of Pennsylvania,
Inc., RCN Telecom Services, Inc. and RCN International, Inc. are excluded from
the security arrangements.
The Credit Agreement contains customary covenants for
facilities of this nature, including covenants limiting debt, liens,
investments, consolidations, mergers, acquisitions and sales of assets,
payment of dividends and other distributions, making of capital expenditures
and transactions with affiliates. The Credit Agreement requires the
Borrowers, Home Link and all subsidiaries of the Borrowers created after the
Closing Date on a combined basis to maintain the following financial ratios:
(i) the ratio of Total Debt at any fiscal quarter end to Operating Cash Flow
for the trailing four fiscal quarters is not to exceed 5.0:1 initially,
adjusting over time to 4.0:1; (ii) the ratio of Operating Cash Flow to
Interest Expense for any four consecutive fiscal quarters is not to fall below
2.75:1 for periods ending during the first 3 years after the Closing Date,
adjusting to 3.0:1 thereafter; and (iii) the ratio of Operating Cash Flow
(minus certain capital expenditures, cash taxes and cash dividends) to Fixed
Charges (defined as scheduled principal payments and interest expense) for any
four consecutive quarters is not to fall below 1.0:1 for periods ending on or
before December 31, 2000 and adjusting to 1.05:1 thereafter.
The Credit Agreement includes customary events of default.
Upon the occurrence of any event of default, the lenders may accelerate the
outstanding loans and cancel any unborrowed commitment. These events of
default include payment and covenant defaults (subject in certain cases to a
grace period), misrepresentations, cross default to certain other debt,
bankruptcy, ERISA and judgment defaults and a change of control default. For
this purpose, "change of control" is defined to mean any time after the
Distribution Date that (A) PKS shall cease to hold, either directly or
indirectly through one or more PKS entities, (1) shares of RCN constituting at
least thirty percent (30%) of the number of outstanding common shares or at
least thirty percent (30%) of the voting power represented by the outstanding
voting shares of RCN (in each case, outstanding shares excluding shares issued
after the Distribution Date (i) for cash, (ii) in consideration for the
acquisition of any investment or property or the provision of services, (iii)
upon the exercise of any warrant, option, convertible security or similar
instrument issued after the Distribution Date for consideration described in
clauses (i) and (ii) or (iv) in connection with an employee stock option plan
and similar benefit arrangement adopted after the Distribution Date by RCN or
any of its wholly owned subsidiaries), (B) any person (other than PKS or a PKS
entity) or group of persons shall have acquired in one or more series of
transactions beneficial ownership of more than fifty-one percent (51%) of the
outstanding common stock or of the voting power represented by the outstanding
voting shares of RCN or (C) RCN shall cease to hold, directly or indirectly,
all of the outstanding shares of capital stock of Cable Systems.
BUSINESS
Overview
RCN is developing advanced fiber optic networks to provide a
wide range of telecommunications services including local and long distance
telephone, video programming and data services (including high speed Internet
access), primarily to residential customers in selected markets in the Boston
to Washington, D.C. corridor as well as certain commercial accounts on or near
its networks. RCN seeks to act as a single-source provider of a wide range of
voice, video and data services offered individually or in bundled service
packages, with superior customer service and competitive prices as compared to
incumbent service providers. The Company currently utilizes a variety of owned
and leased facilities including advanced fiber optic networks, a wireless
video system and hybrid fiber/coaxial cable systems, although it intends to
deploy advanced fiber optic networks specifically designed to provide high
speed, high capacity telecommunications services for all new facilities.
RCN's initial advanced fiber optic networks have been established in New York
City and, through a joint venture, in Boston and surrounding communities, and
formally commenced operations in September 1996. RCN has recently announced
that it plans to develop an advanced fiber network in the Washington, D.C.
area through a joint venture. Since it formally commenced operation of its
advanced fiber optic networks in New York City and Boston, RCN has built or
acquired through long term lease arrangements approximately 300 route miles of
fiber optic cable and added approximately 1,500 customer connections to its
advanced fiber optic networks. In addition, during the same period the
Company added approximately 13,500 wireless video, resold telephone and other
connections, the majority of which represent customers that RCN expects to
migrate to its advanced fiber optic networks. At June 30, 1997, RCN had an
aggregate of approximately 234,600 connections (local telephone, video
programming or Internet access) among all facilities, approximately 48,400 of
which were attributable to customers in the New York City and Boston markets.
See "--RCN Services--Connections."
RCN seeks to exploit competitive opportunities which have
resulted from widespread changes in the U.S. telecommunications industry.
Industry sources estimate that annual revenues generated by the U.S.
telecommunications industry are approximately $220 billion, approximately 50%
of which is attributable to residential users. The Boston to Washington
corridor represents approximately 4% of the geography of the U.S. but accounts
for over 26% of the telecommunications market (as measured by telephone access
lines). RCN believes that density is a critical factor in the economic
deployment of advanced fiber optic networks, and that due to population
density, favorable demographics and the aging infrastructure of the
incumbents' facilities, the Boston to Washington corridor is a particularly
attractive market for development of advanced fiber optic facilities.
The opportunity to effectively deploy advanced fiber optic
networks and to compete with incumbent telephone and cable television service
providers results from several key factors, including the broad deregulation
of the telecommunications industry pursuant to the Telecommunications Act of
1996 and other developments, the need for more advanced, higher capacity
networks to meet growing consumer demands and the typically superior technology
of the Company's networks in contrast to the network and other limitations of
the incumbent providers. To address this opportunity, RCN is pursuing the
following key strategies:
bullet Developing Advanced Fiber Optic Networks. RCN is developing advanced
fiber optic networks specifically designed to provide a single source
for high speed, high capacity voice, video programming and data
services. RCN's ability to offer a wide range of services through its
advanced fiber optic networks greatly increases the size of its
potential market, as compared to the networks of incumbent service
providers which typically provide only single or limited services.
RCN seeks to be the first operator of an advanced fiber optic network
targeting residential customers in each of its target markets.
bullet Focus on Residential Customers in High Density Markets. The
Company's primary focus is on residential customers in high density
areas. The Company also serves certain commercial accounts which are on
or near its networks. Most of the other new competitive entrants,
including most CLECs, have focused their network development and sales
efforts almost exclusively on providing telephone service to large
commercial customers and have generally not offered their telephone
services to the residential marketplace. Additionally, these new
competitors and the incumbent service providers have generally not
expanded their offerings to include both voice and video programming
services.
bullet Utilizing Strategic Alliances and Existing Facilities to Speed and
Reduce Cost of Entry. Utilizing existing facilities and entering into
strategic alliances enables RCN to enter the market quickly and
efficiently and to reduce its up-front capital investment. RCN has
established strategic relationships with MFS/WorldCom and BECO, both
of which have extensive fiber optic networks and other assets, and is
utilizing its own existing cable television infrastructure to help
expedite and reduce the cost of market entry and development of its
business. RCN also benefits from its interconnection and resale
agreements with incumbent telephone service providers. On August 1,
1997 RCN entered into a letter of intent with PCI, a subsidiary of
PEPCO, to form a joint venture to develop an advanced fiber optic
network in the Washington, D.C. Market. See "--Strategic
Relationships."
bullet Implementing Subscriber-Driven Investment Strategy. RCN attempts to
defer as much of its capital investment as possible by tying facility
development to the procurement of customer connections. In order to
help promote its presence in its markets and to develop a subscriber
base for its advanced fiber optic networks, the Company may provision
services to its customers by first reselling services, and then by
establishing leased facilities (such as unbundled local loops), in
advance of constructing or extending its network.
In addition to its initial advanced fiber optic networks in New
York City and Boston, RCN provides video programming and local and long
distance telephone services through other facilities including a wireless
video system in New York City, hybrid fiber/coaxial cable television systems
in the States of New York (outside New York City), New Jersey and
Pennsylvania, all within 75 miles of New York City, and resale agreements with
the incumbent telephone service providers. RCN's wireless video and resale
telephone services are offered primarily to customers located near RCN's
current or proposed advanced fiber optic networks. RCN intends to convert as
many of those customers as is economically feasible to advanced fiber optic
networks.
As of June 30, 1997, RCN had approximately 234,600 customer
connections. This amount includes approximately 48,400 connections in the New
York City and Boston markets (approximately 1,500 advanced fiber connections,
approximately 38,300 wireless video service connections and approximately
8,500 resold telephone and other connections). Also included within the total
customer connections as of June 30, 1997 were approximately 181,800 hybrid
fiber/coaxial cable connections. RCN had revenues of $104.9 million for the
year ended December 31, 1996 and $60.7 million for the six months ended June
30, 1997. Because it delivers multiple services, RCN reports the total number
of its various service connections (for local telephone, video programming or
Internet access) rather than the number of customers.
RCN owns a 40% interest in Megacable, the second largest cable
television provider in Mexico with approximately 176,000 subscribers and
622,000 homes passed by its systems as of June 30, 1997. Megacable operates
22 wireline cable systems throughout Mexico, principally in Guadalajara,
Mexico's second largest city, and along the Pacific and Gulf Coasts.
Megacable is presently expanding the fiber capacity of certain of its systems
and has recently begun to offer high-speed data services; it may in the future
provide voice services. Megacable had revenues of $23.2 million for the year
ended December 31, 1996 and $14.2 million for the six months ended June 30,
1997.
The Company's management team and board of directors benefit
from experience gained in connection with the management of C-TEC, which has
100 years of experience in the telephone business and nearly 25 years of
experience in the cable television business. Both C-TEC and certain members
of management also have extensive experience in the design and development of
advanced telecommunications facilities. The Company also benefits from its
relationship with PKS, the founder of MFS Communications Company, Inc., and
from the experience gained by certain of the Company's key employees who
participated in the development of MFS Communications Company, Inc. Kiewit
Telecom, an affiliate of PKS, will be the Company's largest shareholder after
the Distribution.
RCN believes it benefits from the following competitive
strengths:
bullet Experience in Operating Telephone and Cable Networks. RCN's extensive
operating experience in both the telephone and video industries and in
the design and development of telecommunications facilities provides
it with expertise in systems operation and development, an established
infrastructure for customer service and billing for both voice and
video services and established relationships with providers of
equipment and video programming.
bullet State-of-the-art technology. RCN's advanced fiber networks are
purpose-built using state-of-the-art technology. These networks are
designed to deliver a wide range of voice, video and data services
with superior quality and increased capacity.
bullet Ability to Offer Bundled Voice and Video Services. RCN believes that,
as a full service voice and video programming provider, it will be
able to offer a single-source package of voice, video and data
services which is not yet generally available from any incumbent
telephone, cable or other service provider.
bullet Superior Customer Service. RCN seeks to provide superior customer
service as compared to incumbent service providers, with service
features such as a 24-hour-a-day call center and quality control
system, on-time service guarantees and bundled service offerings,
providing the consumer with added choice and convenience. In
addition, services provided over RCN's advanced fiber networks are
generally priced at competitive rates as compared to the incumbent
service providers.
bullet Existing Customer Base in Attractive Markets. RCN benefits from an
existing base of 234,600 connections in New York City, Boston and
surrounding communities and in additional markets with favorable
customer demographics within 75 miles of New York City. RCN expects
that the majority of its wireless video and resale telephone customers
(an aggregate of approximately 43,000 connections) will ultimately be
connected to its advanced fiber optic networks. See "--RCN Services--
Connections."
Industry Overview - New Opportunities in Telecommunications
Overview of Incumbent Service Providers
The telecommunications industry today is dominated by the
incumbent LECs and cable television companies and by the IXCs. Typically,
only the incumbent LECs and cable television companies have a last mile
connection to their customers (with the exception of a small number of
"competitive access providers" (or "CAPs"), whose networks and operations have
been targeted almost exclusively at medium to large commercial users).
The distribution networks and customer connections of the
incumbent LECs can typically be characterized as a low capacity, high
reliability systems based upon copper twisted-pairs. Although telephone
service has relatively modest capacity requirements, the provisioning of
switch-based usage is a complex and difficult process. The incumbent LEC
telephone networks were constructed over a hundred-year period under a
regulatory regime which placed a premium upon reliability and universal
service, but which did not make significant advancement in terms of network
or operating efficiency. While the incumbent LECs have begun to expand the
amount of fiber optic facilities in their networks, the basic local exchange
systems have remained largely unchanged and are typically unable to deliver
higher capacity services such as video or high speed Internet connections.
These limitations, together with the significant investment imbedded in the
existing systems and the magnitude of the costs of an extensive upgrade of such
systems, have discouraged the incumbent LECs from expanding their service
offerings or comprehensively deploying new networks. Instead, the incumbent
LECs have concentrated their development efforts primarily on re-entering the
long distance business (which can be done with a relatively modest investment).
The distribution networks and customer connections of cable
television operators can typically be characterized as one-way, medium to high
bandwidth systems with generally lower reliability and integrity than the
incumbent LECs' telephone networks. The initial construction phase of the
cable networks was characterized by the rapid building of a subscriber base
and the cost-effective coverage of a broad service area, rather than providing
a framework for a wide range of high-capacity services with the necessary
reliability for delivery of telephone services. Accordingly, most existing
cable television systems do not typically have the capacity or architecture to
enter into the telephony business, nor do their operators typically have the
experience or infrastructure to quickly or effectively enter into the
provisioning of switch-based, usage sensitive services.
The data services industry is a relatively new and growing
business segment developed to meet consumer needs arising from the rapid
growth of initially simple services such as fax transmission to increasingly
complex and capacity consuming uses, such as local area networks and Internet
access, video teleconferencing and other high bandwidth applications.
Increasingly, demand for telecommunications services relating to data
transmission will require higher capacity platforms to deliver highly complex
material (including interactive applications) at speeds which will maximize
and promote rather than inhibit the utility of such services.
Widespread Changes in Telecommunications Industry
Both the telephone and cable television segments of the
telecommunications industry as well as overall network capacity requirements
are currently undergoing widespread changes brought about by, among other
things, (i) decisions of federal and state regulators which have opened the
monopoly local telephone and cable television markets to competition; (ii) the
ensuing transformation of the previously monopolistic telecommunications
market controlled by heavily regulated incumbents into a consumer-driven
competitive service industry; and (iii) the need for higher speed, higher
capacity networks to meet the increasing consumer demand for expanded
telecommunications services including broader video choices and high speed
data and Internet services. The convergence of these trends and the inherent
limitations of most existing networks have created opportunities for new types
of communications companies capable of providing a wide range of voice, video
and data services through new and advanced high speed, high capacity
telecommunications networks.
Opening of Telecommunications Markets
Divestiture of the Bell System. Until the passage of recent
federal legislative reform and other state and federal regulatory efforts to
expand competition into the local telephone market, the structure of the U.S.
telecommunications industry was shaped principally by the 1984
court-supervised divestiture of local telephone services from AT&T (the
"Divestiture") and other judicial and regulatory initiatives which were
designed primarily to implement structural and technical industry changes
through which competition could develop in the long distance market. Under
this structure, the Regional Bell Operating Companies ("RBOCs") and certain
other LECs were permitted to retain their monopolies in the provision of
local exchange services, but were required to connect their local subscribers
to the long distance services of AT&T and other IXCs. Under this regime, two
distinct industry segments developed; competitive IXCs, which offered
subscribers long distance telephone services between judicially defined local
access and transport areas ("LATAs"), and monopoly LECs, which offered
subscribers local and toll services within judicially defined LATAs, including
connection (or "access") to IXCs for interLATA long distance services. As a
result, the long-distance business became intensely competitive, with low
barriers to entry and many service providers competing in a commodity-type
market, while providers of local exchange services continued to face
relatively little competition.
Deregulation of Local Telephone Services. After the structural
and technical network changes were put in place following the Divestiture to
give IXCs other than AT&T "equal access" to the local exchange facilities of
the monopoly incumbent LECs, and with robust long distance competition began
to provide consumers with diverse services and lower rates, regulatory policy
gradually began to examine whether the competitive benefits which were being
experienced in the long distance marketplace as a result of Divestiture should
be expanded to local exchange services. While a small number of states and
the FCC had already adopted rules and regulations which opened certain limited
and discrete segments of the local exchange market to competition from CAPs
and CLECs offering primarily dedicated high-speed private line and some local
switching services to large business users, the passage of the 1996 Act in
February 1996 codified the pro-competitive policies on a national level and
required both the FCC and the state regulatory commissions to adopt dramatic
and sweeping changes in their rules and regulations in furtherance of those
policies. The 1996 Act required regulators to remove market entry barriers
and to enable companies like RCN to become full service providers of local
telephone service by, among other things, mandating that the incumbent LECs
provide interconnection and competitively priced network facilities to
competitors. In addition, the 1996 Act permits the incumbent LECs to offer
long distance interLATA services in competition with IXCs once they have
demonstrated that they have implemented changes to permit economically
efficient competition in their local markets for both business and residential
services. Re-entry into the long distance market has become a central
objective to all of the incumbent LECs due to the relatively modest capital
investment required and the prospect of attaining substantial operating
efficiencies in offering these services, as opposed to the extensive network
overhaul and the magnitude of the capital requirements that would be necessary
for the incumbent LECs to enter into video or other high-bandwidth services
using their own facilities. Although the incumbent LECs have begun to expand
the amount of fiber facilities in their networks, the incumbent LEC networks
are still largely copper wire-based, which limits their ability to expand into
video programming and other high capacity services.
Deregulation of Cable Television. Unlike the local telephone
market, the cable television market is not subject to regulatory or statutory
prohibitions on competition. Nevertheless, competition to incumbent
franchised cable television operators has developed in only a handful of
markets nationwide. To facilitate competition in the cable television
industry, the FCC developed a common carrier "video dialtone" (or "VDT")
alternative to franchised cable operation which would permit local telephone
companies to construct and operate transmission networks for the distribution
of video programming in competition with incumbent cable operators. Legal and
procedural challenges, however, as well as the significant financial and
other resources necessary to construct and operate such facilities, served to
delay implementation of this competitive alternative and to discourage many of
the incumbent LECs (and others who had been active proponents of VDT) from
actually entering into the video market. While its larger incumbent local
telephone provider competitors largely scaled back their plans to compete in
the video market, RCN did lead efforts to bring competition to the video
programming market by initiating fiber-optic based video programming
distribution in Boston and New York City under the VDT framework using the
existing network transmission services of MFS/WorldCom.
During the period in which the FCC endeavored to adopt and
implement its VDT policies as a vehicle for telephone companies to enter the
video market to provide competition in the cable industry, Congress also
experienced growing frustration at the lack of competition in the cable
industry and, in the absence of any significant competitive pressures to
improve the situation, passed legislation in 1992 providing for the regulation
of certain cable rates. Subsequently, as part of its general goal of
supplanting regulation with competition, the 1996 Act took further steps to
provide alternative regulatory structures to encourage entry into the
multichannel video programming distribution market. Given the lack of success
of the FCC's VDT efforts, Congress required that the VDT rules be terminated
and instead that the FCC adopt rules to implement a new "Open Video Systems"
("OVS") structure for telephone companies or others to deliver video services
through their networks. The OVS structure was specifically designed by the
Congress and the FCC to encourage more competition to local cable television
providers. Among other efforts to remove barriers which had discouraged
competition from developing in the video market, the 1996 Act specifies that
OVS providers, and any video programming providers ("VPPs") that lease
facilities from such OVS providers, may offer video services without obtaining
a local cable television franchise. Certain other obligations similar to those
placed on cable television operators, such as a gross receipts fee and the
transmission of public, educational and government programming, will also
apply to OVS providers.
Demand for High Speed, High Capacity Telecommunications
Services. The Company believes that, as a result of increased competition
and the development of new telecommunications products and services, the
telecommunications market has become increasingly consumer-driven, and
pricing, service quality and customer service are becoming more important than
loyalty to the incumbent providers. However, due to the inherent bandwidth
limitations of the existing copper wire networks, the incumbent LECs would be
required to undertake significant capital expenditures in order to offer high
speed, high capacity services and, to date, have instead focused primarily on
re-entering the long distance business which can be provisioned over their
existing facilities with modest investment. Similarly, constraints of
traditional coaxial cable television systems and lack of necessary
infrastructure have limited cable operators from offering switch-based, usage
sensitive services such as telephone and certain data services. As a result,
newly constructed facilities such as RCN's advanced fiber optic networks
provide a superior platform for providing cost effective, high speed, high
capacity telecommunications and enhanced telecommunications services.
The RCN Opportunity. The incumbent local telephone and cable
television providers have to date generally been slow to expand their services
beyond their traditional lines of business due primarily to the fundamental
limitations of their existing networks. In particular, the LECs have
generally not offered video programming services, nor have the incumbent cable
operators generally entered the telephone services market. RCN believes that
it will be able to offer a single-source package of bundled voice, video and
data services which are not yet generally available from any incumbent
telephone, cable or other providers. In addition, most of the other new
competitive entrants, including most CLECs, have focused almost exclusively on
providing telephone service to medium to large commercial customers and have
tailored the coverage area of their networks and the configuration of their
business operations to provision services accordingly. As a result, CLECs
have generally not yet begun to offer their telephone services to the
residential marketplace, or expanded their offerings to include video
programming services. Similarly, while a number of companies have begun to
market wireless alternatives to cable television service, those companies have
not generally begun to offer telephone services to their customers.
Accordingly, RCN believes that it is well-positioned to take advantage of the
new regulatory and market environment. By combining the enhanced telephone
and data services offered by CLECs with high quality video programming, RCN
acts as a single source provider of a wide range of voice, video and data
services to the residential market as well as to select institutional and
commercial customers with ready access to its facilities. RCN's integrated
service offerings are available either individually or in bundled packages,
providing the consumer with added choice and convenience. RCN's bundled
services are provided using state-of-the-art technology and are generally
provided at competitive prices and with superior customer service as
compared to RCN's existing competitors. As such, RCN believes that it is
poised to become an effective competitor in each of its markets.
Strategy
To address the opportunity to effectively deploy advanced fiber
networks, RCN has adopted the following strategies:
Development of Advanced Fiber Optic Networks. RCN seeks to
take advantage of the recent deregulation in the telecommunications industry
and the growing demand for telecommunications services primarily by developing
advanced fiber optic telecommunications networks specifically designed to
provide a single source for high speed, high capacity voice, video and data
services. RCN seeks to be the first operator of an advanced fiber optic
network providing the full range of these services in each of its target
markets. RCN believes that its newly built advanced fiber optic networks in
New York City and Boston and advanced fiber optic networks that it may develop
in the future will provide RCN with certain competitive advantages over
incumbent service providers using older equipment with inherent bandwidth
limitations and, in some cases, inferior signal quality and network
reliability. In addition, because RCN's advanced fiber optic networks will be
capable of delivering multiple services, RCN will have more potential
subscriber connections in its target markets than service providers using
their existing traditional copper wire or coaxial cable facilities to deliver
a single or limited services. RCN strives to connect its customers directly
to its advanced fiber optic network and, through such networks, to provide
services at rates that are competitive with those of the incumbent LECs and
cable operators and the major IXCs. RCN expects to compete in these markets
primarily on the basis of product offerings (including the ability to offer
bundled voice and video services), reliability, state-of-the-art technology
and superior customer service, as well as price.
Focus on Residential Customers in High Density Markets. The
Company's primary focus is on residential customers in high density areas.
The CLEC industry has primarily focused its networks on serving large
commercial customers, and the competitive alternatives that have emerged for
residential consumers have been for single or limited services. RCN believes
that it is unique in its markets in offering a wide range of bundled voice,
video and data services to customers in residential areas as well as
commercial accounts, and in striving to connect residential customers directly
to its advanced fiber optic network. RCN's services are provided at
competitive rates and in bundled service packages not typically available from
the incumbent service providers. The Company also serves certain commercial
accounts on or near its networks.
Utilize Strategic Alliances and Existing Facilities to Speed
and Reduce Cost of Entry. RCN seeks to speed and reduce the cost of its entry
into target markets through use of existing facilities and strategic
alliances. In New York City and Boston, RCN established an initial
distribution platform for its advanced fiber-based services through facilities
leased from MFS/WorldCom and RCN expects to significantly expand its network
in Boston through the facilities of BECO, its joint venture partner in Boston.
On August 1, 1997, RCN entered into a letter of intent with PCI, a subsidiary
of PEPCO, to develop an advanced fiber optic network in the Washington, D.C.
market. RCN has in place arrangements which allow it to lease certain
facilities owned by the incumbent LECs (unbundled local loops and T-1
facilities) to provide voice services. RCN has or will also utilized certain
components of the infrastructure of its established fiber/coaxial cable
televison operations. By utilizing existing facilities, RCN has been able to
enter the market quickly and efficiently and to reduce its up-front capital
investment.
Implement Subscriber-Driven Investment Strategy. RCN has
implemented a subscriber-driven investment strategy. As part of its
development plan for advanced fiber optic networks, RCN offers resale
telephone (and, in New York City, wireless video) on an interim basis to
customers located near its advanced fiber optic network. This allows RCN to
establish a customer base in advance of and concurrent with network expansion.
Depending on factors such as subscriber density, proximity to the advanced
fiber optic network and development costs, RCN will decide whether to extend
the advanced fiber optic network by leasing facilities (including incumbent
LEC unbundled loops and high capacity connections), by installing fiber or by
provisioning services on an interim basis through resale agreements. RCN
expects to continue its subscriber-driven investment strategy and to continue
to pre-market RCN services by offering resale telephone services in areas
targeted for expansion of advanced fiber optic network facilities. RCN will
consider rollout of its advanced fiber-based service to additional
metropolitan or high-density suburban areas if such rollout can be achieved on
a sufficiently economic basis.
RCN Services
RCN provides a wide range of local and long distance telephone,
video programming and data services, both individually and in bundled service
options.
RCN provides these services through a range of facilities
including its advanced fiber optic networks in New York City and Boston, a
wireless video system in New York City, its hybrid fiber/coaxial cable systems
in the states of New York (outside New York City), New Jersey and
Pennsylvania, and resale local and long distance telephony services.
Connections. The following table summarizes the development of
RCN's subscriber base:
<TABLE>
<CAPTION>
As of
------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97
------- -------- ------- -------
<S> <C> <C> <C> <C>
Connections(1)
Advanced Fiber Optic Networks
Voice........................................ -- -- -- 370
Video........................................ -- -- -- 1,060
Internet..................................... -- -- -- 81
------- ------- ------- -------
Subtotal.................................... -- -- -- 1,511
Other(2)..................................... 4,993 5,106 7,909 8,332
Resold Voice................................. 1,750 1,875 2,315 4,672
Wireless Video .............................. 31,078 35,056 35,707 38,336
------- ------- ------- -------
Total RCN Telecom........................... 37,821 42,037 45,931 52,851
------- ------- ------- -------
Hybrid Fiber/Coaxial Cable Operations(3)..... 177,844 179,932 180,169 181,790
------- ------- ------- -------
Total connections........................... 215,665 221,969 226,100 234,641
======= ======= ======= =======
<FN>
- ------------
(1) Because RCN delivers multiple services, the Company accounts for its
customer activity by the number of individual local telephone, video
programming or Internet access services, or "connections", purchased.
Consequently, a single customer purchasing local telephone, video
programming and Internet access constitutes three connections.
(2) RCN classifies connections provided over advanced fiber optic networks
within the "Other" category until the relevant network is capable of
providing voice, video and data services, including local telephone service
through an RCN switch. "Other" also includes, among other things, wireline
video connections serving the University of Delaware (4,474 connections at
June 30, 1997).
(3) In August 1997, RCN commenced offering resold local phone service, long
distance and Internet access to customers in the area served by its Hybrid
Fiber/Coaxial Cable Systems in the Lehigh Valley area.
</TABLE>
Set forth below is a brief description of RCN's services:
Voice. RCN offers full-featured local exchange telephone
service, including standard dial tone access, enhanced 911 access, operator
services and directory assistance in competition with the incumbent local
exchange providers and CLECs. In addition, RCN offers a wide range of
value-added services, including call forwarding, call waiting, conference
calling, speed dial, calling card, 800-numbers and voice mail. RCN also
provides Centrex service and associated features. RCN's local telephone rates
are generally competitive with the rates charged by the incumbent providers.
As of June 30, 1997, RCN had approximately 400 telephone service connections
on its advanced fiber optic networks and approximately 4,700 customers for
resold telephone service.
Through its RCN Commercial division ("RCN Commercial"), RCN
provides long distance telephone services, including outbound, inbound,
calling card, and operator services. These services are offered to
residential and business customers. At June 30, 1997 RCN Commercial had
approximately 13,500 customers. In the future RCN intends to offer long
distance telephone service predominantly to customers whom it expects will
eventually be connected to its own facilities.
Video Services. RCN offers a diverse line-up of high quality
basic, premium and pay-per-view video programming. Depending on the system,
RCN offers from 61 to 110 channels. RCN's basic video programming package
provides extensive channel selection featuring all major cable and broadcast
networks. RCN's premium services include HBO, Cinemax, Showtime and The Movie
Channel, as well as supplementary channels such as HBO 2, HBO 3 and Cinemax 2.
RCN's StarCinema[SM] , available on the Company's advanced fiber optic
networks, utilizes the latest "impulse" technology allowing convenient impulse
pay-per-view ordering of the latest hit movies and special events instantly
from the customer's remote. RCN's "Music Choice" offers 30 different
commercial-free music channels delivered to the customer's stereo in digital
CD quality sound.
As of June 30, 1997, RCN had approximately 1,100 subscribers
for its video programming services provided over advanced fiber optic networks
in New York City and Boston. As of such date, RCN also had approximately
38,300 connections attributable to the wireless video system and approximately
181,800 connections attributable to the hybrid fiber/coaxial cable systems.
RCN also acts as a provider of DirecTV direct broadcast
satellite service to multiple dwelling units ("MDUs") in New York City.
Direct TV allows RCN to deliver an additional 175 channels of programming
including exclusive sports programming.
Internet Access and Data Transmission. RCN's StarPass[SM]
Internet service provides access for personal computers to RCN's advanced
fiber optic network for a reliable high speed connection to provide access to
electronic mail, World Wide Web, Internet chat lines and newsgroups and remote
access and file transfer services. RCN provides data transmission services
over its advanced fiber optic network either via two-way dial-up modem over
traditional telephone lines or via cable modem utilizing RCN's high capacity
network. RCN also offers private line point-to-point data transmission
services such as DS-1 and DS-3 with the capability to provide higher speed
connections as well.
Migration of Customers to Advanced Fiber Networks
RCN provides wireless video services to customers located near
its advanced fiber optic network in New York City and provides resale
telephone service with a view to extending the advanced fiber optic network
and fully activating RCN's own telephone switches to service many of those
customers. As RCN's advanced fiber optic network is extended into these areas
or buildings, customers receiving wireless video service in New York City will
be switched to the advanced fiber optic network from the wireless video
network, and the wireless video equipment will be used to provide service to
other customers in off-network premises. Similarly, as the advanced fiber
optic network is developed and switches are deployed, voice customers will be
switched to the advanced fiber optic network from resale accounts, thereby
allowing RCN to gain additional revenue from originating and terminating
access fees and larger margins and to control the related services and service
quality.
Strategic Relationships
RCN has developed a number of strategic alliances and
relationships in order to provide it with early entry and to reduce the cost
of entry into the market for telecommunications services. RCN expects to
continue to pursue opportunities that may be afforded by entering into
strategic alliances to facilitate network expansion and entry into new markets.
Relationship with MFS/WorldCom
RCN commenced development of its communications network by
entering into lease arrangements with MFS/WorldCom, allowing RCN initial
access to fiber optic networks owned by MFS/WorldCom in Boston and New York.
Through a construction cooperation agreement with MFS/WorldCom, RCN has also
been able to reduce the cost and time of installation of fiber in New York
City and Boston. Under certain other agreements, MFS/WorldCom has also agreed
to support RCN's efforts to implement OVS Service and to provide RCN with
local switched voice and data services for RCN's voice service business. The
following describes the terms of the main agreements between MFS/WorldCom and
RCN:
Fiber Agreements. RCN has entered into Fiber Agreements (the
"Fiber Agreements"), each dated May 8, 1997, with MFS/WorldCom, which owns or
has the right to use or will own or have the right to use certain fiber optic
network facilities (the "Fiber Optic Facilities") in the Boston, Massachusetts
and Borough of Manhattan, New York, New York markets (the "Service Areas").
Pursuant to the Fiber Agreements, MFS/WorldCom (i) will construct and provide
extensions connecting the Fiber Optic Facilities to buildings designated by
RCN (the "Extensions") and (ii) has granted to RCN the right to use certain
dedicated fibers in the Fiber Optic Facilities and the Extensions, except that
RCN may not use such facilities to deliver telephone services to commercial
customers in the Service Areas. In return, RCN agreed to reimburse
MFS/WorldCom for the costs MFS/WorldCom incurred to install, construct and
acquire the Fiber Optic Facilities constructed prior to March 31, 1997. RCN
has further agreed to pay all of the costs MFS/WorldCom incurs to (i) install,
construct and acquire the Fiber Optic Facilities constructed between March 31,
1997 and May 8, 1998 and the Extensions, and (ii) maintain, and support RCN's
use of, the Fiber Optic Facilities and the Extensions. Unless earlier
terminated upon the occurrence of certain events set forth therein, including
a change of control of RCN, the Fiber Agreements terminate by their terms on
January 1, 2007, provided that (i) at such time the parties may agree to
extend the Fiber Agreements for up to 10 years or enter into other alternative
arrangements, and (ii) under certain circumstances, MFS/WorldCom is required
to transfer the Extensions to RCN.
Video Agreement. In connection with the Fiber Agreements,
affiliates of RCN and MFS/WorldCom have entered into the Video Agreement dated
May 8, 1997 (the "Video Agreement"). Pursuant to the Video Agreement,
MFS/WorldCom has agreed to use its reasonable good faith efforts to continue
to operate its video transport service until (a) RCN implements OVS services
in the Service Areas, (b) an order is issued by a regulatory authority
prohibiting the Video Agreement or terminating the OVS Certificates, (c) the
termination of the applicable Fiber Agreement in the applicable Service Area,
or (d) December 31, 1997. In consideration, RCN has agreed to reimburse
MFS/WorldCom for any obligations imposed upon MFS/WorldCom in connection with
its provision of Video Transport Service to RCN and, in the event RCN does not
implement OVS Service prior to December 31, 1997, RCN will pay MFS/WorldCom
15% of RCN's gross video receipts in the Service Areas earned since October
1995. RCN has already implemented OVS Service in Boston, and management
anticipates that RCN will implement OVS Service in New York City on or before
September 30, 1997, and that in any event, amounts payable to MFS/WorldCom
under the Video Agreement are not expected to exceed $700,000 as of December
31, 1997. The Video Agreement allows RCN to continue to operate its business
during the transition from the MFS/WorldCom video transport service platform
to the RCN OVS platform.
Telephone Service to Reseller Agreements. RCN and
MFS/WorldCom, through their affiliates, have also entered into Telephone
Service to Reseller Agreements (the "Telephone Service Agreements") pursuant
to which MFS/WorldCom has agreed to provide to RCN local switched voice and
data services. In exchange for MFS/WorldCom's services under the Telephone
Service Agreements, RCN will pay to MFS/WorldCom on a monthly basis
MFS/WorldCom's wholesale price for Telephone Service as determined from time
to time by MFS/WorldCom.
BECO Joint Venture
In September 1996, RCN and BECO, through wholly owned
subsidiaries, entered into a letter of intent to form a joint venture to
utilize 126 fiber miles of BECO's fiber optic network to deliver RCN's
comprehensive communications package in Greater Boston. The venture, in the
form of an unregulated entity with a term expiring in the year 2060, was
formed pursuant to a joint venture agreement dated December 23, 1996 (the
"Boston Joint Venture Agreement") providing for the organization and operation
of RCN-BECOCOM, LLC ("RCN-BECOCOM"). RCN-BECOCOM is a limited liability
company organized to own and operate an advanced fiber optic
telecommunications network (the "Network") and to provide, in the market in
and around Boston, Massachusetts (the "Boston Market"), voice, video and
data services, as well as the communications support component of energy
related customer services offered by BECO (collectively, the "Boston
Services"). RCN owns 51% of the equity interest in RCN-BECOCOM and BECO
owns the remaining 49% interest.
The closing of the transactions contemplated by the Boston
Joint Venture Agreement occurred on June 18, 1997. At the closing, (i) RCN
transferred to RCN-BECOCOM its business of providing Boston Services; (ii) BECO
transferred to RCN-BECOCOM access to and use of certain existing BECO
facilities; (iii) RCN and BECO made initial cash capital contributions to
RCN-BECOCOM; and (iv) the parties and/or their affiliates executed and
delivered (a) the Amended and Restated Operating Agreement of RCN-BECOCOM (the
"Operating Agreement"); (b) the Construction and Indefeasible Right of Use
Agreement (the "IRU Agreement"); (c) the Management Agreement (the "Management
Agreement"); (d) the Exchange Agreement (the "Exchange Agreement"); and (e)
the Joint Investment and Noncompetition Agreement (the "Joint Investment
Agreement").
Pursuant to the Operating Agreement, RCN and BECO are required
to make any additional capital contributions required by RCN-BECOCOM's annual
budget on a 51%/49% basis. In addition, certain fundamental business actions,
such as mergers, material acquisitions, sales of substantially all of the
assets, issuances of equity, liquidation or bankruptcy, material capital
expenditures, material affiliate transactions, material debt incurrence,
capital distributions and similar transactions require the approval of RCN and
BECO. Neither RCN nor BECO may transfer its interest in RCN-BECOCOM for three
years without the other's written consent. After three years, each party has
a right of first offer and "tag-along" rights with respect to certain
transfers by the other under certain conditions. Upon a change in control of
either RCN or BECO, the other party has the right to purchase all of the
equity interest in RCN-BECOCOM for fair market value, as determined by an
appraisal proceeding.
RCN will manage the business of RCN-BECOCOM pursuant to the
terms of the Management Agreement and, in consideration therefor, will receive
reimbursement for its reasonable costs, and a performance-based fee (based on
factors including the number of subscribers and operating cash flow) to be
determined by agreement of RCN and RCN-BECOCOM. The initial term of the
agreement expires on December 31, 2001. The agreement provides for
automatic successive three-year renewal periods, unless notice is given
ninety days before the end of the period.
Pursuant to the Joint Venture IRU Agreement, BECO will, for
certain agreed upon fees, (i) provide construction services to build out the
Network, (ii) make available to RCN-BECOCOM (a) all of the available capacity
of BECO's existing fiber backbone, and (b) the ability to use BECO's real
estate, poles, easements and other interests for the construction and
operation of the Network and (iii) maintain the Network. BECO's construction
obligations expire on June 17, 2007 and the term of the IRU Agreement
generally expires on December 31, 2060. One year before each respective
expiration date, BECO agrees to commence good-faith negotiations to extend
construction obligations beyond June 17, 2007 and to allow continued use of
BECO's facilities beyond December 31, 2060.
Under the Joint Investment Agreement, BECO will have the right
to acquire up to a 20% equity interest in any joint venture between RCN and an
electric utility company formed to provide any services similar to the Boston
Services in New England outside the Boston Market. BECO's joint investment
right shall terminate (i) upon BECO's stake in RCN-BECOCOM dropping below a
1/3 interest and (ii) on the later to occur of (a) June 17, 2002 or (b) two
years after RCN's stake in RCN-BECOCOM falls below a 1/3 interest. The
agreement also provides that neither RCN, BECO nor their affiliates will be
permitted to be involved in any other enterprise providing services similar to
the Boston Services in the Boston Market. This covenant not to compete will
survive for a period of two years after either party is no longer a member of
RCN-BECOCOM.
Pursuant to the Exchange Agreement, BECO will have the right at
the time of the Distribution and every two years thereafter to convert its
ownership interest in RCN-BECOCOM into the Common Stock of RCN pursuant to
specific terms and conditions, including exercise periods, appraisal
procedures and restrictions specifically set forth in the Exchange Agreement.
The number of shares of RCN Common Stock to be issued to BECO will be
determined by dividing (i) the appraised value of BECO's interest in
RCN-BECOCOM by (ii) the average closing trading price of Company Common Stock
over a period prior to the conversion. If BECO exercises its conversion
rights during the election period immediately following the Distribution, then
for purposes of that conversion, BECO may, in lieu of an appraisal proceeding,
exchange the amount of its cash contributions in 1997 for Company Common Stock
at a 5% discount from the prevailing market price. If BECO exercises its
conversion rights, BECO will remain obligated to make 49% of all cash
contributions by the parties and any cash contributions made after conversion
will result in it owning a portion of RCN-BECOCOM based on the value of
RCN-BECOCOM at the time of the contribution. BECO may exercise its conversion
rights from time to time. BECO's right to convert its joint venture interest
into Company Common Stock is subject to certain limitations designed to ensure
that the conversion does not jeopardize the tax free nature of the
Distribution. Subject to certain restrictions set forth in the Exchange
Agreement, BECO will also be entitled, upon exchanging its investment interest
in RCN-BECOCOM for Company Common Stock, to customary registration rights with
respect to such shares.
RCN expects to benefit from the ability to utilize BECO's large
fiber optic network, its focus on innovative technology, its sales and
marketing expertise and its reach into the market. In the future, the venture
may expand into energy management and property monitoring services. Starting
in Boston, the joint venture partners will consider further expansion into
surrounding markets. RCN anticipates that as a result of its access to the
extensive BECO network, RCN's reliance on and utilization of MFS/WorldCom
facilities in Boston will be reduced significantly.
Washington Joint Venture
On August 1, 1997, RCN Telecom Services Inc., a subsidiary
of RCN, and PCI, a wholly-owned subsidiary of PEPCO, entered into a letter
of intent (the "Letter of Intent") to form a joint venture (the "Washington
Joint Venture") which will own and operate a communications network to
provide voice, video, data and other communications services to residential
and commercial customers in the Washington, D.C. Market. The parties
contemplate that the Washington Joint Venture will be in the form of an
unregulated limited liability company, with a perpetual term, owned 50% by
RCN and 50% by PCI.
Pursuant to the Letter of Intent, the parties have agreed to
negotiate a definitive operating agreement (the "Definitive Agreement") within
60 days of the Letter of Intent or such later time as may be agreed by the
parties. It is contemplated by the parties that each will, within 30 days of
execution of the Definitive Agreement, make an initial cash capital
contribution to the Washington Joint Venture of $12,500,000. In addition, it
is contemplated that each party will contribute certain assets, contract
rights and experience to the venture. In particular, RCN is expected to
contribute certain customer accounts and building access agreements in the
Washington D.C. Market and will provide the Washington Joint Venture with the
benefit of certain agreements with suppliers of programming,
telecommunications equipment and other products and services (the "RCN
Agreements") at RCN's cost on commercially reasonable terms; PCI is expected
to make available to the joint venture access to and use of certain existing
facilities pursuant to an Indefeasible Right of Use Agreement and a Lease
Agreement to be negotiated between the parties on commercially reasonable
terms. The parties expect to enter into certain additional agreements,
including a Support Services Agreement whereby RCN will provide certain
support services to the Washington Joint Venture at RCN's cost for an
interim period, and an agreement providing the Washington Joint Venture
with the benefit of the RCN Agreements at RCN's cost.
Pursuant to the Definitive Agreement, RCN and PCI will be
required to make additional capital contributions required by the Washington
Joint Venture's annual budget. In the event that either party fails to make a
required capital contribution, the other party shall have the option to make
the capital contribution, and the parties' ownership interests in the venture
will be adjusted accordingly.
The Washington Joint Venture is expected to be managed by a
committee (the "Members Committee") on which RCN and PCI will have equal
representation. The Members Committee will, among other things, review and
approve the venture's operations and the implementation of plans and budgets,
and approve certain agreements with a value in excess of $50,000. The
Definitive Agreement is expected to contain customary deadlock resolution
and transfer provisions.
The closing of the venture will be subject to, among other
things, the completion of a satisfactory due diligence review by both
parties, approval by each party's board of directors, execution of the
definitive agreements and certain regulatory and other approvals. There can
be no assurance that these transactions will be successfully completed.
The Delivery Platforms
Overview of Advanced Fiber Networks
RCN's advanced fiber optic networks in Boston and New York City
are, and RCN expects that its future networks will be, designed to support
voice, video and data services via a switched, fiber-rich network
architecture. The Company's full service advanced fiber optic networks in
Boston and New York City consist of owned or leased fiber optic cables, local
and long distance digital switches, video headends, video and voice
transmission and distribution equipment and associated wiring and network
termination equipment. The Company's local telephone switching network
(consisting of Lucent 5ESS-2000 switches) is installed and fully operational
in Boston and is expected to be fully operational in New York City by year-end
(in the interim, RCN is utilizing switches owned by MFS/WorldCom on its New
York City network). The networks' leased fiber optic cables make up the fiber
backbone, which acts as the common signal transport medium for both digital
signals (voice and data) and analog signals (video). In both New York City and
Boston, the digital backbone transmission network utilizes synchronous optical
network ("SONET") self-healing rings that provide high speed, redundant
connections for the delivery of RCN's voice and data services. Facility
connections from the backbone network to individual buildings or service
areas are provided by either leased facilities provided by MFS/WorldCom,
BECO or the incumbent LEC, or through RCN-owned fiber. RCN's fiber
backbone includes over 5,267 fiber miles in New York City and over 3,352
fiber miles in Boston. RCN owns two switches (one in Boston and one
presently being activated in New York) and two General Instrument video
headends that are installed and in service in both Boston and New York
City. As of June 30, 1997, RCN has connected 362 buildings (310 in NYC and
52 in Boston) to its facilities.
Fiber optic systems are suitable for transmission of digitized
voice, data, video or a combination of these types of information. The main
benefits of deploying fiber in place of traditional coaxial cable or copper
wire result from its greater capacity, increased functionality, smaller size
and decreased requirements for periodic amplification of the signal. These
factors contribute to lower installation and maintenance costs and increase
the variety and quality of the service offerings. The inherent bandwidth
limitations of twisted pair copper wire historically used in telephone networks
present a substantial obstacle to the use of existing telephone networks to
provide video programming services. Although coaxial cable provides
substantially greater bandwidth than twisted pair copper wire, fiber optic
cable provides substantially greater bandwidth than coaxial cable.
Consequently, newly constructed fiber networks such as RCN's provide a
superior platform for delivering high speed, high capacity voice, video and
data services as compared to systems based on copper wire or coaxial cable
networks.
The fiber cable utilized by RCN's networks has the increased
capacity and bandwidth necessary for complex data and video transmission. The
fiber optic cable typically contains between 12 and 288 fiber strands, each of
which is capable of providing many telecommunications channels or "circuits".
Depending on transmission electronics, a single pair of glass fibers on RCN's
networks currently can transmit tens of thousands of simultaneous voice
conversations, whereas even with multiplexing equipment a typical pair of
copper wires can carry a maximum of 24 simultaneous conversations. Although
the LECs commonly use copper wire in their networks, they are currently
deploying fiber optic cable to upgrade portions of their copper based network,
particularly in areas served by RCN. RCN expects that continuing development
in communications equipment will increase the capacity of each optical fiber,
thereby providing even more capacity at relatively low incremental cost.
As the Company's network is further developed, it will be
dependent on certain strategic alliances and other arrangements in order to
provide the full range of its telecommunication service offerings. These
relationships include RCN's arrangements with MFS/WorldCom to lease portions
of MFS/WorldCom's fiber optic network in New York City and Boston, RCN's
joint venture with BECO under which the Company has access to BECO's extensive
fiber optic network in Greater Boston, RCN's proposed joint venture with PCI,
a subsidiary of PEPCO and RCN's arrangements to lease Bell Atlantic unbundled
local loop and T-1 facilities. See "--Strategic Relationships" and "--Voice
Services--Advanced Fiber Optic Networks". Any disruption of these
arrangements and relationships could have a material adverse effect on the
Company.
Voice Services
Advanced Fiber Optic Networks. The Company's advanced fiber
optic networks in New York City and Boston utilize a voice network that
supports both switched and non-switched (private line) services. Individual
buildings are connected to the network backbone via fiber extensions that are
generally terminated on SONET equipment, which provide redundant and fail-safe
interconnection between the building and the RCN central office or switch
location. In situations where fiber extensions are not yet available, interim
facility connections can be provided by leasing special access facilities
through a leasing arrangement with MFS/WorldCom or the incumbent LEC. This
latter method enables RCN to provide voice and data services to off-net
subscribers who are not physically connected to RCN's advanced fiber optic
network. As RCN's network expands to reach more areas within a target market,
subscribers served by these temporary connections will be migrated to RCN's
advanced fiber optic network. Within a building (or small grouping of
buildings) a voice service hub is established by installing an Integrated
Digital Loop Carrier ("IDLC") device, which acts as the point of interface
between the SONET backbone facility and the intra-building wiring. Each IDLC is
installed with a standby power system and is capable of serving up to 672
lines. The IDLC is capable of supporting a wide range of both non-switched
services (DS-1, digital data) and switched voice services and features
including ISDN, Custom Calling and CLASS features. Within each building,
internal wiring (twisted pair copper cable) connects the IDLC to the customer
premises and the customer-owned telephone equipment. In certain instances,
voice service is extended to other buildings in the building group or cluster
via either fiber optic cable or twisted pair copper cable. At the time of
initial wiring, RCN generally installs wiring in excess of its initial
requirements, in order to meet future subscriber demand.
Video Programming
Advanced Fiber Optic Networks. There are presently two video
headend locations within RCN's advanced fiber optic networks in New York City
and Boston. The video headends consist of optical transmitters, optical
receivers, satellite receivers, signal processors, modulators, encoding
equipment and network status monitoring and automated tape distribution
equipment. From the headend, the video signal is distributed to individual
fiber nodes or receivers via the same fiber cable backbone used to deliver the
voice and data service. The fiber cable terminates in a fiber optic receiver
within an individual building or service area. From the fiber node, coaxial
cable and related distribution equipment is used to distribute the video
signals to the customer premises. The bandwidth of the video distribution is
750 MHZ, which is capable of supporting 110 video channels. This distribution
plant is specifically designed to be predominantly fiber-based, which
increases the reliability and improves the quality of the services delivered
compared to traditional cable television distribution architectures.
Wireless Video. RCN also owns and operates a "wireless video"
television system (which was formerly operated as Liberty Cable Television of
New York, the assets of which were acquired by RCN in 1996) using
point-to-point 18GHz microwave technology. RCN is utilizing this system in New
York City as an alternate platform for delivering television programming to
buildings that are not yet connected to the advanced fiber optic network. RCN
expects that the majority of the buildings currently served by the wireless
service will ultimately be connected to the network, to the extent that
connection is feasible. As buildings are connected to the RCN network, RCN
will reuse the microwave equipment to provide service to other customers in
off-network premises. The transmission equipment and microwave services used
to provide RCN's wireless service are provided by Bartholdi Cable, which
formerly operated Liberty Cable Television of New York. Bartholdi Cable has
agreed to provide transmission services to RCN until RCN has either converted
the subscribers to its advanced fiber optic network or has obtained FCC
authority to provide such services pursuant to its own licenses. In addition,
Bartholdi Cable has agreed to transfer to RCN the transmission equipment on
demand. Bartholdi Cable's obligation to provide transmission services is
subject to Bartholdi Cable having authority to provide such services. The
qualifications of Bartholdi Cable to hold certain of the licenses needed to
provide transmission services to RCN are currently being examined by the FCC.
It is too early to judge the likely outcome of that proceeding. Because of
the uncertainty as to Bartholdi Cable's right in the future to offer
transmission services to RCN, the Company has filed its own license
applications at the FCC for all of the microwave transmission paths which are
currently being used by Bartholdi Cable to provide transmission services to
RCN. There can be no assurance that RCN will be able to obtain its own FCC
license.
Hybrid Fiber/Coaxial Cable Systems. RCN's owns and operates
hybrid fiber/coaxial cable television networks in Pennsylvania, New Jersey and
New York State (outside of New York City), all within 75 miles of New York
City. These networks offer expanded bandwidth and a platform for two-way
services, and have an aggregate of 513 route miles of fiber optic cable. The
New York system includes 211 route miles of fiber optic cable serving 89 nodes
from one head-end. Approximately 70% of the New York system is two-way active
750 MHZ plant with 82 active channels of programming. The New Jersey system
has deployed 144 route miles of fiber optic cable (over 30 miles of which is
two-way active) from two head-ends, and generally operates a 400/450 MHZ plant
providing 61 channels of video programming. The Pennsylvania system operates
2,577 miles of coaxial cable and over 158 route miles of fiber with 41 nodes
from one headend, operating at 550 MHZ with 78 active channels. All of the
Company's hybrid fiber/coaxial cable systems are 100% one-way addressable.
RCN also owns a separate high capacity fiber optic ring (84 fibers) in
Pennsylvania (covering approximately 25 route miles) designed and constructed
as a competitive access network.
These fiber-rich networks provide a basic fiber optic platform
capable of enhancement for supporting two-way services, such as high-speed
Internet services, in the future. RCN is presently expanding the fiber
capacity of certain of these fiber/coaxial cable television networks so that
they will be capable of delivering switched two-way services in the future.
In August 1997, RCN commenced offering resold local phone service, long
distance and Internet access to customers in the area served by its Hybrid
Fiber/Coaxial Cable Systems in the Lehigh Valley area.
Data Services
Internet access and data transmission services are currently
provided over the advanced fiber optic network via dial-up modems facilitated
through the RCN voice network in on-net subscriber applications. In off-net
situations, subscribers use conventional dial-up modems through the incumbent
LEC network to access RCN's Internet transmission network. RCN is beginning
to offer Internet and data transmission services via cable modems. Cable
modems, which utilize the broadband coaxial plant, offer higher speed access
for data transmission than the speeds achieved by conventional telephone
dial-up techniques.
Hybrid Fiber/Coaxial Cable Systems
RCN's hybrid fiber/coaxial cable systems were operated by C-TEC
prior to the Distribution. The following table summarizes the development of
the hybrid fiber/coaxial cable systems over the last five years:
<TABLE>
<CAPTION>
As of
As of December 31, June 30,
------------------------------------------------ -------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Homes Passed............................ 115,394 118,216 119,761 282,836 283,940 288,641
Basic Subscribers....................... 83,068 87,660 92,140 176,131 179,932 181,790
Basic Penetration....................... 72.0% 74.2% 76.9% 62.3%(1) 63.4% 63.0%
Average Monthly Revenue per Subscriber
For Last Month of the Period........... $41.48 $40.98 $37.67 $36.73(1) $39.99 $42.87
<FN>
- ------------
(1) Decline in basic penetration levels and average monthly revenue per
subscriber in 1995 reflects the acquisition of the Pennsylvania cable
systems, which are in a market in which a competing franchisee also offers
service.
</TABLE>
The service area for these cable television networks enjoy
favorable customer demographics. The New York and New Jersey systems
primarily serve high growth affluent bedroom communities in suburban New York
City, with 28,522 and 74,242 connections at June 30, 1997, respectively. The
system in New York State serves ten municipalities in Duchess, Putnam and
Westchester Counties, approximately 45 miles north of New York City. The New
Jersey system serves 31 contiguous municipalities in Hunterdon, Mercer, Morris
and Somerset Counties, approximately 50 miles west of Manhattan. The
Pennsylvania system, which is the largest competitive cable television system
in the United States, serves Pennsylvania's Lehigh Valley area including the
cities of Allentown, Bethlehem and Easton, and virtually all of Lehigh and
Northampton Counties, and is located less than 10 miles west of the Company's
New Jersey system.
Interconnection
Because access to the public switched telephone network is an
essential component of any regional or national telecommunications network,
interconnection is critical to RCN's ability to provide voice and data
services. Bell Atlantic and the other incumbent LECs and independent
telephone companies are required to provide interconnection to CLECs such as
RCN pursuant to the facilities-based interconnection requirements of Section
251 of the 1996 Act. Under the 1996 Act, the RBOC's ability to offer
inter-LATA long distance service is contingent upon their ability to create an
environment allowing economically-efficient competition in their local markets
for both business and residential services.
Although implementation of the Section 251 interconnection
requirements is presently stayed by court order, RCN has achieved
interconnection through comprehensive telephone service co-carrier
interconnection agreements with Bell Atlantic and Sprint-New Jersey covering
their service areas in ten states and the District of Columbia in the Northeast
and New England-Middle Atlantic corridor areas. These agreements will remain
in effect regardless of the outcome of the proceedings regarding the FCC's
Section 251 regulations. RCN's interconnection agreements with Bell Atlantic
cover its service areas in the states of Massachusetts, New York, Vermont, New
Hampshire, Maine, Rhode Island, Delaware, Maryland, New Jersey, Pennsylvania
and Virginia and the District of Columbia. The agreement with Sprint-New
Jersey covers its service area in the State of New Jersey. All of these
agreements, with the exception of the Sprint-New Jersey agreement (which is
currently under consideration by the New Jersey Board of Public Utilities)
have been approved by the state regulatory commissions pursuant to Section
252 of the Communications Act of 1934, as amended by the Telecommunications
Act of 1996 (the "Communications Act"). RCN believes it has more
interconnection agreements with incumbent LECs than any other company
focused primarily on the residential telecommunications market.
The terms of RCN's interconnection agreements with the
incumbent LECs include the following provisions: (i) interconnection at any
technically feasible point within their networks, equal in quality to what the
incumbent LEC provides to itself or to affiliates, (ii) exchange of all local
traffic at a fully reciprocal and identical rate; (iii) receipt by RCN of
access charges for long distance calls made to and from its customers,
including full "pass through" to RCN of such compensation on number
portability; (iv) interim number portability arrangements to allow customers
to keep their telephone numbers when they switch carriers; (v) unbundled
network elements, including local loop transmission from the incumbent LEC's
central offices to the customer's premises distinct from local switching or
other services; (vi) nondiscriminatory access to 911 and emergency 911
services; directory assistance services to allow RCN's customers to obtain
telephone numbers; operator call completion services and white pages directory
listings for RCN's customers; and (vii) access to the poles, ducts, conduits
and rights-of-way owned or controlled by the incumbent LEC at
nondiscriminatory rates. The interconnection agreements generally have an
initial term of three years and are cancellable thereafter at 90 days' notice.
Resale Arrangements
Resale of Bell Atlantic Local Telephone Services
RCN provides local telephone service on a resale basis to
customers not connected to the advanced fiber optic facilities. As of June
30, 1997, RCN had 4,672 customers for local telephone services provided
through agreements to act as a reseller of Bell Atlantic local telephone
services. RCN offers its resale customers competitive telephone rates and
RCN's superior customer service. Resale customers are billed by RCN and RCN
personnel provision customer service requests by coordinating with the
incumbent LECs on the customers' behalf.
RCN has entered into agreements to act as a reseller of Bell
Atlantic local telephone services, which enable RCN to grow its subscriber
base by offering telephone services in advance of connecting the customers to
an advanced fiber optic network. RCN's agreements with Bell Atlantic allow
RCN to purchase at a "wholesale" discount (the amount of which is determined
by regulatory commissions in each state) any telephone services that those
companies offer to their end users, such as local exchange services, vertical
features including Caller ID, Call Waiting, etc., and regional toll calls.
The agreements provide that RCN will be entitled to the most favorable terms
and conditions, including wholesale discounts, available to any
telecommunications carrier reselling similar services.
Long Distance Resale
RCN Commercial provides long distance telephone services,
including private line, operator and calling card services, to residential and
business customers throughout the United States. Such services are provided
through an owned and leased switching network utilizing leased interconnection
facilities and long distance resale. RCN provides on network origination and
termination of long distance telephone services throughout the Mid-Atlantic
and New England states. For call origination and completion throughout the
rest of the country, RCN has various resale agreements. Specifically, RCN has
contracted with LCI for 800/888 origination, Frontier for off network
origination of outbound calling and various carriers for terminating calls.
MFS/WorldCom Resale
RCN has entered into an agreement with MFS/WorldCom relating to
resale of MFS/WorldCom services. See "--Strategic Relationships."
Direct TV
In October 1996, RCN signed an agreement with DirecTV to
deliver DirecTV's high-power direct broadcast satellite service to MDUs in New
York City. DirecTV allows RCN to offer an additional 175 channels of
programming including exclusive sports programming.
Marketing
RCN Telecom Services
RCN focuses its marketing efforts on residential customers in
high-density areas, with an initial focus on residential customers located on
or near RCN's current or proposed advanced fiber optic networks. Through these
advanced fiber optic networks, RCN is able to offer a wide range of
telecommunication services, including bundled service options, and to offer
its services at rates that are competitive with the incumbent LECs and cable
television operators and the major IXCs. RCN believes that quality of
service, superior technology and the ability to offer bundled services, as
well as price, will be more important to its customers than brand-name
recognition. Although RCN's initial marketing focus has been on residential
customers, it also will seek to provide communications services to commercial
customers located on its advanced fiber optic networks wherever feasible,
particularly with respect to small and medium size businesses in Boston and in
other areas outside of New York City, including new markets. RCN will also
market its advanced fiber-based services to institutional accounts, such as
hotels, universities and hospitals.
RCN has a team of direct sales personnel calling on targeted
customers. This team has salespeople dedicated to selling commercial accounts
and salespeople dedicated to selling to residential households. This is done
with a combination of lead follow-up and cold calling. Prospective commercial
customers are typically offered local and long distance voice services, with
options for video and data service as well. Prospective residential customers
are solicited as the fiber network is activated at the customer location and
the complete array of RCN services is offered, with the choice of a discounted
bundled package or individual service selections.
RCN markets its telephone services both as separate customer
options for local voice, long distance, video, and data access, and as a
bundled discounted package from a single service provider. RCN advertises its
services and availability through television, radio and newspapers, as well as
on bus shelters, subway stations, billboards, and other local outlets, and
recently launched a mass-media advertising campaign in New York City and
Boston. Customer response is generally channeled to 1-800-RING-RCN or
www.rcn.com. Advertising is supported via targeted direct mail and
telemarketing. Customers are offered special incentives to purchase more than
one service from RCN. For example, as a six-month introductory offer, New
York City customers purchasing both video and local voice service are
currently eligible for a basic cable rate reduction (from $24.95 to $19.97)
and a free basic voice line (a $6.60 value).
RCN has employed specific teams dedicated to offering service
to customers in MDUs in high-density metropolitan areas. First, an access
agreement team makes presentations to owners/managers of MDUs seeking to obtain
private access agreements. This team also assists with presentations to
municipal officials in connection with applications for OVS license agreements
and franchise agreements. As of June 30, 1997, RCN has obtained 505 access
agreements covering over 102,000 units in MDUs in New York City and Boston and
surrounding communities (markets of 2.9 million households and 770,000
households, respectively). Access agreements permit the installation of
electronics and wiring to service the buildings and typically provide a term
of access of 5-10 years. Of RCN's current access agreements, 12 % expire
within the next three years, 16 % expire in 3-5 years and 72% expire
thereafter. The access agreements generally provide for non-exclusive access,
but for exclusive marketing assistance, whereby the building management
promotes and assists in the promotion of RCN's services on an exclusive basis.
As an incentive, RCN may negotiate a success-based marketing payment to the
building owner. This payment takes the form of either a percentage of
revenue, or a reduced rate for services. RCN has also employed bulk service
agreements pursuant to which RCN provides services (generally video services)
at a flat subscription rate covering all units in the residential building
(typically, a condominium or cooperative apartment building) or institution.
RCN believes that bulk sales contracts are a useful vehicle for early entry
into a market, but expects the majority of its future agreements to facilitate
the purchase of services on an individual basis.
Second, a sales team, led by a group of customer account
managers, seeks to solidify the relationships with the building
owners/management, by coordinating the installation process, organizing the
initial marketing and promotion at each building, and selling RCN services to
each building resident. Usually, after an announcement and informational
package is distributed to each building resident, a lobby demonstration and
enrollment event takes place over several evenings. Residents are offered
free installation and convenient appointments. After the initial sales and
installation process is completed, the customer account manager works with the
building owner/manager to maximize ongoing penetration, especially through the
signup of new move-in residents.
RCN has opened two high-tech visitor centers in prominent
locations in Boston and New York City, where potential customers can sample
RCN's services. A network operations center including a graphic
representation of the RCN network is on view at each location.
Hybrid Fiber/Coaxial Cable television
Sales and marketing to customers served by the Company's hybrid
fiber/coaxial cable systems is accomplished through a variety of means
including door-to-door sales, direct mail, telemarketing, incentive programs
and print and broadcast advertising. In addition to marketing efforts
targeting new subscribers, the Company conducts periodic campaigns to
encourage existing customers to purchase higher levels of service.
Customer Service and Billing
RCN has implemented a flexible, customer-service oriented
approach which RCN believes differentiates it from the mass-market strategy of
the incumbent providers. RCN provides customer service 24 hours a day, seven
days a week from an established central call center located in Dallas,
Pennsylvania. The facility utilizes state of the art technology which allows
communication with subscribers, field technicians and the Company's field
offices. In 1996, approximately 90.5% of calls placed to the facility were
answered in 30 seconds or less. Additionally, the facility initiates 180
technician service routes per day. The technical staff consistently maintains
an on-time appointment percentage of 99.8%. In order to maximize efficiency,
all service trucks are equipped with two-way radios and supervisors' trucks
are equipped with cellular phones. RCN's customer service professionals,
installers and technicians have been professionally trained, and many of the
service technicians are trained to handle both voice and video service. RCN
believes that its infrastructure for billing and customer service will provide
a competitive advantage in expanding into new markets.
RCN's advanced fiber optic network is continuously monitored
for quality control and capacity issues, pursuant to a control system
featuring 16 alarm monitor points per hub site and automated housekeeping
alarms. Approximately 90% of RCN's advanced fiber-based video services are
delivered using addressable set-top equipment permitting monitoring and
customer service to be handled from the remote operations center.
Billing services for video are provided by CableData while RCN
telephony billing services are provided by Consolidated Communications Systems
and Services. At the present time, RCN customers receive separate billing
statements for video and telephone service although RCN intends to offer a
single billing option in the future.
Account piracy is monitored by ongoing field audits and, in
RCN's advanced fiber optic networks, through use of state of the art
scrambling systems. Potential new customers are generally screened for
credit history before being authorized for service. RCN employs a full-time
credit and collection staff as well as a group that seeks to minimize toll
fraud by detecting and monitoring suspicious calling patterns.
Programming and Suppliers
RCN has secured license arrangements with all of its desired
programming suppliers, some of which provide volume discount pricing
structures and/or offer marketing support to the Company. Many of these
arrangements are extensions of long-standing agreements entered into by or on
behalf of the Company's hybrid fiber/coaxial cable systems, and some are newly
negotiated based upon RCN's OVS certifications. RCN has generally obtained
these license arrangements on terms and conditions that it considers favorable.
RCN programming arrangements include arrangements for basic
video channels, premium channels including multi-plexing, pay-per-view movies
and events, adult entertainment, electronic program guide services and digital
music services, as well as retransmission arrangements for relevant network
broadcasters.
The Company generally pays a monthly fee per subscriber per
channel for programming purchased from its suppliers. Programming costs
increase in the ordinary course of the Company's business as a result of
increases in the number of subscribers, expansion of the number of channels
provided to customers and contractual rate increases from programming
suppliers. The Company anticipates that future contract renewals for video
providers such as the Company will result in programming costs exceeding
current levels, particularly for sports programming.
A wide range of national manufacturers are the primary sources
of supplies, equipment and materials utilized in the development and
enhancement of the Company's networks. RCN has entered into Master Purchase
Agreements with certain equipment suppliers which enable it to purchase video
and switching equipment on terms which it considers favorable. The Company
anticipates that the costs for these supplies, equipment and materials will be
significant in future periods. The amount of such costs will depend on
numerous factors, many of which are beyond the Company's control.
RCN Commercial
RCN Commercial, a division of RCN's wholly owned subsidiary RCN
Long Distance Company, provides switched-based resale long distance services
to customers on the advanced fiber optic network as well as other customers.
RCN Commercial operates the long distance business formerly operated by C-TEC,
except within the Commonwealth Service Territory. During 1996, RCN obtained
certification in forty-seven states. RCN Commercial also provides local
telephone service to commercial customers. As of June 30, 1997, RCN
Commercial had approximately 15,200 long distance customers.
International
The Company owns a 40% interest in Megacable, the second
largest cable television provider in Mexico. Megacable owns 22 wireline cable
systems in Mexico, principally on the Pacific and Gulf coasts and including
Guadalajara, the second largest city in Mexico, Hermosillo, the largest city
in the state of Sonora and Veracruz, the largest city in the state of
Veracruz. At June 30, 1997 these systems passed approximately 622,000 homes
and served approximately 176,000 subscribers. Megacable had revenues of $23.2
million for the year ended December 31, 1996 and $14.3 million for the six
months ended June 30, 1997. Recent financial results for Megacable expressed
on a US GAAP basis and subscriber data are summarized below:
<TABLE>
<CAPTION>
As of or for the Year Ended As of or for the Six Months Ended
December 31, June 30,
1995 1996 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
US GAAP
Revenue.................................. 20,841 23,244 10,882 14,245
Net Income............................... 5,802 10,221 4,603 3,979
RCN Equity in Earnings of Megacable (1).. (3,061) (2,190) (1,299) (1,549)
Accumulated Cash......................... 25,886 29,617 28,923 28,090
Total Assets............................. 62,035 67,826 66,738 71,507
Total Liabilities........................ 9,372 6,575 9,383 6,278
Net Worth................................ 52,664 61,251 57,355 65,229
Other Data
EBITDA(2)................................ 8,154 10,183 4,741 5,753
EBITDA Margin(2)......................... 39% 44% 44% 40%
Subscribers.............................. 177,317 178,664 163,312 176,447
<FN>
(1) Represents RCN's portion of the Megacable net income and the amortization
of imputed goodwill.
(2) EBITDA represents earnings before interest, depreciation and amortization,
and income taxes. EBITDA is commonly used in the communications industry
to analyze companies on the basis of operating performance, leverage and
liquidity. EBITDA is not intended to represent cash flows for the period
and should not be considered as an alternative to cash flows from
operating, investing or financing activities as determined in accordance
with U.S. GAAP. EBITDA is not a measurement under U.S. GAAP and may not be
comparable with other similarly titled measures of other companies. EBITDA
is used by Megacable and the Company to assess the extent to which cash
flows are available for replacement and modernization of plant, to offer
new services to customers, to further improve the quality of service and to
fund new investment opportunities.
</TABLE>
Megacable is presently expanding the fiber capacity of certain
of its systems to provide high-speed data services and potentially voice
services. Specifically, Megacable has built out its systems in Veracruz,
Jalapa, Tepic and certain neighborhoods in Guadalajara using hybrid
fiber/coaxial network architecture, to provide a fiber optic cable "backbone"
capable of providing these services.
Additionally, Megacable presently holds a 99% interest in
Megacable Comunicaciones de Mexico S.A. ("MCM"). MCM has received a license
from the Mexican government to allow it to build a fiber optic network in
Mexico City. MCM intends to use this network to provide local voice and high
speed data services, principally to commercial customers in that city.
Competition
Overview
RCN competes with a wide range of service providers for each of
the services that it provides. Virtually all markets for voice and video
services are extremely competitive, and RCN expects that competition will
intensify in the future. In each of the markets in which it offers voice and
video programming services, RCN faces significant competition often from
larger, better-financed incumbent local telephone carriers and cable
companies, and RCN often competes directly with incumbent providers which have
historically dominated their respective local telephone and cable television
markets. These incumbents presently have numerous advantages as a result of
their historic monopoly control of their respective markets. However, RCN
believes that most existing and potential competitors will, at least
initially, provide narrower service offerings over limited delivery platforms
as compared to the wide range of voice, video and data services that will be
provided over RCN's fiber-based networks, thereby providing RCN with an
opportunity to achieve important market penetration.
With respect to local telephone services, RCN competes with the
incumbent LECs, and alternative service providers including CLECs. Commercial
mobile radio services providers, including cellular carriers (such as Bell
Atlantic Mobile Services), personal communications services ("PCS") carriers
(such as Sprint Spectrum), and enhanced specialized mobile radio services
("ESMRS") providers (such as NexTel), may also become a source of competitive
local and long distance telephone service. However, RCN believes these
operators may primarily use competitive access services to transport their
calls among their radio transmitter/receiver sites through networks that avoid
the incumbent LECs with whom they compete.
With respect to long distance telephone services, RCN faces,
and expects to continue to face, significant competition from the IXCs,
including AT&T, Sprint and MCI, which account for the majority of all long
distance revenue. The major long distance service providers benefit from
established market share and from established trade names brought about by
nationwide advertising. RCN, however, regards its long-distance service as a
complementary service rather than a principal source of revenue. Certain
IXCs, including AT&T, MCI and Sprint, have also announced their intention to
offer local services in major U.S. markets using their existing infrastructure
in combination with resale of incumbent LEC service, lease of unbundled local
loops or other providers' services.
All of the Company's video services face competition from
alternative methods of receiving and distributing television signals and from
other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live sporting
events, interactive online computer services and home video products,
including videotape cassette recorders. Among the alternative video
distribution technologies are home satellite dish earth stations ("HSDs")
which enable individual households to receive many of the satellite-delivered
program services formerly available only to cable subscribers. Furthermore,
the 1992 Act contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to HSD owners certain satellite-delivered cable programming at
competitive costs. RCN faces additional competition from private satellite
master antenna television ("SMATV") systems that serve condominiums, apartment
and office complexes and private residential developments. The FCC and
Congress have adopted policies providing a more favorable operating
environment for new and existing technologies that provide, or have the
potential to provide, substantial competition to the Company's various video
distribution systems. These technologies include, among others, DBS service
whereby signals are transmitted by satellite to receiving facilities located
on customer premises. The Company expects that its video programming services
will face growing competition from current and new DBS service providers. RCN
also competes with wireless program distribution services such as
multi-channel multipoint distribution service ("MMDS") which use low-power
microwave frequencies to transmit video programming over-the-air to
subscribers. The Company is unable to predict whether wireless video services
will have a material impact on its operations.
Other new technologies, including Internet-based services, may
become competitive with services that RCN can offer. Advances in
communications technology as well as changes in the marketplace and the
regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the video industry or on the operations of the Company.
RCN believes that among the existing competitors, the incumbent
LECs, incumbent cable providers and the CLECs provide the most direct
competition to RCN in the delivery of "last mile" connections for voice and
video services.
Incumbent LECs
In each of its target markets for advanced fiber optic
networks, RCN faces, and expects to continue to face, significant competition
from the incumbent LECs (including Bell Atlantic in New York City and Boston),
which currently dominate their local telephone markets. RCN competes with
the incumbent LECs in its markets for local exchange services on the basis of
product offerings (including the ability to offer bundled voice and video
services), reliability, state-of-the-art technology and superior customer
service, as well as price. RCN believes that its advanced fiber optic
networks provide superior technology for delivering high speed, high-capacity
voice, video and data services as compared to the primarily copper wire based
networks of the incumbent LECs. However, the incumbent LECs have begun to
expand the amount of fiber facilities in their networks and to prepare to
re-enter the long distance telephone service market and, in addition, have
long-standing relationships with their customers.
In addition, under the 1996 Act, and ensuing federal and state
regulatory initiatives, barriers to local exchange competition are being
removed. The introduction of such competition, however, also establishes the
predicate for the incumbent RBOCs, such as Bell Atlantic, to provide in-region
interexchange long distance services. The incumbent RBOCs are currently
allowed to offer "incidental" long distance service in-region and to offer
out-of-region long distance service. Once the incumbent RBOCs are allowed to
offer in-region long distance services, they will also be in a position to
offer single source local and long distance service similar to that offered by
RCN and proposed by the three largest IXCs (AT&T, MCI and Sprint). The
Company expects that the increased competition made possible by regulatory
reform will result in certain pricing and margin pressures in the
telecommunications services business.
RCN has sought, and will continue to seek, to provide a full
range of local voice services in competition with incumbent LECs in its
service areas. The Company expects that competition for local telephone
services will be based primarily on quality, capacity and reliability of
network facilities, customer service, response to customer needs, service
features and price, and will not be based on any proprietary technology. As a
result of the comparatively recent installation of RCN's advanced fiber optic
networks, its dual path architecture and the state-of-the-art technology used
in its networks, RCN may have capital cost and service quality advantages over
some currently available local networks relied upon by the incumbent LECs, as
well as the competitive advantage provided by the ability to deliver a bundled
voice and video service.
The 1996 Act permits the incumbent LECs and others to provide a
wide variety of video services directly to subscribers in competition with
RCN. Various LECs currently are providing video services within and outside
their telephone service areas through a variety of distribution methods,
including both the deployment of broadband wire facilities and the use of
wireless transmission facilities. The Company cannot predict the likelihood of
success of video service ventures by LECs or the impact on the Company of such
competitive ventures.
Incumbent Cable Television Service Providers
Certain of RCN's video service businesses compete with
incumbent wireline cable companies in their respective service areas. In
particular, RCN's advanced fiber optic networks compete for cable subscribers
with the major wireline cable operators in New York City and Boston, primarily
Time-Warner Cable in New York City and Cablevision in Boston. RCN's wireless
video service in New York City competes primarily with Time-Warner Cable. RCN
believes that the expanded capacity and fiber-to-node architecture of its
advanced fiber optic networks in New York City and Boston make it better
equipped to provide high-capacity communications services than coaxial cable
based networks utilizing "tree and branch" architecture. RCN's Pennsylvania
hybrid fiber/coaxial cable television system competes with an alternate
service provider, Service Electric, which also holds a franchise for the
relevant service area.
Since cable television systems generally operate pursuant to
franchises granted on a non-exclusive basis, and the 1992 Act prohibits
franchising authorities from unreasonably denying requests for additional
franchises and permits franchising authorities to operate cable systems,
well-financed businesses from outside the cable industry (such as the public
utilities that own certain of the poles on which cable is attached) may become
competitors for franchises or providers of competing services.
CLECs and Other Competitors
RCN also faces, and expects to continue to face, competition
from other potential competitors in certain of the markets in which RCN offers
its services. Other CLECs such as Teleport Communications Group, compete for
local telephone services, although they have to date focused primarily on the
market for corporate customers. In addition, potential competitors capable of
offering private line and special access services also include other smaller
long distance carriers, cable television companies, electric utilities,
microwave carriers, wireless telephone system operators and private networks
built by large end-users, including Winstar, Dualstar and New Vision.
However, RCN believes that, at least initially, it is relatively unique in its
markets in offering bundled voice, video and data services to customers in
residential areas, and in striving to connect residential customers directly
to its advanced fiber optic network.
Other new technologies may become competitive with services
that RCN can offer. Cellularvision, a provider of local multipoint
distribution service ("LMDS"), recently began offering wireless Internet and
video programming services in New York City and has announced plans to offer
telephone service in the future. Advances in communications technology as
well as changes in the marketplace and the regulatory and legislative
environment are constantly occurring. In addition, a continuing trend toward
business combinations and alliances in the telecommunications industry may
also create significant new competitors to RCN. The Company cannot predict
whether competition from such developing and future technologies or from such
future competitors will have a material impact on its operations.
Regulation
The telecommunications services offered by the Company are
subject to federal, state, and local government regulation. The 1996 Act,
which became effective in February 1996, introduced widespread changes in the
regulation of the communications industry, including the local telephone, long
distance telephone, data services, and television entertainment segments in
which the Company operates. The 1996 Act was intended to promote competition
and decrease regulation of these segments of the industry. The law delegates
to the FCC (and in some cases the states) broad regulatory and administrative
authority to implement the 1996 Act.
Telecommunications Act of 1996
The 1996 Act eliminates many of the pre-existing legal barriers
to competition in the telephone and cable television businesses, preempts many
of the state barriers to local telephone service competition that previously
existed in state and local laws and regulations, and sets basic standards for
relationships between telecommunications providers.
Among other things, the 1996 Act removes barriers to entry in
the local exchange telephone market by preempting state and local laws that
restrict competition and by requiring LECs to provide nondiscriminatory access
and interconnection to potential competitors, such as cable operators,
wireless telecommunications providers, and long distance companies. In
addition, the 1996 Act provides relief from the earnings restrictions and
price controls that have governed the local telephone business for many years.
The 1996 Act will also, once certain thresholds are met, allow incumbent RBOCs
to enter the long distance market within their own local service regions.
Regulations promulgated by the FCC under the 1996 Act require
LECs to open their telephone networks to competition by providing competitors
interconnection, access to unbundled network elements and retail services at
wholesale rates. As a result of these changes, companies such as RCN are now
able to interconnect with the incumbent LECs in order to provide local
exchange services. Numerous parties have appealed certain aspects of these
regulations. The appeals have been consolidated and are being reviewed by the
U.S. Court of Appeals for the Eighth Circuit, which has stayed certain of the
FCC's pricing and nondiscrimination regulations. RCN has entered into
competitive interconnection agreements using the federal guidelines
established in the FCC's interconnection order, which agreements will remain
in effect regardless of the outcome of the proceedings regarding the FCC's
regulations. Portions of the FCC's order providing for number portability
remain in effect within the 100 largest Metropolitan Statistical Areas
("MSAs"), and are slated for implementation beginning in March 1998.
The 1996 Act also makes far-reaching changes in the regulation
of the video programming transmission services offered by RCN, including
changes to the regulations applicable to video operators, the elimination of
restrictions on telephone company entry into the video business, and the
establishment of a new OVS regulatory structure for telephone companies and
others to offer such services. Under the 1996 Act, local telephone companies,
including both incumbent LECs such as Bell Atlantic, and CLECS such as RCN,
may provide service as traditional cable television operators subject to
municipal cable television franchises, or they may opt to provide their
programming over non-franchised open video systems subject to certain
conditions, including, but not limited to, making available a portion of their
channel capacity for use by unaffiliated program distributors and satisfying
certain other requirements, including providing capacity for public,
educational and government channels, and payment of a gross receipts fee
equivalent to the franchise fee paid by the incumbent cable television
operator. RCN is one of the first CLECs to provide television programming
over an advanced fiber optic network pursuant to the OVS regulations
implemented by the FCC under the 1996 Act.
Regulation of Voice Services
RCN's voice business is subject to regulation by the FCC at the
federal level with respect to interstate telephone services (i.e. those that
originate in one state and terminate in separate states). State regulatory
commissions have jurisdiction over intrastate communications; (i.e. those that
originate and terminate in the same state).
State Regulation of Intrastate Local and Long Distance
Telephone Services. RCN's intrastate telephone service in New York City and
Boston is regulated by the States of New York and Massachusetts, respectively.
In New York, RCN's subsidiary RCN Telecom Services of New York, Inc.
("RCN-NY") is authorized by the New York Public Service Commission to provide
competitive local exchange services, and to resell intrastate long distance
services subject to a Certificate of Public Convenience and Necessity and
pursuant to tariffs setting forth its rates, terms and conditions of service.
In Massachusetts, RCN's subsidiary RCN Telecom Services of Massachusetts, Inc.
("RCN-MA") has registered to offer competitive local exchange services, and
to resell long distance services, and has filed tariffs setting forth its
Massachusetts rates, terms and conditions of service. The Company has also
obtained or is in the process of obtaining similar intrastate authorizations
through subsidiaries in other states where it intends to offer service in the
future. RCN's resale agreements with Bell Atlantic have been approved,
pursuant to Section 252 of the Communications Act of 1934 as amended by the
Telecommunications Act of 1996, and by state regulatory commissions in
Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New York,
New Jersey, New Hampshire, Pennsylvania, Rhode Island, Vermont, and Virginia.
RCN Long Distance Company is also authorized to offer
intrastate long distance services in New York and Massachusetts and, in
addition, has received state regulatory authority to offer such services in 45
other states nationwide. Pursuant to such authorizations, RCN Long Distance
Company is permitted to resell intrastate long distance services both to other
carriers, including RCN-NY and RCN-MA for resale to their end user
subscribers, and to its own end user customers.
FCC Regulation of Interstate and International Telephone
Services. RCN, through several of its subsidiaries, including RCN-NY, RCN-MA
and RCN Long Distance Company, may also provide domestic interstate telephone
services nationwide pursuant to tariffs on file at the FCC, and has been
authorized by the FCC under Section 214 of the 1996 Act to offer worldwide
international services as well. RCN is authorized to resell in-state
long-distance services in 47 states (all except Alaska, Hawaii, and New
Mexico), and, where required, has registered with or obtained licenses or
certificates from state regulatory agencies for the provision of this service.
Local Regulation of Telephone Services. Municipalities also
regulate limited aspects of RCN's voice business by, for example, imposing
various zoning requirements and, in some instances, requiring
telecommunications licenses or franchise agreements and/or installation
permits for access to local streets and rights-of-way. In New York City, for
example, RCN will be required to obtain a telephone franchise in order to
provide voice services using its advanced fiber optic network facilities
located in the streets of New York City (although services may be provided
over certain leased or resold facilities pending receipt of a franchise).
Regulation of Video Services
Open Video Systems. In February, 1997, RCN subsidiaries were
certified to operate OVS networks in the five boroughs of New York City and,
as part of the BECO joint venture, in Boston and 47 surrounding communities.
Initiation of OVS services is subject to completion of an open enrollment
period for non-affiliated video programmers to seek capacity on the systems
and upon negotiation of certain agreements with local governments. The
initial open enrollment period for both the New York City and Boston areas
systems has expired. RCN executed an agreement with the City of Boston on
June 2, 1997, and initiated OVS service in the City on that day. Pursuant to
its agreement with the City of Boston, RCN will be required to pay a fee to
the City equal to 5% of video revenues. RCN is still in the process of
negotiating agreements with the other 47 Boston-area municipalities, either to
offer OVS services or franchised cable television services, and is also
continuing to negotiate an OVS agreement with the City of New York.
In areas where it offers video programming services as an
OVS operator, RCN will be required to hold a 90-day open enrollment period
every three years, during which times RCN will be required to offer
capacity on its network to other VPPs. Under the OVS regulations, RCN must
offer at least two-thirds of its capacity to unaffiliated parties, if
demand for such capacity exists during the open enrollment period. In
certain areas, RCN is in discussions with local municipal authorities to
explore the feasibility of obtaining a cable franchise in lieu of an OVS
agreement, and will consider providing RCN video service pursuant to
franchise agreements rather than OVS certification, if franchise agreements
can be obtained on terms and conditions acceptable to RCN. However, RCN
will consider the relative benefits of OVS certification versus local
franchise agreements, including the possible imposition of universal
service requirements, before making any such decisions. In addition, the
current FCC rules concerning OVS are subject to appeal in the United States
Court of appeals and, to the extent that certain favorable aspects of the
FCC's rules are overturned on appeal, the determination of whether to
operate as an OVS provider versus as a franchised cable television operator
may be affected. Moreover, the incumbent cable television provider in
Boston, Cablevision Systems, has requested that the FCC permit it to obtain
capacity on RCN's Boston area OVS network, and Time Warner has indicated
that it may make the same type of request for capacity on both the New York
and Boston OVS networks. RCN intends to oppose any such request made to
the FCC, but to the extent that the FCC were to grant the request, such a
result would likely affect the Company's determination as to whether to
operate as an OVS provider versus as a franchised cable television
operator.
Prior to its certification as an OVS provider, RCN offered
limited video programming services using the video dialtone services offered
by MFS/WorldCom in Manhattan and the City of Boston. In February, 1997, the
FCC held that MFS/WorldCom's facilities did not qualify as video dialtone
facilities entitled to an extension of time to comply with the newly adopted
OVS rules; nonetheless, the FCC did not direct MFS/WorldCom and RCN to cease
video programming distribution operations over the MFS/WorldCom platform.
This FCC order has been appealed by MFS/WorldCom. It is too soon to predict
the likely outcome of that proceeding, but should the Court of Appeals uphold
the FCC, it is likely that MFS/WorldCom and RCN will need to resolve
challenges to their former (pre-OVS) operations which were brought before the
New York Public Service Commission and the Massachusetts Cable Television
Commission by the incumbent cable television companies in the two cities where
MFS/WorldCom and RCN operated under the VDT framework.
Wireless Video Services. RCN's 18 GHz wireless video services
in New York City are distributed using microwave facilities provided by
Bartholdi Cable pursuant to licenses issued to Bartholdi Cable by the FCC.
Bartholdi Cable has agreed to provide transmission services to RCN until RCN
has either converted the wireless video subscribers to its advanced fiber
optic network facilities or has obtained FCC authority to provide such
services pursuant to its own wireless radio licenses. In addition, Bartholdi
Cable has agreed to transfer to RCN the transmission equipment on demand.
Bartholdi Cable's obligation to provide transmission services is subject to
Bartholdi Cable having licenses from the FCC to provide such services. The
qualifications of Bartholdi Cable to hold certain of the licenses needed to
provide transmission services to RCN are currently being examined by the FCC.
It is too early to judge the likely outcome of that proceeding. Because of
the uncertainty as to Bartholdi Cable's right in the future to offer
transmission services to RCN, the Company has filed its own license
applications at the FCC for all of the microwave transmission paths which are
currently being used by Bartholdi Cable to provide transmission services to
RCN.
There can be no assurance that RCN will be able to obtain or
retain all necessary authorizations needed to construct advanced fiber optic
network facilities, to convert its wireless video subscribers to an advanced
fiber optic network or to offer wireless video services pursuant to its own
FCC licenses.
Hybrid Fiber/Coaxial Cable. RCN's hybrid fiber/coaxial cable
systems are subject to regulation under the Cable Television Consumer
Protection and Competition Act of 1992, as amended (the "1992 Act"), which
provides, among other things, for rate regulation for cable services in
communities that are not subject to "effective competition," certain
programming requirements, and broadcast signal carriage requirements that
allow local commercial television broadcast stations to require a cable system
to carry the station. Local commercial television broadcast stations may
elect once every three years to require a cable system to carry the station
("must-carry"), subject to certain exceptions, or to withhold consent and
negotiate the terms of carriage ("retransmission consent"). A cable system
generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations whether
pursuant to the mandatory carriage or retransmission consent requirements of
the 1992 Act. Local non-commercial television stations are also given
mandatory carriage rights. The FCC recently issued rules establishing
standards for digital television ("DTV"). Among other provisions, the
FCC's rules require television stations to simulcast their NTSC and DTV
signals for a period of years. During this simulcast period, it is unclear
whether must-carry rules will apply to DTV signals. The Communications Act
permits franchising authorities to require cable operators to set aside
certain channels for public, educational and governmental access
programming. Cable systems with 36 or more channels must designate a
portion of their channel capacity for commercial leased access by third
parties to provide programming that may compete with services offered by
the cable operator.
Because a cable communications system uses local streets and
rights-of-way, such cable systems are generally subject to state and local
regulation, typically imposed through the franchising process. The terms and
conditions of state or local government franchises vary materially from
jurisdiction to jurisdiction and generally contain provisions governing cable
service rates, franchise fees, franchise term, system construction and
maintenance obligations, customer service standards, franchise renewal, sale
or transfer of the franchise, territory of the franchisee and use and occupancy
of public streets and types of cable services provided. Local franchising
authorities (state or local, depending on the practice in individual states)
may award one or more franchises within their jurisdictions and prohibit
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The Communications Act also provides that in granting or
renewing franchises, local authorities may establish requirements for
cable-related facilities and equipment, but not for video programming or
information services other than in broad categories. The Communications Act
limits the payment of franchise fees to 5% of revenues derived from cable
operations and permits the cable operator to obtain modification of franchise
requirements by the franchise authority or judicial action if warranted by
changed circumstances.
RCN's ability to provide franchised cable television services
is dependent to a large extent on its ability to obtain and renew its
franchise agreements from local government authorities on generally acceptable
terms. RCN currently has 91 franchise agreements relating to the hybrid
fiber/coaxial cable systems in New York (outside New York City), New Jersey
and Pennsylvania. These franchises typically contain many conditions, such as
time limitations on commencement and completion of construction, conditions of
service, including the number of channels, the provision of free service to
schools and certain other public institutions, and the maintenance of
insurance and indemnity bonds. These franchises provide for the payment of
fees to the issuing authorities and generally range from 3% to 5% of revenues.
The duration of these outstanding franchises presently varies up to the year
2011. To date, all of RCN's cable franchises have been renewed or extended,
generally at or prior to their stated expirations and on acceptable terms.
During 1996, RCN completed negotiations with three communities resulting in
franchise renewals on terms which are acceptable to it. A total of 34 of
RCN's hybrid fiber/coaxial cable systems' franchises are due for renewal
within the next three years. No assurance can be given that RCN will be able
to renew its franchises on acceptable terms. No one franchise accounts for
more than 7% of RCN's total revenue. RCN's five largest franchises account
for approximately 27% of RCN's total revenue.
The hybrid fiber/coaxial cable systems are also subject to
certain service quality standards and other obligations imposed by the FCC
and, where effective competition has not been demonstrated to exist, to rate
regulation by the FCC as well. RCN's cable television system in Pennsylvania
has been operating in a competitive cable environment for almost 30 years,
with approximately 80% of the homes passed having access to an alternate cable
operator, Service Electric Cable TV. As a result, the Company's Pennsylvania
cable system is exempt from many FCC cable television regulations, including
rate regulation. Its other cable television systems in New York State and New
Jersey currently remain subject to FCC rate regulation. With the passage of
the 1996 Act, however, all cable systems rates will be deregulated as
effective competition is shown to exist in the franchise area, or by March 31,
1999, whichever date is sooner. RCN anticipates that the remaining provisions
of the 1992 Act that do not relate to rate regulation, such as the provisions
relating to retransmission consent and customer service standards, will remain
in place and may serve to reduce the future operating margins of RCN's hybrid
fiber/coaxial cable television businesses as video programming competition
develops in its cable television service markets.
The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates. In the absence of state
regulation, the FCC administers pole attachment rates on a formula basis. In
some cases, utility companies have increased pole attachment fees for cable
systems that have installed fiber optic cables and that are using such cables
for the distribution of non-video services. The FCC concluded that, in the
absence of state regulation, it has jurisdiction to determine whether utility
companies have justified their demand for additional rental fees and that the
Communications Act does not permit disparate rates based on the type of
service provided over the equipment attached to the utility's pole. The 1996
Act and the FCC's implementing regulations modify the current pole attachment
provisions of the Communications Act by immediately permitting certain
providers of telecommunications services to rely upon the protections of the
current law and by requiring that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. Additionally, within two years of
enactment of the 1996 Act, the FCC is required to adopt new regulations to
govern the charges for pole attachments used by companies provided
telecommunications services, including cable operators. These new pole
attachment rate regulations will become effective five years after enactment
of the 1996 Act, and any increase in attachment rates resulting from the FCC's
new regulations will be phased in equal annual increments over a period of
five years beginning on the effective date of the new FCC regulations. The
ultimate outcome of these rulemakings and the ultimate impact of any revised
FCC rate formula or of any new pole attachment rate regulations on the Company
or its businesses cannot be determined at this time.
The 1992 Act, the 1996 Act and FCC regulations preclude any
satellite video programmer affiliated with a cable company, or with a common
carrier providing video programming directly to its subscribers, from favoring
an affiliated company over competitors and require such programmers to sell
their programming to other multichannel video distributors. These provisions
limit the ability of program suppliers affiliated with cable companies or with
common carriers providing satellite delivered video programming directly to
their subscribers to offer exclusive programming arrangements to their
affiliates. The Communications Act also includes provisions, among others,
concerning horizontal and vertical ownership of cable systems, customer
service, subscriber privacy, marketing practices, equal employment
opportunity, obscene or indecent programming, regulation of technical
standards and equipment compatibility.
In addition to the FCC regulations noted above, there are other
FCC regulations covering such areas as equal employment opportunity,
syndicated program exclusivity, network program non-duplication, registration
of cable systems, maintenance of various records and public inspection files,
microwave frequency usage, lockbox availability, sponsorship identification,
antenna structure notification, tower marking and lighting, carriage of local
sports broadcast programming, application of rules governing political
broadcasts, limitations on advertising contained in non-broadcast children's
programming, consumer protection and customer service, ownership of home
wiring, indecent programming, programmer access to cable systems, programming
agreements, technical standards, consumer electronics equipment compatibility
and closed captioning. The FCC has the authority to enforce its regulations
through the imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations.
Other bills and administrative proposals pertaining to cable
television have previously been introduced in Congress or considered by other
governmental bodies over the past several years. It is probable that there
will be legislative proposals in the future by Congress and other governmental
bodies relating to the regulation of communications services.
Cable television systems are subject to federal compulsory
copyright licensing covering the retransmission of television and radio
broadcast signals. In exchange for filing certain reports and contributing a
percentage of their basic revenues to a federal copyright royalty pool, cable
operators can obtain blanket licenses to retransmit the copyrighted material
on broadcast signals
The foregoing does not purport to describe all present and
proposed federal, state, and local regulations and legislation affecting the
telephone and video programming industries. Other existing federal
regulations, copyright licensing, and, in many jurisdictions, state and local
franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in
varying degrees, the manner in which communications companies operate. The
ultimate outcome of these proceedings, and the ultimate impact of the 1996 Act
or any final regulations adopted pursuant to the new law on RCN or its
businesses cannot be determined at this time.
Employees
As of June 30, 1997, the Company had 1,008 full-time employees
including general office and administrative personnel. The Company considers
relations with its employees to be good.
Properties
RCN Corporation, the holding company, does not own any physical
properties.
RCN provides its services through facilities owned and leased
by RCN and its subsidiaries. RCN's properties are maintained in generally
good operating condition. See "Business--RCN--The Delivery Platforms."
Legal Proceedings
In the normal course of business, there are various legal
proceedings outstanding, including both commercial and regulatory litigation.
In the opinion of management, these proceedings will not have a material
adverse effect on the results of operations or financial condition of the
Company.
MANAGEMENT
Structure of RCN's Board of Directors
The Company will amend its Certificate of Incorporation prior
to the Distribution to provide for a classified board of directors. The
Company Board will be divided into three classes of directors and will consist
of 9 directors. The term of office of Class I Directors will expire at the
1998 annual meeting, the term of office of Class II Directors will expire at
the 1999 annual meeting and the term of office of Class III Directors will
expire at the 2000 annual meeting. At each annual meeting of stockholders
held after the Distribution, a class of directors will be elected for a three
year term to replace the class whose term has then expired. See "Certain
Statutory, Charter and Bylaw Provisions."
The Company Board will establish an executive committee which
will, among other things, have all the powers of the Company Board in the
management of the business and affairs of the Company at all times when the
Company Board is not in session.
The Company Board will establish a compensation committee which
will make recommendations to the Company Board on matters related to employee
compensation and plans concerning the orderly succession of officers and key
management personnel.
The Company Board will also establish an audit committee which
will, among other things, consider the overall scope and approach of the
annual audit and recommendations from the audit performed by the independent
accountants; recommend the appointment of the independent accountants;
consider significant accounting methods adopted or proposed to be adopted; and
consider procedures for internal controls.
Executive Officers and Directors
The following table sets forth certain information as of May 1,
1997, concerning the directors and executive officers of RCN who will be
serving in office as of the Distribution Date:
<TABLE>
<CAPTION>
Name Age Position
- -------------------- ---- ---------------------------------------------------------
<S> <C> <C>
David C. McCourt 40 Director (Class III), Chairman and Chief Executive Officer
Michael J. Mahoney 47 Director (Class I), President and Chief Operating Officer
Bruce C. Godfrey 41 Director (Class II), Executive Vice President and Chief
Financial Officer
Michael A. Adams 39 President, Technology and Network Development Group, and
Executive Vice President
Mark Haverkate 42 Executive Vice President, Business Development
James Q. Crowe 47 Director (Class III)
Thomas May 50 Director (Class I)
Walter Scott, Jr. 65 Director (Class III)
Michael B. Yanney 63 Director (Class II)
Alfred Fasola 48 Director (Class II)
Thomas P. O'Neill, III 52 Director (Class I)
Richard R. Jaros 45 Director (Class II)
Eugene Roth 61 Director (Class III)
Stuart Graham 51 Director (Class I)
</TABLE>
David C. McCourt is the Chairman and Chief Executive Officer of
the Company as well as a director. Mr. McCourt will also serve as a director
and Chairman and Chief Executive Officer of Cable Michigan as of the
Distribution. In addition, he will remain as a director and Chairman and
Chief Executive Officer of C-TEC, positions he has held since October 1993.
Mr. McCourt has also been President and Chief Executive Officer, as well as a
director, of Kiewit Telecom. He has also been Chairman and Chief Executive
Officer, as well as a director, of Mercom since October 1993, President and a
director of Metropolitan Fiber Systems/McCourt, Inc., a subsidiary of MFS
Telecom, Inc., since 1988, a director of Cable Satellite Public Affairs
Network ("C-SPAN") since June 1995, and a director of WorldCom, Inc. since
December 1996.
Michael J. Mahoney is the President and Chief Operating
Officer, as well as a director, of the Company. Mr. Mahoney will also remain
a director of C-TEC, a position he has held since May 1995. Mr. Mahoney has
been President and Chief Operating Officer of C-TEC since February 1994,
President and Chief Operating Officer of Mercom since February 1994 and a
director of Mercom since January 1994. In addition, he was Executive Vice
President of Cable Television Group from June 1991 to February 1994, Executive
Vice President of Mercom from December 1991 to February 1994 and the Chief
Operating Officer of Harron Communications Corp. from April 1983 to December
1990.
Bruce C. Godfrey will be the Executive Vice President and Chief
Financial Officer and a director of the Company as of the Distribution. Mr.
Godfrey will also be a director of Cable Michigan as of the Distribution.
In addition, he will remain the Executive Vice President and Chief
Financial Officer and a director of C-TEC. Mr. Godfrey has been a
director of C-TEC since November 1996 and has been Executive Vice President
and Chief Financial Officer of C-TEC since April 1994. He has also been
Executive Vice President and Chief Financial Officer of Mercom since April
1994 and a director of Mercom since May 1994. Mr. Godfrey was also Senior
Vice President and Principal of Daniels and Associates from January 1984 to
April 1994.
Michael A. Adams will be the President, Technology and Network
Development Group of the Company and Executive Vice President of the Company
as of the Distribution. Mr. Adams has held the corresponding position at
C-TEC since November 1996. Prior to that date, Mr. Adams has held the
following positions: Executive Vice President of Technology and Strategic
Development of C-TEC from August 1996 to November 1996, Executive Vice
President of the Communications Services Group from September 1994 to June
1996, Vice President of Technology from November 1993 to September 1994, Vice
President of Engineering for RCN Telecom Services from September 1992 to
October 1993, Vice President of McCourt Communications Co., Inc. from June
1992 to October 1993, Vice President of Business Development for
McCourt/Kiewit International from May 1991 to June 1992, Managing Director of
McCourt Cable & Communications, Ltd. from October 1989 to June 1992, Director
of Operations for MFS/McCourt from November 1988 to October 1989 and Vice
President of Engineering for McCourt Cable Systems, Inc. from June 1982 to
November 1988.
Mark Haverkate will be the Executive Vice President, Business
Development of the Company as of the Distribution. Mr. Haverkate will also
serve as President and Chief Operating Officer and a director of Cable Michigan
as of the Distribution. He has also been the President of RCN Development
since June 1997 and the Executive Vice President of Business Development at
C-TEC since May 1997. Mr. Haverkate will continue in these positions after
the Distribution. Previously, he was President for Business Operations at RCN
Telecom Services, Inc. from November 1996 to June 1997, Executive Vice
President of RCN Telecom Services, Inc. from August 1996 to November 1996,
Executive Vice President of C-TEC's Cable Television Group from July 1995 to
August 1996, Executive Vice President of Development for C-TEC from February
1995 to July 1995, Executive Vice President for Development at Mercom from
November 1995 to February 1996, Vice President of Development for C-TEC from
December 1993 to February 1995, Vice President of Development at Mercom from
December 1993 to February 1995, Vice President of C-TEC's Cable Television
Group from October 1989 to December 1993, Director of Acquisitions and
Development for C-TEC from July 1988 to October 1989 and Corporate Marketing
Manager for C-TEC's Cable Television Group from May 1981 to July 1988.
James Q. Crowe will be a director of the Company as of the
Distribution. Since August 1, 1997, Mr. Crowe has been the President and
Chief Executive Officer of KDG, a wholly owned subsidiary of PKS. Mr. Crowe
was Chairman of the Board of Directors of WorldCom, Inc. from December 1996 to
June 1997 and, as of the Distribution, will also serve as a director of the
Company. Mr. Crowe will also remain a director of C-TEC, a position he has
held since 1993. Mr. Crowe has served as Chairman of the Board of Directors
MFS since 1988 and Chief Executive Officer of MFS since November 1991 and was
President of MFS from January 1988 to June 1989 and April 1990 to January
1992. Mr. Crowe is a director of WorldCom, Inc., PKS, a construction and
mining company, and CalEnergy Company, Inc., ("CECI"), a geothermal energy
producer.
Thomas May will be a director of the Company as of the
Distribution. Mr. May has been Chairman, President and Chief Executive
Officer of Boston Edison Company since 1994. Previously, Mr. May served as
President and Chief Operating Officer of Boston Edison Company from 1993 to
1994 and as an Executive Vice President from 1990 to 1993.
Walter Scott, Jr. will be a director of the Company as of the
Distribution. Mr. Scott will also remain a director of C-TEC, a position he
has held since 1993. Mr. Scott has been Chairman of the Board of Directors
and President of PKS for over five years and is also a director of Berkshire
Hathaway Inc., Burlington Resources, Inc., CECI, ConAgra, Inc., First Bank
System, Inc., Valmont Industries, Inc., KDG and Kiewit Telecom.
Michael B. Yanney will be a director of the Company as of the
Distribution. Mr. Yanney has been Chairman and Chief Executive Officer of
America First Companies L.L.C. since 1984 and is also a director of Burlington
Northern Santa Fe Corporation, Lozier Corporation, Forest Oil Corporation,
Freedom Communication, Inc. and Mid-America Apartment Communities.
Alfred Fasola will be a director of the Company as of the
Distribution. Mr. Fasola was with the consulting firm Taggert - Fasola Group,
of which he was a co-founder and 50% shareholder, from 1986 to 1996. During
this period, Mr. Fasola served as Chairman, Chief Executive Officer, President
and/or Chief Operating Officer of various public and private companies
including Herman's Sporting Goods from 1993 to 1995, Circle Express from 1988
to 1989, Pilot Freight Carriers from 1987 to 1988 and Purolator Corporation
from 1985 to 1986.
Thomas P. O'Neill, III will be a director of the Company as of
the Distribution. Mr. O'Neill is the Chairman and founder of
McDermott/O'Neill & Associates. Prior to forming McDermott/O'Neill in 1991,
Mr. O'Neill founded Bay State Investors, Inc. in 1983. From 1975 to 1983, Mr.
O'Neill served as Lieutenant Governor of the Commonwealth of Massachusetts.
Richard R. Jaros will be a director of the Company as of the
Distribution. Mr. Jaros is a member of the Board of Directors of WorldCom,
CalEnergy Company and C-TEC. From 1980 to 1992 and from 1994 to 1997, Mr.
Jaros served as President of KDG and Executive Vice President and Chief
Financial Officer of PKS. He served as Chairman of CalEnergy Company from
1993 to 1994 and as President from 1992 to 1993.
Eugene Roth will be a director of the Company as of the
Distribution. Mr. Roth has been a Partner at Rosenn, Jenkins and Greenwald
(Attorneys) since 1964 and is also a director of the Pennsylvania Regional
Board of Directors of First Fidelity Bank, N.A.
Stuart E. Graham will be a director of the Company as of the
Distribution. Mr. Graham will also remain a director of C-TEC, a position he
has held since 1990. Mr. Graham has been Chairman, President and Chief
Executive Officer of Skanska Engineering and Construction since 1994 and held
various positions throughout that company, being appointed Vice President of
Operations in 1977. Mr. Graham is also President and Chief Executive Officer
of Slattery Associates, Inc., a position he has held since 1995.
Executive Compensation
The following table sets forth certain information regarding
the compensation paid by C-TEC for the periods indicated to the Chief
Executive Officer of RCN and the persons expected to be the four other most
highly compensated executive officers of RCN (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------------------
Annual Compensation Restricted
Name and Principal Position -------------------- Stock Securities All Other
Year Salary($) Bonus($) Awards($)(1) Underlying Options(2) Compensation(3)
---- --------- -------- ------------ --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt................... 1996 $491,154 $700,000 $238,333 -- $5,478
Chairman and Chief Executive 1995 397,885 700,000 220,000 250,000 5,612
Chairman and Chief Executive 1994 375,000 500,000 -- 250,000 387
Michael J. Mahoney................. 1996 $235,027 $175,000 $67,017 -- $5,478
President and Chief Operating 1995 222,462 100,000 65,000 -- 5,952
Officer 1994 190,719 125,000 -- 100,000 5,585
Bruce C. Godfrey................... 1996 $221,462 $165,000 $74,333 -- $4,965
Executive Vice President and Chief 1995 183,731 150,000 67,000 -- 4,790
Financial Officer 1994 128,154 53,500 -- 70,000 165
Mark Haverkate..................... 1996 $158,231 $135,000 $51,667 -- $3,641
Executive Vice President, Business 1995 137,952 100,000 48,000 35,000 $5,058
Executive Vice President, Business 1994 113,676 24,795 -- 25,000 4,507
Michael A. Adams................... 1996 $138,673 $155,000 $36,950 -- $3,853
President, Technology and 1995 122,885 46,000 34,200 20,000 3,991
Network Development 1994 97,861 35,000 -- 35,000 192
<FN>
- ------------
(1) Represents the market value of C-TEC Common Stock on the date of grant of
restricted shares of C-TEC Common Stock. Pursuant to the Distribution,
holders of restricted stock awards will be treated in an equitable manner. As
of December 31, 1996, the aggregate holdings and value of restricted share
awards of C-TEC Common Stock were: Mr. McCourt, 13,308 shares, $322,709; Mr.
Mahoney, 3,744 shares, $90,793; Mr. Godfrey, 4,035 shares, $97,846; Mr.
Haverkate, 2,841 shares, $68,894; and Mr. Adams, 2,015 shares, $48,861.
Vesting of restricted shares is accelerated upon a change in control of the
Company. The occurrence of the Distribution will not be a change of control
for that purpose. Dividends, if any, are paid on restricted shares. Such
restricted stock holdings vest as follows, subject to continued employment:
December 1998................................... 11,945
On or before December 1999...................... 13,998
(2) Denominated in shares of C-TEC Common Stock. In connection with the
Distribution, each C-TEC option held by the Named Executive Officers and all
other holders thereof will be adjusted as noted below so that following the
Distribution each such Executive Officer and other holders will hold options
to purchase shares of C-TEC Common Stock, Company Common Stock and Cable
Michigan Common Stock, respectively. The number of shares subject to, and the
exercise price of, such resulting options will be adjusted to take into account
the Distribution and to ensure that the aggregate intrinsic value of the
resulting C-TEC, RCN and Cable Michigan options immediately after the
Distribution is equal to the aggregate intrinsic value of the C-TEC options
immediately prior to the Distribution.
(3) Includes the following amounts for the last fiscal year: (i) Mr. McCourt:
$396 - Company paid life insurance; $5,082 - 401(k) Company match; (ii) Mr.
Godfrey: $396 - Company paid life insurance; $4,589 - 401(k) Company match;
(iii) Mr. Mahoney: $396 - Company paid life insurance; $5,082 - 401(k) Company
match; (iv) Mr. Haverkate: $392 - Company paid life insurance; $3,249 - 401(k)
Company match; (v) Mr. Adams: $363 - Company paid life insurance; $3,490 -
401(k) Company match.
Option Grants, Stock Related Plans. No C-TEC stock options
were granted, during the fiscal year ending December 31, 1996, to the Chief
Executive Officer or any other Named Executive Officer. In addition to the
adjusted options referred to above, the Company anticipates that, in
connection with the Distribution, the Company will adopt one or more
compensation plans relating to Company Common Stock and that additional stock
options relating to Company Common Stock may be granted in the future to
certain executive officers and other key employees. See "--RCN Stock Plans."
</TABLE>
The following table sets forth the fiscal year-end value of
unexercised options covering C-TEC Common Stock held by each Named Executive
Officer.
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End C-TEC Option Values(1)
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money Options
Unexercised Options at at
December 31, 1996(2) December 31, 1996(2)(3)
------------------------------- -----------------------------------------
Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
David C. McCourt....... 150,000 350,000 $331,250 $887,500
Michael J. Mahoney..... 40,000 60,000 -- --
Bruce C. Godfrey....... 28,000 42,000 -- --
Mark Haverkate......... 17,000 43,000 4,813 19,250
Michael A. Adams....... 18,000 37,000 2,750 11,000
<FN>
- ------------
(1) No C-TEC stock options were exercised by the Named Executive Officers
during the fiscal year ended December 31, 1996.
(2) Denominated in shares of C-TEC Common Stock.
(3) The fair market value of C-TEC Common Stock at December 31, 1996 was
$24.25 per share.Effect of Distributions on Equity-Related Benefits
</TABLE>
Effect of Distributions on Equity-Related Benefits
In connection with the Distribution, each C-TEC option held by
the Named Executive Officers and all other holders of such options will be
adjusted so that following the Distribution each such executive officer and
other holder will hold options to purchase shares of C-TEC Common Stock, RCN
Common Stock and Cable Michigan Common Stock, respectively. The number of
shares subject to, and the exercise price of, such options will be adjusted to
take into account the Distribution and to ensure that the aggregate intrinsic
value of the resulting RCN, Cable Michigan and C-TEC options immediately after
the Distribution is equal to the aggregate intrinsic value of the C-TEC options
immediately prior to the Distribution. Shares of restricted C-TEC Common
Stock awarded under the C-TEC Executive Stock Purchase Plan ("ESPP") and share
units awarded under the ESPP that relate to C-TEC Common Stock will be
adjusted in an equitable manner in connection with the Distribution. See Note
(4) to "Security Ownership of Certain Beneficial Owners and Management."
Pension Benefits
C-TEC completed a comprehensive study of its employee benefit
plans in 1996. As a result of this study, effective after December 31, 1996,
in general, employees other than those of the C-TEC Group no longer accrue
benefits under the C-TEC defined benefit pension plan, but became fully vested
in their benefit accrued through that date. Such benefits, for the Named
Executive Officers affected by this event, computed as the present value at
July 31, 1997 (the expected payout date) of a life annuity beginning at age
65, are as follows: Mr. McCourt, $11,679; Mr. Mahoney, $29,124; Mr. Godfrey,
$10,874; Mr. Haverkate, $41,894; and Mr. Adams, $7,249.
Directors' Compensation
Non-employee Directors of the Company will receive a retainer
of $900 per month and will be paid $1,000 for each board meeting attended.
The Committee Chairmen and other committee members will be paid $500 and $300,
respectively, for each committee meeting attended. The Company anticipates
that it will adopt a stock option plan covering non-employee Directors of the
Company pursuant to which non-employee Directors may receive automatic grants
of stock options awards in lieu of or in addition to their normal director
compensation. The formula for the amount and timing of such stock options
will be established by the Company Board after the Distribution, in its
discretion.
Compensation Committee Interlocks and Insider Participation
The Company does not currently have a Compensation Committee.
Prior to the Distribution, compensation was determined by the C-TEC Board of
Directors. Following the Distribution, the Company expects to establish a
Compensation Committee, all the members of which will be non-employee
directors.
RCN Stock Plans
In connection with and prior to the Distribution, the Company
Board intends to adopt the RCN Corporation 1997 Equity Incentive Plan (the
"1997 Plan"), designed to provide equity based compensation opportunities to
key employees when shareholders of the Company have received a corresponding
benefit through appreciation in the value of RCN Common Stock. The following
is a summary of the 1997 Plan.
The 1997 Plan contemplates the issuance of incentive stock
options within the meaning of Section 422 of the Code, as well as stock
options that are not designated as incentive stock options, performance-based
stock options, stock appreciation rights, performance share units, restricted
stock, phantom stock units and other stock-based awards (collectively,
"Awards"). Up to [ ] shares of Common Stock may be issued pursuant to
Awards granted under the 1997 Plan. The 1997 Plan also provides that no
individual may be granted Awards representing more than [ ] shares of
RCN Common Stock in any one year.
All employees and outside consultants to the Company and any of
its subsidiaries and all Directors of the Company who are not also employees
of the Company ("Eligible Persons") are eligible to receive discretionary
Awards under the 1997 Plan. The approximate number of Eligible Persons is
approximately 150.
The 1997 Plan may be administered by the full Company Board,
the Compensation Committee of the Company Board or such other committee as the
Company Board may appoint to administer the 1997 Plan (as the case may be, the
"Committee"). Each member of the Committee must at all times be both a
"non-employee director" within the meaning of Rule 16b-3 of the Exchange Act
and an "outside director" within the meaning of Section 162(m) of the Code.
The Committee, in its sole discretion, has the authority, among other things,
to determine which Eligible Persons will receive Awards, the terms of Awards,
including any purchase or exercise price for Awards, the time or times at
which Awards will be granted, become exercisable and be forfeited, and the
number of shares covered by an Award. The Committee has exclusive authority
to interpret the 1997 Plan and to make all other determinations deemed
advisable for the administration of the 1997 Plan.
Unless earlier terminated by the Company Board, the 1997 Plan
will expire on the 10th anniversary of the Distribution. The Company Board or
the Committee may, at any time, or from time to time, amend or suspend and,
if suspended, reinstate, the 1997 Plan in whole or in part.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with and contingent upon the Distribution, RCN
will establish a qualified savings plan under Section 401(k) of the Code (the
"401(k) Plan") that will also qualify as an ESOP under Sections 401(a) and
4975(e)(7) of the Code (the "ESOP"). Under the ESOP, employees of the Company
Businesses who make Section 401(k) contributions and certain other employees
will be allocated shares of Company Common Stock. If, within five years after
the Distribution, the ESOP portion of the 401(k) Plan does not hold shares
representing at least 3% percent of the number of shares issuable pursuant
to employee stock options outstanding as of the date of this Distribution
and the number of shares issuable to BECO pursuant to the Exchange
Agreement (collectively, "Outstanding Company Common Stock") with a market
value of not less than $24 million, RCN will issue to the ESOP, in exchange
for a note from the ESOP (the "ESOP Note"), the amount of Company Common
Stock necessary to increase the ESOP's holdings of Company Common Stock to
that level, provided, however, that RCN is not obligated to issue shares to
the ESOP in excess of 5% of the number of shares of Outstanding Company
Common Stock. Dividends on the Company Common Stock held by ESOP that
secure the ESOP Note will be allocated to the accounts of ESOP participants
as the ESOP Note is paid off by the ESOP. It is anticipated that the ESOP
Note will be paid off either through additional Company contributions of
cash to the ESOP or through dividends, if any, on the Company Common Stock
acquired by the ESOP in connection with the issuance of the ESOP Note.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of Company Common Stock are, and
will be prior to the Distribution, held beneficially and of record by C-TEC.
Set forth in the table below is information as of June 30, 1997 (or as of the
dates specified in the explanatory footnote in the case of one of the
five-percent stockholders) with respect to the number of shares of C-TEC
Common Stock and C-TEC Class B Common Stock beneficially owned by (i) each
person or entity known by the Company to own more than five percent of the
outstanding C-TEC Common Stock or of the outstanding C-TEC Class B Common
Stock, (ii) each director of the Company, (iii) each of the Named Executive
Officers of the Company and (iv) all directors and officers of the Company as
a group. Also set forth below are the number of shares of Company Common
Stock that each such person or entity would own immediately after the
Distribution on a pro forma basis. To the Company's knowledge, unless
otherwise indicated, each person or entity has sole voting and investment
power with respect to the shares set forth opposite the person's or entity's
name.
<TABLE>
<CAPTION>
COMPANY COMMON
C-TEC CLASS B STOCK
C-TEC COMMON STOCK(1) COMMON STOCK PRO FORMA
---------------------------- --------------------------- --------------------------
Number of Number of Number of
Shares Percent of Shares Percent of Shares Percent of
Beneficially Outstanding Beneficially Outstanding Beneficially Outstanding
Name of Beneficial Owner Owned Shares (2) Owned Shares Owned Shares (3)
- -------------------------------------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Directors and Named Executive Officers
James Q. Crowe 416 * 0 *
Richard R. Jaros 380 * 0 *
Thomas May 0 * 0 *
Walter Scott, Jr. 416 * 0 *
Michael B. Yanney 411 * 0 *
Michael A. Adams 9,244-4 * 0 *
Bruce C. Godfrey 19,702-4 * 0 *
Mark Haverkate 22,540-4 * 400 *
David C. McCourt 42,544(4)(5) * 6,000 *
Michael J. Mahoney 22,071(4) * 0 *
Thomas P. O'Neill, III 0 * 0 *
Alfred Fasola 0 * 0 *
Eugene Roth 1,175 * 5,957 *
Stuart Graham 437 * 4,650 *
All Directors and Executive Officers as
Group (14 persons) 119,336 * 17007 *
5% Stockholders
Kiewit Telecom Holdings, Inc. (6) 8,226,262 41.5% 5,094,223 67.0%
Mario J. Gabelli Group(7) 1,576,037 7.94% 681,195 11.4%
<FN>
- ------------
* Less than 1% of outstanding shares.
(1) The C-TEC Class B Common Stock is convertible at the option of the holder
into shares of C-TEC Common Stock on a one-for-one basis at any time
and from time to time. The C-TEC Common Stock column has been prepared
assuming that no shares of C-TEC Class B Common Stock are converted into C-
TEC Common Stock.
(2) Includes forfeitable C-TEC Matching Shares, but excludes C-TEC Share Units.
(3) Includes shares of Company Common Stock acquired in respect of Matching
Shares but excludes RCN Share Units.
(4) Under the ESPP, participating executive officers who forgo current
compensation are credited with C-TEC "Share Units", the value of which is
based on the value of a share of C-TEC Common Stock. ESPP participants who
elect to receive Share Units in lieu of current compensation are also
credited with restricted "Matching Shares," which vest over a period of 3
years from the grant date, subject to continued employment. Matching
Shares, unless forfeited, have voting and dividend rights. In connection
with the Distribution, Share Units and Matching Shares will be adjusted in
an equitable manner so that participants will be credited with an aggregate
equivalent value of restricted shares of C-TEC, RCN and Cable Michigan
Common Stock. The holdings indicated include Share Units and Matching
Shares. The table below shows in respect of each executive officer the
number of shares of C-TEC Common Stock purchased outright, Share Units
relating to C-TEC Common Stock acquired by each such executive officer in
lieu of current compensation, and the forfeitable Matching Shares of C-TEC
Common Stock held by each such executive officer:
Share Units Total Shares
Acquired Under Purchased and
the ESPP Total Shares Acquired and
Shares Purchased in Lieu of Current Purchased and Restricted Restricted
Outright Compensation Acquired Matching Shares Matching Shares
---------------- ------------------ ------------- --------------- ---------------
Michael A. Adams..... 762 4,241 5,003 4,241 9,244
Bruce C. Godfrey..... 5,756 6,973 12,729 6,973 19,702
Mark Haverkate....... 15,314 3,813 19,127 3,813 22,540
David C. McCourt..... 14,636 16,959 31,595 16,959 48,544
Michael J. Mahoney... 8,483 6,794 15,277 6,794 22,071
(5) Includes 225 shares of C-TEC Common Stock which are owned by Mr. McCourt's
wife. Mr. McCourt disclaims beneficial ownership of such shares.
(6) KDG owns 90% of the common stock and all of the preferred stock of Kiewit
Telecom. Chairman and Chief Executive Officer of C-TEC and RCN owns the
remaining 10% of the common stock of Kiewit Telecom. KDG is a wholly owned
subsidiary of PKS. Prior to the Distribution, Kiewit Telecom will convert
a number of the shares of C-TEC Class B Common Stock it owns into C-TEC
Common Stock so that it will be entitled to cast less than 50% of the votes
that all shares of C-TEC Common Equity are entitled to cast on matters
presented to C-TEC shareholders. The address for Kiewit Telecom, KDG and
PKS is 1000 Kiewit Plaza, Omaha, Nebraska 68131.
(7) Based on information obtained from Schedule 13Ds and amendments thereto
for the C-TEC Common Stock and the C-TEC Class B Stock filed through June
30, 1997, with the Securities and Exchange Commission (the "SEC") by Mario
J. Gabelli, together with GAMCO Investors, Inc., Gabelli Funds, Inc.,
Gabelli Performance Partnership, L.P., Gabelli International Limited,
Gabelli International II Limited and Gabelli & Company, Inc., all of whose
address is One Corporate Center, Rye, New York 10580-1434.
</TABLE>
Peter Kiewit Sons' Inc.
Set forth below is certain information regarding the
beneficial ownership of equity securities of PKS as of June 30, 1997, by each
director, the Named Executive Officers and by all persons, as a group, who
will be directors or executive officers of the Company as of the Distribution,
of Class B Construction & Mining Group Nonvoting Restricted Redeemable
Convertible Exchangeable Common Stock (none of which is owned by management),
Class C Construction and Mining Group Restricted Redeemable Convertible
Exchangeable Common Stock ("Class C"), and Class D Diversified Group
Convertible Exchangeable Common Stock ("Class D").
<TABLE>
<CAPTION>
Number of Percent of Number of Percent of
Name of Beneficial Owner Class C Shares Class C Shares Class D Shares Class D Shares
<S> <C> <C> <C> <C>
James Q. Crowe............................. -- -- 134,369 *
Richard R. Jaros........................... 25,772 0.3% 121,128 0.5%
Thomas May................................. -- -- -- --
Walter Scott, Jr........................... 250,000 2.7% 3,393,374 13.8%
Michael B. Yanney.......................... -- -- -- --
Michael A. Adams........................... -- -- -- --
Bruce C. Godfrey........................... -- -- -- --
Mark Haverkate............................. -- -- -- --
David C. McCourt........................... -- -- 1,500 *
Michael J. Mahoney......................... -- -- -- --
Thomas P. O'Neill, III..................... -- -- -- --
Alfred Fasola.............................. -- -- -- --
Eugene Roth................................ -- -- -- --
Stuart Graham.............................. -- -- -- --
All Directors and Executive Officers as a
Group (14 persons)........................ 275,772 3.0% 3,650,371 14.3%
<FN>
- ------------
* Less than 1% of the outstanding of the class.
</TABLE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company
is based upon the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and its Amended and Restated Bylaws (the
"Bylaws") which are to be in effect as of the Distribution, and by applicable
provisions of law. The following description is qualified in its entirety by
reference to such Certificate of Incorporation and Bylaws, which are filed as
exhibits to the Form 10.
The Company's Certificate of Incorporation authorizes the
issuance of 100 million shares of Company Common Stock, par value $1.00 per
share, 200 million shares of Class B Non-Voting Common Stock, par value $1.00
per share (the "Class B Stock" and, together with the Company Common Stock,
the "Company Common Equity") and 25 million shares of Preferred Stock, par
value $1.00 per share (the "Company Preferred Stock").
Company Common Stock
Subject to the rights of the holders of any Company Preferred
Stock which may be outstanding, each holder of Company Common Stock on the
applicable record date is entitled to receive such dividends as may be
declared by the Company Board out of funds legally available therefor, and, in
the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment or providing for the payment of liabilities and
the liquidation preference of any outstanding Company Preferred Stock. Each
holder of Company Common Stock is entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
stockholders, including the election of directors. Holders of Company Common
Stock have no cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities and there are no conversion rights
or redemption or sinking fund provisions with respect to such stock. Based on
the number of shares of C-TEC Common Equity outstanding on [__________], 1997
and the distribution ratio of [_____] shares of Company Common Stock for every
[_____] shares of C-TEC Common Equity, it is anticipated that there will be
approximately [_____] shares of Company Common Stock outstanding upon
consummation of the Distribution.
The shares of the Company Common Stock distributed in the
Distribution will be fully paid and nonassessable. The Company's Certificate
of Incorporation contains no restrictions on the alienability of the Company
Common Stock. For further information on the securities laws restrictions, if
any, on transferability of the Company Common Stock, see "Trading Market."
Except as disclosed in the section entitled "Certain Statutory, Charter and
Bylaw Provisions," no provision of the Certificate of Incorporation or Bylaws
and no provision of any agreement or plan involving the Company is in effect
that would discriminate against any existing or prospective holder of such
securities as a result of such security holder owning a substantial amount of
securities.
Class B Stock
The Class B Stock is in all material respects identical to the
Company Common Stock except that (i) the Class B Stock is generally
non-voting, (ii) the Company Common Stock is convertible at the option of the
holder into Class B Stock and (iii) in certain mergers, distributions and
other transactions in which the holders of Company Common Equity are entitled
to receive equity interests of one or more corporations (including the
Company), the equity interests distributed in respect of the Company Common
Stock and the Class B Stock may have rights and privileges that are
substantially equivalent to the rights and privileges of the Company Common
Stock and the Class B Stock, respectively. As of the Distribution Date there
will be no outstanding shares of Class B Stock and the Company does not have
any current plan or intention to issue any Class B Stock.
Preferred Stock
Under the Certificate of Incorporation, the Company Board will
have the authority to create one or more series of preferred stock, to issue
shares of preferred stock in such series up to the maximum number of shares of
preferred stock authorized, and to determine the preferences, rights,
privileges and restrictions of any series, including the dividend rights,
voting rights, rights and terms of redemption, liquidation preferences, the
number of shares constituting any such series and the designation of such
series. The authorized shares of Company Preferred Stock, as well as
authorized but unissued shares of Company Common Equity, will be available for
issuance without further action by the Company's stockholders, unless
stockholder action is required by applicable law or by the rules of a stock
exchange or quotation system on which any series of the Company's stock may
then be listed or quoted. No shares of Company Preferred Stock will be issued
in connection with the Distribution.
Registrar and Transfer Agent
First Union National Bank will serve as the Registrar and
Transfer Agent for the Company Common Stock.
CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS
Certain provisions of the Delaware General Corporation Law, the
Certificate of Incorporation and Bylaws of the Company summarized in the
following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might
result in a premium over the market price for the shares held by stockholders.
The following is a summary of certain of these provisions. The Certificate of
Incorporation and the Bylaws are filed as exhibits to the Form 10, and the
following summary is qualified in its entirety by reference to such documents.
Charter and Bylaw Provisions
Classified Board of Directors; Removal of Directors. The
Certificate of Incorporation and the Bylaws provide for the Company Board to
be divided into three classes of directors. The term of office of the first
class expires at the 1998 annual meeting, the term of office of the second
class expires at the 1999 annual meeting, and the term of office of the third
class expires at the 2000 annual meeting. At each annual meeting held
thereafter, a class of directors will be elected to replace the class whose
term has then expired. As a result, approximately one-third of the members of
the Company Board will be elected each year and, except as described above,
each of the directors serves a staggered three-year term. See
"Management--Executive Officers and Directors." Moreover, as is permitted
under the Delaware General Corporation Law only in the case of a corporation
having a classified board, the Certificate of Incorporation and the Bylaws
provide that directors may be removed only for cause.
These provisions could prevent a stockholder (or group of
stockholders) having majority voting power from obtaining control of the
Company Board until the second annual stockholders' meeting following the date
the acquirer obtains such voting power. Accordingly, these provisions could
have the effect of discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of the Company.
Stockholder Action by Written Consent; Special Meetings. The
Certificate of Incorporation and the Bylaws provide that no action required or
permitted to be taken at an annual or special meeting of stockholders may be
taken without a meeting, and that no action may be taken by the written
consent of stockholders in lieu of a meeting. The Certificate of
Incorporation also provides that special meetings of the Company's
stockholders may be called only by the Company Board, the Chairman of the
Company Board or the Chief Executive Officer of the Company. These provisions
may make it more difficult for stockholders to take action opposed by the
Company Board.
Advance Notice Provisions. The Bylaws establish an advance
written notice procedure for stockholders seeking to nominate candidates for
election as directors at an annual meeting of stockholders or to bring
business before an annual meeting of stockholders of the Company. The Bylaws
provide that only persons who are nominated by or at the direction of the
Company Board, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Bylaws also provide that at any meeting of stockholders only such business may
be conducted as has been brought before the meeting by or at the direction of
the Company Board or, in the case of an annual meeting of stockholders, by a
stockholder who has given timely written notice to the Secretary of the
Company of such stockholder's intention to bring such business before such
meeting. Under the Bylaws, for any such stockholder notice to be timely, such
notice must be received at the principal executive offices of the Company in
writing not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder must be received not later than the close of
business on the 10th day following the day on which such notice or public
disclosure was given or made. Under the Bylaws, a stockholder's notice must
also contain certain information specified in the Bylaws. These provisions
may preclude or deter some stockholders from bringing matters before, or making
nominations for directors at, an annual meeting.
Preferred Stock. Under the Certificate of Incorporation, the
Company Board will have the authority, without further stockholder approval,
to create one or more series of preferred stock, to issue shares of preferred
stock in such series up to the maximum number of shares of preferred stock
authorized, and to determine the preferences, rights, privileges and
restrictions of any series, including the dividend rights, voting rights,
rights and terms of redemption, liquidation preferences, the number of shares
constituting any such series and the designation of such series. Pursuant to
this authority, the Company Board could create and issue a series of preferred
stock with rights, privileges or restrictions having the effect of
discriminating against an existing or prospective holder of such securities as
a result of such security holder beneficially owning or commencing a tender
offer for a substantial amount of Company Common Stock. One of the effects of
authorized but unissued and unreserved shares of capital stock may be to render
more difficult or discourage an attempt by a potential acquirer to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management. The
issuance of such shares of capital stock may have the effect of delaying,
deferring or preventing a change in control of the Company without any further
action by the stockholders of the Company.
Amendment of Certain Charter and Bylaw Provisions. The
Certificate of Incorporation provides that the Company Board may adopt, amend
or repeal any provision of the Bylaws. The Certificate of Incorporation and
the Bylaws also provide that Bylaw provisions may be adopted, amended or
repealed by the affirmative vote of stockholders holding not less than 66 2/3
percent of the total number of votes entitled to be cast in the election of
directors.
Any amendment, modification or repeal of the provisions of the
Certificate of Incorporation relating to the election and removal of
directors, the right to call special meetings, the prohibition on action by
written consent, amendment of the Bylaws and the limitation of liability and
indemnification of officers and directors will require approval by the
affirmative vote of stockholders holding at least 66 2/3 percent of the total
number of votes entitled to vote generally in the election of directors.
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"). In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless (i) prior to such
date either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85 percent of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding, shares owned by (A) persons who
are both directors and officers and (B) employee stock plans in certain
circumstances), or (iii) on or after such date the business combination is
approved by the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3 percent of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger,
consolidation, asset sale, or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15 percent or more of the corporation's voting stock. The
restrictions imposed by Section 203 will not apply to a corporation if, among
other things, (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203 or
(ii) 12 months have passed after the corporation, by action of its
stockholders holding a majority of the outstanding stock, adopts an amendment
to its certificate of incorporation or bylaws expressly electing not to be
governed by Section 203. The Company has not elected out of Section 203 and,
therefore, the restrictions imposed by Section 203 will apply to the Company.
Prior to the Distribution, the Company Board will approve of Kiewit Telecom
becoming an interested shareholder and, consequently, Section 203 would not
apply to any business combination with Kiewit Telecom.
Liability and Indemnification of Directors and Officers
Certain provisions of the Delaware General Corporation Law and
the Company's Certificate of Incorporation and Bylaws relate to the limitation
of liability and indemnification of directors and officers of the Company.
These various provisions are described below.
The Certificate of Incorporation provides that the Company's
directors are not personally liable to the Company or its stockholders for
monetary damages for breach of their fiduciary duties as a director to the
fullest extent permitted by Delaware law. Under existing Delaware law,
directors would not be personally liable to the Company or its stockholders
for monetary damages for breach of their fiduciary duties as a director,
except for (i) any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) any transaction
from which the director derived improper personal benefit or (iv) the unlawful
payment of dividends or unlawful stock repurchases or redemptions. This
exculpation provision may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter
stockholders or the Company from bringing a lawsuit against directors of the
Company for breach of their fiduciary duties as directors. However, the
provision does not affect the availability of equitable remedies such as an
injunction or rescission.
The Certificate of Incorporation also provides that each person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the Company or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by Delaware Law.
This right to indemnification shall also include the right to be paid by the
Company the expenses incurred in connection with any such proceeding in
advance of its final disposition to the fullest extent authorized by Delaware
Law. This right to indemnification shall be a contract right. The Company
may, by action of the Company Board, provide indemnification to such of the
employees and agents of the Company to such extent and to such effect as the
Company Board determines to be appropriate and authorized by Delaware law.
The Company intends to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
or arising out of his or her status as such, whether or not the Company would
have the power or the obligation to indemnify him or her against such
liability under the provisions of the Company's Certificate of Incorporation.
INDEPENDENT AUDITORS
The Company Board has appointed Coopers & Lybrand L.L.P. as the
Company's independent accountants to audit the Company's financial statements
for fiscal year 1997. Coopers & Lybrand L.L.P. has served as the Company's and
C-TEC's auditors throughout the periods covered by the financial statements
included in this Information Statement.
ADDITIONAL INFORMATION
The Company has filed the Form 10 with the Commission under the
Exchange Act with respect to the shares of Company Common Stock being received
by C-TEC stockholders in the Distribution. This Information Statement does
not contain all of the information set forth in the Form 10 and the exhibits
and schedules thereto, to which reference is hereby made. For additional
information, reference is made to the Form 10 and the exhibits thereto, which
are on file at the offices of the Commission and may be inspected and copied
as set forth below.
The Form 10 and the exhibits thereto filed by the Company with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
DC 20549, as well as at the Regional Offices of the Commission at Northwest
Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, 13th floor, New York, New York 10048. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
RCN Corporation
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the three years ended December 31,
1996
Consolidated Statements of Cash Flows for the three years ended December 31,
1996
Consolidated Statements of Changes in Stockholder's Equity for the three years
ended December 31, 1996
Notes to Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
Consolidated Statements of Operations for the Six and Three Months Ended June
30, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June
30, 1997 and 1996 (unaudited)
Megacable, S.A. de C.V.
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Income Statements for the years ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1996
and 1995
Notes to Consolidated Financial Statements
<PAGE>
Liberty Cable Television, Inc. and Affiliates *
Report of Independent Accountants
Combined Balance Sheets at December 31, 1994 and 1995
Combined Statements of Operations for the years ended December 31, 1994
and 1995
Combined Statements of Cash Flows for the years ended December 31, 1994
and 1995
Combined Statements of Changes in Shareholders' Deficit for the years ended
December 31, 1994 and 1995
Notes to Combined Financial Statements
Freedom New York, LLC *
Condensed Balance Sheet at September 30, 1996 (unaudited)
Condensed Statement of Operations for the period March 6, 1996 to
September 30, 1996 and for the three months ended September 30, 1996
(unaudited)
Condensed Statements of Cash Flows for the period March 6, 1996 to
September 30, 1996 (unaudited)
- ---------------
* The financial statements of Liberty Cable Television, Inc. and affiliates
and of Freedom New York, LLC listed above are incorporated herein by
reference to Item 7(a) of C-TEC's Current Report on Form 8-K dated
November 15, 1996.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of RCN Corporation:
We have audited the consolidated financial statements of RCN
Corporation and Subsidiaries (the "Company") at December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996, listed
in the index on page F-i of this Form 10. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of RCN Corporation and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial
statements effective January 1, 1994, the Company changed its method of
accounting for postemployment benefits.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
June 30, 1997
RCN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments............................................ $61,843 $37,998
Short-term investments......................................................... 46,831 120,487
Accounts receivable - affiliates............................................... 12,614 14,186
Accounts receivable, net of reserve for doubtful accounts of $861 in 1996
and $606 in 1995.............................................................. 10,413 11,206
Unbilled revenues.............................................................. 844 560
Material and supply inventory, at average cost................................. 1,140 327
Prepayments and other.......................................................... 4,556 1,987
Deferred income taxes.......................................................... 4,371 4,513
Total current assets........................................................... 142,612 191,264
Notes receivable - affiliates.................................................. 155,481 181,981
Property, plant and equipment
Hybrid fiber/coaxial plant..................................................... 161,433 157,320
Other property, plant and equipment............................................ 58,924 16,053
Total property, plant and equipment.................................................. 220,357 173,373
Accumulated depreciation....................................................... 84,529 71,293
Net property, plant and equipment.............................................. 135,828 102,080
Investments.......................................................................... 76,547 77,113
Intangible Assets, Net............................................................... 93,471 88,032
Deferred Charges and Other Assets.................................................... 24,146 9,140
Total Assets......................................................................... $628,085 $649,610
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt........................................... -- $25,750
Accounts payable - affiliates.................................................. 4,880 6,234
Accounts payable............................................................... 13,642 10,687
Advance billings and customer deposits......................................... 6,859 6,143
Advanced taxes................................................................. 1,950 --
Accrued interest............................................................... 5,041 5,038
Accrued contract settlements................................................... 3,565 6,629
Accrued cable programming expense.............................................. 3,188 4,535
Accrued expenses............................................................... 18,167 10,291
Total current liabilities...................................................... 57,292 75,307
Long-Term Debt....................................................................... 131,250 135,250
Notes Payable - affiliates........................................................... 11,854 5,552
Deferred Income Taxes................................................................ 28,245 36,072
Deferred Investment Tax Credits...................................................... -- 102
Other Deferred Credits............................................................... 3,290 3,258
Minority Interest.................................................................... 5,389 --
Commitments and Contingencies
Common Shareholder's Equity.......................................................... 390,765 394,069
Total Liabilities and Shareholder's Equity........................................... $628,085 $649,610
</TABLE>
See accompanying notes to consolidated financial statements.
RCN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Sales............................................................... 104,910 91,997 59,500
Costs and Expenses, excluding depreciation and amortization......... 79,107 75,003 49,747
Depreciation and amortization....................................... 38,881 22,336 9,803
Operating (loss) income............................................. (13,078) (5,342) (50)
Interest income..................................................... 25,602 29,001 21,547
Interest expense.................................................... (16,046) (16,517) (16,669)
Other (expense) income, net......................................... (546) (304) 1,343
(Loss) Income Before Income Taxes................................... (4,068) 6,838 6,171
Provision for income taxes.......................................... 979 1,119 2,340
(Loss) Income Before Minority Interest and Equity in
Unconsolidated Entities............................................ (5,047) 5,719 3,831
Minority Interest in (income) loss of consolidated entities......... 1,340 (144) (95)
Equity in (loss) of unconsolidated entities......................... (2,282) (3,461) --
(Loss) Income Before Cumulative Effect of Accounting Principle
Changes............................................................ (5,989) 2,114 3,736
Cumulative effect on prior years of changes in accounting
principles for postemployment benefits............................. -- -- (83)
Net (loss) Income................................................... (5,989) 2,114 3,653
Unaudited pro forma net income (loss) per common share.............. $(22)
</TABLE>
See accompanying notes to consolidated financial statements.
RCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income (loss)............................................... $(5,989) $2,114 $3,653
Gain on pension curtailment/settlement.......................... (3,437) -- --
Cumulative effect of accounting principle changes............... -- -- 83
Depreciation and amortization................................... 38,881 22,336 9,803
Deferred income taxes and investment tax credits, net........... (6,477) 6,696 (205)
Provision for losses on accounts receivable..................... 1,788 614 854
Equity in loss of unconsolidated entities....................... 2,282 3,461 --
Minority interest............................................... (1,340) 144 95
Net change in certain assets and liabilities, net of acquisitions
of businesses:
Accounts receivable and unbilled revenues....................... (3,780) (5,550) (2,142)
Material and supply inventory................................... (814) 777 (3)
Accounts payable................................................ 2,954 3,983 1,567
Accrued expenses................................................ 4,283 2,783 9,317
Accounts receivable affiliates.................................. 1,572 11,860 (7,812)
Accounts payable affiliates..................................... (5,448) (419) (519)
Other, net...................................................... 597 529 (4,102)
Other........................................................... (1,241) (769) (4,301)
-------- ------- --------
Net cash provided by operating activities............................. 23,831 48,559 6,288
-------- ------- --------
Cash Flows from Investing Activities Additions to property, plant
and equipment........................................................ (40,369) (29,854) (12,042)
Purchase of short-term investments.............................. (75,091) (238,257) (127,245)
Sales and maturities of short-term investments.................. 149,086 245,112 --
Acquisitions, net of cash acquired.............................. (30,090) (121,147) (1,298)
Purchase of loan receivable..................................... (13,088) -- --
Other........................................................... 175 (2,057) 434
-------- ------- --------
Net cash used in investing activities................................. (9,377) (146,203) (140,151)
-------- ------- --------
Cash Flows from Financing activities
Redemption of Long-term debt.................................... (44,750) (28,741) (37,033)
Issuance of Long-term debt...................................... 19,000 19,300 13,033
Change in affiliate notes, net.................................. 32,802 (6,130) 5,159
Tranfers from C-TEC............................................. 78,550 132,707 298,759
Transfers (to) C-TEC............................................ (76,211) (148,339) --
-------- ------- --------
Net cash provided by (used in) financing activities................... 9,391 (31,203) 279,918
-------- ------- --------
Net increase (decrease) in cash and temporary cash investments........ 23,845 (128,847) 146,055
Cash and temporary cash investments at beginning of year.............. 37,998 166,845 20,790
-------- ------- --------
Cash and temporary cash investments at end of year.................... $ 61,843 $37,998 $166,845
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
RCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information cash paid
during the year for:
Interest.................................................... $16,046 $16,404 $16,780
Income Taxes................................................ 549 497 580
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing
Activities:
In 1996, C-TEC acquired an 80.1% interest in Freedom New York, L.L.C. The
acquisition was accounted for as a purchase. A summary of the acquisition is
as follows:
Cash paid....................................... $28,906
Liabilities assumed............................. 7,621
Deferred tax asset recognized................... (167)
Minority interest recognized.................... 6,188
-------
Fair value of assets acquired................... 42,548
=======
In 1995, C-TEC acquired all the outstanding Common Stock of
Twin County Trans Video, Inc. and a related covenant not to compete. The
consideration for the acquisition was as follows:
Cash paid (including $1,000 deposit in 1994)............ $37,313
Issuance of 5% Promissory Note.......................... 4,000
Capital contribution by stockholder..................... 39,493
Liabilities assumed..................................... 16,364
-------
Deferred tax liability incurred......................... 33,797
Fair value of assets acquired........................... 130,967
=======
In 1996, the $4,000 promissory note was canceled and the
Company paid cash of $500 in settlement of certain purchase price adjustments.
See accompanying notes to consolidated financial statements.
RCN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Cumulative
Shareholder's Translation
Common Stock Net Investment Adjustment Total
------------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1993............... $ 1 $ 74,328 -- $ 74,329
Net Income.......................... 3,653 3,653
Transfers from C-TEC................ 294,865 294,865
------------- ------------- ----------- --------
Balance, December 31, 1994............... 1 372,846 -- 372,847
Net Income.......................... 2,114 2,114
Transfers from C-TEC................ 21,714 21,714
Cumulative Translation Adjustment... (2,606) (2,606)
------------- ------------- ----------- --------
Balance, December 31, 1995............... 1 396,674 (2,606) 394,069
Net Income.......................... (5,989) (5,989)
Transfers from C-TEC................ 3,134 3,134
Cumulative Translation Adjustment... (449) (449)
------------- ------------- ----------- --------
Balance, December 31, 1996............... $ 1 $ 393,819 $ (3,055) $390,765
============= ============= =========== ========
</TABLE>
RCN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
1. BACKGROUND AND BASIS OF PRESENTATION
RCN Corporation is currently a wholly owned subsidiary of
C-TEC Corporation ("C-TEC"). On February 13, 1997, C-TEC announced its
intention to separate its operations along business lines into three separate,
publicly traded companies (the "restructuring"). C-TEC also announced its
intention to distribute to its shareholders by December 31, 1997, subject to
certain conditions, all of its interest in RCN Corporation. The consolidated
financial statements of RCN Corporation include the accounts of entities
which, prior to their planned contribution to RCN Corporation pursuant to the
restructuring, were consolidated with C-TEC. These entities include RCN
Telecom Services, which provides competitive telephone, video and Internet
services in Boston and New York City, C-TEC's New York (outside New York
City), New Jersey and Pennsylvania cable television operations and certain of
C-TEC's long distance telephone operations (collectively, the "Company").
Investments accounted for by the equity method include a 40% interest in
Megacable S.A. de C.V., a Mexican cable television system operator.
The consolidated financial statements have been prepared using
the historical basis of assets and liabilities and historical results of
operations. All material intercompany transactions and balances have been
eliminated.
C-TEC's corporate services group has historically provided
substantial support services such as finance, cash management, legal, human
resources, insurance and risk management and its financial statements are
included in the consolidated financial statements of the Company. The
corporate office allocates the cost for these services pro rata among the
business units supported primarily based on assets; contribution to
consolidated earnings before interest, depreciation, amortization, and income
taxes; and number of employees. In the opinion of management, the method of
allocating these costs is reasonable; however, the costs of these services
remaining with the Company after allocation to C-TEC's other business units
are not necessarily indicative of the costs that would have been incurred by
the Company on a stand-alone basis. Also included in the Company's
consolidated financial statements are the financial statements of the
corporate financial services company which invests excess cash of, and
advances funds to the Company and C-TEC. The financial services company
charges interest expense on outstanding advances and pays interest income on
excess cash invested for affiliates.
The financial information included herein may not necessarily
reflect the consolidated results of operations, financial position, and cash
flows of the Company in the future or what they would have been had it been a
separate, stand-alone entity during the periods presented.
2. SEGMENT INFORMATION
The Company is developing advanced fiber optic networks to
provide a wide range of telecommunications services in the Northeastern United
States. Such networks are networks that are capable of providing a full range
of high speed, high capacity telecommunications services, including voice,
video programming and data services including Internet access. The Company
intends to provide these services singly or in bundled services packages
primarily to residential customers in high-density areas and also seeks to
serve certain commercial accounts on or near its networks. In 1997, the
Company commenced providing service through advance fiber optic network
facilities in New York City and Boston. Through 1996, the revenue from
services provided over such networks has not been material. The Company also
has hybrid fiber/coaxial operations in New York (outside New York City), New
Jersey and Pennsylvania, wireless video operations in New York City and
certain other operations, including long distance telephone. As the
development of the Company's advanced fiber networks continues, in the future
the Company will reflect such operations as a separate segment. The Company
expects that the operating and net losses and negative cash flows from this
business will rise in the future as it expands and develops its network and
customer base. There can be no assurance that RCN will achieve or sustain
profitability or positive cash flows from operating activities in the future.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Hybrid Fiber/Coaxial
Sales................................................... $ 84,096 $ 66,404 $ 45,937
Operating income before depreciation and amortization... 40,094 28,458 22,279
Depreciation and amortization........................... 33,131 20,723 8,583
Operating income........................................ 6,963 7,735 13,696
Identifiable assets..................................... 335,285 359,401 214,413
Advanced Fiber, Wireless Video and Other Operating
Sales................................................... $20,768 $25,528 $ 13,514
Operating income before depreciation and amortization... (11,711) (8,416) (11,542)
Depreciation and amortization........................... 4,970 904 650
Operating (loss)........................................ (16,681) (9,320) (12,192)
Identifiable assets..................................... 87,419 14,491 7,013
Corporate
Sales................................................... $ 46 $ 65 $ 49
Operating income before depreciation and amortization... (2,580) (3,048) (984)
Depreciation and amortization........................... 780 709 570
Operating (loss)........................................ (3,360) (3,757) (1,554)
Identifiable assets..................................... 205,381 275,718 347,160
Consolidated
Sales................................................... $104,910 $ 91,997 $ 59,500
Operating income before depreciation and amortization... 25,803 16,994 9,753
Depreciation and amortization........................... 38,881 22,336 9,803
Operating (loss)........................................ (13,078) (5,342) (50)
Identifiable assets..................................... 628,085 649,610 568,586
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Temporary Cash Investments - For purposes of reporting
cash flows, the Company considers all highly liquid investments purchased with
an original maturity of three months or less to be temporary cash investments.
Temporary cash investments are stated at cost which approximates market.
Short Term Investments - Management determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determination at each balance sheet date in
accordance with Statement of Financial Accounting Standards No. 115 -
"Accounting for Certain Investments in Debt and Equity Securities." At
December 31, 1996 and 1995, marketable debt and equity securities have been
categorized as available for sale.
Property, Plant and Equipment and Depreciation - Property,
plant and equipment reflects the original cost of acquisition or construction,
including payroll and related costs such as taxes, pensions and other fringe
benefits, and certain general administrative costs.
Depreciation on cable plant is provided on the straight-line
method based on the useful lives of the various classes of depreciable
property. The average estimated lives of depreciable cable plant are:
Building............................................ 10 to 45 years
Hybrid Fiber/Coaxial Distribution Equipment......... 8 to 22.5 years
Other Equipment..................................... 4 to 10 years
Depreciation on other property, plant and equipment is provided
on the straight-line basis over the useful lives of the property ranging and
dispositions. Major replacements and betterments are capitalized.
Repairs of all property, plant and equipment and minor
replacements and renewals are charged to expense as incurred.
Intangible Assets - Intangible assets are amortized on a
straight-line basis over the expected period of benefit ranging from 2 to 10
years.
Accounting for Impairments - In 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121 -
"Accounting for the Impairment of Long-Lived Assets and for Long - Lived
Assets to be Disposed of" ("SFAS 121").
SFAS 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill assets and
certain identifiable intangibles to be disposed of.
SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected net future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles expected to be held and used is based on the fair
value of the asset.
SFAS 121 generally requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell.
No impairment losses have been recognized by the Company
pursuant to SFAS 121.
Revenue Recognition - Local telephone service revenue is
recorded as earned based on tariffed rates. Long distance telephone services
revenues are recorded based on minutes of traffic processed and tariffed rates
or contracted fees. Revenues from cable programming services are recorded in
the month the service is provided. Internet access service revenues are
recorded based on contracted fees.
Advertising Expense - Advertising costs are expensed as
incurred. Advertising expense charged to operations was $1,441, $862 and $991
in 1996, 1995 and 1994, respectively.
Earning (Loss) Per Share - The Company is currently a wholly
owned subsidiary of C-TEC. In connection with the restructuring, the Company
will effect an additional issuance of shares. At December 31, 1996, C-TEC has
approximately 27,474,000 shares of common equity outstanding. The unaudited
pro forma earnings (loss) per common share was calculated by dividing the 1996
net income/loss by the 27,474,000 shares of common equity outstanding, based
upon an assumed distribution of one share of Company common equity for each
share of C-TEC common equity owned. Such distribution ratio is subject to
final determination.
Income Taxes - C-TEC Corporation and its subsidiaries report
income for federal tax purposes on a consolidated basis except that C-TEC's
cable subsidiaries receive benefit for the utilization of net operating losses
and investment tax credits included in the consolidated return even if such
losses and credits could not have been used on a separate return basis.
Income tax expense is allocated to subsidiaries on a separate return basis.
The Company accounts for income taxes using Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes." The statement requires
the use of an asset and liability approach for financial accounting and
reporting for income taxes. The asset and liability approach requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between financial reporting basis and
tax basis of assets and liabilities. If it is more likely than not that some
portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Investment tax credits ("ITC") for the Company have been
deferred in prior years and are being amortized over the average lives of the
applicable property.
Foreign Currency Translation - The Company has a 40%
interest in Megacable, S.A. de C.V., a Mexican cable television operator. For
purposes of determining its equity in the earnings of Megacable, the Company
translates the revenues and expenses of Megacable into U.S. dollars at the
average exchange rates that prevailed during the period. Therefore, the U.S.
dollar value of these items on the income statement fluctuates from period to
period depending upon the value of the dollar against the peso. Assets and
liabilities are translated into U.S. dollars at the rates in effect at the
end of the fiscal period. The Company's share of the gains or losses that
result from this process are shown in the cumulative translation adjustment
account in the common shareholders' equity section of the balance sheet. The
Company's proportionate share of gains and losses resulting from transactions
of Megacable, which are made in currencies different from its own, are
included in income as they occur.
4. BUSINESS COMBINATIONS
The following business combinations were transacted by wholly
owned subsidiaries of C-TEC. The acquired businesses will be transferred to
the Company in connection with the restructuring.
On August 30, 1996, FNY Holding Company, Inc., a subsidiary of
C-TEC ("FNY") acquired from Kiewit Telecom Holdings (formerly RCN
Corporation), C-TEC's controlling shareholder, an 80.1% interest in Freedom
New York, L.L.C. and all related rights and liabilities ("Freedom") for cash
consideration of approximately $29,000. In addition, FNY assumed liabilities
of approximately $7,600. (In March 1996, Freedom had acquired the wireless
cable television business of Liberty Cable Television.) The acquisition was
accounted for as a purchase, and accordingly, Freedom is included in the
Company's consolidated financial statements since the date of September 1996.
The full fair value of assets acquired and liabilities assumed has been
reflected in the Company's financial statements with minority interest
reflecting the separate 19.9% ownership.
FNY allocated the purchase price paid on the basis of the fair
value of property, plant and equipment and identifiable assets acquired and
liabilities assumed. There was no excess cost over fair value of net assets
acquired.
Contingent consideration of $15,000 was payable in cash and was
to be based upon the number of net eligible subscribers, as defined, in
excess of 16,563 delivered to the Company. The contingent consideration is
not included in the acquisition cost total above but was to have been
recorded when and if the future delivery of subscribers occurred (Note 18).
In addition, FNY paid $922 to Kiewit Telecom Holdings which represents an
amount to compensate for foregone interest on the amount invested by Kiewit
Telecom Holdings in Freedom. This amount has been charged to operations.
On May 15, 1995, C-TEC Cable Systems, Inc., a wholly owned
subsidiary of C-TEC ("C-TEC Cable"), acquired 40% of the outstanding common
stock of Twin County Trans Video, Inc. ("Twin County") in exchange for cash of
approximately $26,300, including a $1,000 deposit made in 1994, and a $4,000,
5% promissory note of C-TEC Cable. In addition, C-TEC Cable paid $11,000 in
consideration of a noncompete agreement and assumed liabilities of
approximately $16,400. The remaining shares were subject to an escrow
agreement, pending completion of the merger, and were required to be voted
under the direction of C-TEC Cable. As of May 15, 1995, C-TEC Cable also
assumed management of Twin County. As a result, C-TEC Cable had control of
Twin County and accordingly Twin County is fully consolidated in the Company's
financial statements since May 1995, the date of the original acquisition.
The remaining outstanding common stock of Twin County was acquired in
September 1995 in exchange for $52,000 stated value redeemable convertible
preferred stock of C-TEC. The preferred stock has a stated dividend rate of
5%, beginning January 1, 1996. The fair value of the preferred stock, as
determined by an independent appraiser is $39,500 which is recorded as
additional paid-in capital to the Company. In 1996, the $4,000 promissory
note was canceled and C-TEC Cable paid cash of $500 in settlement of certain
purchase price adjustments.
C-TEC Cable has allocated the purchase price paid for Twin
County on the basis of the fair value of property, plant and equipment and
identifiable intangible assets acquired and liabilities assumed. The excess
of the consideration for the acquisition over the fair value of the net assets
acquired of approximately $16,700 has been allocated to goodwill and is being
amortized over a period of approximately 10 years.
In January 1995, RCN International Holdings Inc. (formerly
C-TEC International, Inc.), a wholly owned subsidiary of C-TEC, purchased a
40% equity position in Megacable, S.A. de C.V. ("Megacable"). The aggregate
consideration for the purchase was cash of $84,115. The Company accounts for
its investment by the equity method of accounting. The original excess cost
over the underlying equity in the net assets is approximately $94,000, which
is being amortized on a straight-line basis over 15 years.
In January 1995, C-TEC Cable purchased the assets of Higgins
Lake Cable, Inc. for cash of approximately $4,750.
In June 1995, C-TEC invested approximately $2,220 for a
one-third interest in a partnership which intends to provide alternative
access telephone service to commercial subscribers. C-TEC transferred this
investment to C-TEC Cable in 1996 at net book value of $1,977.
In November 1995, the Company purchased the assets used in the
provision of residential telephone services in New York by RealCom Office
Communications, Inc. for approximately $1,050.
The following unaudited pro forma summary presents information
as if the acquisitions of Freedom and Twin County had occurred at the
beginning of 1995. The pro forma information is provided for information
purposes only. It is based on historical information and does not necessarily
reflect the actual results that would have occurred nor is it necessarily
indicative of future results of operations of the consolidated entities.
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------- -----------------------
1995 1996
-------- --------
(Unaudited)
<S> <C> <C>
Sales......................................................................... $110,116 $107,576
(Loss) from continuing operations before extraordinary items and
accounting changes........................................................... $(10,484) $(14,181)
Net (loss).................................................................... $(10,484) $(14,181)
Pro Forma Earnings Per Share:
(Loss) from continuing operations before extraordinary items and
accounting changes........................................................... $ (0.38) $ (0.38)
Net loss...................................................................... $ (0.38) $ (0.52)
</TABLE>
5. SHORT-TERM INVESTMENTS
Short-term investments, stated at cost, include the following
at December 31, 1996 and 1995:
1996 1995
---------- -----------
Federal Agency notes.......... $ -- $ 7,911
Commercial Paper.............. 8,823 9,454
Corporate debt securities..... 38,008 103,122
---------- -----------
Total......................... $ 46,831 $ 120,487
========== ===========
At December 31, 1996, corporate debt securities with an
amortized cost of $34,008 have contractual maturities of one to three years.
All remaining corporate debt securities have contractual maturities of three
to five years.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at
December 31:
1996 1995
---------- -----------
Hybrid fiber/coaxial plant................ $ 182,296 $ 142,689
Buildings and land........................ 2,645 2,491
Furniture, fixtures and vehicles.......... 17,466 14,997
Other..................................... 17,950 13,196
---------- -----------
Total property, plant and equipment..... 220,357 173,373
Less accumulated depreciation............. (84,529) (71,293)
---------- -----------
Property, plant and equipment, net........ $ 135,828 $ 102,080
========== ===========
Depreciation expense was $19,372, $13,236 and $8,431 for the
years ended December 31, 1996, 1995 and 1994, respectively.
7. INVESTMENTS
Investments at December 31 are as follows:
1996 1995
--------- ----------
Megacable, S.A. de C.V............ $ 74,232 $ 77,113
Partnership....................... 2,315 --
--------- ----------
Total Investments................ $ 76,547 $ 77,113
========= ==========
Investments carried on the equity method consist of the
following at December 31:
Percentage Owned
-----------------------
1996 1995
--------- ----------
Megacable, S.A. de C.V......... 40.00% 40.00%
Partnership Interest........... 33.33% --
The basis of the Company's investment in Megacable, S.A. de
C.V. exceeded its underlying equity in the net assets of Megacable when
acquired by approximately $94,000 which excess is being amortized on a
straight-line basis over 15 years. At December 31, 1996 the unamortized
excess over the underlying equity in the net assets was $82,166. The Company
recorded its proportionate share of income (losses) and amortization of excess
cost over net assets of ($2,190) and ($3,061) in 1996 and 1995, respectively.
The aggregate foreign currency transactions included in the
results of operations through the Company's proportionate share of income
(losses) of Megacable were gains (losses) of approximately $247 in 1996 and
($932) in 1995.
The following table reflects the summarized financial position
and results of operations of Megacable, S.A. de C.V. as of and for the years
ended December 31, 1996 and 1995:
1996 1995
------- -------
Assets.......................................... $67,672 $63,150
Liabilities..................................... $ 6,455 $ 9,372
Stockholders' Equity............................ $61,217 $53,778
Sales........................................... $23,225 $20,841
Costs and Expenses.............................. $15,689 $15,078
Foreign Currency Translation Gains (Losses)..... $ 618 $(2,329)
Net Income...................................... $10,226 $ 5,802
8. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
Amortization period 1996 1995
------------------- ------- -------
Franchises and subscriber lists. 2-10 years $78,747 $73,966
Noncompete agreements........... 5-8 years 11,209 14,380
Goodwill........................ 10 years 16,830 18,373
Building access rights.......... 4 years 14,894 --
Other intangibles............... 2-10 years 519 1,228
------- -------
Total intangibles............... 122,199 107,947
Less accumulated amortization... (28,728) (19,915)
------- -------
Intangible assets, net.......... $93,471 $88,032
======= =======
Amortization expense charged to operations in 1996, 1995 and
1994 was $19,509, $9,100 and $1,372, respectively.
9. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Note and interest receivable - Mazon Corporativo, S.A. de C.V.................. $15,310 $ --
Debt issuance costs............................................................ 309 495
Prepaid pension costs.......................................................... 2,967 3,569
Prepaid professional services.................................................. 3,439 3,113
Other.......................................................................... 2,121 1,963
------- --------
Total.......................................................................... $24,146 $ 9,140
======= ========
</TABLE>
10. DEBT
a. Long-Term Debt
Long-term debt outstanding at December 31 is as follows:
1996 1995
-------- --------
Senior Credit Notes 9.65% due 1999....... $131,250 $150,000
Revolving Credit Agreement............... -- 7,000
Promissory Note - 5% due 2003............ -- 4,000
-------- --------
Total.................................... 131,250 161,000
Due within one year...................... -- (25,750)
-------- --------
Total Long-Term Debt..................... $131,250 $135,250
======== ========
In 1989, in order to complete the August 29, 1989 Michigan
Cable Television acquisition, C-TEC Cable entered into a private placement of
Senior Secured Notes for $150,000 and a $70,000 Revolving Secured Credit
Agreement, which was voluntarily reduced to $60,000 in 1990 and which, in
accordance with its terms, reduced on a quarterly basis, through original
scheduled maturity in September 1996. In August 1996, C-TEC Cable obtained an
amendment and waiver related to this Revolving Secured Credit Agreement which
extended final maturity to December 1996 and increased the amount of available
borrowings. Additionally, the restrictive covenant relating to limitations on
the amount of capital expenditures was waived for the year ending December 31,
1996. C-TEC Cable had borrowings of $7,000 (6.7% weighted average interest
rate) as of December 31, 1995. The Senior Secured Notes are collateralized
by the stock of subsidiaries of C-TEC Cable. On September 1, 1996 and on each
September 1 thereafter, a mandatory principal repayment is required on the
Senior Secured Notes. The Senior Secured Notes contain restrictive covenants
which, among other things, require maintenance of a specified debt to cash
flow ratio. In April 1997, C-TEC obtained three committed credit facilities
aggregating $395,000, subject to certain conditions. These facilities contain
restrictive covenants which generally require the borrower to maintain certain
debt to cash flow and interest coverage ratios and place certain limitations
on additional debt and investments. C-TEC does not believe that these
covenants will materially restrict its activities. Two of the facilities,
aggregating $270,000, are unsecured and will not become obligations of the
Company. The third facility, in the amount of $125,000 will be collateralized
by the stock of the New Jersey and New York cable subsidiaries and will become
a future obligation of the Company. C-TEC intends to borrow against these
facilities in order to refinance the existing Cable Group Senior Secured Notes
and to fund its network expansion plans, primarily RCN Telecom Services, in
the future.
The Cable Group Senior Secured Notes were classified as
long-term at December 31, 1996 since the Company has the intent and the
ability to refinance this obligation on a long-term basis through available
credit facilities.
In connection with the acquisition of Twin County Trans Video,
Inc., C-TEC Cable issued a $4,000 promissory note at 5% due in May 2003. The
note was unsecured. In September 1996, the note was canceled in settlement of
certain purchase price adjustments.
Contractual maturities of long-term debt are as follows:
Year Ending December 31 Aggregate Amounts
- ----------------------- -----------------
1997 $43,750 (Expected to be refinanced)
1998 $43,750
1999 $43,750
b. Short-Term debt
At December 31, 1996, C-TEC Cable had unused lines of credit
for $5,500 at prime (8.25% at December 31, 1996). Short-term unsecured
borrowings may be made under these lines of credit. The amounts available
under these lines of credit are reduced by outstanding letters of credit
($3,060 at December 31, 1996). All unused lines of credit are cancelable at
the option of the banks. There are no commitment or facility fees associated
with maintaining availability of the above-mentioned lines of credit.
11. INCOME TAXES
The provision for income taxes is reflected in the Consolidated
Statements of Operations as follows:
1996 1995 1994
------- -------- ------
Current:
Federal........................... $ 5,730 $(5,713) $2,445
State............................. 1,102 375 485
------- ------- ------
Total Current...................... $ 6,832 $(5,338) $2,930
------- ------- ------
Deferred:
Federal........................... $(4,751) $ 7,016 $ (565)
State............................. (1,000) (377) 165
------- ------- ------
Total Deferred..................... $(5,751) $ 6,639 $ (400)
------- ------- ------
Amortization of ITC................ $ (102) $ $(182) $ (190)
------- ------- ------
Total provision for income taxes... $ 979 $ 1,119 $2,340
======= ======= ======
At December 31, 1996 and 1995, the Company had tax related
balances due to affiliate of $545 and $26, respectively.
Temporary differences that give rise to a significant portion
of deferred tax assets and liabilities at December 31, are as follows:
1996 1995
------- -------
Net operating loss carryforwards............. $ 2,130 $742
Alternative minimum tax credits.............. -- 368
Employee benefit plans....................... 882 961
Reserve for bad debt......................... 693 519
Start-up costs............................... -- 1,110
Investment in unconsolidated entity.......... 4,771 2,399
Accruals for nonrecurring charges
and contract settlements................... 2,299 3,125
Other, net................................... 2,107 1,507
-------- --------
Total deferred tax assets.................... $ 12,882 $ 10,731
-------- --------
Property, plant and equipment................ (15,019) (15,555)
Intangible asset............................. (16,817) (23,256)
All other.................................... (1,229) (1,457)
-------- --------
Total deferred liabilities................... (33,065) (40,268)
-------- --------
Subtotal..................................... (20,183) (29,537)
Valuation allowance.......................... (3,691) (2,022)
-------- --------
Total deferred taxes......................... $(23,874) $(31,559)
======== ========
In the opinion of management, based on the future turnaround of
existing temporary differences for the consolidated taxpaying group, primarily
depreciation, and its expectation of future operating results, the Company will
more likely than not be able to realize substantially all of its deferred tax
assets.
A valuation allowance has been provided for the portion of
deferred tax assets which, in the opinion of management is uncertain as to
their realization. The valuation allowance relates primarily to state net
operating loss carryforwards generated by certain subsidiaries.
The net change in the valuation allowance for deferred tax
assets during 1996 was an increase of $1,669.
Net operating losses will expire as follows:
1997 $ 142
1998 90
1999 90
2000 163
2001 552
2002 23
2003 59
2010 89
2011 922
------
Total $2,130
======
The provision (benefit) for income taxes is different from the
amounts computed by applying the U.S. statutory federal tax rate of 35%. The
differences are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
-----------------------------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
(Loss) Income before provision for income taxes and cumulative
effect of change in accounting principle.............................. $ (5,010) $3,233 $6,076
========= ====== ======
Federal income tax benefit at statutory rate........................... (1,753) 1,131 2,127
State income taxes net of federal income tax benefit................... 66 (33) 422
Investment tax credits amortized....................................... (102) (50) (190)
Amortization of goodwill............................................... 779 388 2
Estimated nondeductible expenses....................................... 1,564 (93) 19
Adjustment to prior year accrual....................................... 421 (161) 20
Other, net............................................................. 4 (63) (60)
--------- ------ ------
Total provision for income taxes $ 979 $1,119 $2,340
========= ====== ======
</TABLE>
In 1995, C-TEC, the parent company, received official
notification of final settlement from the Internal Revenue Service relating to
the examination of C-TEC's consolidated federal income tax returns for 1989,
1990, and 1991. The most significant adjustment relates to the disallowance
of the claimed amortization of certain intangible assets. As a result of this
disallowance, the Company's taxes payable for prior years increased
approximately $566. The amount accrued in previous years was sufficient to
satisfy the above adjustment. No additional accrual during 1995 was required.
In 1996, estimated non-deductible expenses relate primarily to
charges in connection with the possible restructuring of the Company.
12. PENSIONS AND EMPLOYEE BENEFITS
The Company's financial statements reflect the costs
experienced for its employees and retirees while included in the C-TEC plans.
Through December 31, 1996, substantially all employees of the
Company are included in a trusteed noncontributory defined benefit pension
plan, maintained by C-TEC. Upon retirement, employees are provided a monthly
pension based on length of service and compensation. C-TEC funds pension costs
to the extent necessary to meet the minimum funding requirements of ERISA.
Substantially, all employees of C-TEC's Pennsylvania cable television
operations (formerly Twin County Trans Video, Inc.) were covered by an
underfunded plan which was merged into C-TEC's overfunded plan on February 28,
1996.
The information that follows relates to the entire C-TEC
noncontributory defined benefit plan. The components of C-TEC's pension cost
are as follows:
1996 1995 1994
------ ------ ------
Benefits earned during the year (service cost). $2,365 $1,656 $1,685
Interest cost on projected benefit obligation.. 3,412 3,083 2,734
Actual return on plan assets................... (3,880) (12,897) 5,635
Other components - net......................... (1,456) 8,482 (10,744)
------ ------ ------
Benefits earned during the year (service cost) 2,365 1,656 1,685
Net periodic pension cost (credit)............. $ 441 $ 324 $ (690)
====== ====== ======
The following assumptions were used in the determination of the
consolidated projected benefit obligation and net periodic pension cost
(credit):
December 31,
------------------------------
1996 1995 1994
---- ---- ----
Discount rate..................... 7.5% 7.0% 8.0%
Expected long-term rate of return
on plan assets.................. 8.0% 8.0% 8.0%
Weighted average long-term rate
of compensation increases....... 6.0% 6.0% 6.0%
The Company's allocable share of the consolidated net periodic
pension cost (credit), based on the Company's proportionate share of
consolidated annualized salaries as of the valuation date, was approximately
$158, $251 and $(188) for 1996, 1995 and 1994, respectively. These amounts
are reflected in operating expenses.
In connection with the restructuring, C-TEC completed a
comprehensive study of its employee benefit plans in 1996. As a result of
this study, effective December 31, 1996, in general, employees of the Company
will no longer accrue benefits under the defined benefit pension plans and
will become fully vested in their benefit accrued through that date. C-TEC
notified affected participants in December 1996. In December 1996, C-TEC
allocated pension plan assets of $6,984 and the related liabilities to a
separate plan for employees who no longer accrue benefits after December 31,
1996 (the "curtailed plan"). C-TEC anticipates that the majority of such
liabilities will be settled by lump sum distributions. The allocation of
assets and liabilities resulted in a curtailment/settlement gain of $4,292.
The Company's allocable share of this gain was $3,437. This gain results
primarily from the reduction of the related projected benefit obligation. The
curtailed plan has assets in excess of the projected benefit obligation. Such
excess amounts to $3,917 which, along with unrecognized items of $1,148
results in prepaid pension cost of $2,769, which is included in "Prepayments
and other" in the accompanying 1996 consolidated balance sheet.
The following table sets forth the plans' funded status and
amounts recognized in the C-TEC's balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -----------------------------------------
Under-funded Plan Over-funded Plan
----------------- -----------------
<S> <C> <C> <C>
Plan assets at fair value...................................... $55,325 $471 $60,108
Actuarial present value of benefit obligations:
Accumulated benefit obligations:
Vested...................................................... 32,372 1,122 34,152
Nonvested................................................... 1,704 20 2,104
------- ------- -------
Total......................................................... 34,076 1,142 36,256
Effect of increases in compensation............................ 6,042 718 8,687
------- ------- -------
Plan assets in excess of (less than) projected benefit plan.... 15,207 (1,389) 15,165
Unrecognized transition asset.................................. (3,463) -- (4,432)
Unrecognized prior service cost................................ 2,438 -- 2,969
Unrecognized net gain.......................................... (11,215) (146) (10,133)
------- ------- -------
Prepaid (accrued) pension cost................................. $ 2,967 $(1,535) $ 3,569
======= ======= =======
</TABLE>
Prepaid pension cost is included in "Deferred Charges and Other
Assets" in the accompanying consolidated balance sheets. Accrued pension cost
is included in "Other Deferred Credits" in the accompanying 1995 consolidated
balance sheet.
C-TEC's pension plan has assets in excess of the accumulated
benefit obligation. Plan assets include cash, equity, fixed income securities
and pooled funds under management by an insurance company. Plan assets
include common stock of C-TEC with a fair value of approximately $5,835 and
$11,195 at December 31, 1996 and 1995, respectively.
C-TEC sponsors a 401(k) savings plan covering substantially all
employees of the Company who are not covered by collective bargaining
agreements. Contributions made by the Company to the 401(k) plan are based on
a specific percentage of employee contributions. Contributions charged to
expense were $354, $268 and $262 in 1996, 1995 and 1994 respectively.
The Company provides certain postemployment benefits to former
or inactive employees of the Company who are not retirees. These benefits are
primarily short-term disability salary continuance. The Company accounts for
these benefits under Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112
requires accrual of the cost of postemployment benefits over employees' service
lives. C-TEC uses the services of an enrolled actuary to calculate the
expense. C-TEC allocates the cost of these benefits to the Company based on
the Company's proportionate share of consolidated annualized salaries. The
Company reimburses C-TEC for its allocable share of the consolidated
postemployment benefit cost. The net periodic postemployment benefit cost was
approximately $539, $(106) and $416 in 1996, 1995 and 1994, respectively.
13. COMMITMENTS AND CONTINGENCIES
a. The Company had various purchase commitments at December 31,
1996 related to its 1997 construction budget.
b. Total rental expense, primarily for office space and pole
rentals, was $3,632, $2,846 and $1,491 for 1996, 1995 and 1994, respectively.
At December 31, 1996, rental commitments under noncancelable leases, excluding
annual pole rental commitments of approximately $759 that are expected to
continue indefinitely, are as follows:
Year Aggregate Amounts
---- -----------------
1997 $2,866
1998 $2,729
1999 $2,637
2000 $2,606
2001 $3,709
Thereafter $4,247
c. In 1992, C-TEC entered into a restated data processing
agreement for the provision of data processing services and products including
the general management of C-TEC's data processing operations and installation
and enhancement of software systems. The Company pays a monthly fee of $31,
with provision for monthly increases based on increases in the usage of
services over base volumes and for annual increases based on increases in the
Consumer Price Index. The agreement expires December 1997.
d. The Company has outstanding letters of credit aggregating
$3,060 at December 31, 1996.
e. The Company has entered into various noncancelable contracts
for network services. Future obligations under these agreements are as
follows:
Year Network Services
----- ----------------
1997 $6,062
1998 $9,000
1999 $5,500
f. The Company is subject to the provisions of the Cable
Television Consumer Protection and Competition Act of 1992, as amended and the
Telecommunications Act of 1996. The Company has either settled challenges or
accrued for anticipated exposures related to rate regulation. However, there
is no assurance that there will not be additional challenges to its rates.
The 1994 statement of operations includes charges aggregating approximately
$650 relating to cable rate regulation liabilities. Such charges were not
significant in 1996 and 1995.
g. In the normal course of business, there are various legal
proceedings outstanding. In the opinion of management, these proceedings will
not have a material adverse effect on the financial condition or results of
operations of the Company.
h. The Company has agreed to indemnify Cable Michigan and
C-TEC and their respective subsidiaries against any and all liabilities which
arise primarily from or relate primarily to the management or conduct of the
business of the Company prior to the effective time of the Distribution. The
Company has also agreed to indemnify Cable Michigan and C-TEC and their
respective subsidiaries against 30% of any liability which arises from or
relates to the management or conduct prior to the effective time of the
Distribution of the businesses of C-TEC and its subsidiaries and which is not
a true C- TEC liability, a true RCN liability or a true Company liability.
This Tax Sharing Agreement, by and among the Company, Cable Michigan and C-TEC
(the "Tax Sharing Agreement"), governs contingent tax liabilities and
benefits, tax contests and other tax matters with respect to tax returns filed
with respect to tax periods, in the case of the Company, ending or deemed to
end on or before the Distribution Date. Under the Tax Sharing Agreement,
Adjustments (as defined in the Tax Sharing Agreement) to taxes that are
clearly attributable to the Company Group, the Cable Michigan Group, or the
C-TEC Group will be borne solely by such group. Adjustments to all other tax
liabilities will be borne 50% by C-TEC 30% by the Company and 20% by Cable
Michigan.
Notwithstanding the above, if as a result of the acquisition of all or a
portion of the Capital stock or assets of the Company, the Distribution fails
to qualify as a tax-free distribution under Section 355 of the Code, then the
Company will be liable for any and all increases in tax attributable thereto.
14. AFFILIATE AND RELATED PARTY TRANSACTIONS:
The Company had the following transactions with affiliates
during the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Corporate office costs allocated to affiliates..................... $12,362 $10,009 $8,498
Cable staff and customer service costs allocated to Cable
Michigan.......................................................... 3,577 2,952 3,528
Interest income on affiliate notes................................. 15,119 17,340 16,841
Interest expense on affiliate notes................................ 354 279 96
Long-distance terminating access charges from C-TEC................ 728 862 939
Royalty fees charged by C-TEC...................................... 859 533 435
Revenue from engineering services.................................. 296 2,169 8
Other affiliate revenues........................................... -- 6 20
Other affiliate expenses........................................... 1,980 2,090 1,238
</TABLE>
At December 31, 1996 and 1995, the Company has accounts
receivable from affiliates of $12,614 and $14,186, respectively, for these
transactions. At December 31, 1996 and 1995, the Company has accounts payable
to affiliates of $4,880 and $6,234, respectively, for these transactions.
The Company has notes receivable of $7,914 in 1996 and $17,604
in 1995 from advances by the Company's corporate financial services company to
C-TEC. The Company also has notes receivable of $147,567 and $164,377 at
December 31, 1996 and 1995, respectively, from C-TEC primarily related to the
acquisition by C-TEC of its Michigan cable operations and its subsequent
operations.
The Company has notes payable of $11,854 in 1996 and $5,552 in
1995 from excess cash advanced by C-TEC to the Company's corporate financial
services company for investment.
15. OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
Certain financial instruments potentially subject the Company
to concentrations of credit risk. These financial instruments consist
primarily of trade receivables, cash and temporary cash investments, and
short-term investments.
The Company places its cash and temporary investments with high
credit quality financial institutions and limits the amount of credit exposure
to any one financial institution. The Company also periodically evaluates the
credit worthiness of the institutions with which it invests. The Company
does, however, maintain unsecured cash and temporary cash investment balances
in excess of federally insured limits.
Concentrations of credit risk with risk to receivables are
limited due to a large, geographically dispersed customer base.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
a. Cash and temporary cash investments
The carrying amount approximates fair value because of the
short maturity of these instruments.
b. Short-term investments
Short-term investments consist of commercial paper, corporate
debt securities and in 1995, federal agency notes. Short-term investments are
carried at amortized cost which approximates fair value due to the short
period of time to maturity.
c. Long-term investments and note and interest receivable
Long-term investments consist of investments accounted for
under the equity method for which disclosure of fair value is not required.
The note and interest receivable are carried at cost plus accrued interest
which management believes approximates fair value.
d. Long-term debt
The fair value of fixed rate long-term debt was estimated
based on the Company's current incremental borrowing rate for debt of the
same remaining maturities. The fair value of floating rate debt is
considered to be equal to the carrying value since the debt reprices at
least every six months and the Company believes that its credit risk has
not changed from the time the floating rate debt was borrowed and
therefore, it would obtain similar rates in the current market.
e. Letters of credit
The contract amount of letters of credit represents a
reasonable estimate of their value since such instruments reflect fair value
as a condition of their underlying purpose and are subject to fees
competitively determined in the marketplace.
The estimated carrying fair value of the Company's financial
instruments are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and temporary cash investments......... $61,843 $61,843 $37,998 $37,998
Short-term investments...................... $46,831 $46,831 $120,487 $120,487
Note and interest receivable................ $15,310 $15,310 -- --
Financial Liabilities:
Fixed rate long-term debt:
Senior Secured Notes...................... $131,250 $137,459 $150,000 $160,737
Promissory Note - 5%...................... -- -- $4,000 $3,370
Floating rate long-term debt:
Revolving Credit Agreement................ -- -- $7,000 $7,000
Unrecognized financial instruments:
Letters of credit........................... $3,060 $3,060 $2,658 $2,658
</TABLE>
17. QUARTERLY INFORMATION (Unaudited)
The Company estimated the following quarterly data based on
assumptions which it believes are reasonable. The quarterly data may differ
from quarterly data subsequently presented in interim financial statements.
<TABLE>
<CAPTION>
1996 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales.................................... $24,165 $24,852 $26,746 $29,147
Operating income before depreciation
and amortization........................ 4,199 7,777 7,496 6,331
Operating income......................... $(4,621) $(1,233) $(1,711) $(5,513)
1995 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- -------------- -------------- ------------- --------------
Sales.................................... $19,553 $25,523 $23,720 $23,201
Operating income before depreciation
and amortization........................ 3,166 5,993 3,890 3,945
Operating income......................... $ 592 $ 2,004 $(2,280) $(5,658)
</TABLE>
18. SUBSEQUENT EVENTS
On March 21, 1997, the Company paid $15,000 in full
satisfaction of contingent consideration payable for the acquisition of
Freedom (Note 4). Additionally, pursuant to the terms of the Freedom
Operating Agreement, the assets of RCN Telecom Services of New York, Inc., a
wholly-owned subsidiary of RCN, were contributed to Freedom, in which the
Company had an 80.1% ownership interest prior to such contribution.
Subsequent to this contribution, the Company paid $15,000 to acquire the
minority ownership of Freedom. These amounts will primarily be allocated to
excess cost over fair value of net assets acquired and are expected to be
amortized over a period of approximately six years. The Company also paid
$10,000 to terminate a marketing services agreement between Freedom and an
entity controlled by Freedom's former minority owners. The Company charged
this amount to operations for the quarter ended March 31, 1997.
Certain of the Company's direct and indirect subsidiaries,
namely, C-TEC Cable Systems, Inc. ("Cable Systems"), ComVideo Systems, Inc.
("ComVideo") and C-TEC Cable Systems of New York, Inc. ("Cable Systems New
York") (collectively, the "Borrowers"), have in place two secured credit
facilities (the "Credit Facilities") pursuant to a single credit agreement
with a group of lenders for which First Union National Bank acts as agent (the
"Credit Agreement"), which was effective as of July 1, 1997 (the "Closing
Date"). The first is a five-year revolving credit facility in the amount of
$25 million (the "Revolving Credit Facility"). The second is an eight-year
term credit facility in the amount of $100 million (the "Term Credit
Facility").
Borrowings under the Credit Facilities are available for the
following purposes: (i) to refinance existing indebtedness of the Borrowers,
(ii) to finance an equity investment by Cable Systems in RCN Telecom Services,
Inc. (a member of the RCN Group), (iii) to finance permitted acquisitions,
and (iv) for capital expenditures, working capital and general corporate
purposes. Borrowings under the Credit Agreement are subject to the conditions
that there can be no default or event of default under the Credit Agreement
and that the representations and warranties of the Borrowers contained in the
Credit Agreement and related pledge agreements must be true. Each Borrower is
jointly and severally liable for all borrowings and other obligations under
the Credit Facilities. The Credit Facilities will not be available until the
stock of Cable Systems New York is released from a lien securing indebtedness
of Cable Systems (in a principal amount of approximately $132 million) owing
to a group of institutional investors, and is pledged to the lenders under the
Credit Agreement. Cable Systems anticipates prepaying that other indebtedness
prior to the Distribution Date, using proceeds of intercompany debt repaid to
it by Cable Michigan, proceeds of a Credit Facility borrowing and other cash
on hand, at which point such stock will be released from such lien.
The interest rate on the Credit Facilities will be, at the
election of the Borrowers, based on either a LIBOR or a Base Rate option (each
as defined in the Credit Agreement).
The Term Credit Facility is available in up to two
installments, and to the extent not borrowed during the ninety-day period
following July 1, 1997 will cease to be available. The entire amount of the
Revolving Credit Facility is available to the Borrowers until June 30, 2002.
Revolving loans may be repaid and reborrowed from time to time.
The term loan must be repaid over six years in quarterly
installments, at the end of September, December, March and June of each year
from September 30, 1999 through June 30, 2005. The aggregate annual
installments payable on the term loan are as follows (assuming the entire $100
million is drawn, and if less then pro rata to the amounts given below):
1999................................ $3,750
2000................................ $11,250
2001................................ $16,250
2002................................ $17,500
2003................................ $19,374
2004................................ $21,250
2005................................ $10,626
The Borrowers have the option to repay the term loan in whole
or in part at any time, without penalty, subject to customary "breakage"
charges. Any amount of the term loan that is repaid may not be reborrowed.
The Borrowers are required to apply 100% of the net cash
proceeds realized from certain asset sales, certain payments under insurance
policies and certain incurrences of additional debt to repay the revolving
loans. Any excess amounts of such net cash proceeds not applied to repay
revolving loans are applied to reduce the scheduled installments of the term
loan on a pro rata basis.
All borrowings under the Credit Facilities will be pari passu,
and will be secured under a common collateral package including (i) a first
priority pledge by Cable Systems of 100% of the stock in ComVideo (which will
be given only after approval from the appropriate regulatory authority in New
Jersey is granted) and in Cable Systems New York; (ii) a first priority
pledge by ComVideo of 100% of its partnership interests in Home Link
Communications of Princeton, L.P. ("Home Link") at such time that ComVideo
has acquired 100% of the partnership interests in Home Link (at which time
Home Link will become a Borrower) and subject also to approval of the
appropriate regulatory authority in New Jersey being granted; (iii) a first
priority pledge by each Borrower of 100% of the stock owned by it in each
other material subsidiary of such Borrower created after the Closing Date; and
(iv) a first priority pledge by RCN of 100% of the stock of Cable Systems
(which will be given within 30 days of the Distribution Date). In addition,
the Borrowers are subject to a prohibition on granting other negative pledges
to other parties on the assets of Cable Systems and certain of its
subsidiaries (subject to customary exceptions). The stock and assets of C-TEC
Cable Systems of Pennsylvania, Inc., RCN Telecom Services, Inc. and RCN
International, Inc. are excluded from the security arrangements.
The Credit Agreement contains customary covenants for
facilities of this nature, including covenants limiting debt, liens,
investments, consolidations, mergers, acquisitions and sales of assets,
payment of dividends and other distributions, making of capital expenditures
and transactions with affiliates and requires the Company to maintain certain
financial ratios.
RCN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, 1997
-------------
Unaudited
<S> <C>
ASSETS
Current Assets
Cash and temporary cash investments........................................................ $41,478
Short-term investments..................................................................... 4,003
Accounts receivable - affiliates........................................................... 16,577
Accounts receivable, net of reserve for doubtful accounts of $1,809........................ 13,999
Unbilled revenues.......................................................................... 1,109
Material and supply inventory, at average cost............................................. 1,323
Prepayments and other...................................................................... 1,731
Deferred income taxes...................................................................... 4,468
--------
Total current assets....................................................................... 84,688
--------
Notes receivable - affiliates.............................................................. 145,592
--------
Property, plant and equipment
Hybrid fiber/coaxial plant............................................................... 166,919
Other property, plant and equipment...................................................... 73,534
--------
Total property, plant and equipment......................................................... 240,453
Accumulated depreciation................................................................... 95,457
--------
Net property, plant and equipment.......................................................... 144,996
--------
Investments................................................................................. 72,135
--------
Intangible Assets, Net...................................................................... 121,030
--------
Deferred Charges and Other Assets........................................................... 25,209
--------
Total Assets................................................................................ $593,650
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - affiliates.............................................................. $9,726
Accounts payable........................................................................... 13,520
Advance billings and customer deposits..................................................... 8,482
Accrued taxes.............................................................................. 900
Accrued interest........................................................................... 4,293
Accrued contract settlements............................................................... 3,127
Accrued cable programming expense.......................................................... 3,339
Accrued expenses........................................................................... 19,748
--------
Total current liabilities.................................................................. 63,135
--------
Long-Term Debt.............................................................................. 131,250
--------
Notes payable - affiliates.................................................................. 13,346
--------
Deferred Income Taxes....................................................................... 26,913
--------
Other Deferred Credits...................................................................... 4,151
--------
Commitments and Contingencies...............................................................
Common Shareholders' Equity................................................................. 341,454
--------
Minority Interest........................................................................... 13,401
--------
Total Liabilities and Shareholders' Equity.................................................. $593,650
--------
</TABLE>
See accompanying note to consolidated financial statements.
RCN CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Thousands of Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ------------------------
1997 1996 1997 1996
------- ------- -------- --------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Sales.......................................................... $60,706 $49,017 $31,029 $24,852
Costs and expenses, excluding depreciation and
amortization.................................................. 55,703 37,041 30,179 17,075
Depreciation and amortization.................................. 25,455 17,830 13,265 9,010
Nonrecurring charges........................................... 10,000 -- -- --
------- ------- -------- -------
Operating (loss)............................................... (30,452) (5,854) (12,415) (1,233)
Interest Income................................................ 9,761 13,591 4,608 6,800
Interest expense............................................... (7,129) (7,758) (3,699) (3,833)
Other (expense) income, net.................................... 600 (461) 633 (530)
------- ------- -------- -------
(Loss) Income Before Income taxes.............................. (27,220) (482) (10,873) 1,204
(Benefit) provisions for income taxes.......................... (7,143) 321 (2,344) 357
------- ------- -------- -------
(Loss) Before Minority Interest and Equity in Unconsolidated
Entities ..................................................... (20,077) (803) (8,529) 847
Minority interest in loss (income) of consolidated entities.... 1,388 (90) 479 (45)
Equity in (loss) of unconsolidated entities.................... (1,561) (1,299) (756) (542)
-------- ------- -------- -------
Net Income (loss).............................................. $(20,250) $(2,192) $ (8,806) $ 260
======== ======= ======== =======
Unaudited pro forma net income (loss) per common share......... $ (0.74) $ (0.08) $ (.32) $ 0.01
</TABLE>
See accompanying note to consolidated financial statements.
RCN CORPORATION
Condensed Consolidated Statements of Cash Flows
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1997 1996
------------ ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................................ $4,283 $4,254
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment.............................. (20,914) (16,510)
Purchase of loan receivable............................................. -- (13,088)
Purchases of short-term investments...................................... -- (47,578)
Sales and maturities of short-term investments........................... 42,934 114,242
Acquisitions............................................................. (30,475) --
Proceeds from sale of partnership interest............................... 1,900 --
Other.................................................................... (1,423) (203)
--------- ---------
Net cash (used in) provided by investing activities (7,978) 36,863
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Long-Term Debt............................................ -- (7,000)
Transfers from C-TEC.................................................... 52,846 36,600
Transfer (to) C-TEC..................................................... (80,897) (21,030)
Change in affiliate notes, net.......................................... 11,381 30,485
---------- ---------
Net cash (used in) provided by financing activities...................... (16,670) 39,055
---------- ---------
Net (decrease) increase in cash and temporary cash investments........... (20,365) 80,172
Cash and temporary cash investments at beginning of year................. 61,843 37,998
---------- ---------
Cash and temporary cash investments at June 30,.......................... $ 41,478 $ 118,170
========= =========
See accompanying note to consolidated financial statements.
</TABLE>
RCN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The interim Consolidated Financial Statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of the
Management of the Company, the interim Consolidated Financial Statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial information. The interim
Consolidated Financial Statements should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended December 31,
1996, included in this Form 10.
1. Results for the first quarter of 1996 have been restated from amounts
previously reported to reflect a more accurate allocation of total 1996
intercompany eliminations on a quarterly basis. Sales have been decreased by
$10; operating income has been decreased by $2,338, and net income has been
decreased by $1,532.
2. In September 1996, RCN and BECO, through wholly owned subsidiaries,
entered into a letter of intent to form a joint venture to utilize 126 fiber
miles of BECO's fiber optic network to deliver RCN's comprehensive
communications package in Greater Boston. The venture, in the form of an
unregulated entity with a term expiring in the year 2060, was formed pursuant
to a joint venture agreement dated December 23, 1996 (the "Boston Joint Venture
Agreement") providing for the organization and operation of RCN-BECOCOM,
LLC ("RCN-BECOCOM"). RCN-BECOCOM is a limited liability company organized
to own and operate an advanced fiber optic telecommunications network (the
"Network") and to provide, in the market in and around Boston,
Massachusetts (the "Boston Market"), voice, video and data services, as
well as the communications support component of energy related customer
services offered by BECO (collectively, the "Boston Services"). RCN owns
51% of the equity interest in RCN-BECOCOM and BECO owns the remaining 49%
interest.
The BECO joint venture had no activity through May 1997; and
therefore, had no effect on the financial statements through that date. The
joint venture began operations in June 1997. At and for the quarter ended June
30, 1997, the joint venture did not have a material impact on the consolidated
financial statements of RCN. At June 30, 1997, the joint venture had assets
of $30,056. For the three months ended June 30, 1997, the joint venture had
sales of $86, operating income of $(1,072) and net income of $(1,096). RCN
has consolidated the BECO joint venture on its financial statements at and for
the quarter ended June 30, 1997, as a result of its majority ownership; day to
day control as provided for in the joint venture management agreement; and its
actual exercise of control in the joint venture operations.
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
REPORT ON AUDITS OF
CONSOLIDATED
FINANCIAL STATEMENTS
for the years ended
December 31, 1996 and 1995
Report of Independent Accountants
To the Board of Directors and Stockholder of Megacable, S.A. de
C.V. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Megacable, S.A. de C.V., and Subsidiaries, as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows, for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 2, the Company and its subsidiaries
maintain their accounting records in Mexican pesos, in accordance the Mexican
Tax Laws and generally accepted accounting principles. The consolidated
statements referred to above have been prepared in conformity with generally
accepted accounting principles as applied in the United States and,
accordingly, include adjustments not recorded on the companies' books.
Besides, the financial statements performed were translated to U.S. dollars
according to FASB 52.
In our opinion the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Megacable, S.A. de C.V. and Subsidiaries as of December 31, 1996
and 1995, and the consolidated results of its operations, changes in
stockholders' equity and its cash flows, for the years then ended in
conformity with generally accepted accounting principles as applied in the
United States.
Guadalajara, Jalisco, Mexico COOPERS & LYBRAND
February 14, 1997 Victor M. Mendivil E., C.P.A.
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.................... $29,616,659 $25,885,757
Receivables:
Trade...................................... 358,296 606,116
Sundry debtors and other................... 519,603 391,913
Inventories.................................. 2,685,824 1,800,600
----------- -----------
Total current assets..................... 33,180,382 28,684,386
Investment.................................... 314,456 326,357
Property, systems and equipment, net.......... 12,848,919 9,857,945
Goodwill, net................................. 19,389,406 21,066,999
Deferred income tax........................... 2,092,674 2,099,531
----------- -----------
Total assets............................. $67,825,837 $62,035,218
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. 1,245,780 700,737
Accrued taxes and expenses................... 1,129,236 1,435,105
Current portion of long-term debt............ 485,748 2,792,874
----------- -----------
Total current liabilities................ 2,860,764 4,928,716
Long-term liabilities:
Long-term debt............................... 3,714,369 4,442,990
----------- -----------
Total liabilities........................ 6,575,133 9,371,706
----------- -----------
Commitments and contingencies
Stockholders' equity.......................... 61,179,148 52,656,924
Minority interest............................. 71,556 6,588
----------- -----------
Total stockholders' equity .............. 61,250,704 52,663,512
----------- -----------
Total liabilities and stockholders' equity $67,825,837 $62,035,218
=========== ===========
MEGACABLE, S.A.DE C.V. AND SUBSIDIARIES
Consolidated Income Statement
for the years ended December 31, 1996 and 1995
1996 1995
----------- ----------
Revenues..................................... $23,243,686 $20,841,223
Cost and expenses............................ 13,057,161 12,687,179
Depreciation and amortization................ 2,654,568 2,391,200
----------- ----------
15,711,729 15,078,379
----------- ----------
Operating income........................ 7,531,957 5,762,844
----------- ----------
Other income (expenses), net:
Interest, net............................... 2,330,650 3,934,137
Gains/(losses) on foreign exchange, net..... 629,941 (2,328,982)
----------- ----------
2,960,591 1,605,155
----------- ----------
Income before income taxes.............. 10,492,548 7,367,999
----------- ----------
Income taxes:
Income taxes, asset tax and profit sharing
to personnel.............................. 3,334,881 419,372
Benefit for amortization of fiscal losses... (3,052,791) (419,372)
Deferred income tax......................... (20,070) 1,370,798
----------- ----------
262,020 1,370,798
----------- ----------
Income before minority interest......... 10,230,528 5,997,201
Minority interest............................ 9,544 195,630
----------- ----------
Net income.............................. $10,220,984 $5,801,571
=========== ==========
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Cumulative
Translation Accumulated
Capital Stock Adjustment Deficit Total
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance December 31, 1994........ $ 1,610,837 $ 13,398,137 $ (40,227,310) $ (25,218,336)
Common stock issued.............. 84,115,456 -- -- 84,115,456
Net income....................... -- -- 5,801,571 5,801,571
Translation adjustment........... -- (12,041,767) -- (12,041,767)
-------------- ------------ -------------- -------------
Balance December 31, 1995........ 85,726,293 1,356,370 (34,425,739) 52,656,924
Net income....................... -- -- 10,220,984 10,220,984
Translation adjustment........... -- (1,698,760) -- (1,698,760)
-------------- ------------ -------------- -------------
Balance December 31, 1996........ $ 85,726,293 $ (342,390) $ (24,204,755) $ 61,179,148
============== ============ ============== =============
</TABLE>
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $10,220,984 $5,801,571
Depreciation....................................................... 1,505,976 1,432,066
Goodwill amortization.............................................. 1,148,592 959,134
Deferred income tax................................................ 6,857 876,116
Net changes in assets and liabilities:
Receivables...................................................... 120,130 (323,228)
Inventories...................................................... (885,224) 486,037
Accounts payable................................................. 545,043 (167,236)
Accrued taxes.................................................... (240,901) (1,295,136)
----------- -----------
Net cash provided by operating activities........................ 12,421,457 7,769,324
----------- -----------
Cash flows used by investing activities:
Purchases of property, systems and equipment....................... (4,850,261) (349,809)
Acquisitions....................................................... -- (4,354,262)
Purchase of investments............................................ -- (92,160)
----------- -----------
Net cash used in investing activities............................ (4,850,261) (4,796,231)
----------- -----------
Cash flows provided (used) by financing activities:
Increase in capital stock.......................................... -- 84,115,456
Long-term debt..................................................... (3,035,747) (49,826,477)
----------- -----------
Net cash provided by (used in) financing activities.............. (3,035,747) 34,288,979
----------- -----------
Foreign currency translation adjustment ............................ (804,547) (12,041,767)
----------- -----------
Net increase in cash and cash equivalents........................... 3,730,902 25,220,305
At the beginning of the year........................................ 25,885,757 665,452
----------- -----------
At the end of the year.............................................. $29,616,659 $25,885,757
=========== ===========
</TABLE>
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Nature of Business:
The Company was incorporated on June 15, 1993. The main
business activity of Megacable, S.A. de C.V. and its subsidiaries, is the
installation, operation, maintenance and exploitation of distribution systems
of television signals, through physical lines, for which the Federal
Government grants concessions. These concessions are granted for 15 years
with an option to renew.
2. Accounting Policies:
The significant accounting policies are summarized as follows:
Principles of Consolidation:
The Company and its subsidiaries maintain their accounting
records in the local currency which is the Mexican Peso, and in accordance
with tax laws and generally accepted accounting principles applicable to
Mexico. The consolidated statements have been prepared in conformity with
generally accepted accounting principles as applied in the United States. The
consolidated financial statements include the accounts of Megacable, S.A. de
C.V. and its wholly-owned and majority owned subsidiaries after elimination of
significant intercompany accounts and transactions. The financial statements
have been translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translations" using
the rates of exchange prevailing as of December 31, 1996 and 1995,
respectively. The items of income and expense, were translated into U.S.
dollars at the average rates in effect during the year. The exchange gain or
loss resulting from the translation of the financial statements to U.S.
dollars at year-end has been credited to stockholders' equity effective
January 1,1997, since the three year cumulative rate of inflation at December
31,1996 will exceed 100 percent, Mexico will be treated for accounting
purposes as having a highly inflationary economy. Therefore, the U.S. Dollar
will be treated as the functional currency and translation adjustments will be
included in income.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers highly liquid investments with an
original maturity of three months or less to be cash and cash equivalents.
They are carried at cost, which approximates market value.
Inventories:
Inventories are valued at acquisition cost, in accordance with
the average cost method, which is lower than market value.
Investments:
The Company accounts for its 15% investment in Productora y
Comercializadora de Television, S.A. de C.V. (PCTV), the Company that supplies
the T.V. signal to the cable television concessionaires on the cost method.
Property, Systems and Equipment:
Property, systems and equipment reflects the original cost of
acquisition or construction.
Systems repair and maintenance is charged to income as
incurred. Major improvements are capitalized. The gain or loss on the sale or
retirement of assets is recognized in other income (expense).
Depreciation:
Depreciation is calculated on the straight-line basis over
their estimated useful lives.
Goodwill:
The investments in subsidiaries are valued at their acquisition
cost and are restated through the equity method, taking as the base the
restated financial statements of those companies.
Goodwill consists of amounts allocated upon acquisitions and
include the excess of cost over the book value of net tangible assets.
Goodwill is amortized on a straight-line basis over the expected benefit
period.
Deferred Income Taxes:
The Company and its subsidiaries reflects the future tax
consequences of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year end, in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Accounting for Impairments:
In 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long- Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121).
SFAS 121 established accounting standards for the impairment of
long- lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity by reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles expected to be held and used is based on the fair value of the
asset. SFAS 121 generally requires that long-lived assets and certain
identifiable intangibles expected to be held and used is based on the fair
value less cost to sell. No impairment loss was recognized by the Company in
1995 as a result of adoption of SFAS 121.
3. Inventories:
1996 1995
---------- ----------
Materials and equipment......... $2,368,884 $1,759,107
Advances to suppliers........... 248,187 39,791
Goods in transit................ 68,753 1,702
---------- ----------
$2,685,824 $1,800,600
========== ==========
4. Property, Systems and Equipment, Net:
<TABLE>
<CAPTION>
Estimated Useful
Lives 1996 1995
---------------- ------------- ------------
(years)
<S> <C> <C> <C>
Land.................................................. -- $185,823 $188,335
Buildings............................................. 20 44,580 45,811
Cable signal control and distribution systems......... 9 14,636,740 11,271,206
Automobiles and trucks................................ 10 1,003,715 749,156
Office furniture and equipment........................ 11 907,975 565,744
Improvements to leased property....................... 19 579,297 136,556
----------- -----------
17,358,130 12,956,808
Less accumulated depreciation......................... (4,509,211) (3,098,863)
----------- -----------
$12,848,919 $ 9,857,945
=========== ===========
</TABLE>
Total depreciation charged to income, amounts $1,505,976 and
$1,432,066 in 1996 and 1995, respectively.
5. Goodwill, Net:
Goodwill consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Excess of cost over fair value of shares acquired................. $22,233,320 $22,847,065
Less accumulated amortization..................................... (2,843,914) (1,780,066)
----------- -----------
$19,389,406 $21,066,999
=========== ===========
</TABLE>
6. Deferred Income Tax:
The Company and each of its subsidiaries file individual income
tax returns. Carryforwards and temporary differences which give rise to
deferred tax assets and liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Deferred tax assets (liability):
New operating loss carryforwards................................................... $1,986,013 $3,009,103
Difference between the accumulated depreciation for MEX-GAAP and for U.S.
GAAP............................................................................... 106,661 (909,572)
---------- ----------
Deferred taxes, net............................................................. $2,092,674 $2,099,531
========== ==========
</TABLE>
<TABLE>
<CAPTION>
7. Long-Term Debt:
<S> <C> <C>
Mercantile purchase and sale contract for the purchase from individuals of
shares of its subsidiary "Organizacion Mexicana de Servicios" for
US$5,050,000, with monthly interest due dates and maturities principal 15
and 30 months after the signing of the contract; the final payment due in
March 1998. The interest rate is equal to the prime rate; the average rate
during the year was 8.25%....................................................... $2,500,000 $5,050,000
Capital lease agreement with Arrendadora Banamex, for US$2,185,864 with
monthly maturities; the final payment due June 2000. The interest rates
are variable points); the average rate during the year was 12.34% Capital
Stock:............................................................................. 1,700,117 2,185,864
---------- ----------
4,200,117 7,235,864
Less current portion shown under current liabilities............................... (485,748) (2,792,874)
---------- ----------
$3,714,369 $4,442,990
========== ==========
</TABLE>
8. Capital Stock
Fixed minimum capital without the right of withdrawal,
represented by 47,250,000 common Series B shares with full voting rights, and
by 45,250,000 Series D shares with limited voting rights and preferred
dividends, all of them registered and without expression of par value. No more
than 49% may be subscribed or acquired freely and indistinctly by foreign
investors. As of this date, 7,500,000 shares are pending of subscription. In
the Extraordinary Stockholders' Meeting held on December 16, 1994 it was
approved that they be offered to the investing public through a public
offering, after registration on and authorization of the Mexican Stock
Exchange.
9. Retained Earnings:
In accordance with current tax laws, dividends paid in cash
and/or in kind arising from net tax profit, are not subject to dividend
withholding tax. All other dividends are subject to withholding at a dividend
tax rate of 34%.
10. Income Tax and Asset Tax:
Several differences both temporary and permanent do exist
between accounting and tax figures, which determined a net reduction of the
income before provision, as follows:
As of fiscal year 1996, Megacable, S.A. de C.V. is allowed to
consolidate its tax results with the one of its subsidiaries companies, except
for the ones listed below, which will be included in the consolidation in the
coming years, as follows:
Income before income taxes.................................... $10,492,548
-----------
Plus (less):
Amortization of Goodwill.................................... 1,148,592
Inflationary fiscal loss of the debits, net................. (4,909,501)
Depreciation for tax purposes in excess of book depreciation (1,018,957)
Purchases over the consumption.............................. (88,015)
Other....................................................... (574,545)
-----------
(5,442,426)
Net income for tax purposes................................... 5,050,122
Income before income taxes.................................... $10,492,548
-----------
Less amortization of fiscal Losses............................ (5,050,122)
-----------
--
===========
As of the fiscal year 1996, Megacable, S.A. de C.V. is allowed
to consolidate its tax results with the one of the its subsidiaries companies,
except for the ones listed below, which will be included in the consolidation
in the coming years, as follows:
Year
--------------
Mega Control de Mexico.......................... 1997
TV Cable del Golfo.............................. 1997
Megacable Communicaciones de Mexico............. 1998
Telemetropoli................................... Not Applicable
Telecable Internacional......................... Not Applicable
At December 31, 1996, the Company had consolidated loss
carryforwards amounting to $8,792,623, adjusted for inflation for utilization
against future income. An amount of $8,636,972 of these loss carryforwards
expire in 2004.
Asset tax is supplementary to income tax and is the minimum tax
to be paid when the Company is not liable for the payment of income tax, or
income taxes are lower than the asset tax the Company is liable for. Asset tax
adjusted for inflation is recoverable against any outstanding income tax
liability.
At December 31, 1996, the following asset tax was paid, which
is recoverable in future taxable periods:
<TABLE>
<CAPTION>
Year in which the Company was liable Year in which the term for recovery
for the payment of asset tax Amount adjusted for inflation expires.
------------------------------------ ------------------------------ -----------------------------------
<S> <C> <C>
1994 $12,791 2004
1995 21,619 2005
</TABLE>
11. Foreign Currency Position:
As of December 31, there are assets and liabilities in U.S.
dollars as follows:
Thousands of U.S. dollars
---------------------------
1996 1995
--------- -------
Assets................................... $23,849 $21,959
Liabilities.............................. 5,372 7,970
------- -------
Net asset position in foreign policy.. $18,477 $13,989
======= =======
As of December 31, 1996 and 1995, the exchange rate equivalent
to pesos was $7.8509 and $7.64 per dollar, respectively. As of December 31,
1994, 1993, 1992, the exchange rate equivalent was $4.995, $3.107, and $3.329,
respectively.
<PAGE>
/TEXT>
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
among
C-TEC CORPORATION,
CABLE MICHIGAN, INC.
and
RCN CORPORATION
TABLE OF CONTENTS
Page
ARTICLE 1
Definitions
Section 1.1. Definitions.................................................. 2
ARTICLE 2
Restructuring
Section 2.1. The Restructuring............................................ 10
Section 2.2. Transfers of Certain Other Assets............................ 12
Section 2.3. Agreement Relating to Consents............................... 13
Section 2.4. Post Distribution Actions.................................... 14
ARTICLE 3
The Distribution
Section 3.1. Cooperation Prior to the Distribution........................ 14
Section 3.2. C-TEC Board Action; Conditions Precedent..................... 15
Section 3.3. The Distribution............................................. 16
Section 3.4. Stock Dividends to C-TEC..................................... 17
Section 3.5. Fractional Shares............................................ 17
ARTICLE 4
Indemnification
Section 4.1. Cable Michigan Indemnification of the C-TEC
Group and the RCN Group.................................... 18
Section 4.2. RCN Indemnification of the C-TEC Group and the Cable Michigan
Group....................................................... 18
Section 4.3. C-TEC Indemnification of Cable Michigan Group and RCN
Group...................................................... 19
Section 4.4. Insurance; Third Party Obligations........................... 20
Section 4.5. Notice and Payment of Claims................................. 20
Section 4.6. Notice and Defense of Third-Party Claims Other
Than Those for Shared Liabilities.......................... 21
Section 4.7. Notice and Defense of Third-Party Claims for Shared
Liabilities................................................ 22
Section 4.8. Contribution................................................. 24
Section 4.9. Non-Exclusivity of Remedies.................................. 24
ARTICLE 5
Employee Matters
Section 5.1. Employee Matters Generally................................... 24
ARTICLE 6
Certain Transitional Services
Section 6.1. Provision of Services........................................ 24
Section 6.2. Duration of Provision and Purchase of
Services................................................... 24
Section 6.3. Nature and Scope of Provision of Services.................... 25
Section 6.4. Charges and Payment for Services............................. 26
Section 6.5. Status as Independent Contractor............................. 26
Section 6.6. Exculpation; Force Majeure................................... 26
Section 6.7. No Transfer of Proprietary Rights............................ 27
ARTICLE 7
Access to Information
Section 7.1. Provision of Corporate Records............................... 27
Section 7.2. Access to Information........................................ 27
Section 7.3. Litigation Cooperation....................................... 28
Section 7.4. Reimbursement................................................ 28
Section 7.5. Retention of Records......................................... 28
Section 7.6. Confidentiality.............................................. 28
Section 7.7. Inapplicability of Article VII to Tax Matters................ 29
ARTICLE 8
Certain Other Agreements
Section 8.1. Intercompany Accounts and Agreements......................... 29
Section 8.2. Further Assurances and Consents.............................. 29
Section 8.3. Intellectual Property Rights and Licenses.................... 30
Section 8.4. Insurance.................................................... 30
ARTICLE 9
Miscellaneous
Section 9.1. Notices...................................................... 31
Section 9.2. Amendments; No Waivers....................................... 32
Section 9.3. Expenses..................................................... 32
Section 9.4. Successors and Assigns....................................... 33
Section 9.5. Governing Law................................................ 33
Section 9.6. Entire Agreement............................................. 33
Section 9.7. Tax Sharing Agreement; Set-Off; Certain Transfer
Taxes....................................................... 34
Section 9.8. Existing Arrangements........................................ 34
Section 9.9. Termination Prior to the Distribution........................ 34
Section 9.10. Captions..................................................... 34
Section 9.11. Dispute Resolution; Jurisdiction............................. 34
Section 9.12. Severability................................................. 35
SCHEDULE 1.01 - Shared Liabilities
SCHEDULE 5.01 - Employee Matters
SCHEDULE 6.01(i) - Services Provided by RCN to C-TEC Group
SCHEDULE 6.01(ii) - Services Provided by RCN to Cable Michigan Group
SCHEDULE 6.01(iii) - Services Provided by C-TEC to RCN Group
SCHEDULE 6.01(iv) - Services Provided by C-TEC to Cable Michigan Group
SCHEDULE 9.08 - Surviving Agreements
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT dated as of ________ __, 1997 (the
"Agreement") among C-TEC Corporation, a Pennsylvania corporation ("C-TEC"),
Cable Michigan, Inc., a Pennsylvania corporation ("Cable Michigan"), and RCN
Corporation, a Delaware corporation ("RCN").
W I T N E S S E T H:
WHEREAS, Cable Michigan and RCN are wholly owned Subsidiaries
of C-TEC;
WHEREAS, the Board of Directors of C-TEC has determined that it
is in the best interest of C-TEC, its shareholders, Cable Michigan and RCN to
distribute to the holders of shares of Common Stock, par value $1.00 per
share, of C-TEC (the "C-TEC Common Stock") and to the holders of shares of
Class B Common Stock, par value $1.00 per share, of C-TEC (the "C-TEC Class B
Common Stock", and together with the C-TEC Common Stock, the "C-TEC Common
Equity") all of the outstanding shares of Common Stock, par value $1.00 per
share, of Cable Michigan (the "Cable Michigan Common Stock") owned by C-TEC
and all of the outstanding shares of Common Stock, par value $1.00 per share,
of RCN (the "RCN Common Stock") owned by C-TEC;
WHEREAS, C-TEC, Cable Michigan and RCN are concurrently
herewith entering into the Tax Sharing Agreement; and
WHEREAS, the parties hereto desire to set forth herein the
principal corporate transactions to be effected in connection with the
Distribution and certain other matters relating to the relationship and the
respective rights and obligations of the parties following the Distribution;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1. Definitions. The following terms, as used
herein, have the following meanings:
"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding by or before any court, governmental or
other regulatory or administrative agency or commission or any other tribunal.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common control
with, such other Person. For the purposes of this definition, "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this Agreement, no member of one Group shall be treated as an
Affiliate of any member of either of the other Groups.
"Cable Michigan Business" means the business of providing cable
television services to customers in certain locations in Michigan conducted
primarily by Cable Michigan and Mercom.
"Cable Michigan Common Stock" has the meaning set forth in
the second recital hereto.
"Cable Michigan Form 10" means the registration statement on
Form 10 filed by Cable Michigan with the Commission on July 9, 1997 to effect
the registration of Cable Michigan Common Stock pursuant to the 1934 Act in
connection with the Distribution, as such registration statement may be
amended from time to time.
"Cable Michigan Group" means Cable Michigan and its Subsidiaries
as of (and, except where the context clearly indicates otherwise, after) the
Effective Time (including all predecessors to such Persons). The members of
the Cable Michigan Group are Cable Michigan, Mercom and Mercom's Subsidiaries.
"Cable Michigan Indemnitees" has the meaning set forth in
Section 4.02.
"Cable Michigan Information Statement" means the information
statement that forms a part of the Cable Michigan Form 10 and is to be sent to
each holder of C-TEC Common Stock in connection with the Distribution.
"Cable Michigan Liabilities" means all (i) Liabilities of the
Cable Michigan Group under this Agreement or the other Distribution Documents,
(ii) except as otherwise specifically provided herein or in any other
Distribution Document, other Liabilities, whether arising before, on or after
the Distribution Date, of the parties hereto (or their respective
Subsidiaries) to the extent such Liabilities arise primarily from or relate
primarily to the management or conduct of the Cable Michigan Business prior to
the Effective Time (the Liabilities listed in clauses (i) and (ii) are
collectively referred to as "True Cable Michigan Liabilities") and (iii) 20%
of the Shared Liabilities. The Cable Michigan Liabilities include all
Liabilities set forth on the balance sheet of Cable Michigan as of June 30,
1997 included in the Cable Michigan Information Statement (the "Michigan
Balance Sheet Liabilities").
"CCI" means Commonwealth Communications, Inc., a Pennsylvania
corporation and a wholly owned Subsidiary of C-TEC.
"CCS" means C-TEC Cable Systems, Inc., a Delaware corporation.
"Chimes" means Commonwealth Telecom Services, Inc., a
Pennsylvania corporation and a wholly owned Subsidiary of CCI.
"CLD Newco" means Commonwealth Long Distance Company, a
Pennsylvania corporation and a wholly owned Subsidiary of RLD.
"CLD Newco Distribution" has the meaning set forth in
Section 2.01(l).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Commonwealth Service Area" means the local telephone service
franchise area of CTCo as of the date of this Agreement together with the
Pennsylvania communities of Wilkes-Barre, Scranton and Harrisburg.
"Commonwealth Service Area Long Distance Business" means the
business of providing long distance telephone services to customers in the
Commonwealth Service Area conducted prior to the Restructuring primarily by
RLD and after the Restructuring primarily by CLD Newco.
"CTCo" means Commonwealth Telephone Company, a Pennsylvania
corporation and a wholly owned Subsidiary of C-TEC.
"C-TEC Business" means, collectively, (i) the local telephone
service business conducted primarily by CTCo, (ii) the Commonwealth Service
Area Long Distance Business and (iii) the telecommunications, engineering and
technical services business conducted primarily by CCI.
"C-TEC Class B Common Stock" has the meaning set forth in
the second recital hereto.
"C-TEC Common Equity" has the meaning set forth in
the second recital hereto.
"C-TEC Common Stock" has the meaning set forth in
the second recital hereto.
"C-TEC Group" means C-TEC and its Subsidiaries (other than any
member of the Cable Michigan Group or the RCN Group). The members of the
C-TEC Group are C-TEC, CTCo, Commonwealth Long Distance Company, Commonwealth
Telecom Services, Inc., SRHC, Inc., TMH, Inc., Keystone Telecom Company, C-TEC
Cable Holdings, Inc., Mobile Plus, Inc., Mobile Plus of Iowa, Inc., Mobile
Plus Services, Inc., Mobilefone, Inc., Mobile Plus Services of Pennsylvania,
Inc. and C-TEC Cellular Centre County, Inc.
"C-TEC Indemnitees" has the meaning set forth in Section 4.01.
"C-TEC Liabilities" means all (i) Liabilities of the C-TEC Group
under this Agreement or the other Distribution Documents, (ii) except as
otherwise specifically provided herein or in any other Distribution Document,
other Liabilities, whether arising before, on or after the Distribution Date,
of the parties hereto (or their respective Subsidiaries) to the extent such
Liabilities arise primarily from or relate primarily to the management or
conduct of the C-TEC Business prior to the Effective Time (the Liabilities
listed in clauses (i) and (ii) are collectively referred to as "True C-TEC
Liabilities") and (iii) 50% of the Shared Liabilities. The C-TEC Liabilities
include all Liabilities set forth on the balance sheet of C-TEC as of June 30,
1997 included in C-TEC's quarterly report on Form 10-Q for the quarter ended
on such date other than the Cable Michigan Balance Sheet Liabilities and the
RCN Balance Sheet Liabilities.
"C-TEC Services" has the meaning set forth in Section 2.01(o).
"Distribution" means the distribution by C-TEC on the
Distribution Date of the Cable Michigan Common Stock and the RCN Common Stock
owned by C-TEC to the holders of C-TEC Common Equity as of the Record Date.
"Distribution Agent" means First Union National Bank.
"Distribution Date" means the business day as of which the
Distribution shall be effected.
"Distribution Documents" means all of the agreements and other
documents entered into in connection with the Restructuring, the Distribution
or the other transactions contemplated hereby, including, without limitation,
this Agreement and the Tax Sharing Agreement.
"Effective Time" means the close of business on the
Distribution Date.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, permits, licenses and governmental
restrictions, whether now or hereafter in effect, relating to the environment,
the effect of the environment on human health or to emissions, discharges,
releases, manufacturing, storage, processing, distribution, use, treatment,
disposal, transportation or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances or wastes or the clean-up or other remediation thereof.
"Fees" has the meaning set forth in Section 6.04.
"$15 Million Loan" has the meaning set forth in Section 2.01.
"Finally Determined" means, with respect to any Action or other
matter, that the outcome or resolution of such Action or matter has been
judicially determined by judgment or order not subject to further appeal or
discretionary review (or, in the case of any matter required to be resolved by
arbitration in accordance with Section 9.11(a), that the outcome or resolution
of such matter has been determined thereunder).
"Force Majeure" has the meaning set forth in Section 6.06(b).
"Form 10s" means, collectively, the Cable Michigan Form 10 and
the RCN Form 10.
"Group" means, as the context requires, the Cable Michigan
Group, the RCN Group or the C-TEC Group.
"Historical Services" has the meaning set forth in Schedule
6.01(ii).
"Indemnified Party" has the meaning set forth in Section 4.05.
"Indemnifying Party" has the meaning set forth in Section 4.05.
"Information Statements" means the RCN Information Statement and
the Cable Michigan Information Statement.
"Internal Cable Michigan Distribution" has the meaning set
forth in Section 2.01(j).
"International" means RCN International Holdings, Inc., a
Delaware corporation and a wholly owned Subsidiary of C-TEC.
"Letter Ruling" means the private letter ruling dated June 16,
1997, issued by the Internal Revenue Service with respect to the tax-free
nature of the Distribution.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law (including Environmental Laws), rule, regulation, any
action, order, injunction or consent decree of any governmental agency or
entity, or any award of any arbitrator of any kind, and those arising under
any agreement, commitment or undertaking.
"Losses" means, with respect to any Person, any and all damage,
loss, liability and expense incurred or suffered by such Person (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any and all Actions or
threatened Actions).
"Managing Party" has the meaning set forth in Section 4.07.
"Mercom" means Mercom, Inc., a Delaware corporation and a
61.92% owned Subsidiary of C-TEC.
"Mercom Interest" has the meaning set forth in Section 2.01(p).
"Nasdaq" has the meaning set forth in Section 3.01(e).
"Nevada Finance" has the meaning set forth in Section 2.01(o).
"1933 Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Participating Party" has the meaning set forth in Section 4.07.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Pre-Distribution Policy" has the meaning set forth in Section
8.04.
"RCN Business" means, collectively, (i) the business of
providing cable television services in certain locations in New Jersey, New
York and Pennsylvania conducted primarily by C-TEC Cable Systems, Inc., RCN
Telecom Services of Pennsylvania, Inc., C-TEC Cable Systems of New York,
ComVideo Systems, Inc. and C-TEC Cable System Services, Inc., (ii) the
business of providing voice, video and data services primarily to customers in
New York, New York and Boston, Massachusetts conducted primarily by RCN
Telecom Services, Inc., RCN Telecom Services of New York, Inc., RCN Telecom
Services of Massachusetts, Inc. and RCN-BecoCom, L.L.C., (iii) the long
distance telephone services business conducted primarily by RLD excluding the
Commonwealth Service Area Long Distance Business, (iv) the business of owning
a 40% equity interest in Megacable, S.A. de C.V., a Mexican corporation,
conducted primarily by International and (v) the corporate overhead function
(the "Corporate Overhead Function") conducted primarily by C-TEC Services,
Inc., a Pennsylvania corporation.
"RCN Common Stock" has the meaning set forth in the second
recital hereto.
"RCN Form 10" means the registration statement on Form 10 filed
by RCN with the Commission on July 9, 1997 to effect the registration of RCN
Common Stock pursuant to the 1934 Act in connection with the Distribution, as
such registration statement may be amended from time to time.
"RCN Group" means RCN and its Subsidiaries as of (and, except
where the context clearly indicates otherwise, after) the Effective Time
(including all predecessors to such Persons). The members of the RCN Group are
RCN, RCN Telecom Services of Pennsylvania, Inc., RCN Long Distance Company,
RCN International Holdings, Inc., RCN Telecom Services, Inc., RCN Telecom
Services of California, Inc., RCN Telecom Services of Delaware, Inc., RCN
Telecom Services of Illinois, Inc., RCN Telecom Services of Massachusetts,
Inc., RCN Telecom Services of Maryland, Inc., RCN Telecom Services of
Michigan, Inc., RCN Telecom Services of New York, Inc., FNY Holding Company,
Inc., Freedom New York L.L.C. (a Delaware limited liability company), RCN
Financial Services, Inc., RCN Corporate Services, Inc., RCN Telecom Services
of New Jersey, Inc., RCN Telecom Services of Virginia, Inc., RCN Telecom
Services of Philadelphia, Inc., RCN Telecom Services of Washington, Inc., RCN
Operating Services, Inc., RCN-BecoCom, L.L.C. (a Massachusetts limited
liability company), RCN Telecom Services of Washington, D.C., Inc., C-TEC
Services, Inc., C-TEC Financial Services, Inc., C-TEC Cable Systems, Inc.,
C-TEC Cable Systems of New York, Inc., ComVideo Systems, Inc., C-TEC Cable
System Services, Inc., C-TEC Fiber Systems of New Jersey, Inc., Fiberfone of
New York, Inc., Fiberfone of Pennsylvania, Inc., Fiberfone of New Jersey, Inc.,
Fiberfone of Michigan, Inc., TEC Air, Inc. and Homelink Communications of
Princeton.
"RCN Indemnitees" has the meaning set forth in Section 4.01.
"RCN Information Statement" means the information statement that
forms a part of the RCN Form 10 and is to be sent to each holder of C-TEC
Common Stock in connection with the Distribution.
"RCN Liabilities" means all (i) Liabilities of the RCN Group
under this Agreement or the other Distribution Documents, (ii) except as
otherwise specifically provided herein or in any other Distribution Document,
other Liabilities, whether arising before, on or after the Distribution Date,
of the parties hereto (or their respective Subsidiaries) to the extent such
Liabilities arise primarily from or relate primarily to the management or
conduct of the RCN Business (other than Shared Corporate Liabilities) prior to
the Effective Time (the Liabilities listed in clauses (i) and (ii) are
collectively referred to as "True RCN Liabilities") and (iii) 30% of the
Shared Liabilities. The RCN Liabilities include all Liabilities set forth on
the balance sheet of RCN as of June 30, 1997 included in the RCN Information
Statement (the "RCN Balance Sheet Liabilities").
"RCN PA" has the meaning set forth in Section 2.01(f).
"RCN PA Distribution" has the meaning set forth in Section
2.01(h).
"RCN Telecom" has the meaning set forth in Section 2.01(c).
"Record Date" means the date determined by C-TEC's Board of
Directors (or determined by a committee of such Board of Directors or by any
person pursuant to authority delegated to such committee or such person) as
the record date for determining the holders of C-TEC Common Equity entitled
to receive Cable Michigan Common Stock and RCN Common Stock pursuant to the
Distribution.
"Representatives" has the meaning set forth in Section 7.06.
"Restructuring" has the meaning set forth in the introductory
paragraph of Article 2.
"RLD" means RCN Long Distance Company (formerly known as
Commonwealth Long Distance Company), a Pennsylvania corporation and a wholly
owned Subsidiary of C-TEC.
"Services" has the meaning set forth in Section 6.01.
"Service Package" has the meaning set forth in Section 6.01.
"Service Provider" has the meaning set forth in Section 6.01.
"Service Recipient" has the meaning set forth in Section 6.01.
"Shared Corporate Liabilities" means Liabilities arising from
the operation of the Corporate Overhead Function prior to the Distribution Date
except to the extent such Liabilities (i) were reflected on the balance sheet
of C-TEC and its consolidated Subsidiaries as of December 31, 1996, (ii) arose
in the ordinary course of business since that date or (iii) have prior to the
date hereof been allocated by C-TEC for purposes of preparing its consolidated
financial statements.
"Shared Liability" means any Liability (whether arising before,
on or after the Distribution Date) of the parties hereto or their respective
Subsidiaries which (i) arises from or relates to the management or conduct
prior to the Effective Time of the businesses of C-TEC and its Subsidiaries
and (ii) is not a True C-TEC Liability, a True Cable Michigan Liability or a
True RCN Communications Liability. Shared Liabilities include, without
limitation, Liabilities listed on Schedule 1.01 hereto.
"Shared Liability Claim" has the meaning set forth in Section
4.07.
"Subsidiary" means, with respect to any Person, any other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"Tax" means Tax as such term is defined in the Tax Sharing
Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as
of the date hereof among C-TEC, Cable Michigan and RCN.
"Termination Notice" has the meaning set forth in Section
6.02(b).
"Third-Party Claim" has the meaning set forth in Section 4.06.
"Transition Period" has the meaning set forth in Section
6.02(a).
ARTICLE 2
Restructuring
Prior to the date hereof, the parties have caused the
transactions set forth in Sections 2.01(a) through Section 2.01[( )] below to
be completed in the order set forth below. Prior to the Effective Time, the
parties will cause the transactions set forth in subsections [( )] through [(
)] of Section 2.01 to be completed in the order set forth below. The
transactions set forth in subsections (a) through [( )] of Section 2.01 and
the transactions set forth in Section 2.02 are referred to herein collectively
as the "Restructuring".
Section 2.1. The Restructuring. (a) C-TEC will borrow $15
million (the "$15 Million Loan") from unrelated third party lenders (securing
the $15 Million Loan with its 61.92% interest in Mercom (the "Mercom
Interest")) and use the proceeds for general corporate purposes.
(b) Cable Michigan will borrow $110 million from unrelated
third party lenders and use the proceeds to repay $110 million of intercompany
indebtedness owed to CCS.
(c) CCS will borrow $110 million of new debt from unrelated third
party lenders and use $78.5 million of the proceeds and cash on hand to
purchase $[100] million of common stock of RCN Telecom Services, Inc. ("RCN
Telecom") from RCN Telecom.
(d) CCS will use the $110 million received from Cable Michigan and
approximately $31.5 million from its own borrowing to retire existing third
party obligations with respect to long term indebtedness.
(e) C-TEC will borrow $75 million from unrelated third party
lenders and contribute the proceeds to RCN Telecom together with $15 million,
for a total of $90 million.
(f) CCS will contribute its common stock of RCN Telecom to RCN
Telecom Services of Pennsylvania, Inc., a Pennsylvania corporation ("RCN PA").
(g) CCS will capitalize all unpaid intercompany notes
receivable owed by its subsidiaries other than the amount repaid by Cable
Michigan described in Section 2.01(b).
(h) All other intercompany notes payable, and all accounts
payable, by a member of one Group to a member of another Group as of June
30, 1997 will be repaid through a series of transactions (including
dividends and contributions) that does not change the percentage ownership
or cash position of any of the entities involved, all as previously agreed
upon by the parties.
(i) CCS will distribute all of the stock of RCN PA to C-TEC (the
"RCN PA Distribution").
(j) CCS will distribute all of the stock of Cable Michigan to C-TEC
(the "Internal Cable Michigan Distribution").
(k) CCI will transfer property relating to the expansion of the
CTCo's local telephone business beyond its current franchise area, as well as
any liabilities related to such property, to Chimes.
(l) RLD will transfer the In-Franchise Long Distance Business
(including all related liabilities) to CLD Newco.
(m) RLD will distribute the stock of CLD Newco to C-TEC (the "CLD
Newco Distribution").
(n) CCI will merge with and into C-TEC pursuant to state corporate
law.
(o) C-TEC will contribute all of its stock in RCN Telecom and all
of the stock of RLD, RCN PA, CCS, C-TEC Financial Services Inc., a Nevada
Corporation ("Nevada Finance"), C-TEC Services, Inc., a Pennsylvania
corporation ("C-TEC Services"), TEC Air, Inc., a Delaware corporation, and
International and related liabilities, if any, in exchange for additional
stock of RCN.
(p) RCN will contribute all of its stock in RCN Telecom and all of
the stock of RLD and International to RCN PA.
(q) C-TEC will contribute the Mercom Interest to Cable Michigan,
subject to the encumbrance referred to in subsection (a) above and in
connection therewith Cable Michigan will assume the obligations of C-TEC under
the loan referred to in subsection (a) above.
Section 2.2. Transfers of Certain Other Assets. If and to the
extent necessary after taking into account the effect of the transactions
referred to in Section 2.01, effective prior to or as of the Distribution Date
or as soon as practicable after the Distribution Date, subject to receipt of
any necessary consents or approvals of third parties or of governmental or
regulatory agencies or authorities and subject to Section 8.02, (a) C-TEC
shall, or shall cause the relevant member of the C-TEC Group to, assign,
contribute, convey, transfer and deliver to Cable Michigan or to one or more
members of the Cable Michigan Group all of the right, title and interest of
C-TEC or such member of the C-TEC Group in and to all assets (including all
agreements), if any, held by any member of the C-TEC Group that relate
predominantly to the Cable Michigan Business and Cable Michigan shall, or
shall cause such member or members of the Cable Michigan Group to, assume and
take transfer of all liabilities associated with such assets; (b) C-TEC shall,
or shall cause the relevant member of the C-TEC Group to assign, contribute,
convey, transfer and deliver to RCN or to one or more members of the RCN Group
all of the right, title and interest of C-TEC or such member of the C-TEC Group
in and to all assets (including all agreements), if any, held by any member of
the C-TEC Group that relate predominantly to the RCN Business and RCN shall,
or shall cause such member or members of the RCN Group to, assume and take
transfer of all liabilities associated with such assets; (c) Cable Michigan
shall, or shall cause the relevant member of the Cable Michigan Group to,
assign, convey, transfer and deliver to C-TEC or to one or more members of the
C-TEC Group all of the right, title and interest of Cable Michigan or such
member of the Cable Michigan Group in and to all assets (including all
agreements), if any, held by any member of the Cable Michigan Group that
relate predominantly to the C-TEC Business and C-TEC shall, or shall cause
such member or members of the C-TEC Group to assume and take transfer of all
liabilities associated with such assets; (d) Cable Michigan shall, or shall
cause the relevant member of the Cable Michigan Group to, assign, convey,
transfer and deliver to RCN or to one or more members of the RCN Group all of
the right, title and interest of Cable Michigan or such member of the Cable
Michigan Group in and to all assets (including all agreements), if any, held
by any member of the Cable Michigan Group that relate predominantly to the RCN
Business and RCN shall, or shall cause such member or members of the RCN Group
to, assume and take transfer of all liabilities associated with such assets;
(e) RCN shall, or shall cause the relevant member of the RCN Group to, assign,
convey, transfer and deliver to C-TEC or to one or more members of the C-TEC
Group all of the right, title and interest of RCN or such member of the RCN
Group in and to all assets (including all agreements), if any, held by any
member of the RCN Group that relate predominantly to the C-TEC Business and
C-TEC shall, or shall cause such member or members of the C-TEC Group to,
assume and take transfer of all liabilities associated with such assets; and
(f) RCN shall, or shall cause the relevant member of the RCN Group to, assign,
convey, transfer and deliver to Cable Michigan or to one or more members of
the Cable Michigan Group all of the right, title and interest of RCN or such
member of the RCN Group in and to all assets (including all agreements), if
any, held by any member of the RCN Group that relate predominantly to the
Cable Michigan Business and Cable Michigan shall, or shall cause such member
or members of the Cable Michigan Group to, assume and take transfer of all
liabilities associated with such assets. For the avoidance of doubt, it is
understood that (i) CTCo shall not transfer to any member of the RCN Group the
mainframe computer owned by CTCo and (ii) C-TEC Services shall assign to C-TEC
or to one or more members of the C-TEC Group all of its right, title and
interest in the Facilities Management Agreement dated October 1, 1992, as
amended, between C-TEC Services and Alltel Telecom Information Services, Inc.,
and such member or members of the C-TEC Group shall assume the obligations of
C-TEC Services under that agreement.
Section 2.3. Agreement Relating to Consents. The obligations
of the parties to effect (or cause to be effected) the Restructuring shall be
subject to the receipt of all necessary consents of any third party or any
governmental or regulatory agency or authority. Notwithstanding anything in
this Agreement to the contrary, this Agreement shall not constitute an
agreement to transfer or assign any asset (including any agreement) or any
claim or right or any benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the necessary consent of a third party
or a governmental or regulatory agency or authority, would constitute a breach
or other contravention thereof or in any way adversely affect the rights of
the Cable Michigan Group, the RCN Group or the C-TEC Group thereunder. Each of
Cable Michigan, RCN and C-TEC will, subject to Section 8.02, use their
reasonable efforts to obtain, or cause to be obtained, the consent of any
third party or any governmental or regulatory agency or authority, if any,
required in connection with the Restructuring. If any such required consent
for an assignment in the Restructuring is not obtained, or if an attempted
assignment of any asset (including any agreement) or any claim or right or
benefit arising thereunder would be ineffective or would adversely affect the
rights of the transferor with respect thereto so that the intended transferee
would not in fact receive all such rights, the intended transferor and the
intended transferee will cooperate in a mutually agreeable arrangement under
which the intended transferee would obtain the benefits and assume the
obligations thereunder in accordance with this Agreement, including
sub-contracting, sub-licensing or sub-leasing to such transferee, or under
which the transferor would enforce for the benefit of the transferee, with the
transferee assuming the transferor's obligations, any and all rights of the
transferor against a third party thereto.
Section 2.4. Post Distribution Actions. Following the
Distribution, (i) C-TEC agrees to conduct an offering of equity or
equity-linked securities in accordance with the terms of the Letter Ruling,
(ii) RCN agrees to establish an employee stock ownership plan in accordance
with the terms of the Letter Ruling and (iii) the parties agree to comply with
the other applicable requirements of the Letter Ruling.
ARTICLE 3
The Distribution
Section 3.1. Cooperation Prior to the Distribution. (a)
C-TEC and Cable Michigan have prepared, and Cable Michigan has filed with
the Commission, the Cable Michigan Form 10, which includes or incorporates
by reference the Cable Michigan Information Statement setting forth
appropriate disclosure concerning Cable Michigan and the Distribution. C-TEC
and Cable Michigan shall use reasonable efforts to cause the Cable Michigan
Form 10 to become effective under the 1934 Act as soon as practicable.
After the Form 10 becomes effective, C-TEC will mail the Cable Michigan
Information Statement to the holders of C-TEC Common Equity as of the
Record Date.
(b) C-TEC and RCN have prepared, and RCN has filed with the
Commission, the RCN Form 10, which includes or incorporates by reference the
RCN Information Statement setting forth appropriate disclosure concerning RCN
and the Distribution. C-TEC and RCN shall use reasonable efforts to cause the
RCN Form 10 to become effective under the 1934 Act as soon as practicable.
After the RCN Form 10 becomes effective, C-TEC will mail the RCN Information
Statement to the holders of C-TEC Common Equity as of the Record Date.
(c) C-TEC, Cable Michigan and RCN shall cooperate in preparing,
filing with the Commission and causing to become effective any registration
statements or amendments thereto that are appropriate to reflect the
establishment of or amendments to any employee benefit and other plans
contemplated by this Agreement.
(d) C-TEC, Cable Michigan and RCN shall take all such action as
may be necessary or appropriate under the securities or blue sky laws of states
or other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
(e) Cable Michigan and RCN shall each prepare, file and pursue an
application to permit trading of the Cable Michigan Common Stock and the RCN
Common Stock, respectively, on the Nasdaq Stock Market ("Nasdaq").
Section 3.2. C-TEC Board Action; Conditions Precedent. (a)
C-TEC's Board of Directors shall, in its discretion, establish (or delegate
authority to establish) the Record Date and the Distribution Date and any
appropriate procedures in connection with the Distribution. In no event shall
the Distribution occur unless the following conditions shall have been
satisfied:
(i) the Cable Michigan Form 10 and the RCN Form 10 shall
each have become effective under the 1934 Act;
(ii) the Cable Michigan Common Stock and the RCN Common Stock
to be delivered in the Distribution shall, in each case, have been approved
for trading on Nasdaq, subject to official notice of issuance;
(iii) the Board of Directors of C-TEC shall be satisfied that
(a) both before and after giving effect to the Distribution, C-TEC is not and
would not be insolvent, (b) after giving effect to the Distribution, C-TEC
would be able to pay its liabilities as they mature and become absolute, and
C-TEC would not have unreasonably small capital with which to engage in its
business and (c) the Distribution will be permitted under Section 1551 of the
Pennsylvania Business Corporations Act.
(iv) C-TEC's Board of Directors shall have approved the
Distribution and shall not have abandoned, deferred or modified the
Distribution at any time prior to the Distribution Date;
(v) (i) Cable Michigan's Board of Directors, as named in the
Cable Michigan Information Statement, shall have been elected by C-TEC, as
sole stockholder of Cable Michigan, and Cable Michigan's certificate of
incorporation and bylaws, in substantially the forms filed as exhibits to the
Cable Michigan Form 10, shall be in effect and (ii) RCN's Board of Directors,
as named in the RCN Information Statement, shall have been elected by C-TEC,
as sole stockholder of RCN, and RCN's certificate of incorporation and bylaws,
in substantially the forms filed as exhibits to the RCN Form 10, shall be in
effect;
(vi) the Tax Sharing Agreement shall have been duly executed
and delivered by the parties thereto;
(vii) the Internal Revenue Service shall not have withdrawn the
Letter Ruling; and
(viii) the Restructuring shall have been consummated in all
material respects.
(b) In no event shall either the RCN PA Distribution or the
Internal Cable Michigan Distribution occur unless the Board of Directors of
CCS shall be satisfied that (a) both before and after giving effect to the RCN
PA Distribution or the Internal Cable Michigan Distribution, as the case may
be, CCS is not and would not be insolvent, (b) after giving effect to the RCN
PA Distribution or the Internal Cable Michigan Distribution, as the case may
be, CCS would be able to pay its liabilities as they mature and become
absolute, and CCS would not have unreasonably small capital with which to
engage in its business and (c) the RCN PA Distribution or the Internal Cable
Michigan Distribution, as the case may be, will be permitted under Section 170
of the Delaware General Corporation Law.
(c) In no event shall the CLD Newco Distribution occur unless the
Board of Directors of RLD shall be satisfied that (a) both before and after
giving effect to the CLD Newco Distribution, RLD is not and would not be
insolvent, (b) after giving effect to the CLD Newco Distribution, RLD would
be able to pay its liabilities as they mature and become absolute, and RLD
would not have unreasonably small capital with which to engage in its business
and (c) the CLD Newco Distribution will be permitted under Section 1551 of the
Pennsylvania Business Corporations Act.
Section 3.3. The Distribution. Subject to the terms and
conditions set forth in this Agreement, (i) prior to the Distribution Date,
C-TEC shall deliver to the Distribution Agent for the benefit of holders of
record of C-TEC Common Equity on the Record Date, stock certificates, endorsed
by C-TEC in blank, representing all of the then outstanding shares of Cable
Michigan Common Stock owned by C-TEC and all of the then outstanding shares of
RCN Common Stock owned by C-TEC, (ii) the Distribution shall be effective as
of the close of business, New York City time, on the Distribution Date and
(iii) C-TEC shall instruct the Distribution Agent to distribute, on or as soon
as practicable after the Distribution Date, to each holder of record of C-TEC
Common Equity as of the Record Date one share of Cable Michigan Common Stock
for each ____ shares of C-TEC Common Equity so held and one share of RCN
Common Stock for each _____ shares of C-TEC Common Equity so held. Cable
Michigan and RCN each agree to provide all certificates for shares of Cable
Michigan Common Stock and RCN Common Stock, respectively, that C-TEC shall
require (after giving effect to Section 3.04) in order to effect the
Distribution.
Section 3.4. Stock Dividends to C-TEC. On or prior to the
Distribution Date:
(i) Cable Michigan shall issue to C-TEC as a stock dividend
the number of shares of Cable Michigan Common Stock as required to effect the
Distribution, as certified by the Distribution Agent. In connection therewith,
C-TEC shall deliver to Cable Michigan for cancellation the share certificate
currently held by it representing Cable Michigan Common Stock.
(ii) RCN shall issue to C-TEC as a stock dividend the number
of shares of RCN Common Stock as required to effect the Distribution, as
certified by the Distribution Agent. In connection therewith, C-TEC shall
deliver to RCN for cancellation the share certificate currently held by it
representing RCN Common Stock.
Section 3.5. Fractional Shares. No certificates representing
fractional shares of Cable Michigan Common Stock or RCN Common Stock will be
distributed in the Distribution. The Distribution Agent will be directed to
determine the number of whole shares and fractional shares of Cable Michigan
Common Stock and RCN Common Stock allocable to each holder of C-TEC Common
Stock as of the Record Date. Upon the determination by the Distribution Agent
of such number of fractional shares, as soon as practicable after the
Distribution Date, the Distribution Agent, acting on behalf of the holders
thereof, shall sell such fractional shares for cash on the open market and
shall disburse the appropriate portion of the resulting cash proceeds (net of
any costs of selling the fractional shares) to each holder entitled thereto.
ARTICLE 4
Indemnification
Section 4.1. Cable Michigan Indemnification of the C-TEC Group
and the RCN Group. (a) Subject to Section 4.04, on and after the Distribution
Date, Cable Michigan shall indemnify, defend and hold harmless the C-TEC Group
and the respective directors, officers, employees and Affiliates of each
Person in the C-TEC Group (the "C-TEC Indemnitees") and the RCN Group and the
respective directors, officers, employees and Affiliates of each Person in the
RCN Group (the "RCN Indemnitees") from and against any and all Losses incurred
or suffered by any of the C-TEC Indemnitees or the RCN Indemnitees,
respectively, (1) arising out of, or due to the failure of any Person in the
Cable Michigan Group to pay, perform or otherwise discharge, any of the Cable
Michigan Liabilities, (2) arising out of the breach by any member of the Cable
Michigan Group of any obligation under this Agreement or any of the other
Distribution Documents, (3) in the case of the C-TEC Indemnitees, arising out
of the performance of the Services under clause (iv) of Section 6.01 except to
the extent such Losses result from the gross negligence or willful misconduct
of a C-TEC Indemnitee or (4) in the case of the RCN Indemnitees, arising out
of the performance of Services under clause (ii) of Section 6.01 except to the
extent such Losses result from the gross negligence or willful misconduct of a
RCN Indemnitee.
(b) Subject to Section 4.04, Cable Michigan shall indemnify, defend
and hold harmless each of the C-TEC Indemnitees, each of the RCN Indemnitees
and each Person, if any, who controls any C-TEC Indemnitee or any RCN
Indemnitee within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act from and against any and all Losses caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Cable Michigan Form 10 or any amendment thereof or the Cable Michigan
Information Statement (as amended or supplemented), or caused by any omission
or alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such Losses are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information furnished to Cable Michigan in writing by C-TEC expressly for
use therein.
Section 4.2. RCN Indemnification of the C-TEC Group and the
Cable Michigan Group. (a) Subject to Section 4.04, on and after the
Distribution Date, RCN shall indemnify, defend and hold harmless the C-TEC
Indemnitees and the Cable Michigan Group and the respective directors,
officers, employees and Affiliates of each Person in the Cable Michigan Group
(the "Cable Michigan Indemnitees") from and against any and all Losses incurred
or suffered by any of the C-TEC Indemnitees or the Cable Michigan Indemnitees,
respectively, (1) arising out of, or due to the failure of any Person in the
RCN Group to pay, perform or otherwise discharge, any of the RCN Liabilities,
(2) arising out of the breach by any member of the RCN Group of any obligation
under this Agreement or any of the other Distribution Documents or (3) in the
case of the C-TEC Indemnitees, arising out of the performance of the Services
under clause (iii) of Section 6.01 except to the extent such Losses result
from the gross negligence or willful misconduct of a C-TEC Indemnitee.
(b) Subject to Section 4.04, RCN shall indemnify, defend and hold
harmless each of the C-TEC Indemnitees, each of the Cable Michigan Indemnitees
and each Person, if any, who controls any C-TEC Indemnitee or any Cable
Michigan Indemnitee within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act from and against any and all Losses caused by any
untrue statement or alleged untrue statement of a material fact contained in
the RCN Form 10 or any amendment thereof or the RCN Information Statement (as
amended or supplemented), or caused by any omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as such Losses are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished to RCN
in writing by C-TEC expressly for use therein.
Section 4.3. C-TEC Indemnification of Cable Michigan Group and
RCN Group. (a) Subject to Section 4.04, on and after the Distribution Date,
C-TEC shall indemnify, defend and hold harmless the Cable Michigan
Indemnitees and the RCN Indemnitees from and against any and all Losses
incurred or suffered by any of the Cable Michigan Indemnitees or the RCN
Indemnitees, respectively, (1) arising out of, or due to the failure of any
Person in the C-TEC Group to pay, perform or otherwise discharge, any of the
C-TEC Liabilities, (2) arising from any breach by any member of the C-TEC
Group of any obligation made under this Agreement or any of the other
Distribution Documents, or (3) in the case of the RCN Indemnitees, arising out
of the performance of the Services under clause (i) of Section 6.01 except to
the extent such Losses result from the gross negligence or willful misconduct
of a RCN Indemnitee.
(b) Subject to Section 4.04, C-TEC shall indemnify, defend and hold
harmless each of the Cable Michigan Indemnitees, each of the RCN Indemnitees
and each Person, if any, who controls any Cable Michigan Indemnitee or any RCN
Indemnitee within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act from and against any and all Losses caused by any untrue
statement or alleged untrue statement of a material fact contained in either
of the Form 10s or any amendment thereof or either of the Information
Statements (as amended or supplemented), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such
Losses are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished to Cable Michigan or
RCN, as the case may be, in writing by C-TEC expressly for use therein.
Section 4.4. Insurance; Third Party Obligations. Any
indemnification pursuant to Section 4.01, 4.02 or 4.03 shall be paid net of the
amount of any insurance or other amounts that would be payable by any third
party to the Indemnified Party (as defined below) in the absence of this
Agreement (irrespective of time of receipt of such insurance or other amounts)
and net of any Tax Benefit (as defined in the Tax Sharing Agreement) to the
Indemnified Party attributable to the relevant payment or Liability. It is
expressly agreed that no insurer or any other third party shall be (i)
entitled to a benefit it would not be entitled to receive in the absence of
the foregoing indemnification provisions, (ii) relieved of the responsibility
to pay any claims to which it is obligated or (iii) entitled to any
subrogation rights with respect to any obligation hereunder.
Section 4.5. Notice and Payment of Claims. If any C-TEC
Indemnitee, Cable Michigan Indemnitee or RCN Indemnitee (the "Indemnified
Party") determines that it is or may be entitled to indemnification by any
party (the "Indemnifying Party") under Article IV (other than in connection
with any Action subject to Section 4.06 or 4.07), the Indemnified Party shall
deliver to the Indemnifying Party a written notice specifying, to the extent
reasonably practicable, the basis for its claim for indemnification and the
amount for which the Indemnified Party reasonably believes it is entitled to
be indemnified. Within 30 days after receipt of such notice, the Indemnifying
Party shall pay the Indemnified Party such amount in cash or other immediately
available funds unless the Indemnifying Party objects to the claim for
indemnification or the amount thereof. If the Indemnifying Party does not give
the Indemnified Party written notice objecting to such indemnity claim and
setting forth the grounds therefor within such 30-day period, the Indemnifying
Party shall be deemed to have acknowledged its liability for such claim and
the Indemnified Party may exercise any and all of its rights under applicable
law to collect such amount. In the event of such a timely objection by the
Indemnifying Party, the amount, if any, that is Finally Determined to be
required to be paid by the Indemnifying Party in respect of such indemnity
claim shall be paid by the Indemnifying Party to the Indemnified Party in cash
within 15 days after such indemnity claim has been so Finally Determined.
Section 4.6. Notice and Defense of Third-Party Claims Other
Than Those for Shared Liabilities. Promptly following the earlier of (i)
receipt of notice of the commencement by a third party of any Action against or
otherwise involving any Indemnified Party or (ii) receipt of information from a
third party alleging the existence of a claim against an Indemnified Party, in
either case, with respect to which indemnification may be sought pursuant to
this Agreement (a "Third-Party Claim"), the Indemnified Party shall give the
Indemnifying Party written notice thereof. The failure of the Indemnified Party
to give notice as provided in this Section 4.05 shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent that the Indemnifying Party is prejudiced by such failure to give
notice. Within 30 days after receipt of such notice, the Indemnifying Party
may (i) by giving written notice thereof to the Indemnified Party, acknowledge
liability for such indemnification claim and at its option elect to assume the
defense of such Third-Party Claim at its sole cost and expense or (ii) object
to the claim for indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this Section 4.06;
provided that if the Indemnifying Party does not within such 30-day period
give the Indemnified Party written notice objecting to such indemnification
claim and setting forth the grounds therefor, the Indemnifying Party shall be
deemed to have acknowledged its liability for such indemnification claim. If
the Indemnifying Party has acknowledged liability and elected to assume the
defense of a Third-Party Claim, (x) the defense shall be conducted by counsel
retained by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party, provided that the Indemnified Party shall have the right to
participate in such proceedings and to be represented by counsel of its own
choosing at the Indemnified Party's sole cost and expense; and (y) the
Indemnifying Party may settle or compromise the Third Party Claim without the
prior written consent of the Indemnified Party so long as such settlement
includes an unconditional release of the Indemnified Party from all claims
that are the subject of such Third Party Claim, provided that the Indemnifying
Party may not agree to any such settlement pursuant to which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld. If the Indemnifying Party does not assume
the defense of a Third-Party Claim for which it has acknowledged liability for
indemnification hereunder, the Indemnified Party will act in good faith with
respect thereto and may require the Indemnifying Party to reimburse it on a
current basis for its reasonable expenses of investigation, reasonable
attorneys' fees and reasonable out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnifying Party shall be bound by
the result obtained with respect thereto by the Indemnified Party; provided
that the Indemnifying Party shall not be liable for any settlement effected
without its consent, which consent shall not be unreasonably withheld. If the
Indemnifying Party objects to a claim for indemnification, (a) the
Indemnifying Party shall not be entitled to assume the defense of the related
Third Party Claim, (b) the Indemnified Party shall act in good faith with
respect to such Third Party Claim, (c) the dispute as to whether the
Indemnified Party is entitled to indemnification hereunder shall be resolved
in accordance with Section 9.11(a) hereof and (d) if it is determined that the
Indemnified Party is entitled to indemnification hereunder, the Indemnifying
Party will be responsible for all Losses of the Indemnified Party arising from
such Third Party Claim. The Indemnifying Party shall pay to the Indemnified
Party in cash the amount, if any, for which the Indemnified Party is entitled
to be indemnified hereunder within 15 days after such Third Party Claim has
been Finally Determined, in the case of a Third-Party Claim as to which the
Indemnifying Party has acknowledged liability or, in the case of any
Third-Party Claim as to which the Indemnifying Party has not acknowledged
liability, within 15 days after such Indemnifying Party's objection to
liability hereunder has been Finally Determined to be unfounded. This Section
4.06 shall govern all claims under this Article IV for indemnification against
Third Party Claims except Third Party Claims in respect of Shared Liabilities,
as to which Section 4.07 shall govern.
Section 4.7. Notice and Defense of Third-Party Claims for
Shared Liabilities. Promptly following the earlier of (i) receipt of notice
of the commencement of a Third Party Claim in respect of a Shared Liability (a
"Shared Liability Claim") or (ii) receipt of information from a third party
alleging the existence of a Shared Liability Claim, the party receiving such
notice or information shall give the other parties written notice thereof. The
failure of the party receiving notice or information with respect to a Shared
Liability Claim in respect to give notice as provided in this Section 4.07
shall not relieve another party of its indemnification obligations under this
Agreement with respect thereto, except to the extent that such party is
prejudiced by such failure to give notice.
Each party hereto shall be entitled to participate in the
defense of such Shared Liability Claim if either the Shared Liability Claim
has been asserted or threatened against such party or such party has
acknowledged in writing its obligation to bear a portion of the potential
liability in respect of such Shared Liability Claim. (Each party that is so
entitled to participate in the defense of such Shared Liability Claim is
referred to herein as a "Participating Party".) Without limiting the terms of
Sections 4.01(a), 4.02(a) and 4.03(a), the party against whom the Shared
Liability Claim is made shall have management and administrative
responsibility in respect thereof; provided that if RCN is a Participating
Party it shall have management and administrative responsibility in respect
thereof. The party responsible for the management and administration of a
Shared Liability Claim is referred to herein as the "Managing Party" and such
management and administrative responsibility shall entail the defense of such
Shared Liability Claim, negotiation with claimants and potential claimants
(subject to the limitations in the following paragraph) and other reasonably
related activities. The Managing Party shall retain counsel selected by it
and reasonably satisfactory to the other Participating Parties, provided that
the other Participating Parties shall have the right to participate in such
proceedings and to be represented by counsel of its or their own choosing at
its or their sole cost and expense. The legal or other expenses in respect of
a Shared Liability Claim incurred by or on behalf of any person other than the
Managing Party shall not be Losses for purposes of this Agreement. All
parties hereto shall cooperate with the Managing Party and each other in the
defense or prosecution of such Shared Liability Claim.
In no event will the party against which the claim was made
admit any liability with respect to, or settle, compromise or discharge, any
Shared Liability Claim without the prior written consent of each other
Participating Party; provided, however, that the party against which the claim
was made may settle or compromise the Shared Liability Claim without the prior
written consent of the other Participating Parties if such party releases each
of the other Participating Parties from their respective indemnification
obligations hereunder with respect to such Shared Liability Claim and such
settlement, compromise or discharge would not otherwise adversely affect the
other Participating Parties. The Managing Party shall act in good faith with
respect to the Shared Liability Claim and may require the other parties to
reimburse it on a current basis for its reasonable expenses of investigation,
reasonable attorneys' fees and reasonable out-of-pocket expenses incurred in
defending against such Shared Liability Claim, and the other parties shall be
bound by the result obtained with respect thereto; provided that a
Participating Party shall not be liable for any settlement effected without
its consent, which consent shall not be unreasonably withheld. If a party
objects to, or does not within 30 days of notice acknowledge in writing its
indemnification obligations hereunder in respect of a portion of the liability
for a Shared Liability Claim, (a) such party shall not be entitled to
participate in the defense of such Shared Liability Claim, and (b) the dispute
as to whether such party is required to provide indemnification hereunder with
respect thereto shall be resolved in accordance with Section 9.11(a) hereof.
Each Indemnifying Party in respect of a Shared Liability Claim shall pay to
the Indemnified Party in cash the amount, if any, for which the Indemnified
Party is entitled to be indemnified hereunder by such Indemnifying Party
within 15 days after such Shared Liability Claim has been Finally Determined,
in the case of a Shared Liability Claim as to which the Indemnifying Party has
acknowledged liability or, in the case of any Shared Liability Claim as to
which the Indemnifying Party has not acknowledged liability, within 15 days
after such Indemnifying Party's objection to liability hereunder has been
Finally Determined to be unfounded.
Section 4.8. Contribution. If for any reason the
indemnification provided for in Section 4.01, 4.02 or 4.03 is unavailable to
any Indemnified Party, or insufficient to hold it harmless, then the
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect all relevant equitable considerations.
Section 4.9. Non-Exclusivity of Remedies. The remedies
provided for in this Article IV are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any Indemnified Party
at law or in equity.
ARTICLE 5
Employee Matters
Section 5.1. Employee Matters Generally. With respect to
employee matters and employee benefits arrangements, the parties hereto agree
as set forth in Schedule 5.01. In the event of any conflict between the
provisions of this Agreement and Schedule 5.01 with respect to employee or
employee benefit matters, the provisions of Schedule 5.01 shall prevail.
ARTICLE 6
Certain Transitional Services
Section 6.1. Provision of Services. On the terms and
conditions set forth herein, and in order to assist in effecting an orderly
transition following the Distribution, (i) RCN will provide or cause to be
provided to the C-TEC Group, and C-TEC will purchase or cause to be purchased
from RCN (or the appropriate member of the RCN Group), the services set forth
on Schedule 6.01(i); (ii) RCN will provide or cause to be provided to the
Cable Michigan Group, and Cable Michigan will purchase or cause to be
purchased from RCN (or the appropriate member of the RCN Group), the services
set forth on Schedule 6.01(ii); (iii) C-TEC will provide or cause to be
provided to the RCN Group, and RCN will purchase or cause to be purchased from
C-TEC (or the appropriate member of the C-TEC Group), the services set forth on
Schedule 6.01(iii); and (iv) C-TEC will provide or cause to be provided to the
Cable Michigan Group, and Cable Michigan will purchase or cause to be
purchased from C-TEC (or the appropriate member of the C-TEC Group), the
services set forth on Schedule 6.01(iv). The services referred to in the
preceding sentence are referred to collectively as the "Services." As used
herein, (1) the term "Service Recipient" means, with respect to any given
Service, the recipient of such Service and for purposes of enforcing this
Agreement with C-TEC, RCN or Cable Michigan, as the case may be, shall be
treated as the recipient of all Services provided to its Group; (2) the term
"Service Provider" means, with respect to any given Service, the provider of
such Service and for purposes of such definition, C-TEC and RCN, as the case
may be, shall be treated as the provider of all Services provided by its Group;
and (3) the Services provided by a given Service Provider to a given Service
Recipient are referred to herein collectively as a "Service Package".
Section 6.2. Duration of Provision and Purchase of Services.
(a) The Services shall be provided and purchased in accordance with Section
6.01 for a period (the "Transition Period") (i) commencing on the Distribution
Date and (ii) ending, in the case of each Service Package, on the date that is
sixty (60) days after the date that either the relevant Service Provider or
the relevant Service Recipient gives notice that it is terminating this
Agreement with respect to the provision of that Service Package; provided that
RCN may not terminate this Agreement with respect to any of the Services set
forth in items 1 (customer service), 12 (programming administration), 13
(billing) and 16 (provision of third party programming) of Schedule 6.01(ii)
on less than one year advance notice to Cable Michigan.
(b) At any time during the Transition Period, the Service Recipient
may, at its election, terminate the provision of any Service that is being
provided to it by delivery of a notice to the applicable Service Provider (a
"Termination Notice"), which termination shall become effective with respect
to such Service sixty (60) days after the date of delivery of a Termination
Notice. If a Service ceases to be provided during the Transition Period, the
parties concerned will negotiate in good faith regarding a reduction in the
amount charged by the Service Provider to the Service Recipient for Services
under this Agreement.
Section 6.3. Nature and Scope of Provision of Services. The
nature, scope and timing of provision of the Services to be provided hereunder
shall be substantially consistent with the nature, scope and timing of the
comparable services provided to the Service Recipient (or its predecessor) by
the Service Provider (or its predecessor) prior to the Distribution; provided
that no Person shall be obligated to hire additional or replacement employees,
or increase the compensation of its existing employees, in order to provide
the Services hereunder. The Service Provider shall cause the employees
providing Services to use the same skill and care in the provision of the
Services as they exercise in performing such services for members of their own
Group.
Section 6.4. Charges and Payment for Services. The Service
Recipient shall (or shall cause the appropriate member of its Group to) pay the
Service Provider (or the appropriate member of its Group) fees in respect of
the Services set forth hereunder in Schedules 6.01(i), (ii), (iii) or (iv), as
applicable (the "Fees"). All Fees required to be paid hereunder shall be
invoiced monthly, and invoiced amounts shall be due and payable individually
by the Service Recipients in cash within thirty (30) days from date of receipt
of such invoice therefor. The parties agree to enter into good faith
negotiations to reduce the applicable Fees payable hereunder if the level or
quantity of any given Service provided hereunder is reduced at the request of
the Service Recipient.
Section 6.5. Status as Independent Contractor. C-TEC, Cable
Michigan and RCN agree that the relationship between any employee of one
company providing Services to another shall be that of an employee of an
independent contractor and not that of an employee, agent, partner or joint
venturer of the Service Recipient. C-TEC, Cable Michigan and RCN agree that
any individual providing services hereunder will not be treated as employees
of the Service Recipient for any purpose, including, without limitation, the
Federal Insurance Contributions Act, the Social Security Act, the Federal
Unemployment Tax Act, federal and state income tax withholding, state worker's
compensation insurance and similar laws covering the employer/employee
relationship.
Section 6.6. Exculpation; Force Majeure. (a) Neither C-TEC
(nor any C-TEC Indemnitee) nor RCN (nor any RCN Indemnitee) shall be liable to
any other Person for any Losses directly or indirectly arising out of, relating
to or in connection with the performance or non-performance by the C-TEC Group
or the RCN Group, respectively, of the Services hereunder, except to the
extent such Losses are attributable to gross negligence or willful misconduct
of the C-TEC Group or the RCN Group, respectively.
(b) Without limiting the provisions of Section 6.06(a), no Service
Provider hereunder shall be liable to any Service Recipient hereunder for any
delay or default in performance of the Services where occasioned by any cause
of any kind or extent beyond the Service Provider's control including, by way
of example, but not limitation, any act of God, any act, regulation or law of
any government, war, civil commotion, destruction of production facilities or
materials by fire, earthquake or storm, labor disturbance, epidemic, equipment
breakdown or failure, failure to obtain any consent or approval of a third
party necessary to provide the Services, or failure of suppliers, public
utilities or common carriers ("Force Majeure"). In claiming relief hereunder
the Service Provider shall promptly notify the Service Recipient in writing of
the Force Majeure causing delay or default in performance, the probable extent
to which it will be unable to perform, and the actions it intends to take to
remove such Force Majeure, to the extent reasonably possible to do so. The
Service Provider shall take reasonable action within its control to alleviate
the Force Majeure causing delay or default in performance.
Section 6.7. No Transfer of Proprietary Rights. No assignment
or transfer by a Group of any right or license in or to any technology,
software, intellectual property, know-how or other proprietary right owned,
licensed or held for use by such Group shall occur or be deemed to occur by
virtue of or in connection with the provision or purchase of Services by
either Group hereunder.
ARTICLE 7
Access to Information
Section 7.1. Provision of Corporate Records. Immediately
prior to or as soon as practicable following the Distribution Date, each Group
shall provide to each other Group all documents, contracts, books, records and
data (including but not limited to minute books, stock registers, stock
certificates and documents of title) in its possession relating to such other
Group or such other Group's business and affairs; provided that if any such
documents, contracts, books, records or data relate to all or to two of the
Groups or the business and operations of all Groups or to two of the Groups,
each such Group shall provide to the other Group or Groups true and complete
copies of such documents, contracts, books, records or data.
Section 7.2. Access to Information. From and after the
Distribution Date, each Group shall afford promptly to each other Group and its
accountants, counsel and other designated representatives reasonable access
during normal business hours to all documents, contracts, books, records,
computer data and other data in such Group's possession relating to such other
Group or the business and affairs of such other Group (other than data and
information subject to an attorney/client or other privilege), insofar as such
access is reasonably required by such other Group, including, without
limitation, for audit, accounting, litigation and disclosure and reporting
purposes.
Section 7.3. Litigation Cooperation. Each Group shall use
reasonable efforts to make available, upon written request, its directors,
officers, employees and representatives as witnesses to each other Group and
its accountants, counsel, and other designated representatives, and shall
otherwise cooperate with each other Group, to the extent reasonably required
in connection with any legal, administrative or other proceedings arising out
of any Group's business and operations prior to the Distribution Date in which
the requesting party may from time to time be involved.
Section 7.4. Reimbursement. Each Group providing information
or witnesses to any other Group, or otherwise incurring any expense in
connection with cooperating, under Sections 7.01, 7.02 or 7.03 shall be
entitled to receive from the recipient thereof, upon the presentation of
invoices therefor, payment for all costs and expenses as may be reasonably
incurred in providing such information, witnesses or cooperation.
Section 7.5. Retention of Records. Except as otherwise
required by law or agreed to in writing, each party shall, and shall cause the
members of its respective Group to, retain all information relating to any
other Group's business and operations in accordance with the past practice of
such party. Notwithstanding the foregoing, any party may destroy or otherwise
dispose of any such information at any time, provided that, prior to such
destruction or disposal, (i) such party shall provide not less than 90 days'
prior written notice to the other parties, specifying the information proposed
to be destroyed or disposed of, and (ii) if a recipient of such notice shall
request in writing prior to the scheduled date for such destruction or
disposal that any of the information proposed to be destroyed or disposed of
be delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the information as
was requested at the expense of the requesting party or parties.
Section 7.6. Confidentiality. Each party shall hold and shall
cause its Affiliates and its and their respective directors, officers,
employees, agents, consultants and advisors ("Representatives") to hold in
strict confidence all information concerning any other party or its Affiliates
unless (i) such person is compelled to disclose such information by judicial
or administrative process or, in the opinion of its counsel, by other
requirements of law or (ii) such information can be shown to have been (A) in
the public domain through no fault of such party or its Representatives or (B)
lawfully acquired after the Distribution Date on a non-confidential basis from
other sources. Notwithstanding the foregoing, such party may disclose such
information to its Representatives so long as such Persons are informed by
such party of the confidential nature of such information and are directed by
such party to treat such information confidentially. If a party or any of its
Representatives becomes legally compelled to disclose any documents or
information subject to this Section, such party will promptly notify the other
applicable party so that such other party may seek a protective order or other
remedy or waive compliance with this Section. If no such protective order or
other remedy is obtained or waiver granted, the party subject to compulsion
will furnish only that portion of the information which it is advised by
counsel is legally required and will exercise its reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded such
information. Each party agrees to be responsible for any breach of this
Section by its Representatives.
Section 7.7. Inapplicability of Article VII to Tax Matters.
Notwithstanding anything to the contrary in Article VII, Article VII shall not
apply with respect to information, records and other matters relating to Taxes,
all of which shall be governed by the Tax Sharing Agreement.
ARTICLE 8
Certain Other Agreements
Section 8.1. Intercompany Accounts and Agreements. Except as
otherwise provided in the Tax Sharing Agreement, Section 2.01 or Section 9.08,
all intercompany receivable, payable and loan balances in existence as of the
Distribution Date between the C-TEC Group, the Cable Michigan Group and the
RCN Group will be eliminated prior to the Effective Time by payment in full by
the party or parties owing any such obligation; provided that with respect to
all accounts receivable and accounts payable which arise between any member of
one such Group and any member of another such Group after August 31, 1997 and
before the Effective Time, if the amounts thereof cannot be determined prior
to the Distribution Date, then such balances shall be paid, in full, by the
party or parties owing such obligations as soon as practicable (but in no
event more than 30 days) other than Distribution Dates. All transactions
after June 30, 1997 and prior to the close of business on the Distribution
Date resulting in amounts payable by a member of one Group to a member of
another Group will be accounted for as previously agreed by the parties.
Section 8.2. Further Assurances and Consents. In addition to
the actions specifically provided for elsewhere in this Agreement, each of the
parties hereto shall use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by
this Agreement, including but not limited to using its reasonable efforts to
obtain any consents and approvals and to make any filings and applications
necessary or desirable in order to consummate the transactions contemplated
by this Agreement; provided that no party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to
any third party from whom such consents or approvals are requested or to take
any action or omit to take any action if the taking of or the omission to take
such action would be unreasonably burdensome to the party, its Group or its
Group's business.
Section 8.3. Intellectual Property Rights and Licenses. None
of the Groups shall have any right or license in or to any technology,
software, intellectual property (including any trademark, service mark, patent
or copyright), know-how or other proprietary right owned, licensed or held for
use by another Group.
Section 8.4. Insurance. Notwithstanding anything contained
herein or in any Distribution Document to the contrary, nothing contained
herein or in any Distribution Document shall constitute an assignment or
transfer of any insurance policy or the rights thereunder to the extent any
such assignment or transfer would cause the coverage under such policy to be
reduced. If any such assignment or transfer would result in such a reduction,
the party that would have assigned or transferred such rights will enforce the
rights thereunder for the benefit of the party to whom such assignment or
transfer would have been made but for the effect of the preceding sentence and
shall hold any payment received in respect thereof in trust for such party.
Each party hereunder hereby appoints RCN Operating Services, Inc. as its agent
to administer any claim it or any member of its Group may have under any
insurance policy held by C-TEC or any of its Subsidiaries prior to the
Distribution Date (each, a "Pre-Distribution Policy") with respect to any
claim or occurrence arising prior to the Distribution Date. If, as a result of
any retrospective loss adjustment, stop loss, deductible, coverage limit or
other similar arrangement, any party (or any member of its Group) is required
to make any payment in respect of, or is not paid the full amount it may claim
under, any Pre-Distribution Policy, the amount of any such payment or
shortfall shall be allocated among the parties hereto in an equitable manner as
determined in good faith by RCN, and each party hereto shall make such
payments to the other parties hereto as shall be required in order to effect
such equitable allocation.
ARTICLE 9
Miscellaneous
Section 9.1. Notices. All notices and other communications to
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be deemed given when received addressed as follows:
If to C-TEC, to:
C-TEC Corporation
800 Route 309
P.O. Box 800
Dallas, PA 18612-9799
Telecopy: 717-675-0900
Attention: Michael I. Gottdenker, President
Copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: 212-450-4800
Attention: William L. Taylor
If to Cable Michigan, to:
Cable Michigan, Inc.
105 Carnegie Center
Princeton, NJ 08540
Telecopy: 609-734-7551
Attention: Mark Haverkate, President
Copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: 212-450-4800
Attention: William L. Taylor
If to RCN, to:
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Telecopy: 609-951-8632
Attention: Michael J. Mahoney, President
Copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: 212-450-4800
Attention: William L. Taylor
Any party may, by written notice so delivered to the other
parties, change the address to which delivery of any notice shall thereafter
be made. All such notices shall be deemed received on the date of receipt by
the recipient thereof if received prior to 5 p.m. in the place of receipt and
such day is a business day in the place of receipt. Otherwise, any such notice
shall be deemed not to have been received until the next succeeding business
day in the place of receipt.
Section 9.2. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by C-TEC, Cable
Michigan and RCN, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.
Section 9.3. Expenses. Except as specifically provided
otherwise in this Agreement or the Tax Sharing Agreement (including, without
limitation, in Articles IV and VI, Sections 7.04, 7.05, 8.01 and 9.07(c) and
Schedules 5.01 and 6.01 of this Agreement), all costs and expenses incurred
after the date hereof in connection with the preparation, execution and
delivery of the Distribution Documents and the consummation of the
Distribution and the other transactions contemplated hereby (including the
fees and expenses of all counsel, accountants and financial and other advisors
of each Group in connection therewith, and all expenses in connection with
preparation, filing and printing of the Form 10s and the Information
Statements) shall be Shared Liabilities; provided (i) that C-TEC shall be
responsible for and pay the fees, expenses and other amounts payable to the
lenders in respect of C-TEC's credit facilities (including the $15 Million
Loan) and all other fees and expenses incurred in connection therewith
(including the fees and expenses of C-TEC's counsel in connection with the
preparation and negotiation of all documentation relating to such credit
facilities), (ii) that Cable Michigan shall be responsible for and pay the
fees, expenses and other amounts payable to the lenders under Cable Michigan's
and Mercom's respective credit facilities and all other fees and expenses
incurred in connection therewith (including the fees and expenses of Cable
Michigan's and Mercom's counsel in connection with the preparation and
negotiation of all documentation relating to such credit facilities) and (iii)
that the RCN Group shall be responsible for and pay the fees, expenses and
other amounts payable to the lenders under the RCN Group's credit facilities
and all other fees and expenses incurred in connection therewith (including
the fees and expenses of counsel to the RCN Group in connection with the
preparation and negotiation of all documentation relating to such credit
facilities).
Section 9.4. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
Section 9.5. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of New York, without
regard to the conflicts of laws rules of such State.
Section 9.6. Entire Agreement. This Agreement and the other
Distribution Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and negotiations, both written and oral, between
the parties with respect to the subject matter hereof and thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein or in the other Distribution Documents has been made or
relied upon by any party hereto. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. To the extent that the provisions of this
Agreement are inconsistent with the provisions of any other Distribution
Document, the provisions of such other Distribution Document shall prevail.
Section 9.7. Tax Sharing Agreement; Set-Off; Certain Transfer
Taxes. (a) Except as otherwise provided herein, this Agreement shall not
govern any Tax, and any and all claims, losses, damages, demands, costs,
expenses or liabilities relating to Taxes shall be exclusively governed by the
Tax Sharing Agreement.
(b) If, at the time any party hereto is required to make any
payment to any other party under this Agreement, the party entitled to the
payment owes the obligor any amount under this Agreement or the Tax Sharing
Agreement, then such amounts shall be offset and the excess shall be paid by
the party liable for such excess.
(c) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with Section 2.02 of this Agreement shall be borne and paid by the
Person who is receiving the property being transferred. The party or parties
that is or are required by applicable law to file any Return (as defined in the
Tax Sharing Agreement) or make any payment with respect to any such Tax shall
do so, and the other party or parties shall cooperate with respect thereto as
necessary. The non-paying party or parties shall reimburse the paying party
in accordance with this Section 9.07 within 5 business days after it or they
receive notice of the payment of such Tax.
Section 9.8. Existing Arrangements. Except as otherwise
contemplated hereby or as set forth on Schedule 9.08, all prior agreements and
arrangements, including those relating to goods, rights or services provided or
licensed, between any member of one Group and any member of another Group
shall be terminated effective as of the Distribution Date, if not theretofore
terminated. No such agreements or arrangements shall be in effect after the
Distribution Date unless embodied in the Distribution Documents or set forth
in Schedule 9.08.
Section 9.9. Termination Prior to the Distribution. The C-TEC
Board of Directors may at any time prior to the Distribution abandon the
Distribution and, by notice to Cable Michigan and RCN, terminate this
Agreement (whether or not the C-TEC Board of Directors has theretofore
approved this Agreement and/or the Distribution).
Section 9.10. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 9.11. Dispute Resolution; Jurisdiction. (a) Any
dispute between or among the parties arising out of or in connection with this
Agreement shall be submitted to arbitration. The arbitration shall be conducted
according to the Commercial Arbitration Rules of the American Arbitration
Association. The place of arbitration shall be New York, New York or such
other place as may be agreed upon by the parties to the dispute. In the case of
a dispute involving two parties, the parties to the dispute shall attempt to
agree upon one arbitrator, but if they are unable to agree, each shall appoint
an arbitrator, and the two arbitrators so appointed shall appoint a third
arbitrator. In the case of a dispute among three parties, each party to the
dispute shall appoint an arbitrator, and the three arbitrators shall select
from among themselves the chairman of the arbitration panel. Expenses of the
arbitrator(s) shall be divided equally between or among the parties.
(b) Judgment upon the award rendered by the arbitrator(s) under
Section 9.11(a) may be entered in any court having jurisdiction thereof, and
shall be enforceable against the parties. Without limiting the foregoing, any
suit, action or proceeding seeking to enforce any arbitration award rendered
under Section 9.11(a) may be brought in the United States District Court for
the Southern District of New York or any New York state court sitting in New
York City, Borough of Manhattan, and each of the parties hereby consents to
the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding which
is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of
process on such party as provided in Section 9.01 shall be deemed effective
service of process on such party.
Section 9.12. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions, the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
IN WITNESS WHEREOF the parties hereto have caused this
Distribution Agreement to be duly executed by these respective authorized
officers as of the date first above written.
C-TEC CORPORATION
By:
-----------------------
Name:
Title:
CABLE MICHIGAN, INC.
By:
-----------------------
Name:
Title:
RCN CORPORATION
By:
-----------------------
Name:
Title:
SCHEDULE 1.01
SHARED LIABILITIES
1. Shared Corporate Liabilities.
2. Liabilities under the 1933 Act or the 1934 Act arising from
acts or omissions of C-TEC prior to the Distribution Date, other than
Liabilities arising from the filing by C-TEC of a Current Report on Form 8-K
containing information on the C-TEC Group.
3. Certain fees and expenses in connection with the Restructuring
as provided in Section 9.03 of the Distribution Agreement.
SCHEDULE 5.01
EMPLOYEE MATTERS
ARTICLE 1
Definitions
Section 1.1. Definitions. (a) Capitalized terms used but not
defined in this Schedule 5.01 shall have the meaning given those terms in the
Distribution Agreement to which this Schedule 5.01 is attached. The following
terms, as used herein, shall have the following meaning:
"Cable Michigan Employees" means those individuals listed on the
payroll records of any member of the Cable Michigan Group immediately after
the Distribution Date.
"Cable Michigan Employee Group" means all Cable Michigan
Employees and Cable Michigan Retiree, including their respective
beneficiaries.
"Cable Michigan Retiree" means each individual who was
employed by any member of the Cable Michigan Group immediately prior to
such individual's retirement or other termination of employment from the
Companies or is otherwise listed on Exhibit 3 as a Cable Michigan Retiree.
"Companies" means the C-TEC Group, RCN Group and Cable Michigan
Group.
"C-TEC Employees" means those individuals listed on the payroll
records of any member of the C-TEC Group immediately after the Distribution
Date.
"C-TEC Equity-Based Plans" means the plans identified as such on
exhibit 2 hereto.
"C-TEC Employee Group" means all C-TEC Employees and C-TEC
Retirees, including their respective beneficiaries.
"C-TEC Retiree" means each individual who was employed by any
member of the C-TEC Group immediately prior to such individual's retirement
or other termination of employment from the Companies and who is not otherwise
a member of the Cable Michigan Employee Group or RCN Employee Group.
"Employee Benefit Plan" means any "employee benefit plan" (as
defined in Section 3(3) of ERISA) maintained at any time by any of the
Companies or their Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder.
"Health and Welfare Benefit Plans" means the plans as
identified in exhibit 4 hereto.
"RCN Employees" means those individuals listed on the payroll
records of any member of the RCN Group immediately after the Distribution Date.
"RCN Employee Group" means all RCN Employees and RCN Retirees,
including their respective beneficiaries.
"RCN Retirees" means all individuals who were employed by any
member of the RCN Group immediately prior to such individual's retirement or
other termination of employment from the Companies or is otherwise listed on
Exhibit 1 as a RCN Retiree.
"Shared Employee-Related Liabilities" means the liabilities or
classes of liabilities set forth on Exhibit 5 hereto.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Terms Sections
----- --------
Cable Michigan Assumed Liabilities 3.05
Cable Michigan DC Plan 3.01
Cable Michigan H&W Liabilities 3.04
C-TEC DB Plan 3.02
C-TEC DC Plan 3.01
C-TEC H&W Liabilities 3.04
C-TEC Retained Liabilities 3.05
CTERP 3.02
ESPP 3.03
IRS 3.01
Loss 5.02
RCN Assumed Liabilities 3.05
RCN DC Plan 3.01
RCN H&W Liabilities 3.04
Retained DC Assets and Liabilities 3.01
ARTICLE 2
Employees, Certain Agreements
Section 2.1. Employees. Subject to the terms and conditions
of this Agreement, effective at the time of the Distribution Date, C-TEC, Cable
Michigan and RCN or their respective Subsidiaries shall employ each C-TEC
Employee, Cable Michigan Employee or RCN Employee, respectively. No provision
of this Agreement, however, shall require any such entity to continue the
employment of any of their respective employees following the Distribution
Date.
Section 2.2. Certain Agreements; Shared Liabilities. (a)
Except as provided in this Section 2.02, this Agreement shall not apply or be
deemed to apply to any supplemental benefit arrangements accrued or reflected
on the books and accounts of C-TEC immediately prior to the Distribution Date,
the liability for which shall be assumed by C-TEC.
(b) C-TEC, RCN and Cable Michigan shall be 50%, 30% and 20%
liable, respectively, for the Shared Employee-Related Liabilities.
ARTICLE 3
Allocation of Assets and Liabilities
Section 3.1. C-TEC DC Plan. (a) (i) Effective not later than
the Distribution Date, Cable Michigan shall adopt or designate a profit-sharing
plan with a salary reduction arrangement that covers the Cable Michigan
Employee Group and meets the requirements of Sections 401(a) and 401(k) of the
Code ("Cable Michigan DC Plan"). Cable Michigan agrees that all service
credited under the C-TEC Corporation Common-Wealth Builder Savings Plan
("C-TEC DC Plan") as of the Distribution Date with respect to the Cable
Michigan Employee Group shall be credited under the Cable Michigan DC Plan for
all plan purposes, including eligibility and vesting.
(ii) Within 30 days after the adoption or designation of the
Cable Michigan DC Plan by Cable Michigan or as soon as practicable thereafter,
C-TEC shall cause an amount, in cash or in kind as C-TEC and Cable Michigan
shall agree, equivalent to the account balances of all members of the Cable
Michigan Employee Group under the C-TEC DC Plan as of the date of the
transfer, to be transferred from the trust maintained under the C-TEC DC Plan
to the trust maintained under the Cable Michigan DC Plan. Such transfer shall
include the number of any shares of Cable Michigan Common Stock, C-TEC Common
Stock and RCN Common Stock allocable or attributable to the account balances
of all members of the Cable Michigan Employee Group. Such transfer of assets
shall be made only after Cable Michigan has furnished to C-TEC, and C-TEC has
furnished to Cable Michigan, either (A) a copy of an Internal Revenue Service
("IRS") determination letter finding the Cable Michigan DC Plan or the C-TEC
DC Plan, as the case may be, to be a qualified plan meeting the requirements of
Sections 401(a) and 401(k) of the Code or (B) an opinion of counsel or written
representation from Cable Michigan or C-TEC, as the case may be, (with
appropriate indemnities), in either case, to the effect that the Cable
Michigan DC Plan or the C-TEC DC Plan, as the case may be, has been
established in accordance with the Code and ERISA, and an agreement that Cable
Michigan or C-TEC, as the case may be, will request a determination letter
from the IRS and make any and all changes to the Cable Michigan DC Plan or the
C-TEC DC Plan, as the case may be, necessary to receive a favorable
determination letter. Cable Michigan and C-TEC shall cooperate with each
other during the period beginning on the date hereof and ending on the date
the assets are transferred to the trust maintained under the Cable Michigan DC
Plan to ensure the ongoing operation and administration of the Cable Michigan
DC Plan and the C-TEC DC Plan with respect to the Cable Michigan Employee
Group.
(iii) Effective not later than the Distribution Date, RCN shall
adopt or designate a profit-sharing plan with a salary reduction arrangement
that covers the RCN Employee Group and meets the requirements of Sections
401(a) and 401(k) of the Code and which may also qualify as an "Employee Stock
Ownership Plan" within the meaning of Section 4975(e)(7) of the Code ("RCN DC
Plan"). RCN agrees that all service credited under the C-TEC DC Plan as of
such adoption or designation with respect to the RCN Employee Group shall be
credited under the RCN DC Plan for all plan purposes, including eligibility
and vesting.
(iv) Within 30 days after the adoption or designation of the
RCN DC Plan by RCN or as soon as practicable thereafter, C-TEC shall cause an
amount, in cash or in kind as C-TEC and RCN shall agree, equivalent to the
account balances of all members of the RCN Employee Group under the C-TEC DC
Plan as of the date of transfer to be transferred from the trust maintained
under the C-TEC DC Plan to the trust maintained under the RCN DC Plan. Such
transfer shall include the number of shares of any RCN Common Stock, C-TEC
Common Stock and Cable Michigan Common Stock allocable or attributable to the
account balances of all members of the RCN Employee Group. Such transfer of
assets shall be made only after RCN has furnished to C-TEC, and C-TEC has
furnished to RCN, either (A) a copy of an IRS determination letter finding the
RCN DC Plan or the C-TEC DC Plan, as the case may be, to be a qualified plan
meeting the requirements of Sections 401(a) and 401(k) of the Code or (B) an
opinion of counsel or written representation from RCN or C-TEC, as the case
may be, (with appropriate indemnities), in either case, to the effect that the
RCN DC Plan or the C-TEC DC Plan, as the case may be, has been established in
accordance with the Code and ERISA, and an agreement that RCN or C-TEC, as the
case may be, will request a determination letter from the IRS and make any and
all changes to the RCN DC Plan or the C-TEC DC Plan, as the case may be,
necessary to receive a favorable determination letter. RCN and C-TEC shall
cooperate with each other during the period beginning on the date hereof and
ending on the date the assets are transferred to the trust maintained under
the RCN DC Plan to ensure the ongoing operation and administration of the RCN
DC Plan and the C-TEC DC Plan with respect to the RCN Employee Group.
(v) Notwithstanding anything herein to the contrary, the
parties hereto agree that, during the one-year period following the
Distribution each such party shall endeavor to cause each Employee Benefit
Plan sponsored by such party that holds shares of C-TEC Common Stock, RCN
Common Stock or Cable Michigan Common Stock to enter into a customary form of
lock-up agreement in connection with any underwritten public offering of any
of such shares.
(b) C-TEC shall retain all assets and liabilities under the C-TEC
DC Plan except as otherwise provided in Section 3.01(a) ("Retained DC Assets
and Liabilities").
Section 3.2. C-TEC DB Plan and the CTERP. RCN shall retain all
assets and liabilities under the C-TEC Corporation Employees' Retirement Plan
(the "C-TEC DB Plan") and C-TEC shall retain all assets and liabilities under
the Commonwealth Telephone Employees' Retirement Plan (the "CTERP").
Section 3.3. C-TEC Equity-Based Plans. (a) Stock options
outstanding under the C-TEC Equity-Based Plans will be adjusted so that
following the Distribution each holder thereof will hold options to purchase
shares of C-TEC Common Stock, RCN Common Stock and Cable Michigan Common
Stock, respectively. The number of shares subject to, and the exercise price
of, such options shall be adjusted to take into account the Distribution and
to ensure that the aggregate intrinsic value of the adjusted RCN, Cable
Michigan and C-TEC options after the record date in respect of the
Distribution is equal to, and not greater or less than, the aggregate intrinsic
value of the related C-TEC option prior to the record date in respect of the
Distribution.
(b) Each holder of Share Units and Restricted Stock (each as used
in the C-TEC Corporation Executive Stock Purchase Plan ("ESPP")) held by
Persons who are participants in the ESPP immediately prior to the Distribution
Date will be adjusted in an equitable manner in connection with the
Distribution.
(c) In partial consideration for all Services rendered, assets
transferred and liabilities assumed between the parties pursuant to the
Agreement, RCN, C-TEC and Cable Michigan shall use their best efforts to
accomplish the foregoing including, but not limited to, making such grants of
options and issuing such shares of C-TEC Common Stock, RCN Common Stock and
Cable Michigan Common Stock as may be required hereunder.
Section 3.4. Health and Welfare Plans. (a) C-TEC shall
assume and/or retain all assets and liabilities with respect to the C-TEC
Employee Group under the C-TEC health and welfare benefit plans listed on
Exhibit 4 hereto ("C-TEC H&W Liabilities").
(b) Cable Michigan shall assume and/or retain all assets and
liabilities with respect to the Cable Michigan Employee Group under the Cable
Michigan health and welfare benefit plans listed on Exhibit 4 hereto ("Cable
Michigan H&W Liabilities").
(c) RCN shall assume and/or retain all assets and liabilities
with respect to the RCN Employee Group under the RCN health and welfare
benefit plans listed on Exhibit 4 hereto ("RCN H&W Liabilities").
Section 3.5. Assumption of Liabilities Generally. (a) Except
as otherwise provided in, and subject to the terms and conditions of, this
Agreement, effective as of the Distribution Date Cable Michigan shall assume
and agree to pay when due, honor and discharge, the following ("Cable Michigan
Assumed Liabilities"):
(i) all obligations and liabilities arising under any
employment, separation or retirement agreement or arrangement to the extent
applicable to any member of the Cable Michigan Employee Group which has been
established or entered into by any of the Companies, whether or not listed on
any Exhibit attached hereto;
(ii) all obligations and liabilities arising under the Cable
Michigan DC Plan and the C-TEC Cable Systems of MI, Inc. Bargaining Unit
401(k) Plan;
(iii) all Cable Michigan H&W Liabilities;
(iv) all obligations and liabilities to any member of the
Cable Michigan Employee Group in respect of the continuation of coverage rules
under Sections 601 through 608 of ERISA and Section 4980B of the Code,
including all liabilities and obligations relating to qualifying events that
have occurred on or prior to the Distribution Date;
(v) all obligations and liabilities arising under any
federal, state, local or foreign law, order or regulation (including, without
limitation, ERISA and the Code) to the extent they relate to participation by
any member of the Cable Michigan Employee Group in any Employee Benefit Plan,
whether relating to events occurring on or prior to the Distribution Date or
arising by reason of the transactions contemplated by this Agreement or
otherwise; and
(vi) all statutory obligations and liabilities to any member
of the Cable Michigan Employee Group, which arise, directly or indirectly, by
reason of the transactions contemplated by this Agreement.
(b) Except as otherwise provided in, and subject to the terms and
conditions of, this Agreement, effective as of the Distribution Date RCN shall
assume and agree to pay when due, honor and discharge, the following ("RCN
Assumed Liabilities"):
(i) all obligations and liabilities arising under any
employment, separation or retirement agreement or arrangement to the extent
applicable to any member of the RCN Employee Group which has been established
or entered into by any of the Companies, whether or not listed on any Exhibit
attached hereto;
(ii) all obligations and liabilities arising under the RCN DC
Plan and the C-TEC DB Plan;
(iii) all obligations and liabilities to any member of the RCN
Employee Group in respect of the continuation of coverage rules under Sections
601 through 608 of ERISA and Section 4980B of the Code, including all
liabilities and obligations relating to qualifying events that have occurred
on or prior to the Distribution;
(iv) all obligations and liabilities arising under any
federal, state, local or foreign law, order or regulation (including, without
limitation, ERISA and the Code) to the extent they relate to participation by
any member of the RCN Employee Group in any Employee Benefit Plan, whether
relating to events occurring on or prior to the Distribution or arising by
reason of the transactions contemplated by this Agreement or otherwise; and
(v) all statutory obligations and liabilities to any member
of the RCN Employee Group which arises, directly or indirectly, by reason of
the transactions contemplated by this Agreement.
(c) Except as otherwise provided in, and subject to the terms and
conditions of, this Agreement, effective as of the Distribution Date C-TEC
shall retain and agree to pay when due, honor and discharge, the following
("C-TEC Retained Liabilities"):
(i) all obligations and liabilities arising under any
employment, separation or retirement agreement or arrangement to the extent
applicable to any member of the C-TEC Employee Group which has been
established or entered into by any of the Companies, whether or not listed on
any Exhibit attached hereto;
(ii) obligations and liabilities arising under the Retained DC
Assets and Liabilities and the CTERP;
(iii) all obligations and liabilities arising under any other
employee benefit plan or arrangement maintained at any time by any of the
Companies or any of their Subsidiaries to the extent applicable to any member
of the C-TEC Employee Group;
(iv) all obligations and liabilities to any member of the
C-TEC Employee Group in respect of the continuation of coverage rules under
Sections 601 through 608 of ERISA and Section 4980B of the Code, including all
liabilities and obligations relating to qualifying events that have occurred
on or prior to the Distribution Date;
(v) all obligations and liabilities arising under any
federal, state, local or foreign law, order or regulation (including, without
limitation, ERISA and the Code) to the extent they relate to participation by
any member of the C-TEC Employee Group in any Employee Benefit Plan, whether
relating to events occurring on or prior to the Distribution Date or arising
by reason of the transactions contemplated by this Agreement or otherwise; and
(vi) all statutory obligations and liabilities to any member
of the C-TEC Employee Group, which arise, directly or indirectly, by reason of
the transactions contemplated by this Agreement.
Section 3.6. Further Assurances. (a) On and after the date
hereof, C-TEC will, at the reasonable request of Cable Michigan, execute,
acknowledge and deliver all such endorsements, assurances, consents,
assignments, transfers, conveyances, powers of attorney and other instruments
and documents, and take such other actions necessary (i) to assign, transfer,
convey and deliver to Cable Michigan, acting in its fiduciary capacity, all the
assets to be transferred to Cable Michigan pursuant to Article III hereof and
(ii) to assist Cable Michigan in obtaining the consent and approval of all
governmental bodies and other Persons required to be obtained by Cable
Michigan to effect the transfer thereof and the assumption of the Cable
Michigan Assumed Liabilities by Cable Michigan or otherwise appropriate to
carry out the transactions contemplated hereby.
(b) On and after the date hereof, C-TEC will, at the reasonable
request of RCN, execute, acknowledge and deliver all such endorsements,
assurances, consents, assignments, transfers, conveyances, powers of attorney
and other instruments and documents, and take such other actions necessary (i)
to assign, transfer, convey and deliver to RCN, acting in its fiduciary
capacity, all the assets to be transferred to RCN pursuant to Article III
hereof, and (ii) to assist RCN in obtaining the consent and approval of all
governmental bodies and other Persons required to be obtained by RCN to effect
the transfer thereof and the assumption of the RCN Assumed Liabilities by RCN
or otherwise appropriate to carry out the transactions contemplated hereby.
(c) On and after the date hereof, each of Cable Michigan and RCN
will, at the reasonable request of C-TEC, execute, acknowledge and deliver all
such assumptions, endorsements and other instruments and documents, and take
such other actions necessary (i) to assume, pay, honor and discharge the Cable
Michigan Assumed Liabilities and RCN Assumed Liabilities, respectively, and
(ii) to assist C-TEC in obtaining the consent and approval of all governmental
bodies and other Persons required to be obtained by C-TEC to effect the
transfer of the assets to be transferred to Cable Michigan or RCN pursuant to
Article III hereof, respectively, and the assumption of the Cable Michigan
Assumed Liabilities and RCN Assumed Liabilities by Cable Michigan and RCN,
respectively, or otherwise appropriate to carry out the transactions
contemplated hereby.
ARTICLE 4
Representations and Warranties
Section 4.1. Certain C-TEC Representations. C-TEC hereby
represents and warrants to Cable Michigan and RCN on the date hereof, that the
C-TEC DC Plan has been established in accordance with the Code and ERISA, is
qualified under Section 401(a) of the Code, has been so qualified during the
period from its adoption to the date hereof and will be so qualified as of the
date of the transfers referred to in Section 3.01 and that the trust forming a
part thereof is exempt from tax pursuant to Section 501(a) of the Code.
ARTICLE 5
Indemnification
Section 5.1. Indemnification by Cable Michigan. Cable Michigan
agrees to indemnify and hold harmless each RCN Indemnitee and each C-TEC
Indemnitee from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding)
(collectively, "Loss") incurred or suffered by each such RCN Indemnitee or
C-TEC Indemnitee, as the case may be, arising out of or related to the Cable
Michigan Assumed Liabilities.
Section 5.2. Indemnification by RCN. RCN agrees to indemnify
and hold harmless each Cable Michigan Indemnitee and each C-TEC Indemnitee
from any and all Losses, incurred or suffered by each such Cable Michigan
Indemnitee or C-TEC Indemnitee, as the case may be, arising out of or related
to the RCN Assumed Liabilities.
Section 5.3. Indemnification by C-TEC. C-TEC agrees to
indemnify and hold harmless each RCN Indemnitee and each Cable Michigan
Indemnitee from any and all Losses, incurred or suffered by each such Cable
Michigan Indemnitee or C-TEC Indemnitee, as the case may be, arising out of or
related to the C-TEC Retained Liabilities.
EXHIBIT 1
TO SCHEDULE 5.01
RCN RETIREES
None
EXHIBIT 2
TO SCHEDULE 5.01
C-TEC EQUITY-BASED PLANS
C-TEC Corporation 1994 Stock Option Plan, as amended
C-TEC Corporation 1996 Equity Incentive Plan
C-TEC Corporation Executive Stock Purchase Plan
EXHIBIT 3
TO SCHEDULE 5.01
CABLE MICHIGAN RETIREES
None
EXHIBIT 4
TO SCHEDULE 5.01
HEALTH AND WELFARE BENEFIT PLANS
C-TEC Health and Welfare Benefit Plans*
Health Care Plan
CFlex
Basic Life Insurance
Basic Accidental Death and Dismemberment
Long-Term Disability
Supplemental Life Insurance
Supplemental Accidental Death and Dismemberment
Supplemental Death Benefit
Employee Assistance Program
RCN Health and Welfare Benefit Plans*
Health Care Plan
CFlex
Basic Life Insurance
Basic Accidental Death and Dismemberment
Long-Term Disability
Supplemental Life Insurance
Supplemental Accidental Death and Dismemberment
Supplemental Death Benefit
Employee Assistance Program
- ---------------
* Benefits are made available to members of any collective bargaining unit
only to the extent provided for in an applicable collective bargaining
agreement.
Cable Michigan Health and Welfare Benefit Plans*
Health Care Plan
CFlex
Basic Life Insurance
Basic Accidental Death and Dismemberment
Long-Term Disability
Supplemental Life Insurance
Supplemental Accidental Death and Dismemberment
Supplemental Death Benefit
Employee Assistance Program
- ---------------
* Benefits are made available to members of any collective bargaining unit
only to the extent provided for in an applicable collective bargaining
agreement.
EXHIBIT 5
TO SCHEDULE 5.01
SHARED EMPLOYEE-RELATED LIABILITIES
Any or all liabilities arising out of or relating to the
actions or inaction of the employees and former employees of C-TEC Services,
occurring prior to the Distribution, but excluding any assets or liabilities
allocated pursuant to Article 3 of this Schedule 5.01.
SCHEDULE 6.01(i)
SERVICES PROVIDED BY RCN TO C-TEC GROUP
RCN will provide, or cause to be provided, the following
management and administrative services to the C-TEC Group:
1. Accounting
2. Payroll
3. Management supervision
4. Cash management
5. Human resources services and benefit plan administration
6. Insurance administration
7. Legal
8. Tax
9. Internal audit
10. Investor and public relations
11. Other miscellaneous administrative services
The Fee per year for these services will be 3.5% of the first
$175 million of revenue of the C-TEC Group and 1.75% of any additional revenue.
SCHEDULE 6.01(ii)
SERVICES PROVIDED BY RCN TO CABLE MICHIGAN GROUP
RCN will provide, or cause to be provided, the following
management and administrative services to the Cable Michigan Group:
1. Customer service
2. Marketing
3. Accounting
4. Payroll
5. Management supervision
6 Cash management
7. Human resources services and benefit plan administration
8. Insurance administration
9. Legal
10. Tax
11. Internal audit
12. Programming administration
13. Billing
14. Monthly cable guide
15. Investor and public relations
16. Provision of third party programming
17. Other miscellaneous administrative services
The total Fee per year for services listed in items 2-12, 15
and 17 will be 4.0% of the revenues of the Cable Michigan Group plus a direct
allocation of certain consolidated cable administrative functions consistent
with past practice prior to the date hereof.
The Fee for the customer service listed in item 1 and the
billing service listed in item 13 will be a pro rata share (based on the
relative number of subscribers) of the fees and expenses incurred by the RCN
Group to provide such customer and billing services for all relevant members
of the RCN Group and all relevant members of the Cable Michigan Group.
The Fee for the provision of monthly cable guides set forth in
item 14 and the third party programming set forth in item 16 shall be an
amount equal to the third party costs incurred by the RCN Group to provide
such guides and programming to the Cable Michigan Group.
The aggregate amount paid by the Cable Michigan Group to the RCN
Group and the C-TEC Group for the provision of administration and management
services of substantially the same nature, scope and timing as those provided
prior to the Distribution Date ("Historical Services") shall not exceed the
greater of (i) 6% of the consolidated gross revenues of the Cable Michigan
Group or (ii) such higher amount as is permitted under the applicable credit
facilities of the Cable Michigan Group. If, as a result of the effect of the
preceding sentence, the amount provided by Cable Michigan Group for Historical
Services is reduced, the amount of such reduction shall be borne by RCN
Companies and the C-TEC Group pro rata based on the relative amounts such
Groups would have charged the Michigan Group but for the effect of the
preceding sentence.
SCHEDULE 6.01(iii)
SERVICES PROVIDED BY C-TEC TO RCN GROUP
C-TEC will provide, or cause to be provided, the following
administrative service to the RCN Group:
1. Financial data processing applications
2. Lockbox services
3. Storage facilities
4. LAN and WAN support services
5. Building maintenance
6. Other miscellaneous administrative services
The fees for such services will be an allocated portion (based
on relative usage) of the cost incurred by the C-TEC Group to provide such
services to all three Groups).
SCHEDULE 6.01(iv)
SERVICES PROVIDED BY C-TEC TO CABLE MICHIGAN GROUP
C-TEC will provide, or cause to be provided, the following
administrative services to the Cable Michigan Group:
1. Financial data processing applications
2. Lockbox services
3. Storage facilities
4. LAN and WAN support services
5. Other miscellaneous administrative services
The fees for such services will be an allocated portion (based
on relative usage) of the cost incurred by the C-TEC Group to provide such
services to all three Groups).
The aggregate amount paid by the Cable Michigan Group to the RCN
Group and the C-TEC Group for the provision of Historical Services shall not
exceed the greater of (i) 6% of the consolidated gross revenues of the Cable
Michigan Group or (ii) such higher amount as is permitted under the applicable
credit facilities of the Cable Michigan Group. If, as a result of the effect
of the preceding sentence, the amount provided by Cable Michigan Group for
Historical Services is reduced, the amount of such reduction shall be borne by
RCN Companies and the C-TEC Group pro rata basis on the relative amounts such
Groups would have charged the Michigan Group but for the effect of the
preceding sentence.
SCHEDULE 9.08
SURVIVING AGREEMENTS
1. Distribution Documents
2. Communications Equipment Lease Agreement dated 2/28/94
between CLD and CTCo (Switch Lease).
3. Commercial Lease Agreement dated 12/17/93 between CLD and
CTCo and Amendment dated 5/24/94 (Clarks Summit Switch Space
Lease).
4. Reseller Agreement for Internet Access Service dated 7/31/96
between RCN, Inc. and CTCo (epix Services).
5. Lease Agreement between CTCo and CLD dated 3/1/94 (DS-3
Lease from Clarks Summit to Elizabethville).
6. Interim Carrier Services Agreement dated [
] between RCN Long Distance and Commonwealth Long Distance
Company.
7. Agreement between CTCo and C-TEC Cable Systems Services,
Inc. dated [ ] for local and long distance phone
services (Dallas Service Center).
8. Agreement between CCI (Chimes) and C-TEC Cable Systems of
Pennsylvania, Inc. dated [ ] for local and long
distance phone services (Allentown office).
9. Maintenance Agreement between CCI and C-TEC Services Inc.
dated October 9, 1996 (Maintenance of Princeton Phone System).
10. Agreement dated [ ] between CCI and RCN
to provide switch monitoring and traffic capacity services.
11. Agreement dated [ ] between CCI and
CLD to provide switch monitoring and traffic capacity services.
<PAGE>
/TEXT>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
RCN CORPORATION
* * * * *
RCN Corporation, a Delaware corporation (the "Corporation")
hereby certifies as follows:
1. The name of the Corporation is RCN Corporation. The date of
the filing of its original Certificate of Incorporation with the Secretary of
State was February 20, 1997.
2. This Restated and Amended Certificate of Incorporation was
duly adopted in accordance with Section 242 and Section 245 of the Delaware
General Corporation Law.
3. The text of the Certificate of Incorporation as hereby and
heretofore amended or supplemented is hereby restated to read as herein set
forth in full:
FIRST: The name of the Corporation is RCN Corporation.
SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended ("Delaware Law").
FOURTH: (a) Authorized Shares. The total number of shares of
stock which the Corporation shall have authority to issue is 325,000,000,
consisting of 100,000,000 shares of Common Stock, par value $1.00 per share
(the "Common Stock"), 200,000,000 shares of Class B Non-Voting Common Stock,
par value $1.00 per share (the "Class B Common Stock" and, together with the
Common Stock, the "Common Equity") and 25,000,000 shares of Preferred Stock,
par value $1.00 per share (the "Preferred Stock").
(b) Common Equity. All shares of Common Equity will be
identical with respect to the rights and privileges to which the holders
thereof are entitled, except as otherwise provided herein.
(1) Voting Rights. Except as set forth herein or as
otherwise required by law, each holder of an outstanding share of
Common Stock shall be entitled to vote on each matter on which the
stockholders of the Corporation shall be entitled to vote, including
the election of directors, and each holder of Common Stock shall be
entitled to one vote for each share of Common Stock held by such
holder.
Except as otherwise required by law, each holder of an
outstanding share of Class B Common Stock shall not be entitled to
vote on any matter on which the stockholders of the Corporation shall
be entitled to vote, and shares of Class B Common Stock shall not be
included in determining the number of shares voting or entitled to
vote on any such matters.
The number of authorized shares of Class B Common Stock may be
increased or decreased (but not below the number of shares thereof
then outstanding plus the number of shares of Class B Common Stock
issuable or exercisable pursuant to any security of the Corporation
providing for the issuance or delivery of Class B Common Stock) by
the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock and without any vote or consent of the holders
of shares of Class B Common Stock.
(2) Dividends and Distributions. Subject to the prior rights
of holders of all classes of stock at the time outstanding having
prior rights as to dividends, the Board of Directors of the
Corporation (the "Board of Directors") may cause dividends to be paid
to the holders of shares of Common Equity out of funds legally
available for the payment of dividends by declaring an amount per
share as a dividend. When and as dividends or other distributions
(including without limitation any grant or distribution of rights to
subscribe for or purchase shares of capital stock or securities or
indebtedness convertible into capital stock of the Corporation) are
declared, whether payable in cash, in property or in shares of stock
of the corporation (other than in shares of Common Equity) the
holders of Common Equity shall be entitled to share equally, share
for share, in such dividends or other distributions as if all such
shares were of a single class. No dividends or other distributions
shall be declared or paid in shares of Common Equity, or options,
warrants or rights to acquire such stock or securities convertible
into or exchangeable for shares of such stock, except dividends or
other distributions payable to all of the holders of Equity Stock
ratably according to the number of shares held by them, in shares of
Common Stock to holders of Common Stock, and in shares of Class B
Common Stock to holders of Class B Common Stock.
Notwithstanding anything to the contrary contained herein, in
the event of a distribution of property, plan of merger or
consolidation, plan of asset transfer, plan of division, plan of
exchange, recapitalization or other similar transaction pursuant to
which holders of Common Stock and holders of Class B Common Stock
would be entitled to receive equity interests of one or more
corporations (including, without limitation, the Corporation) or
other entities, or rights to acquire such equity interests, then the
Board of Directors may, by resolution duly adopted, provide that the
holders of Common Stock and the holders of Class B Common Stock,
respectively and as separate classes, shall receive with respect to
their Common Stock or Class B Common Stock (whether by distribution,
exchange, redemption or otherwise), in proportion to the number of
shares held by them, equity interests (or rights to acquire such
equity interests) of separate classes or series having substantially
equivalent relative preferences, qualifications, privileges,
limitations, restrictions and rights as the relative preferences,
qualificatons, privileges, limitations, restrictions and rights of
the Common Stock and Class B Common Stock. Except as provided above,
if there should be any distribution of property or stock, asset
transfer, division, share exchange, recapitalization, reorganization
or other similar transaction, the holders of Common Stock and the
holders of Class B Common Stock shall receive the shares of stock,
other securities or rights or other assets as would be issuable or
payable upon such distribution, merger, consolidation, purchase or
acquisition of such property or stock, asset transfer, division,
share exchange, recapitalization or reorganization in proportion to
the number of shares held by them, respectively, without regard to
class.
(3) Liquidation. Subject to the prior rights of holders of
all classes of stock outstanding having prior rights with respect to
the assets of the Corporation, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, holders of Common Equity shall be entitled to share
ratably according to the number of shares held by them, in all assets
of the Corporation available for distribution to its stockholders.
(4) Conversion of Common Stock. (A) Subject to the
provisions of this subparagraph (4), the holder of each share of
Common Stock shall have the right, at any time, at such holder's
option, to convert each outstanding share of Common Stock into one
fully paid and nonassessable share of Class B Common Stock. Such
right of conversion shall be exercised by the holder thereof by
giving written notice to the Corporation that the holder elects to
convert a stated number of shares of Common Stock into Class B Common
Stock and by surrender of a certificate or certificates for the
shares to be converted as provided in subparagraph (4)(B) below.
(B) Each certificate for shares of Common Stock to be
surrendered to the Corporation in connection with a conversion
shall be surrendered at the principal office of the Corporation
(or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holder or
holders of the Common Stock) at any time during its usual
business hours, together with a statement of the name or names
(with address) in which the certificate or certificates for
shares of Class B Common Stock shall be issued. Unless the
shares issuable on conversion are to be issued in the same name
as the name in which such shares of Common Stock are registered,
each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or the holder's duly
authorized attorney and by transfer tax stamps or funds
therefor, if required pursuant to subparagraph (4)(F) below.
(C) Promptly following the receipt by the Corporation of
the certificate for the share or shares of Common Stock
surrendered for conversion, together with the other documents
referred to in subparagraph (4)(B) above, and the payment in
cash of any amount required pursuant to subparagraph (4)(F)
below, the Corporation shall issue and deliver, or cause to be
issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates
for the number of shares of Class B Common Stock issuable upon
conversion of such share or shares of Common Stock. Such
conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the
certificate or certificates for such share or shares, together
with the other documents referred to in subparagraph (4)(B)
above, shall have been surrendered and the payment of the amount
required pursuant to subparagraph (4)(F) below shall have been
made, and at such time the rights of the holder of such share or
shares of Common Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares
of Class B Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record
of the shares represented thereby.
(D) If the number of shares of Common Stock represented
by the certificate or certificates surrendered for conversion
exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder thereof,
at the expense of the Corporation, a new certificate or
certificates for the number of shares of Common Stock
represented by the certificate or certificates surrendered which
are not to be converted.
(E) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, such
number of its authorized but unissued shares of Class B Common
Stock as shall be required for the purpose of effecting
conversions of the Common Stock.
(F) The Corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Class B Common stock on
conversion of the Common Stock pursuant hereto; provided that
the Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue or
delivery of shares of Class B Common Stock in a name other than
that of the holder of the Common Stock to be converted and no
such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Corporation
the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(G)(I) In the event of a reclassification, change of
outstanding shares (other than a change in par value or as a
result of any subdivision or combination) or other similar
transaction as a result of which the shares of Class B Common
Stock are converted into another security, then a holder of
Common Stock shall be entitled to receive upon conversion the
amount of such security that such holder would have received if
such conversion had occurred immediately prior to the record
date of such reclassification or other similar transaction.
(II) If a share of Common Stock shall be converted
subsequent to the record date for the payment of a dividend or
other distribution on shares of Common Stock but prior to such
payment, then the registered holder of such share at the close
of business on such record date shall be entitled to receive the
dividend or other distribution payable on such share on such
date notwithstanding the conversion thereof.
(5) Stock Splits. The Corporation shall not in any manner subdivide or
combine (by stock split, stock dividend, reclassification, recapitalization or
otherwise) the outstanding shares of one class of Common Equity unless the
outstanding shares of all classes of Common Equity shall be proportionately
subdivided or combined.
(6) No Preemptive Rights. The holders of shares of Common Equity shall
have no preemptive or preferential rights of subscription to any shares of any
class of capital stock of the Corporation or any securities convertible into
or exchangeable for shares of any class of capital stock of the Corporation.
(d) Preferred Stock. The Board of Directors is hereby empowered to
authorize by resolution or resolutions from time to time the issuance of
one or more classes or series of Preferred Stock and to fix the
designations, powers, preferences and relative, participating, optional or
other rights, if any, and the qualifications, limitations or restrictions
thereof, if any, with respect to each such class or series of Preferred
Stock and the number of shares constituting each such class or series, and
to increase or decrease the number of shares of any such class or series to
the extent permitted by the Delaware Law.
FIFTH: (a) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors consisting of not
less than three nor more than twenty-four directors, the exact number of
directors to be determined from time to time solely by resolution adopted by
the affirmative vote of a majority of the entire Board of Directors.
(b) The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Each director shall serve for a term ending
on the date of the third annual meeting of stockholders next following the
annual meeting at which such director was elected, provided that directors
initially designated as Class I directors shall serve for a term ending on
the date of the 1998 annual meeting, directors initially designated as
Class II directors shall serve for a term ending on the date of the 1999
annual meeting, and directors initially designated as Class III directors
shall serve for a term ending on the date of the 2000 annual meeting.
Notwithstanding the foregoing, each director shall hold office until such
director's successor shall have been duly elected and qualified or until
such director's earlier death, resignation or removal. In the event of any
change in the number of directors, the Board of Directors shall apportion
any newly created directorships among, or reduce the number of
directorships in, such class or classes as shall equalize, as nearly as
possible, the number of directors in each class. In no event will a
decrease in the number of directors shorten the term of any incumbent
director.
(c) There shall be no cumulative voting in the election of
directors. Election of directors need not be by written ballot unless the
bylaws of the Corporation so provide.
(d) Vacancies on the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting
from any increase in the number of directors shall be filled solely by a
majority of the directors then in office (even if less than a quorum) or by
the sole remaining director, and each director so elected shall hold office
for a term that shall coincide with the term of the Class to which such
director shall have been elected.
(e) No director may be removed from office by the stockholders
except for cause with the affirmative vote of the holders of not less than
a majority of the total voting power of all outstanding securities of the
Corporation then entitled to vote generally in the election of directors,
voting together as a single class.
(f) Notwithstanding the foregoing, whenever the holders of one or
more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such
directorships shall be governed by the terms of the resolution or
resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH
applicable thereto, and each director so elected shall not be subject to
the provisions of this ARTICLE FIFTH unless otherwise provided therein.
SIXTH: The Board of Directors shall have the power to adopt, amend
or repeal the bylaws of the Corporation.
The stockholders may adopt, amend or repeal the bylaws only with the
affirmative vote of the holders of not less than 66 2/3% of the total
voting power of all outstanding securities of the Corporation then entitled
to vote generally in the election of directors, voting together as a single
class.
SEVENTH: Any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken only upon the vote of
stockholders at an annual or special meeting duly noticed and called in
accordance with the Delaware Law, as amended from time to time, and may not
be taken by written consent of stockholders without a meeting.
EIGHTH: Special meetings of the stockholders may be called by the
Board of Directors, the Chairman of the Board of Directors or the Chief
Executive Officer of the Corporation and may not be called by any other
person or persons. Notwithstanding the foregoing, whenever holders of one
or more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, such holders may call,
pursuant to the terms of the resolution or resolutions adopted by the Board
of Directors pursuant to ARTICLE FOURTH hereto, special meetings of holders
of such Preferred Stock for such purpose.
NINTH: (1) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by Delaware
Law.
(2)(a) Each person (and the heirs, executors or administrators of
such person) who was or is a party or is threatened to be made a party to,
or is involved in 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 director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation to the fullest extent permitted by
Delaware Law. The right to indemnification conferred in this ARTICLE NINTH
shall also include the right to be paid by the Corporation the expenses
incurred in connection with any such proceeding in advance of its final
disposition to the fullest extent authorized by Delaware Law. The right
to indemnification conferred in this ARTICLE NINTH shall be a contract
right.
(b) The Corporation may, by action of its Board of Directors,
provide indemnification to such of the employees and agents of the
Corporation, and to such persons serving at the request of the Corporation
as an employee or agent of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise, to such extent
and to such effect as the Board of Directors shall determine to be
appropriate and authorized by Delaware Law.
(3) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, limited liability company, joint venture, trust
or other enterprise against any expense, liability or loss incurred by such
person in any such capacity or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against such
liability under Delaware Law.
(4) The rights and authority conferred in this ARTICLE NINTH shall
not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(5) Neither the amendment nor repeal of this ARTICLE NINTH, nor the
adoption of any provision of this Certificate of Incorporation or the
bylaws of the Corporation, nor, to the fullest extent permitted by Delaware
Law, any modification of law, shall eliminate or reduce the effect of this
ARTICLE NINTH in respect of any acts or omissions occurring prior to such
amendment, repeal, adoption or modification.
TENTH: The Corporation reserves the right to amend this Certificate
of Incorporation in any manner permitted by the Delaware Law and all rights
and powers conferred upon stockholders, directors and officers herein are
granted subject to this reservation. Notwithstanding the foregoing, the
provisions set forth in ARTICLES FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH and
this ARTICLE TENTH may not be repealed or amended in any respect, and no
other provision may be adopted, amended or repealed which would have the
effect of modifying or permitting the circumvention of the provisions set
forth in ARTICLES FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH and this ARTICLE
TENTH, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the total voting power of all
outstanding securities of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class.
IN WITNESS WHEREOF, the sole shareholder has signed this Amended and
Restated Certificate of Incorporation of RCN Corporation this day of
August, 1997.
C-TEC CORPORATION
By:_______________________________
Authorized Officer
<PAGE>
/TEXT>
EXHIBIT 3.2
BYLAWS
OF
RCN CORPORATION
* * * * *
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices
at such other places both within and without the State of Delaware as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 3. Books. The books of the Corporation may be kept
within or without of the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of
stockholders shall be held at such place, either within or without the State
of Delaware, on such date and at such time as may be determined from time to
time by the Board of Directors (or the Chairman in the absence of a
designation by the Board of Directors).
Section 2. Annual Meetings. Annual meetings of stockholders,
commencing with the year 1998, shall be held to elect directors and transact
such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of stockholders
may be called by the Board of Directors, the Chairman or the Chief Executive
Officer of the Corporation and may not be called by any other person.
Notwithstanding the foregoing, whenever holders of one or more classes or
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, such holders may call, pursuant to the terms of
the resolution or resolutions adopted by the Board of Directors pursuant to
Article Fourth of the certificate of incorporation, special meetings of
holders of such Preferred Stock.
Section 4. Notice of Meetings and Adjourned Meetings; Waivers of
Notice; Business at Meetings. (a) Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise provided by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended
("Delaware Law"), such notice shall be given not less than 10 nor more than 60
days before the date of the meeting to each stockholder of record entitled to
vote at such meeting. Unless these bylaws otherwise require, when a meeting is
adjourned to another time or place (whether or not a quorum is present),
notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
30 days, or after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person
entitled thereto, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
(c) Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 5. Quorum. Unless otherwise provided under the
certificate of incorporation or these bylaws and subject to Delaware Law, the
presence, in person or by proxy, of the holders of a majority of the
outstanding capital stock of the Corporation entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business.
Section 6. Voting. (a) Unless otherwise provided in the
certificate of incorporation and subject to Delaware Law, each stockholder
shall be entitled to one vote for each outstanding share of capital stock of
the Corporation held by such stockholder. Unless otherwise provided in
Delaware Law, the certificate of incorporation or these bylaws, the
affirmative vote of a majority of the shares of capital stock of the
Corporation present, in person or by proxy, at a meeting of stockholders and
entitled to vote on the subject matter shall be the act of the stockholders.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after one year from its
date, unless the proxy provides for a longer period.
Section 7. No Action by Consent. Any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken only upon the vote of stockholders entitled to vote thereon at an annual
or special meeting duly noticed and called in accordance with Delaware Law and
may not be taken by written consent of stockholders without a meeting.
Section 8. Organization. At each meeting of stockholders, the
Chairman, if one shall have been elected, (or in his absence or if one shall
not have been elected, the Chief Executive Officer) shall act as chairman of
the meeting. The Secretary (or in his absence or inability to act, the person
whom the chairman of the meeting shall appoint secretary of the meeting) shall
act as secretary of the meeting and keep the minutes thereof.
Section 9. Order of Business. The order of business at all
meetings of stockholders shall be as determined by the chairman of the meeting.
Section 10. Notice of Business. At any meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of Directors or (b)
in the case of an annual meeting of stockholders, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 10, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 10. For
business to be properly brought before an annual meeting of stockholders by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a stockholder's notice
shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior
to the meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 10th day following the day on
which such notice of the date of the meeting or such public disclosure was
given or made. A stockholder's notice to the secretary shall set forth as to
each matter the stockholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the bylaws to the
contrary, no business shall be conducted at a stockholder meeting except in
accordance with the procedures set forth in this Section 10, and no business
shall be brought by a stockholder before a special meeting of stockholders. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of the bylaws, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing,
provisions of this Section 10, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, and the rules
and regulations thereunder with respect to the matters set forth in this
Section 10.
Section 11. Nomination of Directors. Only persons who are
nominated in accordance with the procedures set forth in these bylaws shall be
eligible to serve as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders
(a) by or at the direction of the Board of Directors or (b) by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice provided for in this Section 11, who shall be entitled to vote for the
election of directors at the meeting and who complies with the notice
procedures set forth in this Section 11. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting or such
public disclosure was given or made. Such stockholder's notice shall set forth
(a) as to each person whom the stockholder proposes to nominate for election
or reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such
stockholder, (ii) the class and number of shares of the Corporation which are
beneficially owned by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names and addresses)
pursuant to which the nomination(s) are to be made by such stockholder and (iv)
any other information relating to such stockholder that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Section 14A under the Securities
Exchange Act of 1934. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish
to the secretary of the Corporation that information required to be set forth
in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible to serve as a director of the Corporation unless
nominated in accordance with the procedures set forth in this bylaw. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the bylaws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 11, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, and the rules and regulations thereunder with respect to the
matters set forth in this Section.
ARTICLE III
DIRECTORS
Section 1. General Powers. Except as otherwise provided in
Delaware Law or the certificate of incorporation, the business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors.
Section 2. Number, Classes, Term of Office, etc. The Board of
Directors shall consist of not less than three nor more than twenty-four
directors, with the exact number of directors to be determined from time to
time solely by resolution adopted by the affirmative vote of a majority of the
entire Board of Directors. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. Except as otherwise provided in
the certificate of incorporation, each director shall serve for a term ending
on the date of the third annual meeting of stockholders next following the
annual meeting at which such director was elected. Notwithstanding the
foregoing, each director shall hold office until such director's successor
shall have been duly elected and qualified or until such director's earlier
death, resignation or removal. Directors need not be stockholders.
Section 3. Quorum and Manner of Acting. Unless the certificate
of incorporation or these bylaws require a greater number, 50% of the total
number of directors serving as directors shall constitute a quorum for the
transaction of business, and the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. When a meeting is adjourned to another time or
place (whether or not a quorum is present), notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the Board of
Directors may transact any business which might have been transacted at the
original meeting. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present at such meeting may adjourn the meeting,
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
Section 4. Time and Place of Meetings. The Board of Directors
shall hold its meetings at such place, either within or without the State of
Delaware, and at such time as may be determined from time to time by the Board
of Directors (or the Chairman in the absence of a determination by the Board
of Directors).
Section 5. Annual Meeting. The Board of Directors shall meet
for the purpose of electing officers and transacting other business, as soon
as practicable after each annual meeting of stockholders, on the same day and
at the same place where such annual meeting shall be held. Notice of such
meeting need not be given. In the event such annual meeting is not so held,
the annual meeting of the Board of Directors may be held at such place either
within or without the State of Delaware, on such date and at such time as
shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof signed by any
director who chooses to waive the requirement of notice.
Section 6. Regular Meetings. After the place and time of
regular meetings of the Board of Directors shall have been determined and
notice thereof shall have been once given to each member of the Board of
Directors, regular meetings may be held without further notice being given.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman, the Chief Executive Officer or the
President and shall be called by the Chairman, the Chief Executive Officer,
the President or the Secretary on the written request of three directors.
Notice of special meetings of the Board of Directors shall be given to each
director at least three days before the date of the meeting in such manner as
is determined by the Board of Directors.
Section 8. Committees. The Board of Directors shall elect from
the directors an executive committee, a compensation committee and an audit
committee and may, by resolution passed by a majority of the whole Board,
designate one or more other committees, each committee to consist of one or
more of the directors of the Corporation. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required. The specific powers and duties of the executive committee, the
compensation committee and the audit committee are set forth below:
(a) The executive committee shall consist of not less than 3
and not more than 6 members as shall be determined by the
Board of Directors in addition to the Chairman, who by
virtue of his office shall be a member of the executive
committee and chairman thereof. To the fullest extent
permitted by Delaware Law, the executive committee shall
have all the powers of the Board of Directors in the
management of the business and affairs of the Corporation at
all times when the Board of Directors is not in session.
(b) The compensation committee shall consist of such number of
members as shall be determined by the Board of Directors,
shall make recommendations to the Board of Directors
regarding compensation and benefits and shall have such
other duties as determined by the Board of Directors.
(c) The audit committee shall consist of such number of members
as shall be determined by the Board of Directors, shall make
recommendations to the Board of Directors regarding the
auditing of the Corporation's books and records, the audit
process and the Corporation's independent public accountants
and shall have such other duties as determined by the Board
of Directors. None of the members of the audit committee
shall be directly involved in the supervision or management
of the financial affairs of this Corporation or any of
its subsidiaries.
Section 9. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 10. Telephonic Meetings. Unless otherwise restricted by
the certificate of incorporation or these bylaws, members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors, or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 11. Resignation. Any director may resign at any time by
giving written notice to the Board of Directors or to the Secretary of the
Corporation. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 12. Vacancies. Unless otherwise provided in the
certificate of incorporation, vacancies on the Board of Directors resulting
from death, resignation, removal or otherwise and newly created directorships
resulting from any increase in the number of directors may be filled solely by
a majority of the directors then in office (even if less than a quorum) or by
the sole remaining director. Each director so elected shall hold office for a
term that shall coincide with the term of the Class to which such director
shall have been elected. If there are no directors in office, then an election
of directors may be held in accordance with Delaware Law. Unless otherwise
provided in the certificate of incorporation, when one or more directors shall
resign from the Board, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have the power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in the filling of other vacancies.
Section 13. Removal. No director may be removed from office by
the stockholders except for cause with the affirmative vote of the holders of
not less than a majority of the total voting power of all outstanding
securities of the corporation then entitled to vote generally in the election
of directors, voting together as a single class.
Section 14. Compensation. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall
have authority to fix the compensation of directors, including fees and
reimbursement of expenses.
Section 15. Preferred Directors. Notwithstanding anything else
contained herein, whenever the holders of one or more classes or series of
Preferred Stock shall have the right, voting separately as a class or series,
to elect directors, the election, term of office, filling of vacancies,
removal and other features of such directorships shall be governed by the
terms of the resolutions adopted by the Board of Directors pursuant to the
certificate of incorporation applicable thereto, and such directors so elected
shall not be subject to the provisions of Sections 2, 12 and 13 of this
Article III unless otherwise provided therein.
ARTICLE IV
OFFICERS
Section 1. Principal Officers. The principal officers of the
Corporation shall be a Chairman, a Chief Executive Officer, a President, a
President of Technology, one or more Vice Presidents, a Treasurer and a
Secretary who shall have the duty, among other things, to record the
proceedings of the meetings of stockholders and directors in a book kept for
that purpose. The Corporation may also have such other principal officers,
including one or more Controllers, as the Board may in its discretion appoint.
One person may hold the offices and perform the duties of any two or more of
said offices, except that no one person shall hold the offices and perform the
duties of President and Secretary.
Section 2. Election and Term of Office. The principal officers
of the Corporation shall be elected annually by the Board of Directors at the
annual meeting thereof. Each such officer shall hold office until his
successor is elected and qualified, or until his earlier death, resignation or
removal. Any vacancy in any office shall be filled in such manner as the Board
of Directors shall determine.
Section 3. Subordinate Officers. In addition to the principal
officers enumerated in Section 1 of this Article IV, the Corporation may have
one or more Assistant Treasurers, Assistant Secretaries and Assistant
Controllers and such other subordinate officers, agents and employees as the
Board of Directors may deem necessary, each of whom shall hold office for such
period as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
Section 4. Removal. Any officer may be removed, with or without
cause, at any time, by resolution adopted by the Board of Directors.
Section 5. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors (or to a principal officer if
the Board of Directors has delegated to such principal officer the power to
appoint and to remove such officer). The resignation of any officer shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 6. Chairman. The Chairman shall preside at all
meetings of the Board of Directors and of shareholders, shall be responsible
for the observation by the Corporation of these by-laws and shall have such
other duties as shall be set forth in the resolution of the Board by which the
appointment of the Chairman is made.
Section 7. Chief Executive Officer. The Chief Executive
Officer shall have general supervision over the business and operations of the
Corporation and may perform any act and execute any instrument for the conduct
of such business and operations. In the Chairman's absence, the Chief
Executive Officer shall preside at all meetings of the Board and of the
shareholders.
Section 8. Powers and Duties of Other Officers. The other
officers of the Corporation shall have such powers and perform such duties
incident to each of their respective offices and such other duties as may from
time to time be conferred upon or assigned to them by the Board of Directors.
ARTICLE V
GENERAL PROVISIONS
Section 1. Fixing the Record Date. (a) In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,
and which record date shall not be more than 60 nor less than 10 days before
the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than 60
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 2. Dividends. Subject to limitations contained in
Delaware Law and the certificate of incorporation, the Board of Directors may
declare and pay dividends upon the shares of capital stock of the Corporation,
which dividends may be paid in cash, in property or in shares of the capital
stock of the Corporation.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall commence on January 1 and end on December 31 of each year.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization
and the words "Corporate Seal, Delaware". The seal may be used by causing it
or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 5. Voting of Stock Owned by the Corporation. The Board
of Directors may authorize any person, on behalf of the Corporation, to
attend, vote at and grant proxies to be used at any meeting of stockholders of
any corporation (except this Corporation) in which the Corporation may hold
stock.
Section 6. Amendments. These bylaws or any of them, may be
altered, amended or repealed, or new bylaws may be made, by the Board of
Directors or by the affirmative vote of the holders of not less than 66 2/3%
of the total voting power of all outstanding securities of the Corporation
then entitled to vote generally in the election of directors, voting together
as a single class.
<PAGE>
/TEXT>
EXHIBIT 10.1
TAX SHARING AGREEMENT
BY AND AMONG
C-TEC CORPORATION
RCN CORPORATION
AND
CABLE MICHIGAN INC.
DATED AS OF
[October 1,] 1997
THIS TAX SHARING AGREEMENT, dated as of [October 1], 1997,
is by and among C-TEC Corporation, a Pennsylvania corporation
("C-TEC"), RCN Corporation, a Delaware corporation ("RCN"), and Cable
Michigan, Inc., a Pennsylvania corporation ("Cable Michigan"). Capitalized
terms used herein shall have the respective meanings assigned to them in the
Distribution Agreement unless otherwise defined herein.
WHEREAS, C-TEC, RCN and Cable Michigan have executed the
Distribution Agreement pursuant to which C-TEC's existing businesses will be
separated into three independent public companies; and
WHEREAS, it is appropriate and desirable to set forth the
principles and responsibilities of the parties to this Agreement regarding
future Adjustments with respect to Taxes, Tax Contests and other related Tax
matters.
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.1. "Adjustment" means the deemed increase or decrease in
a Tax, determined on an issue-by-issue or transaction-by-transaction basis, as
appropriate, and using the assumptions set forth in the next sentence,
resulting from an adjustment made or proposed by a Taxing Authority with
respect to any amount reflected or required to be reflected on any Return
relating to such Tax. For purposes of determining such deemed increase or
decrease in a Tax, the following assumptions will be used: (a) in the case of
any income Tax, the highest marginal Tax rate or, in the case of any other
Tax, the highest applicable Tax rate, in each case in effect with respect to
that Tax for the Taxable period or any portion of the Taxable period to which
the adjustment relates; and (b) such determination shall be made without
regard to whether any actual increase or decrease in such Tax will in fact be
realized with respect to the Return to which such adjustment relates.
1.2. "Agreement" means this Tax Sharing Agreement,
including any schedules, exhibits and appendices attached hereto.
1.3. "Cable Michigan Tax Benefit" means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the Cable Michigan Group.
1.4. "Cable Michigan Tax Detriment" means, with respect to
any Taxable period or portion of a Taxable period, and as computed separately
with respect to each Tax, the net increase in each such Tax equal to the sum
of all Adjustments made pursuant to a Final Determination with respect to each
such Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the Cable Michigan Group.
1.5. "Consolidation" means, as appropriate, any Taxable
period or any portion of a Taxable period during which one or more members of
the RCN Group and/or the Cable Michigan Group are members of a C-TEC
Consolidated Return.
1.6. "Consolidated Return" means, as appropriate, for any
Taxable period or any portion of a Taxable period ending or deemed to end on
or prior to the Distribution Date, any consolidated or combined Return that
includes one or more members of the C-TEC Group and/or one or more members of
the RCN Group and/or one or more members of the Cable Michigan Group.
1.7. "Controlling Party" means C-TEC or any other member of
the C-TEC Group, RCN or any other member of the RCN Group or Cable Michigan
or any other member of the Cable Michigan Group, as the case may be, that filed
or, if no such Return has been filed, was required to file, a Return that is
the subject of any Tax Contest, or any successor and/or assign of any of the
foregoing; provided, however, that in the case of any Consolidated Return, the
Person that actually filed such Consolidated Return (or any successor and/or
assign of such Person) will be the Controlling Party, unless such Tax Contest
arises from the business activities of only (a) RCN or any other member of the
RCN Group, in which case RCN will be the Controlling Party, or (b) Cable
Michigan or any other member of the Cable Michigan Group, in which case Cable
Michigan will be the Controlling Party.
1.8. "Correlative Adjustment" means, in the case of an
Adjustment comprising a Non-Line of Business Adjustment, the net present value
of any future increases or decreases in a Tax that would be realized, using
the assumptions set forth in the next sentence, by either C-TEC or any other
member of the C-TEC Group, RCN or any other member of the RCN Group or Cable
Michigan or any other member of the Cable Michigan Group, as the case may be,
in one or more Taxable periods (or any portion of a Taxable period) but only
if such increases or decreases (a) are a direct result of the Non-Line of
Business Adjustment and (b) will take effect or begin to take effect in the
Taxable period or portion of a Taxable period of or immediately following the
Taxable period or portion of a Taxable period in which the Non-Line of
Business Adjustment to such Tax is made. For purposes of determining the net
present value of any such future increases or decreases in a tax, the
following assumptions will be used: (i) a discount rate equal to the sum of
the Federal Short-Term Rate as of the date of the Final Determination relating
to such Non-Line of Business Adjustment plus 3.5%; (ii) in the case of any
income Tax, the highest marginal Tax rate or, in the case of any other Tax, the
highest applicable Tax rate, in each case in effect with respect to that Tax
for the Taxable period, or portion of the Taxable period, in which the
Non-Line of Business Adjustment was made; (iii) the depreciation, amortization
or credit rate or lives, if applicable, in effect for the Taxable period, or
portion of the Taxable period, in which the Non-Line of Business Adjustment
was made; and (iv) such determination shall be made without regard to whether
any actual increases or decreases in such Tax will in fact be realized with
respect to the future Returns to which such Correlative Adjustment relates.
1.9. "C-TEC Tax Detriment" means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net increase in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the C-TEC Group, including, but not limited to, any
Adjustments attributable to or resulting from any of the following: the sale
of (x) stock of Iowa City Cellular Telephone Company, Inc. or Commonwealth
Cellular Telephone Services, Inc.; and (y) the sale of the assets of Mobile
Plus, Inc. (formerly Cellular Plus, Inc.), C-TEX Cellular Centre County, Inc.,
Mobile Plus of Iowa, Inc. (formerly cellular Plus of Iowa, Inc.), or Mobile
Plus Service of Pennsylvania, Inc. (formerly Paging Plus, Inc.).
1.10. "C-TEC Tax Benefit" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the C-TEC Group, including, but not limited to, any
Adjustments attributable to or resulting from any of the following: the sale
of (x) stock of Iowa City Cellular Telephone Company, Inc. or Commonwealth
Cellular Telephone Services, Inc.; and (y) the sale of the assets of Mobile
Plus, Inc. (formerly Cellular Plus, Inc.), C-TEX Cellular Centre County, Inc.,
Mobile Plus of Iowa, Inc. (formerly cellular Plus of Iowa, Inc.), or Mobile
Plus Service of Pennsylvania, Inc. (formerly Paging Plus, Inc.)
1.11. "Disputed Adjustment" has the meaning set forth in
Section 3.4(b) hereof.
1.12. "Federal Short-Term Rate" means the applicable federal
short-term rate as determined under Section 1274(d) of the Code.
1.13. "Final Determination" means (a) a decision, judgment,
decree or other order by any court of competent jurisdiction, which has become
final and is either no longer subject to appeal or for which a determination
not to appeal has been made; (b) a closing agreement made under Section 7121
of the Code or any comparable foreign, state, local, municipal or other Taxing
statute; (c) a final disposition by any Taxing Authority of a claim for
refund; or (d) any other written agreement relating to an Adjustment between
any Taxing Authority and any Controlling Party the execution of which is
formal and prohibits such Taxing Authority or the Controlling Party from
seeking any further legal or administrative remedies with respect to such
Adjustment.
1.14. "Independent Third Party" means a nationally
recognized law firm or any of the following accounting firms or their
successors: Arthur Andersen & Co.; Ernst & Young; KPMG Peat Marwick; Deloitte
& Touche; Coopers & Lybrand; and Price Waterhouse & Co.
1.15. "Indemnified Party" has the meaning set forth in
Section 4.1 hereof.
1.16. "Indemnifying Party" has the meaning set forth in
Section 4.1 hereof.
1.17. "Interested Party" means C-TEC or any other member of
the C-TEC Group, RCN or any other member of the RCN Group or Cable Michigan
or any other member of the Cable Michigan Group (including any successor and/or
assign of any of each of the foregoing), as the case may be, to the extent (a)
such Person is not the Controlling Party with respect to a Tax Contest; and
(b) such Person (i) may be liable for, or required to make, any indemnity
payment, reimbursement or other payment pursuant to the provisions of this
Agreement with respect to such Tax Contest; or (ii) may be entitled to receive
any indemnity payment, reimbursement or other payment pursuant to the
provisions of this Agreement with respect to such Tax Contest.
1.18. "Interested Party Notice" has the meaning set forth in
Section 3.4(b) hereof.
1.19. "Non-Line of Business Adjustment" means, with respect
to any Taxable period or portion of a Taxable period, and as computed
separately with respect to each Tax, the net increase or decrease in each such
Tax, as the case may be, equal to the sum of all Adjustments made pursuant to
a Final Determination with respect to each such Tax for each such Taxable
period or portion of a Taxable period other than (a) any Tax Detriments or (b)
any Tax Benefits. Notwithstanding any other provisions of this Agreement
(except Section 2.3(d)(iii)) or the Distribution Agreement to the contrary,
Non-Line Business Adjustments shall include, but not be limited to,
Restructuring Adjustments.
1.20. "RCN ESOP" means the employee stock ownership plan to
be established by RCN after the Distribution.
1.21. "RCN Tax Detriment" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the RCN Group.
1.22. "RCN Tax Benefit" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the RCN Group.
1.23. "Restructuring Adjustment" means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net increase or decrease in each such Tax, as the
case may be, equal to the sum of all Adjustments made pursuant to a Final
Determination with respect to each such Tax for each Taxable period or portion
of a Taxable period that are attributable to, or as a result of, any
transactions undertaken to effectuate the separation of C-TEC's existing
businesses into three independent businesses as contemplated under the
Distribution Agreement including, but not limited to, any transactions
undertaken pursuant to or relating to the Distribution, the formation of the
RCN ESOP, and [any] offering of equity or equity-linked instruments by C-TEC
within one year of the Distribution.
1.24. "Return" means any return, report, form or similar
statement or document (including, without limitation, any related or
supporting information or schedule attached thereto and any information
return, claim for refund, amended return and declaration of estimated tax)
that has been or is required to be filed with any Taxing Authority or that has
been or is required to be furnished to any Taxing Authority in connection with
the determination, assessment or collection of any Taxes or the administration
of any laws, regulations or administrative requirements relating to any Taxes.
1.25. "Separate Return" means any Return other than a
Consolidated Return.
1.26. the "Shared Cable Michigan Percentage" shall be 20%.
1.27. the "Shared C-TEC Percentage" shall be 50%.
1.28. the "Shared RCN Percentage" shall be 30%.
1.29. "Significant Obligation" means, in the case of an
Interested Party, and with respect to any Adjustment, an obligation to make or
right to receive any indemnity payment, reimbursement or other payment with
respect to any such Adjustment (including the effect of any Correlative
Adjustment relating thereto) pursuant to the terms of this Agreement that is
greater than $10,000.
1.30. "Tax" (and, with correlative meanings, "Taxes" and
"Taxable") means, without limitation, and as determined on a
jurisdiction-by-jurisdiction basis, each foreign or U.S. federal, state, local
or municipal income, alternative or add-on minimum, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or any
other tax, custom, tariff, inpost, levy, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount related thereto, imposed by any
Taxing Authority.
1.31. "Tax Detriments" means any C-TEC Tax Detriment, any
Cable Michigan Tax Detriment or any RCN Tax Detriment, as the case may be.
1.32. "Tax Benefits" means any C-TEC Tax Benefit, any Cable
Michigan Tax Benefit or any RCN Tax Benefit, as the case may be.
1.33. "Tax Contest" means, without limitation, any audit,
examination, claim, suit, action or other proceeding relating to Taxes in
which an Adjustment may be proposed, collected or assessed and in respect of
which an indemnity payment, reimbursement or other payment may be sought under
this Agreement.
1.34. "Taxing Authority" means any governmental authority or
any subdivision, agency, commission or authority thereof, or any
quasi-governmental or private body having jurisdiction over the assessment,
determination, collection or other imposition of Taxes.
1.35. "Ultimate Determination" has the meaning set forth in
Section 3.5(b)(i) hereof.
ARTICLE II
ADJUSTMENTS
2.1. IN GENERAL. In determining any liability and/or
obligation to make, or right to receive, any indemnity payment, reimbursement
or other payment to or from any party to this Agreement pursuant to this
Agreement, any Taxable period or portion of a Taxable period that includes the
Distribution Date shall be deemed to include and end on such Distribution Date
and no party to this Agreement shall have any liability and/or obligation to
make, or right to receive, any such indemnity payment, reimbursement or other
payment with respect to any Taxable period or portion of a Taxable period that
begins or is deemed to begin after the Distribution Date.
2.2. TAX DETRIMENTS AND BENEFITS. (a) RCN shall be liable
for, and shall indemnify and hold harmless, subject to Section 3.4 and Section
3.5 hereof, any member of the C-TEC Group or Cable Michigan Group against any
and all RCN Tax Detriments for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the Distribution Date with respect
to any Return of any member of the RCN Group, the C-TEC Group or the Cable
Michigan Group. RCN shall be entitled to receive, and shall be paid, subject
to Section 3.4 and Section 3.5 hereof, (i) by C-TEC, the amount of any RCN Tax
Benefits for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the C-TEC Group; and/or (ii) by Cable Michigan, the amount of
any RCN Tax Benefits for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the Cable Michigan Group.
(b) C-TEC shall be liable for, and shall indemnify
and hold harmless, as appropriate, and subject to Section 3.4 and Section 3.5
hereof, any member of the RCN Group or Cable Michigan Group against any and
all C-TEC Tax Detriments for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. C-TEC shall be entitled to receive, and shall be paid, subject to
Section 3.4 and Section 3.5 hereof, (i) by RCN, the amount of any C-TEC Tax
Benefits for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the RCN Group; and/or (ii) by Cable Michigan, the amount of any
C-TEC Tax Benefits for any Taxable period or any portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the Cable Michigan Group.
(c) Cable Michigan shall be liable for, and shall
indemnify and hold harmless, as appropriate, and subject to Section 3.4 and
Section 3.5 hereof, any member of the C-TEC Group or the RCN Group against any
and all Cable Michigan Tax Detriments for any Taxable period or portion of a
Taxable period ending or deemed to end on or before the Distribution Date with
respect to any Return of any member of the RCN Group, the C-TEC Group or the
Cable Michigan Group. Cable Michigan shall be entitled to receive, and shall
be paid, subject to Section 3.4 and Section 3.5 hereof, (i) by C-TEC, the
amount of any Cable Michigan Tax Benefits for any Taxable period or portion of
a Taxable period ending or deemed to end on the Distribution Date with respect
to any Return of any member of the C-TEC Group; and/or (ii) by RCN, the amount
of any Cable Michigan Tax Benefits for any Taxable period or portion of a
Taxable period ending or deemed to end on the Distribution Date with respect
to any Return of any member of the RCN Group.
2.3. NON-LINE OF BUSINESS ADJUSTMENTS. (a) RCN shall be
liable for, and shall indemnify and hold harmless, as appropriate, any member
of the C-TEC Group or Cable Michigan Group against RCN's share, as determined
in Section 2.3(d) below, of any Non-Line of Business Adjustment the amount of
which increases a Tax for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date; with respect to
any Return of any member of the RCN Group, the C-TEC Group or the Cable
Michigan Group. RCN shall be entitled to receive, and shall be paid (i) by
C-TEC, RCN's share, as determined in Section 2.3(d) below, of any Non-Line of
Business Adjustment the amount of which decreases a Tax for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the C-TEC Group;
and/or (ii) by Cable Michigan, RCN's share, as determined in Section 2.3(d)
below, of any Non-Line of Business Adjustment the amount of which decreases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the Distribution Date with respect to any Return of any
member of the Cable Michigan Group.
(b) C-TEC shall be liable for, and shall indemnify
and hold harmless, as appropriate, any member of the RCN Group or the Cable
Michigan Group against C-TEC's share, as determined in Section 2.3(d) below,
of any Non-Line of Business Adjustment the amount of which increases a Tax for
any Taxable period or portion of a Taxable period ending or deemed to end on
or before the Distribution Date with respect to any Return of any member of
the RCN Group, the C-TEC Group or the Cable Michigan Group. C-TEC shall be
entitled to receive, and shall be paid (i) by RCN, C-TEC's share, as
determined in Section 2.3(d) below, of any Non-Line of Business Adjustment the
amount of which decreases a Tax for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the Distribution Date with respect
to any Return of any member of the RCN Group; and/or (ii) by Cable Michigan,
C-TEC's share, as determined in Section 2.3(d) below, of any Non-Line of
Business Adjustment the amount of which decreases a Tax for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the Cable
Michigan Group.
(c) Cable Michigan shall be liable for, and shall
indemnify and hold harmless, as appropriate, any member of the RCN Group or
the C-Tec Group against Cable Michigan's share, as determined in Section
2.3(d) below, of any Non-Line of Business Adjustment the amount of which
increases a Tax for any Taxable period or portion of a Taxable period ending
or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. Cable Michigan shall be entitled to receive, and shall be paid (i) by
RCN, Cable Michigan's share, as determined in Section 2.3(d) below, of any
Non-Line of Business Adjustment the amount of which decreases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the
RCN Group; and/or (ii) by C-TEC, Cable Michigan's share, as determined in
Section 2.3(d) below, of any Non-Line of Business Adjustment the amount of
which decreases a Tax for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the date of the Cable Michigan
Distribution Date with respect to any Return of any member of the C-TEC Group.
(d) C-TEC, RCN and Cable Michigan shall share the
amount of any Non-Line of Business Adjustment to the extent each such party is
liable for and/or has an obligation to make, or has the right to receive, as
the case may be, any indemnity payment, reimbursement or other payment with
respect to such Non-Line of Business Adjustment under this Agreement, in
proportion to the Shared C-TEC Percentage, the Shared RCN Percentage and the
Shared Cable Michigan Percentage, respectively; provided, however, that in the
event that there is any Correlative Adjustment with respect to any such
Non-Line of Business Adjustment, then C-TEC, RCN and Cable Michigan shall
share such Non-Line of Business Adjustment in the following manner in order to
ensure that the party or parties that will bear the burden or inure to the
benefit of the Correlative Adjustment in the future will share the Non-Line of
Business Adjustment in proportion to each of their respective Shared
Percentages after giving effect to such Correlative Adjustment:
(i) first, the amount of any such Non-Line of
Business Adjustment shall be increased or decreased, as appropriate, by the
amount of the Correlative Adjustment, the net amount resulting from such
increase or decrease being hereinafter referred to as the "Net Non-Line of
Business Adjustment" for purposes of this Section 2.3(d);
(ii) second, the Net Non-Line of Business
Adjustment shall be allocated among C-TEC, RCN and Cable Michigan in
proportion to the Shared C-TEC Percentage, the Shared RCN Percentage and the
Shared Cable Michigan Percentage, respectively, to the extent each such party
is liable for and/or has an obligation to make, or has the right to receive,
as the case may be, any indemnity payment, reimbursement or other payment with
respect to such Non-Line of Business Adjustment under this Agreement; and
(iii) finally, with respect to a party to which a
Correlative Adjustment is attributable, that party's share of the Net Non-Line
of Business Adjustment as allocated pursuant to paragraph (ii) of this Section
2.3(d) will be increased or decreased, as appropriate, by the amount, if any,
of the Correlative Adjustment that is attributable to such party in order to
arrive at such party's share of the Non-Line of Business Adjustment.
Notwithstanding any other provision of this Agreement or the Distribution
Agreement to the contrary, any Adjustment that arises solely as a result of
the acquisition after the Distribution Date of all or a portion of the stock
and/or assets of one party this agreement by any means whatsoever by any
Person other than an Affiliate of such party shall not be a Non-Line of
Business Adjustment and shall be a Tax Benefit or Tax Detriment, as the case
may be, of such party.
(e) Following the determination of a party's share
of a Non-Line of Business Adjustment pursuant to Section 2.3(d) above, and
subject to Section 3.4 and 3.5 hereof, the Controlling Party that controls the
Tax Contest to which such Non-Line of Business Adjustment relates shall (i) be
entitled to reimbursement from C-TEC, RCN and/or Cable Michigan, as the case
may be, for each of their respective shares, if any, of any Non-Line of
Business Adjustment the amount of which increases a Tax; and (ii) reimburse
C-TEC, RCN or Cable Michigan, as the case may be, for each of their respective
shares, if any, of any Non-Line of Business Adjustment the amount of which
decreases a Tax.
ARTICLE III
TAX CONTESTS
3.1. NOTIFICATION OF TAX CONTESTS. The Controlling Party
shall promptly notify all Interested Parties of (a) the commencement of any
Tax Contest pursuant to which such Interested Parties may be required to make
or entitled to receive an indemnity payment, reimbursement or other payment
under this Agreement; and (b) as required and specified in Section 3.4 hereof,
any Final Determination made with respect to any Tax Contest pursuant to which
such Interested Parties may be required to make or entitled to receive any
indemnity payment, reimbursement or other payment under this Agreement. The
failure of a Controlling Party to promptly notify any Interested Party as
specified in the preceding sentence shall not relieve any such Interested
Party of any liability and/or obligation which it may have to the Controlling
Party under this Agreement except to the extent that the Interested Party was
prejudiced by such failure, and in no event shall such failure relieve the
Interested Party from any other liability or obligation which it may have to
such Controlling Party.
3.2. TAX CONTEST SETTLEMENT RIGHTS. The Controlling Party
shall have the sole right to contest, litigate, compromise and settle any
Adjustment that is made or proposed in a Tax Contest without obtaining the
prior consent of any Interested Party; provided, however, that, unless the
parties provide notice of the waiver of such right, the Controlling Party
shall, in connection with any proposed or assessed Adjustment in a Tax Contest
for which an Interested Party may be required to make or entitled to receive
an indemnity payment, reimbursement or other payment under this Agreement (a)
keep all such Interested Parties informed in a timely manner of all actions
taken or proposed to be taken by the Controlling Party; and (b) provide all
such Interested Parties with copies of any correspondence or filings submitted
to any Taxing Authority or judicial authority, in each case in connection with
any contest, litigation, compromise or settlement relating to any such
Adjustment in a Tax Contest. The failure of a Controlling Party to take any
action as specified in the preceding sentence with respect to an Interested
Party shall not relieve any such Interested Party of any liability and/or
obligation which it may have to the Controlling Party under this Agreement
except to the extent that the Interested Party was prejudiced by such failure,
and in no event shall such failure relieve the Interested Party from any other
liability or obligation which it may have to such Controlling Party. The
Controlling Party may, in its sole discretion, take into account any
suggestions made by an Interested Party with respect to any such contest,
litigation, compromise or settlement of any Adjustment in a Tax Contest. All
costs of any Tax Contest are to be borne by the Controlling Party and all
Interested Parties in proportion to their respective liability to make
indemnity payments, reimbursements or other payments under this Agreement with
respect to an Adjustment made in such Tax Contest; provided, however, that
(x) any costs related to an Interested Party's attendance at any meeting with
a Taxing Authority or hearing or proceeding before any judicial authority
pursuant to Section 3.3 hereof, and (y) the costs of any legal or other
representatives retained by an Interested Party in connection with any Tax
Contest that is subject to the provisions of this Agreement, shall be borne by
such Interested Party.
3.3. TAX CONTEST PARTICIPATION. Unless waived by the
parties in writing, the Controlling Party shall provide an Interested Party
with notice reasonably in advance of, and such Interested Party shall have the
right to attend, any formally scheduled meetings with Taxing Authorities or
hearings or proceedings before any judicial authorities in connection with any
contest, litigation, compromise or settlement of any proposed or assessed
Adjustment that is the subject of any Tax Contest pursuant to which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement, but only if the
Interested Party bears, or in the good faith judgment of the Controlling
Party, may bear, a Significant Obligation with respect to such Adjustment;
provided, however, that the Controlling Party may, in its sole discretion,
permit an Interested Party that does not bear, or potentially bear, such a
Significant Obligation with respect to such an Adjustment, to attend any such
meetings, hearings or proceedings that relate to such Adjustment. In
addition, unless waived by the parties in writing, the Controlling Party shall
provide each Interested Party with draft copies of any correspondence or
filings to be submitted to any Taxing Authority or judicial authority with
respect to such Adjustments for such Interested Party's review and comment.
The Controlling Party shall provide such draft copies reasonably in advance of
the date that they are to be submitted to the Taxing Authority or judicial
authority and the Interested Party shall provide its comments, if any, with
respect thereto within a reasonable time before such submission. The failure
of a Controlling Party to provide any notice, correspondence or filing as
specified in this Section 3.3 to an Interested Party shall not relieve any
such Interested Party of any liability and/or obligation which it may have to
the Controlling Party under this Agreement except to the extent that the
Interested Party was prejudiced by such failure, and in no event shall such
failure relieve the Interested Party from any other liability or obligation
which it may have to such Controlling Party.
3.4. TAX CONTEST WAIVER. (a) The Controlling Party shall
promptly provide notice to all Interested Parties in a Tax Contest (i) that a
Final Determination has been made with respect to such Tax Contest; and (ii)
enumerating the amount of the Interested Party's share of each Adjustment
reflected in such Final Determination of the Tax Contest for which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement.
(b) Within thirty (30) days after an Interested
Party receives the notice described in Section 3.4(a) hereof from the
Controlling Party, such Interested Party shall give notice to the Controlling
Party (i) that the Interested Party agrees with each Adjustment (and its share
thereof) enumerated in the notice described in Section 3.4(a) hereof except
with respect to those Adjustments (and/or its shares thereof) that, in the
good faith judgment of the Interested Party, it disagrees with and has
specifically enumerated its disagreement with, including the amount of such
disagreement, in the statement (each such disagreed Adjustment (and/or share
thereof) hereinafter referred to as a "Disputed Adjustment"); and (ii) that
the Interested Party thereby waives its right to a determination by an
Independent Third Party pursuant to the provisions of Section 3.5 hereof with
respect to all Adjustments to which it agrees with its share (this statement
hereinafter referred to as the "Interested Party Notice"). The failure of an
Interested Party to provide the Interested Party Notice to the Controlling
Party within the thirty (30) day period specified in the preceding sentence
shall be deemed to indicate that such Interested Party agrees with its share
of all Adjustments enumerated in the notice described in Section 3.4(a) hereof
and that such Interested Party waives it right to a determination by an
Independent Third Party with respect to all such Adjustments (and its shares
thereof) pursuant to Section 3.5 hereof.
(c) During the thirty (30) day period immediately
following the Controlling Party's receipt of the Interested Party Notice
described in Section 3.4(b) above, the Controlling Party and the Interested
Party shall in good faith confer with each other to resolve any disagreement
over each Disputed Adjustment that was specifically enumerated in such
Interested Party Notice. At the end of the thirty (30) day period specified
in the preceding sentence, unless notice is provided of the mutual consent of
the parties to the extension of such time period, the Interested Party shall
be deemed to agree with all Disputed Adjustments that were specifically
enumerated in the Interested Party Notice and waive its right to a
determination by an Independent Third Party pursuant to Section 3.5 hereof with
respect to all such Disputed Adjustments unless, and to the extent, that at
any time during such thirty (30) day (or extended) period, the Interested
Party has given the Controlling Party notice that it is seeking a
determination by an Independent Third Party pursuant to Section 3.5 hereof
regarding the propriety of any such Disputed Adjustment.
(d) Notwithstanding anything in this Agreement to the
contrary, an Interested Party that does not have a Significant Obligation with
respect to an Adjustment has no right to a determination by an Independent
Third Party under section 3.5 hereof with respect to any such Adjustment.
3.5. TAX CONTEST DISPUTE RESOLUTION. (a) In the event that
an Interested Party has given the Controlling Party notice as required in
Section 3.4(c) hereof that it is seeking a determination by an Independent
Third Party pursuant to this Section 3.5 with respect to any Disputed
Adjustment that was enumerated in an Interested Party Notice, then the parties
shall, within ten (10) days after the Controlling Party has received such
notice, jointly select an Independent Third Party to make such determination.
In the event that the parties cannot jointly agree on an Independent Third
Party to make such determination within such ten (10) day period, then the
Controlling Party and the Interested Party shall each immediately select an
Independent Third Party and the Independent Third Parties so selected by the
parties shall jointly select, within ten (10) days of their selection, another
Independent Third Party to make such determination.
(b) In making its determination as to the propriety
of any Disputed Adjustment, the Independent Third Party selected pursuant to
Section 3.5(a) above shall assume that the Interested Party is not required or
entitled under applicable law to be a member of any Consolidated Return. In
addition, the Independent Third Party shall make its determination according
to the following procedure:
(i) The Independent Third Party shall analyze
each Disputed Adjustment for which a determination is sought pursuant to this
Section 3.5 to determine what is a fair and appropriate outcome (hereinafter
referred to as the "Ultimate Determination") with respect to any such Disputed
Amount, taking into account the following exclusive criteria: (A) the facts
relating to such Adjustment; (B) the applicable law, if any, with respect to
such Adjustment; (C) the position of the applicable Taxing Authority with
respect to compromise, settlement or litigation of such Adjustment; (D) the
strength of the factual and legal arguments made by the Controlling Party in
reaching the outcome with respect to such Adjustment as reflected in the Final
Determination of the Tax Contest; (E) the strength of the factual and legal
arguments being made by the Interested Party for the alternative outcome being
asserted by such Interested Party (including the availability of facts,
information and documentation to support such alternative outcome); (F) the
strength of the legal and factual support for other potential, non-frivolous
Adjustments with respect to matters that were actually raised and contested by
the applicable Taxing Authority in the Tax Contest for which the Interested
Party could have been liable under this Agreement but which were eliminated or
reduced as a result of the Controlling Party agreeing to the Disputed
Adjustment as reflected in the Final Determination of the Tax Contest; (G) the
effect of the actual outcome reached with respect to the Disputed Adjustment
on other Taxable periods and on other positions taken or proposed to be taken
in Returns filed or proposed to be filed by the Interested Party; (H) the
realistic possibility of avoiding examination of potential, non-frivolous
issues for which the Interested Party could be liable under this Agreement and
that were contemporaneously identified in writings by the party or parties
during the course of the Tax Contest but which had not been raised and
contested by the applicable Taxing Authority in the Tax Contest; and (I) the
benefits to the Interested Party in reaching a Final Determination, and the
strategy and rationale with respect to the Interested Party's Disputed
Adjustment that the Controlling Party had for agreeing to such Disputed
Adjustment in reaching the Final Determination, in each case that were
contemporaneously identified in writings by the party or parties during the
course of the Tax Contest.
(ii) The Interested Party shall only be
entitled to modification of its share of a Disputed Adjustment under this
Section 3.5 if, as the case may be, either (A) the amount that would be paid
by the Interested Party under the Ultimate Determination with respect to such
Disputed Adjustment is less than 80% of the amount that would be paid by the
Interested Party with respect to such Disputed Adjustment under the actual
outcome reached with respect to such Disputed Adjustment; or (B) the amount
that would be received by the Interested Party under the Ultimate
Determination with respect to such Disputed Adjustment is more than 120% of
the amount that the Interested Party would receive with respect to such
Disputed Adjustment under the actual outcome reached with respected to such
Disputed Adjustment. If an Interested Party is entitled to modification of
its share of any Disputed Adjustment under the preceding sentence, the amount
the Interested Party is entitled to receive, or is required to pay, as the
case may be, with respect to such Disputed Adjustment shall be equal to the
amount of the Ultimate Determination of such Disputed Adjustment. The
Independent Third Party will provide notice to the Controlling Party and the
Interested Party stating whether the Interested Party is entitled to
modification of its share of the Disputed Adjustment pursuant to this
paragraph (ii) and, if the Interested Party is entitled to such modification,
the amount as determined in the preceding sentence that the Interested Party
is entitled to receive from, or required to pay to, the Controlling Party with
respect to such Disputed Adjustment.
(c) Any determination made or notice given by an
Independent Third Party pursuant to this Section 3.5 shall be (i) in writing;
(ii) made within thirty (30) days following the selection of the Independent
Third Party as set forth in Section 3.5(a) of this Agreement unless such
period is otherwise extended by the mutual consent of the parties; and (iii)
final and binding upon the parties. The costs of any Independent Third Party
retained pursuant to this Section 3.5 shall be shared equally by the parties.
The Controlling Party and the Interested Party shall provide the Independent
Third Party jointly selected pursuant to Section 3.5(a) hereof with such
information or documentation as may be appropriate or necessary in order for
such Independent Third Party to make the determination requested of it. Upon
issuance of an Independent Third Party's notice under Section 3.5(b)(ii)
hereof, the Controlling Party or the Interested Party, as the case may be,
shall pay as specified in Article IV of this Agreement, the amount, if any, of
the Disputed Adjustment to the appropriate party.
ARTICLE IV
PROCEDURE AND PAYMENT
4.1. PROCEDURE. (a) If an Interested Party has any
liability and/or obligation to make, or the right to receive, any indemnity
payment, reimbursement or other payment with respect to an Adjustment under
this Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 3.5 hereof, then the amount of such
Adjustment shall be immediately due and payable upon receipt by the Interested
Party of a notice of Final Determination of a Tax Contest as required and
specified in Section 3.4(a) hereof.
(b) If after (i) notice of a Final Determination of
a Tax Contest as required and specified in Section 3.4(a) hereof has been
given by a Controlling Party to an Interested Party; and (ii) the Interested
Party receiving such notice has either:
(A) failed to provide the Interested
Party Notice specified in Section 3.4(b) hereof within the thirty (30) day
period set forth in Section 3.4(b);
(B) provided the Interested Party Notice
specified in Section 3.4(b) hereof within the thirty (30) day period specified
in Section 3.4(b) agreeing to all Adjustments (and the Interested Party's
share of all such Adjustments) and waiving the right to an Independent Third
Party determination pursuant to Section 3.5 hereof with respect to all such
Adjustments (and the Interested Party's share of such Adjustments);
(C) provided the Interested Party Notice
specified in Section 3.4(b) hereof within the thirty (30) day period specified
in Section 3.4(b) agreeing with some, but not all, Adjustments (and the
Interested Party's share of such agreed Adjustments) and waiving the right to
an Independent Third Party Determination pursuant to Section 3.5 hereof with
respect to all such agreed Adjustments (and the Interested Party's share of
such Adjustments); or
(D) provided the Interested Party Notice
specified in Section 3.4(b) hereof within the thirty (30) day period specified
in Section 3.4(b) specifically enumerating the Disputed Adjustments to which
it does not agree and for which the notice specified in either Section
3.5(b)(ii) hereof relating to any such Disputed Adjustment has been given by
an Independent Third Party, then the amount of any Adjustment agreed to or
deemed to be agreed to by the Interested Party, or for which an Independent
Third Party notice has been given pursuant to either Section 3.5(b)(ii)
hereof, as set forth in each of clauses (A), (B, (C) or (D) above, shall be
immediately due and payable.
(c) Any Person entitled to any indemnification,
reimbursement or other payment under this Agreement with respect to the amount
of any Adjustment that has become immediately due and payable under Section
4.1(b) (the "Indemnified Party") shall notify the Person against whom such
indemnification, reimbursement or other payment is sought (the "Indemnifying
Party") of its right to and the amount of such indemnification, reimbursement
or other payment; provided, however, that the failure to notify the
Indemnifying Party shall not relieve the Indemnifying Party from any liability
and/or obligation which it may have to an Indemnified Party on account of the
provisions contained in this Agreement except to the extent that the
Indemnifying Party was prejudiced by such failure, and in no event shall such
failure relieve the Indemnifying Party from any other liability or obligation
which it may have to such Indemnified Party. The Indemnifying Party shall
make such indemnity payment, reimbursement or other payment to the Indemnified
Party within thirty (30) days of the receipt of the notice specified in the
preceding sentence; provided, however, that, in the case of any Final
Determination of a Tax Contest involving a state, local or municipal Tax in
which the Indemnifying Party is also the Controlling Party with respect to
such Tax Contest and, as Controlling Party, is entitled to receive an overall
net refund from the applicable state, local or municipal Taxing Authority with
respect to such state, local or municipal Tax, then the Indemnifying Party
shall make such indemnity payment, reimbursement or other payment to the
Indemnified Party within thirty (30) days from the date the Indemnifying Party
actually receives payment of or obtains the benefit of the net refund due from
the applicable state, local or municipal Taxing Authority.
4.2. PAYMENT. Any indemnity payment, reimbursement or other
payment required to be made pursuant to this Agreement by an Indemnifying Party
to an Indemnified Party shall be made, at the option of the Indemnifying
Party, by (a) certified check payable to the order of the Indemnified Party;
or (b) wire transfer of immediately available funds to such bank and/or other
account of the Indemnified Party as from time to time the Indemnified Party
shall have directed the Indemnifying Party, in writing. Any indemnity
payment, reimbursement or other payment required to be made by an Interested
Party pursuant to this Agreement shall bear interest at the Federal Short-Term
Rate plus 2 %, per annum, from the date such Interested Party receives the
notice of Final Determination made with respect to a Tax Contest as provided
in Section 3.4(a) hereof. Any indemnity payment, reimbursement or other
payment required to be made by a Controlling Party to an Interested Party
pursuant to this Agreement shall bear interest at the Federal Short-Term Rate
plus 2%, per annum, from a date thirty (30) days after the date of a Final
Determination made with respect to a Tax Contest; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local
or municipal Tax in which the Controlling Party is entitled to receive an
overall net refund from the applicable state, local or municipal Taxing
Authority with respect to such state, local or municipal Tax, such indemnity
payment, reimbursement or other payment to be made by the Controlling Party
shall bear interest at the Federal Short-Term Rate plus 2%, per annum, from
the date the Controlling Party actually receives payment of or obtains the
benefit of the net refund due from the applicable state, local or municipal
Taxing Authority.
ARTICLE V
OTHER TAX MATTERS
5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It
is understood and agreed that during Consolidation:
(a) Members of the RCN Group and members of the Cable
Michigan Group, respectively, shall each adopt and follow the Tax policies and
procedures that have been established by C-TEC, unless C-TEC shall otherwise
consent as provided herein.
(b) C-TEC shall establish all Return positions and
make all Tax elections relating to a Consolidated Return. Members of the RCN
Group and members of the Cable Michigan Group shall take such Consolidated
Return positions and make such Tax elections relating to a Consolidated Return
as may be taken or made by C-TEC, or as reasonably requested by C-TEC to be
taken or made by any member of the RCN Group and/or any member of the Cable
Michigan Group, as the case may be, unless C-TEC shall otherwise consent, as
provided herein.
5.2. COOPERATION. Except as otherwise provided in this
Agreement, each member of the C-TEC Group, the RCN Group and/or the Cable
Michigan Group, as the case may be, shall, at their own expense, cooperate with
each other in the filing of, or any Tax Contest relating to, any Return and
any other matters relating to Taxes and, in connection therewith, shall (i)
maintain appropriate books and records for any and all Taxable periods or any
portion of a Taxable period that may be required by C-TEC's record retention
policies; (ii) provide to each other such information as may be necessary or
useful in the filing of, or any Tax Contest relating to, any such Return;
(iii) execute and deliver such consents, elections, powers of attorney and
other documents as may be required or appropriate for the proper filing of any
such Return or in conjunction with any Tax Contest relating to any such
Return; and (iv) make available for responding to inquiries of any other party
or any Taxing Authority, appropriate employees and officers of and advisors
retained by any member of the C-TEC Group, the RCN Group, or the Cable
Michigan Group, as the case may be.
5.3. FILING OF RETURNS. The Person that would be the
Controlling Party with respect to any Tax Contest relating to a Return for
which any indemnity payment, reimbursement or other payment may be sought
under this Agreement shall (a) prepare and file, or cause to be prepared and
filed, any such Return within the time prescribed for filing such Return
(including all extensions of time for filing); and (b) shall timely pay, or
cause to be timely paid, the amount of any Tax shown to be due and owing on
any such Return. Such Person shall bear all costs associated with preparing
and filing, or causing to be prepared and filed, any such Return. Except as
provided in Section 5.l(b) hereof (relating to Consolidated Returns), such
Person shall establish all Return positions and make all Tax elections
relating to such Returns.
ARTICLE VI
MISCELLANEOUS
6.1. GOVERNING LAW. To the extent not preempted by any
applicable foreign or U.S. federal, state, or local Tax law, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the State of New York, irrespective of the choice of laws principles of the
State of New York, as to all matters, including matters of validity,
construction, effect, performance and remedies.
6.2. AFFILIATES. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Affiliate
of such party; provided, however, that for purposes of the foregoing, no
Person shall be considered an Affiliate of a party if such Person is a member
of another party's Group.
6.3. INCORPORATION OF DISTRIBUTION AGREEMENT PROVISIONS.
Article 9 of the Distribution Agreement (Miscellaneous) is hereby incorporated
herein by reference, and unless otherwise expressly specified herein, shall
apply as if fully set forth herein
6.4. NOTICES. On behalf of C-TEC, RCN, and Cable Michigan,
the individuals set forth below (or any other individuals delegated in writing
by each of the foregoing) shall serve as the single point of contact to
receive or give any notice or other communication required or permitted to be
given to any member of each of their respective Groups under this Agreement.
Unless the individual designated to receive any notice or other communication
is the same individual designated to give such notice or other communication,
all notices or other communications under this Agreement shall be in writing
and shall deemed to be duly given when (a) delivered in person; or (b) sent by
facsimile; or (c) deposited in the United States mail, postage prepaid and
sent certified mail, return receipt requested; or (d) deposited in private
express mail, postage prepaid, addressed as follows:
If to any member of the C-TEC Group, to:
C-TEC Corporation
105 Carnegie Center
Princeton, NJ 08540
Attn: James J. Saile, Vice President of Taxation
Facsimile: 609-734-3875
If to any member of the RCN Group, to:
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Attn: James J. Saile, Vice President of Taxation
Facsimile: 609-734-3875
If to any member of the Cable Michigan Group, to:
Cable Michigan, Inc.
105 Carnegie Center
Princeton, NJ 08540
Attn: James J. Saile, Vice President of Taxation
Facsimile: 609-734-3875
Copies of any and all notices shall be (a) delivered in person; or (b) sent by
facsimile; or (c) deposited in the United States mail, postage prepaid and sent
certified mail, return receipt requested; or (d) deposited in private express
mail, postage prepaid, addressed as follows::
Matthew A. Rosen
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Facsimile: (212) 735-2000
Any party may, by written notice to the other parties, change the address to
which such notices (or copies of notices) are to be given.
6.5. CONFLICTING OR INCONSISTENT PROVISIONS. In the event
that any provision or term of this Agreement conflicts or is inconsistent with
any provision or term of any other agreement between or among C-TEC or any
other member of the C-TEC Group, RCN or any other member of the RCN Group
and/or Cable Michigan or any other member of the Cable Michigan Group, as the
case may be, which is in effect on or prior to the date hereof, the provision
or term of this Agreement shall control and apply and the provision or term of
any other agreement shall, to the extent of such conflict or inconsistency, be
inoperative and inapplicable.
6.6. DURATION. Notwithstanding anything in this Agreement or
the Distribution Agreement to the contrary, the provisions of this Agreement
shall survive for the full period of all applicable statutes of limitations
(giving effect to any waiver, mitigation or extension thereof).
6.7. AMENDMENT. Without limiting the provisions contained in
Article 9 of the Distribution Agreement which are incorporated herein by
reference pursuant to Section 6.3 hereof, the parties hereto agree that any
waiver, amendment, supplement or modification of this Agreement that solely
relates to and affects only two of the three parties hereto shall not require
the consent of the third party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Tax
Sharing Agreement to be executed by their duly authorized representatives.
C-TEC Corporation
By: /s/
--------------------------------------
Name:
Title:
RCN Corporation
By: /s/
--------------------------------------
Name:
Title:
Cable Michigan Inc..
By: /s/
--------------------------------------
Name:
Title:
<PAGE>
/TEXT>
EXHIBIT 10.2
DARK FIBER IRU AGREEMENT
------------------------
METROPOLITAN FIBER SYSTEMS/McCOURT, INC., a Delaware
corporation (herein called "WorldCom"), and RCN TELECOM SERVICES OF
MASSACHUSETTS, INC., a Massachusetts corporation (herein called "RCN"), hereby
agree as follows:
1. Parties. The "Parties" are WorldCom and RCN, each being a
"Party." "WorldCom" shall be deemed to include WorldCom and its relevant
affiliates as their respective interests may appear. Similarly, "RCN" shall be
deemed to include RCN and its relevant affiliates as their respective interests
may appear. The term "affiliate" shall have the same meaning as is ascribed
to that term in the Securities Exchange Act of 1934.
2. RCN Business. RCN is engaged in the business of providing
telecommunications services and video programming services to its customers
in the Service Area (as hereinafter defined).
3. Service Area. The "Service Area" is the metropolitan area of
Boston, Massachusetts in which WorldCom has been authorized to construct and
install fiber optic network facilities within the public right-of-way.
4. WorldCom Facilities. WorldCom owns or otherwise has the right
to use, or WorldCom will own or otherwise have the right to use, certain fiber
optic network facilities in the Service Area; such facilities are herein
called the "WorldCom Facilities." The WorldCom Facilities shall consist of
the Existing WorldCom Facilities, the New WorldCom Facilities and the
Anticipated WorldCom Facilities, as configured from time to time, to-wit:
(a) the "Existing WorldCom Facilities" are the certain
facilities and integrated network equipment which were
constructed prior to June 30, 1995 and which are delineated
in Exhibit 4a; and
(b) the "New WorldCom Facilities" are the certain facilities
and integrated network equipment which were constructed
after June 30, 1995 and prior to March 31, 1997 and which
are delineated in Exhibit 4b; and
(c) the "Anticipated WorldCom Facilities" are such certain
facilities and integrated network equipment as WorldCom has
constructed or obtained after March 31, 1997, or as
WorldCom constructs or obtains within twelve months after
the date hereof, pursuant to the mutual agreement of RCN
and WorldCom (if they agree).
To the extent constructed, the WorldCom Facilities shall extend to and include
the pull box, junction or hand hold within the public right of way.
5. Dedicated Fibers. The "Dedicated Fibers" shall consist of
certain designated fibers within the WorldCom Facilities and which shall
consist of the Existing Dedicated Fibers, the New Dedicated Fibers and the
Anticipated Dedicated Fibers, as configured from time to time, to wit:
(a) the "Existing Dedicated Fibers" are certain fibers among
the Existing WorldCom Facilities and which are delineated
in Exhibit 5a; and
(b) the "New Dedicated Fibers" are certain fibers among the
New WorldCom Facilities and which are delineated in
Exhibit 5b; and
(c) the "Anticipated Dedicated Fibers" are such fibers among
the Anticipated WorldCom Facilities as WorldCom and RCN
may agree upon and designate in writing.
6. WorldCom Laterals. WorldCom has at the request of RCN
constructed, and from time to time during the Term (as hereafter defined), RCN
may request that WorldCom construct, in public and/or private rights-of-way in
the Service Area certain extensions or laterals connecting the Dedicated
Fibers to RCN-designated buildings. WorldCom hereby agrees to construct such
laterals or extensions at RCN's expense (as hereinafter provided) and risk and
in accordance with WorldCom's Building Add Policy then in effect, subject and
only to the extent that:
(a) such laterals or extensions and the use thereof will not
cause network degradation or otherwise adversely affect
the WorldCom Facilities or any of WorldCom's other fiber
optic network facilities or give rise to regulatory issues
which are not acceptable to WorldCom, and
(b) WorldCom has secured such rights of way as are deemed
necessary by WorldCom, and
(c) RCN has secured such building access agreements and
other rights and authorities as are deemed necessary by
WorldCom;
such laterals or extensions if and when so constructed are herein called
"WorldCom Laterals." The WorldCom Laterals shall not include (and shall
extend only from) the pull box, junction or hand hold in the public right
of way. The WorldCom Laterals shall not include the RCN Laterals (as
hereafter defined). One innerduct in the entire length of all future
WorldCom Laterals and one innerduct in all existing WorldCom Laterals (to
the extent such WorldCom Lateral contains two or more innerducts) to the
point of building penetration of the RCN-designated building shall be
reserved for WorldCom's exclusive use without cost or expense to WorldCom
and without any reimbursement or credit to RCN; provided, upon any actual
use of such reserved innerduct by WorldCom, WorldCom shall be responsible
for its pro rata share of the costs of maintenance, repair and relocation.
7. Capital Cost. The "Capital Cost" of WorldCom Facilities or
WorldCom Laterals, as relevant, is hereby defined as being (in each case) the
aggregate of:
(a) WorldCom's actual original direct, pro-rated (fairly in
relation to other relevant facilities installed or
constructed at the same time in the same place) cost of
installation, construction and acquisition thereof, plus
(b) a 9% overhead charge for all other direct and indirect
costs related thereto, including WorldCom's general and
administrative costs.
8. Reimbursement of Capital Cost. RCN has heretofore agreed to
pay and reimburse (or has paid and reimbursed) to WorldCom:
(a) the lesser of:
(i) the Capital Cost of the Existing WorldCom Facilities
plus 10% per annum from the date of completion thereof
by WorldCom to the date of such payment, or
(ii) the total present day construction cost of the
Existing WorldCom Facilities (including a 9% overhead
charge) as reasonably estimated by WorldCom, and
(b) the Capital Cost of the New WorldCom Facilities.
The total payment obligation of RCN for the Existing WorldCom Facilities
and the New WorldCom Facilities pursuant to the foregoing is $2,551,101.00;
RCN has previously paid WorldCom $767,458.00 of such obligation; and RCN
shall pay the remaining balance of such obligation ($1,783,643.00)
simultaneous with the execution of this Agreement. WorldCom and RCN agree
that if any inaccuracies in the foregoing amounts are hereafter discovered,
RCN shall pay, or WorldCom shall return, as applicable, such sums as may be
necessary to correct such inaccuracies. RCN further agrees to pay WorldCom
the Capital Cost of the Anticipated WorldCom Facilities upon invoice, it
being acknowledged that WorldCom will invoice progress payments respecting
the Anticipated WorldCom Facilities consistent with the progress of
construction. RCN also hereby agrees to pay to WorldCom the Capital Cost
of the WorldCom Laterals upon invoice, it being acknowledged that WorldCom
will invoice progress payments respecting WorldCom Laterals consistent with
the progress of construction. Except with respect to the use of Excess
Fibers (as hereafter defined), WorldCom shall not be obligated to return to
RCN any Capital Cost paid by RCN to WorldCom hereunder, even in the event
of the early termination of the Term.
9. Excess Fibers. Those fibers within the Dedicated Fibers which
as of any relevant date are not then being used by RCN and which are not
estimated by RCN to be used in the reasonably foreseeable future are herein
called the "Excess Fibers." Subject to the mutual agreement of WorldCom and
RCN (if they agree), WorldCom may use some or all of the Excess Fibers by
repaying RCN (or if RCN shall have not yet paid WorldCom with respect thereto,
WorldCom crediting RCN with) a pro rata portion of the Capital Cost thereof
based upon the ratio that the number of Excess Fibers so used by WorldCom bear
to the total number of Dedicated Fibers.
10. RCN Laterals. "RCN Laterals" are:
(a) laterals i. which connect two or more buildings, ii. which
are located wholly within private rights of way, and iii.
which do not connect directly to the Dedicated Fibers, and
(b) laterals constructed by RCN within public rights of way
pursuant to RCN's own regulatory authorities.
From time to time during the Term, RCN may elect to construct RCN Laterals
at RCN's sole expense and effort; however, RCN shall construct such RCN
Laterals only if such RCN Laterals or the use thereof will not cause any
network degradation or otherwise adversely affect the WorldCom Facilities
or any of WorldCom's other fiber optic network facilities or give rise to
any regulatory issues which are not acceptable to WorldCom. No charges or
other payments shall be due WorldCom with respect to the RCN Laterals, RCN
shall be the sole owner of the RCN Laterals, and WorldCom shall have no
interest therein.
11. Term. The "Term" is hereby defined as being the period which
commences on the date of this Agreement and which ends on January 1, 2007
unless earlier terminated pursuant to the terms of this Agreement.
12. Indefeasible Right of Use. Subject to the terms and
conditions of this Agreement, and in consideration of the payment and
performance of all of RCN's obligations hereunder, WorldCom hereby grants to
RCN the exclusive, indefeasible and noncancellable right of use of the
Dedicated Fibers and the WorldCom Laterals during the Term solely for the
purposes of delivery of:
(a) video programming services to end-user retail customers,
and
(b) telephony and data services to residential end-user
retail customers.
RCN shall in no event use the Dedicated Fibers or the WorldCom Laterals to
provide telephone or data services to commercial, industrial, institutional
(e.g. hotel, hospital, university) or other non-residential users;
provided, RCN may provide telephone and data services to students residing
in university dormitories or similar housing units provided by universities
with which RCN has as of the date hereof, or shall within ninety (90) days
after the date hereof, entered into binding contracts for the provision of
such telephone and data services by RCN. Not less than ninety-five (95)
days after the date hereof, RCN shall provide written notice to WorldCom
delineating, together with signed copies of, all such contracts. RCN shall
not use (or knowingly permit the use of) the Dedicated Fibers or WorldCom
Laterals for any unlawful purpose.
13. Early Termination. Notwithstanding any other provision of this
Agreement, by written notice to RCN, WorldCom may terminate the Term, the
grant of the indefeasible right of use of the Dedicated Fibers and the
WorldCom Laterals hereunder, and/or this Agreement, in whole or in part, and
without incurring any liability or paying any money to RCN or to anyone if:
(a) WorldCom, by final order of a court, commission or other
governmental or regulatory authority of competent
jurisdiction, is prohibited from granting to RCN the
indefeasible right of use of the Dedicated Fibers or the
WorldCom Laterals hereunder or otherwise performing its
obligations hereunder, or
(b) RCN, by final order of a court, commission or other
governmental or regulatory authority of competent
jurisdiction, is prohibited from using the Dedicated Fibers
or the WorldCom Laterals hereunder, or
(c) RCN is in default of this Agreement after the expiration
of any applicable cure period, or
(d) WorldCom has a right to so terminate pursuant to the
specific provisions of other paragraphs of this Agreement,
or
(e) a change in control of RCN (that is, a direct or indirect
change in the ownership of at least 50% of the voting
securities or equity interests in RCN) occurs, directly or
indirectly, in a single transaction or in a series of
transactions, or if substantially all of the assets of RCN
are transferred to anyone not currently an affiliate of
RCN; provided, WorldCom agrees that current planned
corporate restructuring of C-TEC Corporation, the parent
company of RCN, whereby C-TEC Corporation will be separated
into three separate public companies (with separate lines
of business consisting of the telephone and engineering
business, the integrated services and NY/NJ/PA cable
business and the Michigan cable business) (herein called
the "RCN Reorganization") shall not constitute a change in
control of RCN.
With respect to subparagraph (a). above, WorldCom agrees to provide notice to
RCN of any claims made, or the institution of any action or proceeding, to
prohibit the grant by WorldCom of the indefeasible right of use of the
Dedicated Fibers or WorldCom Laterals and to reasonably cooperate with RCN
(at RCN's cost and expense) in contesting such claim, action or proceeding.
In the event of any early termination of the Term, the grant of the
indefeasible right of use and/or this Agreement pursuant to this paragraph,
to the extent allowed by law, RCN's right of use hereunder shall cease 360
days after such termination in order to allow RCN the opportunity to make
alternate arrangements for the delivery of video programming services and
telephone services to its customers and WorldCom agrees to reasonably
cooperate with RCN in connection therewith.
14. Limitations. RCN's use of the Dedicated Fibers and the
WorldCom Laterals shall be limited as follows:
(a) RCN and WorldCom have contemporaneously herewith
executed a Telephone Services Reseller Agreement, which
agreement, together with any replacement or succeeding
agreement, is hereinafter called the "Telephone Agreement;"
in its use of the Dedicated Fibers, RCN shall not deliver
or permit the delivery of Telephone Service (as that term
is defined in the Telephone Agreement) over the Dedicated
Fibers to anyone other than to RCN's residential customers
in the Service Area;
(b) RCN shall not use the Dedicated Fibers or WorldCom
Laterals at any time or when:
(i) RCN shall be a Defaulting Party (as hereafter
defined) hereunder, or
(ii) any court, commission or other governmental or
regulatory authority of competent jurisdiction has
entered a final order as described in paragraph 13
above prohibiting WorldCom from granting an
indefeasible right of use in, or prohibiting RCN from
using, the Dedicated Fibers or the WorldCom Laterals
as provided for hereunder or otherwise prohibiting
WorldCom from performing its obligations hereunder, in
either of which events WorldCom shall be relieved from
WorldCom's obligations under this Agreement as and to
extent affected thereby, and RCN shall be relieved of
the obligation to pay the WorldCom Maintenance Costs
(as hereafter defined) and the Recurring Charges (as
hereafter defined) as and to the extent affected
thereby.
15. WorldCom Representations. WorldCom hereby states, represents
and covenants to RCN as follows:
(a) WorldCom is a duly organized and validly existing
corporation under the laws of the State of Delaware, and
WorldCom has full right and authority to execute this
Agreement and to perform all of WorldCom's obligations
hereunder.
(b) Any lien, mortgage, security interest or other
encumbrance granted by WorldCom on or with respect to the
Dedicated Fibers shall be subordinate to the indefeasible
right of use granted to RCN hereunder.
(c) WorldCom has been granted and now holds such easements,
rights of way, franchises, licenses, permits or other
rights as are necessary for the construction, installation
and maintenance of the Existing Dedicated Fibers and the
New Dedicated Fibers, and upon request of RCN, WorldCom
will deliver copies of any instruments which evidence the
same.
(d) There are no litigation proceedings or governmental
investigations to which WorldCom is a party which could
have a material adverse affect on WorldCom's ability to
perform its obligations under this Agreement.
16. RCN Representations. RCN hereby states, represents and
covenants to WorldCom as follows:
(a) RCN is a duly organized and validly existing corporation
under the laws of the State of Massachusetts and RCN has
full right and authority to execute this Agreement and to
perform all of RCN's obligations hereunder.
(b) RCN has obtained, or will promptly obtain at its own
expense, any and all licenses, approvals and/or regulatory
authorities that may be required by law or as otherwise may
be necessary in connection with the use of the Dedicated
Fibers by RCN.
(c) There are no litigation proceedings or governmental
investigations to which RCN is a party which could have a
material adverse affect on RCN's ability to perform its
obligations under this Agreement.
17. WorldCom Undertakings. WorldCom hereby covenants and
agrees as follows:
(a) WorldCom shall maintain such easements, rights of way,
franchises, licenses, permits or other rights as are
necessary for the construction, installation and
maintenance of the Existing Dedicated Fibers and the New
Dedicated Fibers.
(b) Subject to the other relevant provisions of this
Agreement, WorldCom shall use its reasonable efforts in
good faith:
(i) to obtain and maintain such easements, rights of
way, franchises, licenses, permits or other rights as
are necessary for the construction, installation and
maintenance of the Anticipated WorldCom Facilities,
(ii) to construct the Anticipated WorldCom Facilities in
accordance with such standards and specifications
which WorldCom and RCN may agree upon in writing, and
(iii) to construct any WorldCom Laterals in accordance
with WorldCom's then current Building Add Policy and
subject to the provisions of paragraph 6, hereof.
(c) WorldCom shall reasonably cooperate with RCN (but
without cost to WorldCom) in the securing of any tariffs,
approvals or authorizations which may be required by RCN to
use the Dedicated Fibers for the purposes permitted by this
Agreement.
(d) WorldCom shall maintain the overall quality and condition
of repair of the Dedicated Fibers, the WorldCom Laterals
(prior to any transfer to RCN pursuant to paragraph 20
below) and any other related fiber or facilities provided
by WorldCom all to prevailing technical performance
specifications; and to that end, from time to time WorldCom
shall undertake to effect such repairs, replacements and
relocations thereof as WorldCom determines to be
reasonable, necessary and appropriate, all in accordance
with prevailing industry standards and equipment
maintenance specifications; WorldCom's actual costs
expended in the performance of its obligation under this
subparagraph (including a 9% overhead factor) are herein
called "WorldCom's Maintenance Costs"; WorldCom will
provide RCN reasonable supporting data with respect to the
WorldCom Maintenance Costs.
(e) WorldCom shall perform splicing of and interconnections
to the Dedicated Fibers at RCN's request pursuant to
WorldCom's Building Add Policy then in effect.
18. RCN Undertakings. RCN hereby covenants and agrees as follows:
(a) RCN shall use the Dedicated Fibers and WorldCom Laterals
only as may be specifically permitted by the terms of this
Agreement; without limiting the generality of the
foregoing, RCN hereby covenants and agrees not to use, or
to permit the use of, the Dedicated Fibers or the WorldCom
Laterals for the delivery of Telephone Service (as above
referenced) directly or indirectly (through another) to any
commercial, educational, institutional or governmental end-
users.
(b) RCN shall promptly pay to WorldCom on invoice (likely
monthly):
(i) the "Recurring Charges" as defined and delineated
in Exhibit 18 attached hereto,
(ii) WorldCom's Maintenance Costs, and
(iii) such other incremental costs incurred by WorldCom
(including 9% overhead) for labor or materials to
reasonably support RCN's use of the Dedicated Fibers
and integrated network equipment, which costs are not
otherwise reimbursed by RCN to WorldCom, and which
costs are invoiced to RCN with reasonable supporting
data, including but not limited to, splicing,
interconnection and locate costs.
(c) RCN shall pay all income taxes and all other taxes, fees,
levies, assessments and charges based upon or resulting
from the use of the Dedicated Fibers by RCN.
(d) RCN shall provide to WorldCom such network usage
(traffic measurement) reports as, in such form, and as
frequently as WorldCom may reasonably request from time-to-
time.
(e) RCN shall reasonably cooperate with WorldCom (but
without cost to RCN) in the securing of any tariffs,
approvals or authorizations which may be required for
WorldCom to construct, install and maintain the WorldCom
Facilities.
(f) RCN shall be solely responsible for all costs and
expenses associated within the RCN Laterals, any laterals
connecting two or more buildings which are not in the
public right of way and which do not connect to the
Dedicated Fibers, and any and all inside plant (including
buildup POP or co-location areas, equipment and inside
wiring); including without limitation, construction costs,
repair, maintenance and replacement costs, utilities, rents
and other lease changes, and building access costs.
(g) RCN shall be solely responsible for all costs and
expenses associated with any equipment necessary for RCN to
use the Dedicated Fibers for the purposes permitted by this
Agreement, including acquisition, repair, maintenance and
replacement costs associated with such equipment.
(h) RCN shall not effect any interconnection to or splicing
of the Dedicated Fibers and all such interconnections and
splicing shall be undertaken only by WorldCom.
19. Regulatory Risk. RCN shall bear the entire economic and legal
risk attendant to or resulting from the extent to which RCN does not obtain or
maintain during the Term any regulatory authorization, approval, franchise or
permit necessary for RCN to use the Dedicated Fibers and WorldCom Laterals for
the purposes permitted by this Agreement.
20. Ownership. WorldCom shall at all times own all equitable and
legal title to the WorldCom Facilities and WorldCom Laterals; provided, if at
any time prior to January 1, 2017, or the tenth anniversary of the end of the
Term, whichever occurs first, RCN shall obtain all necessary regulatory
authorities to access public rights of way, WorldCom shall transfer all of its
rights, titles and interests to the WorldCom Laterals (excluding the one
innerduct reserved for WorldCom) to RCN and thereafter RCN shall be
responsible for all maintenance and repair of the WorldCom Laterals. After
the expiration of the Term, WorldCom may, at its discretion, lease network
capacity to RCN over the Dedicated Fibers, where such capacity is available
and upon such terms as WorldCom and RCN may agree (if they agree).
21. Default. A Party (as "Terminating Party") may terminate this
Agreement (and thus the Term and RCN's right to use the Dedicated Fibers and
WorldCom Laterals) upon the failure of the other Party (as "Defaulting Party")
to cure any of the following within 30 days following delivery of written
notice from the Terminating Party to the Defaulting Party:
(a) the failure of the Defaulting Party to pay any monetary
obligation due in accordance with the provisions of this
Agreement; or
(b) the insolvency, arrangement with creditors, receivership
or dissolution of the Defaulting Party; or
(c) the institution of bankruptcy proceedings by or against
the Defaulting Party; or
(d) the assignment or attempted assignment of this Agreement
or any interest herein by the Defaulting Party, except as
permitted by paragraph 30 hereof;
(e) the breach of any provision of this Agreement by the
Defaulting Party not otherwise referred to in the following
sentence.
In the event any payment due hereunder shall be disputed by RCN, such
payment shall nevertheless be made when due and in the event such dispute
is thereafter resolved in favor of RCN, the amount of any overpayment shall
be credited against future payments due from RCN to WorldCom. Upon
termination of this Agreement under this paragraph, a Party may recover
from the other Party all monetary obligations owed by the other Party under
this Agreement at the time of termination.
22. Service Problems. RCN hereby agrees to promptly notify
WorldCom of any failure, cessation, interruption, delay or other problem which
RCN may become aware of relating to the Dedicated Fibers or the WorldCom
Laterals (herein called "Service Problems"). Such notification shall be made
in such form, to such locations and at such telephone numbers as WorldCom may
designate in writing from time to time, except that no such notification shall
occur until and unless RCN shall have reasonably determined that such problems
are not caused by the action or omission of, or by any cause within the
control of, RCN or its customers. Notwithstanding any other provision of this
Agreement, in the event of the occurrence of Service Problems on account of
WorldCom's negligence, WorldCom shall forthwith as soon as practicable (after
notification thereof) undertake all reasonable good faith efforts to cure such
Service Problems in a timely manner, in accordance with industry standards,
and in conformity with its own policies and procedures. The obligation
provided for in the preceding sentence shall be WorldCom's sole and exclusive
obligation respecting or arising out of any Service Problem.
23. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES ON
ACCOUNT OF LOSS OF REVENUE, PROFITS, CUSTOMERS, CLIENTS OR GOODWILL ARISING IN
ANY MANNER FROM OR UNDER THIS AGREEMENT OR THE NEGLIGENT OR NON-NEGLIGENT
PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
24. Force Majeure. Without limiting the generality of any other
provisions of this Agreement, WorldCom shall not be liable for any failure in
performance of any of its obligations under this Agreement when such failure
results from acts or events beyond WorldCom's reasonable control, including,
but not limited to, acts of or failures to act by RCN, other contractors or
suppliers to RCN or customers, acts of vandalism, acts of God, acts of any
civil or military authority, government regulations, war, terrorist acts,
riots, insurrections, explosions, fires, earthquakes, nuclear accidents,
floods or seismic action, other environmental disturbances, abnormal weather
conditions, power blackouts caused by acts of God, embargoes, strikes or other
labor-related disputes, or delays by WorldCom's subcontractors or suppliers.
25. End of Term. If the Term shall not have been terminated early
pursuant to paragraph 13 above, or as a result of RCN having been a Defaulting
Party, then if and to the extent that RCN shall have obtained such regulatory
and other governmental authorities as shall be required in connection
therewith, at such termination of the Term, WorldCom shall, at WorldCom's sole
option, either:
(a) sell to RCN WorldCom's right, title and interest in and
to such of the Dedicated Fibers as WorldCom determines, in
its sole discretion, are then, and likely will in the
future be, excess facilities which WorldCom expects not to
utilize in the conduct of any of the business operations of
WorldCom or any of its affiliates or customers, all for
such sale price and on such other terms and conditions as
and if the Parties may agree upon in writing (if they
agree), or
(b) permit RCN to extend this Agreement for a period of five
years (with RCN having an option to extend for an
additional period of five years exercisable six months
prior to expiration) on such terms and conditions,
including the payment of consideration to WorldCom at then
market prices, as WorldCom and RCN may agree upon in
writing (if they agree).
In the event WorldCom and RCN shall fail to so agree as provided above, the
Term, the grant of the indefeasible right of use to RCN hereunder and this
Agreement shall terminate.
26. Interest. Notwithstanding the right of either Party to cure a
default under this Agreement, in the event that a Party fails to pay any
monetary obligation under this Agreement, when due, interest shall accrue on
such obligation at a variable interest rate equal to 150% of the "Prime Rate"
(or the highest "Prime Rate", if more than one) as published in the Money
Rates Section of The Wall Street Journal (or, if no longer published, any
comparable substitute index selected by the party owed such payment) or, if
less, the maximum rate allowed by law.
27. Names and Marks. Neither Party shall be deemed to have
hereunder or otherwise acquired any right to use the name, service marks,
trademarks, patents or other intangible property of the other Party. Neither
Party shall take any action which would compromise the name, service marks,
copyrights, trademarks, patents or other intangible property of the other
Party.
28. No Offset. In no event shall a Party have any right of offset
or recoupment against its performance or its monetary obligations under this
Agreement on account of claims against the other Party.
29. Audit Rights. Upon reasonable prior notice each Party shall
have the right to audit the other Party's relevant operations and facilities
(as they relate solely to this Agreement) to monitor such other Party's
compliance with the terms and provisions of this Agreement.
30. Assignment. Neither Party may directly or indirectly (by
change of control, merger or otherwise), by operation of law or otherwise,
assign all or any portion of its rights under this Agreement without the other
Party's prior written consent, which consent may be given or withheld in the
sole discretion of such other party; provided:
(a) WorldCom may assign its rights under this Agreement
either to a successor in interest of WorldCom or to an
affiliate of WorldCom without such consent; upon such
assignment, WorldCom hereby agrees to cause such assignee
to contemporaneously therewith agree in writing to perform
all of WorldCom's obligations under this Agreement,
whereupon WorldCom shall be released from liability
hereunder;
(b) RCN may assign its rights under this Agreement to an
affiliate of RCN without such consent; upon such
assignment, RCN hereby agrees to cause such assignee to
contemporaneously therewith agree in writing to perform all
of RCN's obligations under this Agreement, whereupon RCN
shall be released from liability hereunder;
(c) WorldCom may contract with, or delegate to, anyone,
including an affiliate, performance of its obligations
hereunder, so long as WorldCom shall remain liable
therefor, and such contractor or delegatee is reasonably
qualified to effect such performance;
(d) WorldCom acknowledges that the RCN Reorganization shall not
constitute a prohibited assignment or change in control of
RCN.
(e) WorldCom acknowledges that RCN may enter into a joint
venture with Boston Edison Company with the intended
purpose of providing Telephone Service and video
programming services over certain facilities, including the
Dedicated Fibers and WorldCom Laterals; WorldCom agrees
that such joint venture shall not constitute a prohibited
assignment or change in control of RCN provided that RCN
maintains at least a 50% equity interest in such joint
venture, WorldCom is provided such documentation concerning
the nature of such joint venture as WorldCom reasonably
requests, any use of the Dedicated Fibers and WorldCom
Laterals by such joint venture will not otherwise violate
or breach any other term or provision of this Agreement,
and such joint venture fully observes and performs all of
the duties, obligations, liabilities and responsibilities
of RCN hereunder.
Subject to the foregoing, this Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto and their permitted successors
and assigns.
31. Notice. All notices required or permitted under the terms of
this Agreement shall be in writing and shall be delivered either personally or
by prepaid nationally-recognized commercial overnight delivery service which
maintains evidence of receipt (such as Federal Express), addressed as follows:
If to WorldCom: Jodi Caro, Esq.
WorldCom, Inc.
One Tower Lane, Suite 1600
Oakbrook Terrace, Illinois 60181
with a copy to: MFS Communications Company, Inc.
Attention: Shared Services
11808 Miracle Hills Drive
Omaha, Nebraska 68154
If to RCN: RCN Telecom Services of Massachusetts, Inc.
Attention: President
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Raymond B. Ostroski, Esq.
General Counsel
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Nicolas A. Kensington, Esq.
Eric J. Krathwohl, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
or at such other address as the entity to which notice is to be given may have
communicated to the other Party in writing in accordance herewith. Any such
notice shall be deemed to have been "delivered" when physically delivered if
delivered personally or on the second business day after dispatch if delivered
by commercial overnight delivery service (such as Federal Express). To the
extent that a notice may be delivered under, or is required to be delivered
under, any paragraph of this Agreement, such notice shall refer specifically to
such paragraph.
32. Publicity. Except as may be otherwise required by law or in
connection with any relevant regulatory proceeding, each Party shall obtain the
written consent of the other Party prior to releasing any public announcements,
press releases, sales brochures, advertising or other publicity materials which
may relate specifically to this Agreement, and prior to disclosing any of the
terms of this Agreement; however, any such consent shall not be unreasonably
withheld or unduly delayed.
33. Governing Law. This Agreement shall be governed by, and
interpreted pursuant to the laws of, the Commonwealth of Massachusetts.
34. Modification. This Agreement may be amended, changed or
otherwise modified only by written document which specifically refers to this
paragraph and which is executed by both RCN and WorldCom, except as may be
otherwise provided by the specific terms of this Agreement.
35. Entire Agreement. This Agreement sets forth the entire
agreement of the Parties with respect to the subject matter hereof and this
Agreement supersedes and cancels all other agreements (whether written or
oral) between the Parties (including their respective predecessors in interest)
with respect to the subject matter hereof. Without limiting the foregoing, the
interim WorldCom (then MFS)/RCN April 1996 Telecommunications Services
Agreement is hereby specifically canceled and terminated. (References in this
Agreement to Exhibits shall be deemed to be references to the exhibits
attached hereto and hereby incorporated herein.)
36. Invalid Provisions. To the extent that any terms or
provisions of this Agreement shall be finally determined by a court of
competent jurisdiction to be invalid, such invalidity shall not affect,
release or modify any other terms or provisions hereof.
37. Specific Performance. The Parties agree that irreparable
damage will result if this Agreement is not performed in accordance with its
terms and that the provisions hereof and the obligations of the Parties
hereunder shall be specifically enforceable in a court of equity or other
tribunal with jurisdiction by a degree of specific performance and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies and all other remedies provided for in this Agreement shall however be
cumulative and not exclusive and shall be in addition to any other remedies
that the Parties may have under this Agreement, at law or in equity.
38. Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Party shall execute and deliver such
additional documents and instruments and perform such additional acts as may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and the transactions contemplated hereby and to otherwise further
and implement the intent and purposes of this Agreement.
39. Reference Date. This Agreement shall be dated, for reference
purposes, _________, 1997.
METROPOLITAN FIBER
SYSTEMS/McCOURT, INC.
By:
-----------------------------
Title:
RCN TELECOM SERVICES
OF MASSACHUSETTS, INC.
By:
-----------------------------
Title:
<PAGE>
/TEXT>
EXHIBIT 10.3
DARK FIBER IRU AGREEMENT
------------------------
METROPOLITAN FIBER SYSTEMS OF NEW YORK, INC., a Delaware
corporation (herein called "WorldCom"), and RCN TELECOM SERVICES OF NEW YORK,
INC., a New York corporation (herein called "RCN"), hereby agree as follows:
1. Parties. The "Parties" are WorldCom and RCN, each being a
"Party." "WorldCom" shall be deemed to include WorldCom and its relevant
affiliates as their respective interests may appear. Similarly, "RCN" shall be
deemed to include RCN and its relevant affiliates as their respective interests
may appear. The term "affiliate" shall have the same meaning as is ascribed
to that term in the Securities Exchange Act of 1934.
2. RCN Business. RCN is engaged in the business of providing
telecommunications services and video programming services to its customers
in the Service Area (as hereinafter defined).
3. Service Area. The "Service Area" is the Borough of Manhattan,
New York, New York in which WorldCom has been authorized to construct and
install fiber optic network facilities within the public right-of-way.
4. WorldCom Facilities. WorldCom owns or otherwise has the right
to use, or WorldCom will own or otherwise have the right to use, certain fiber
optic network facilities in the Service Area; such facilities are herein
called the "WorldCom Facilities." The WorldCom Facilities shall consist of
the Existing WorldCom Facilities, the New WorldCom Facilities and the
Anticipated WorldCom Facilities, as configured from time to time, to-wit:
(a) the "Existing WorldCom Facilities" are the certain
facilities and integrated network equipment which were
constructed prior to June 30, 1995 and which are delineated
in Exhibit 4a; and
(b) the "New WorldCom Facilities" are the certain facilities
and integrated network equipment which were constructed
after June 30, 1995 and prior to March 31, 1997 and which
are delineated in Exhibit 4b; and
(c) the "Anticipated WorldCom Facilities" are such certain
facilities and integrated network equipment as WorldCom has
constructed or obtained after March 31, 1997, or as
WorldCom constructs or obtains within twelve months after
the date hereof, pursuant to the mutual agreement of RCN
and WorldCom (if they agree).
To the extent constructed, the WorldCom Facilities shall extend to and
include the pull box, junction or hand hold within the public right of way.
5. Dedicated Fibers. The "Dedicated Fibers" shall consist of
certain designated fibers within the WorldCom Facilities and which shall
consist of the Existing Dedicated Fibers, the New Dedicated Fibers and the
Anticipated Dedicated Fibers, as configured from time to time, to wit:
(a) the "Existing Dedicated Fibers" are certain fibers among
the Existing WorldCom Facilities and which are delineated
in Exhibit 5a; and
(b) the "New Dedicated Fibers" are certain fibers among the New
WorldCom Facilities and which are delineated in Exhibit 5b;
and
(c) the "Anticipated Dedicated Fibers" are such fibers among
the Anticipated WorldCom Facilities as WorldCom and RCN may
agree upon and designate in writing.
6. WorldCom Laterals. WorldCom has at the request of RCN
constructed, and from time to time during the Term (as hereafter defined), RCN
may request that WorldCom construct, in public and/or private rights-of-way in
the Service Area certain extensions or laterals connecting the Dedicated
Fibers to RCN-designated buildings. WorldCom hereby agrees to construct such
laterals or extensions at RCN's expense (as hereinafter provided) and risk and
in accordance with WorldCom's Building Add Policy then in effect, subject and
only to the extent that:
(a) such laterals or extensions and the use thereof will not
cause network degradation or otherwise adversely affect the
WorldCom Facilities or any of WorldCom's other fiber optic
network facilities or give rise to regulatory issues which
are not acceptable to WorldCom, and
(b) WorldCom has secured such rights of way as are deemed
necessary by WorldCom, and
(c) RCN has secured such building access agreements and
other rights and authorities as are deemed necessary by
WorldCom;
such laterals or extensions if and when so constructed are herein called
"WorldCom Laterals." The WorldCom Laterals shall not include (and shall
extend only from) the pull box, junction or hand hold in the public right
of way. The WorldCom Laterals shall not include the RCN Laterals (as
hereafter defined). One innerduct in the entire length of all future
WorldCom Laterals and one innerduct in all existing WorldCom Laterals (to
the extent such WorldCom Lateral contains two or more innerducts) to the
point of building penetration of the RCN-designated building shall be
reserved for WorldCom's exclusive use without cost or expense to WorldCom
and without any reimbursement or credit to RCN; provided, upon any actual
use of such reserved innerduct by WorldCom, WorldCom shall be responsible
for its pro rata share of the costs of maintenance, repair and relocation.
7. Capital Cost. The "Capital Cost" of WorldCom Facilities or
WorldCom Laterals, as relevant, is hereby defined as being (in each case) the
aggregate of:
(a) WorldCom's actual original direct, pro-rated (fairly in
relation to other relevant facilities installed or
constructed at the same time in the same place) cost of
installation, construction and acquisition thereof, plus
(b) a 9% overhead charge for all other direct and indirect
costs related thereto, including WorldCom's general and
administrative costs.
79. Reimbursement of Capital Cost. RCN has heretofore agreed to
pay and reimburse (or has paid and reimbursed) to WorldCom:
(a) the lesser of:
(i) the Capital Cost of the Existing WorldCom
Facilities plus 10% per annum from the date of
completion thereof by WorldCom to the date of such
payment, or
(ii) the total present day construction cost of the
Existing WorldCom Facilities (including a 9% overhead
charge) as reasonably estimated by WorldCom; and
(b) the Capital Cost of the New WorldCom Facilities.
The total payment obligation of RCN for the Existing WorldCom Facilities
and the New WorldCom Facilities pursuant to the foregoing is $5,354,117.00;
RCN has previously paid WorldCom $3,486,891.00 of such obligation; and RCN
shall pay the remaining balance of such obligation ($1,867,226.00)
simultaneous with the execution of this Agreement. WorldCom and RCN agree
that if any inaccuracies in the foregoing amounts are hereafter discovered,
RCN shall pay, or WorldCom shall return, as applicable, such sums as may be
necessary to correct such inaccuracies. RCN further agrees to pay WorldCom
the Capital Cost of the Anticipated WorldCom Facilities upon invoice, it
being acknowledged that WorldCom will invoice progress payments respecting
the Anticipated WorldCom Facilities consistent with the progress of
construction. RCN also hereby agrees to pay to WorldCom the Capital Cost
of the WorldCom Laterals upon invoice, it being acknowledged that WorldCom
will invoice progress payments respecting WorldCom Laterals consistent with
the progress of construction. Except with respect to the use of Excess
Fibers (as hereafter defined), WorldCom shall not be obligated to return to
RCN any Capital Cost paid by RCN to WorldCom hereunder, even in the event
of the early termination of the Term.
9. Excess Fibers. Those fibers within the Dedicated Fibers which
as of any relevant date are not then being used by RCN and which are not
estimated by RCN to be used in the reasonably foreseeable future are herein
called the "Excess Fibers." Subject to the mutual agreement of WorldCom and
RCN (if they agree), WorldCom may use some or all of the Excess Fibers by
repaying RCN (or if RCN shall have not yet paid WorldCom with respect thereto,
WorldCom crediting RCN with) a pro rata portion of the Capital Cost thereof
based upon the ratio that the number of Excess Fibers so used by WorldCom bear
to the total number of Dedicated Fibers.
10. RCN Laterals. "RCN Laterals" are:
(a) laterals i. which connect two or more buildings, ii.
which are located wholly within private rights of way, and
iii. which do not connect directly to the Dedicated Fibers,
and
(b) laterals constructed by RCN within public rights of way
pursuant to RCN's own regulatory authorities.
From time to time during the Term, RCN may elect to construct RCN Laterals
at RCN's sole expense and effort; however, RCN shall construct such RCN
Laterals only if such RCN Laterals or the use thereof will not cause any
network degradation or otherwise adversely affect the WorldCom Facilities
or any of WorldCom's other fiber optic network facilities or give rise to
any regulatory issues which are not acceptable to WorldCom. No charges or
other payments shall be due WorldCom with respect to the RCN Laterals, RCN
shall be the sole owner of the RCN Laterals, and WorldCom shall have no
interest therein.
11. Term. The "Term" is hereby defined as being the period which
commences on the date of this Agreement and which ends on January 1, 2007
unless earlier terminated pursuant to the terms of this Agreement.
12. Indefeasible Right of Use. Subject to the terms and
conditions of this Agreement, and in consideration of the payment and
performance of all of RCN's obligations hereunder, WorldCom hereby grants to
RCN the exclusive, indefeasible and noncancellable right of use of the
Dedicated Fibers and the WorldCom Laterals during the Term solely for the
purposes of delivery of:
(a) video programming services to end-user retail customers, and
(b) telephony and data services to residential end-user retail
customers.
RCN shall in no event use the Dedicated Fibers or the WorldCom Laterals to
provide telephone or data services to commercial, industrial, institutional
(e.g. hotel, hospital, university) or other non-residential users;
provided, RCN may provide telephone and data services to students residing
in university dormitories or similar housing units provided by universities
with which RCN has as of the date hereof, or shall within ninety (90) days
after the date hereof, entered into binding contracts for the provision of
such telephone and data services by RCN. Not less than ninety-five (95)
days after the date hereof, RCN shall provide written notice to WorldCom
delineating, together with signed copies of, all such contracts. RCN shall
not use (or knowingly permit the use of) the Dedicated Fibers or WorldCom
Laterals for any unlawful purpose.
13. Early Termination. Notwithstanding any other provision of this
Agreement, by written notice to RCN, WorldCom may terminate the Term, the
grant of the indefeasible right of use of the Dedicated Fibers and the
WorldCom Laterals hereunder, and/or this Agreement, in whole or in part, and
without incurring any liability or paying any money to RCN or to anyone if:
(a) WorldCom, by final order of a court, commission or other
governmental or regulatory authority of competent
jurisdiction, is prohibited from granting to RCN the
indefeasible right of use of the Dedicated Fibers or the
WorldCom Laterals hereunder or otherwise performing its
obligations hereunder, or WorldCom is otherwise notified in
writing by the City of New York that the execution and/or
performance of this Agreement by WorldCom has been deemed
an event which, with the giving of notice and/or lapse of
time, constitutes an Event of Default under (and as defined
in) the WorldCom Franchise Agreement (as hereinafter
defined), or
(b) RCN, by final order of a court, commission or other
governmental or regulatory authority of competent
jurisdiction, is prohibited from using the Dedicated Fibers
or the WorldCom Laterals hereunder, or
(c) RCN is in default of this Agreement after the expiration
of any applicable cure period, or
(d) WorldCom has a right to so terminate pursuant to the
specific provisions of other paragraphs of this Agreement,
or
(e) a change in control of RCN (that is, a direct or indirect
change in the ownership of at least 50% of the voting
securities or equity interests in RCN) occurs, directly or
indirectly, in a single transaction or in a series of
transactions, or if substantially all of the assets of RCN
are transferred to anyone not currently an affiliate of
RCN; provided, WorldCom agrees that current planned
corporate restructuring of C-TEC Corporation, the parent
company of RCN, whereby C-TEC Corporation will be separated
into three separate public companies (with separate lines
of business consisting of the telephone and engineering
business, the integrated services and NY/NJ/PA cable
business and the Michigan cable business) (herein called
the "RCN Reorganization") shall not constitute a change in
control of RCN.
With respect to subparagraph (a) above, WorldCom agrees to provide notice to
RCN of any claims made, or the institution of any action or proceeding, to
prohibit the grant by WorldCom of the indefeasible right of use of the
Dedicated Fibers or WorldCom Laterals and of WorldCom's receipt of written
notice from the City of New York that the execution and/or performance of
this Agreement by WorldCom constitutes an event which, with the giving of
notice and/or lapse of time, constitutes an Event of Default under the
WorldCom Franchise Agreement and to reasonably cooperate with RCN (at RCN's
cost and expense) in contesting such claim, action, proceeding or notice of
default. In the event of any early termination of the Term, the grant of
the indefeasible right of use and/or this Agreement pursuant to this
paragraph, to the extent allowed by law and to the extent it will not
result in a termination of the WorldCom Franchise Agreement, RCN's right of
use hereunder shall cease 360 days after such termination in order to allow
RCN the opportunity to make alternate arrangements for the delivery of
video programming services and telephone services to its customers and
WorldCom agrees to reasonably cooperate with RCN in connection therewith.
14. Limitations. RCN's use of the Dedicated Fibers and the
WorldCom Laterals shall be limited as follows:
(a) RCN and WorldCom have contemporaneously herewith
executed a Telephone Services Reseller Agreement, which
agreement, together with any replacement or succeeding
agreement, is hereinafter called the "Telephone Agreement;"
in its use of the Dedicated Fibers, RCN shall not deliver
or permit the delivery of Telephone Service (as that term
is defined in the Telephone Agreement) over the Dedicated
Fibers to anyone other than to RCN's residential customers
in the Service Area;
(b) RCN shall not use the Dedicated Fibers or WorldCom
Laterals at any time or when:
(i) RCN shall be a Defaulting Party (as hereafter
defined) hereunder, or
(ii) any court, commission or other governmental or
regulatory authority of competent jurisdiction has
entered a final order as described in paragraph 13
above prohibiting WorldCom from granting an
indefeasible right of use in, or prohibiting RCN from
using, the Dedicated Fibers or the WorldCom Laterals
as provided for hereunder or otherwise prohibiting
WorldCom from performing its obligations hereunder, in
either of which events WorldCom shall be relieved from
WorldCom's obligations under this Agreement as and to
extent affected thereby, and RCN shall be relieved of
the obligation to pay the WorldCom Maintenance Costs
(as hereafter defined) and the Recurring Charges (as
hereafter defined) as and to the extent affected
thereby.
15. WorldCom Representations. WorldCom hereby states, represents
and covenants to RCN as follows:
(a) WorldCom is a duly organized and validly existing
corporation under the laws of the State of Delaware, and
WorldCom has full right and authority to execute this
Agreement and to perform all of WorldCom's obligations
hereunder.
(b) Any lien, mortgage, security interest or other
encumbrance granted by WorldCom on or with respect to the
Dedicated Fibers shall be subordinate to the indefeasible
right of use granted to RCN hereunder.
(c) WorldCom has been granted and now holds such easements,
rights of way, franchises, licenses, permits or other
rights as are necessary for the construction, installation
and maintenance of the Existing Dedicated Fibers and the
New Dedicated Fibers, and upon request of RCN, WorldCom
will deliver copies of any instruments which evidence the
same.
(d) There are no litigation proceedings or governmental
investigations to which WorldCom is a party which could
have a material adverse affect on WorldCom's ability to
perform its obligations under this Agreement.
16. RCN Representations. RCN hereby states, represents and
covenants to WorldCom as follows:
(a) RCN is a duly organized and validly existing corporation
under the laws of the State of New York, and RCN has full
right and authority to execute this Agreement and to
perform all of RCN's obligations hereunder.
(b) RCN has obtained, or will promptly obtain at its own
expense, any and all licenses, approvals and/or regulatory
authorities that may be required by law or as otherwise may
be necessary in connection with the use of the Dedicated
Fibers by RCN.
(c) There are no litigation proceedings or governmental
investigations to which RCN is a party which could have a
material adverse affect on RCN's ability to perform its
obligations under this Agreement.
17. WorldCom Undertakings. WorldCom hereby covenants and agrees
as follows:
(a) WorldCom shall maintain such easements, rights of way,
franchises, licenses, permits or other rights as are
necessary for the construction, installation and
maintenance of the Existing Dedicated Fibers and the New
Dedicated Fibers.
(b) Subject to the other relevant provisions of this
Agreement, WorldCom shall use its reasonable efforts in
good faith:
(i) to obtain and maintain such easements, rights of
way, franchises, licenses, permits or other rights as
are necessary for the construction, installation and
maintenance of the Anticipated WorldCom Facilities,
(ii) to construct the Anticipated WorldCom Facilities in
accordance with such standards and specifications
which WorldCom and RCN may agree upon in writing, and
(iii) to construct any WorldCom Laterals in accordance
with WorldCom's then current Building Add Policy and
subject to the provisions of paragraph 6 hereof.
(c) WorldCom shall reasonably cooperate with RCN (but
without cost to WorldCom) in the securing of any tariffs,
approvals or authorizations which may be required by RCN to
use the Dedicated Fibers for the purposes permitted by this
Agreement.
(d) WorldCom shall maintain the overall quality and condition
of repair of the Dedicated Fibers, the WorldCom Laterals
(prior to any transfer to RCN pursuant to paragraph 20
below) and any other related fiber or facilities provided
by WorldCom all to prevailing technical performance
specifications; and to that end, from time to time WorldCom
shall undertake to effect such repairs, replacements and
relocations thereof as WorldCom determines to be
reasonable, necessary and appropriate, all in accordance
with prevailing industry standards and equipment
maintenance specifications; WorldCom's actual costs
expended in the performance of its obligation under this
subparagraph (including a 9% overhead factor) are herein
called "WorldCom's Maintenance Costs"; WorldCom will
provide RCN reasonable supporting data with respect to the
WorldCom Maintenance Costs.
(e) WorldCom shall perform splicing of and interconnections
to the Dedicated Fibers at RCN's request pursuant to
WorldCom's Building Add Policy then in effect.
18. RCN Undertakings. RCN hereby covenants and agrees as follows:
(a) RCN shall use the Dedicated Fibers and WorldCom Laterals
only as may be specifically permitted by the terms of this
Agreement; without limiting the generality of the
foregoing, RCN hereby covenants and agrees not to use, or
to permit the use of, the Dedicated Fibers or the WorldCom
Laterals for the delivery of Telephone Service (as above
referenced) directly or indirectly (through another) to any
commercial, educational, institutional or governmental end-
users.
(b) RCN shall promptly pay to WorldCom on invoice (likely
monthly):
(i) the "Recurring Charges" as defined and delineated
in Exhibit 18 attached hereto,
(ii) WorldCom's Maintenance Costs,
(iii) any additional fees or charges payable by WorldCom
under the WorldCom Franchise Agreement as a result of
the grant to RCN of the indefeasible right of use of
the Dedicated Fibers and the WorldCom Laterals
(provided, WorldCom agrees to use all reasonable good
faith efforts, in consultation and mutual cooperation
with RCN, at RCN's cost and expense, to attempt to
contest, reduce or eliminate any such fees or
charges), and
(iv) such other incremental costs incurred by WorldCom
(including 9% overhead) for labor or materials to
reasonably support RCN's use of the Dedicated Fibers
and integrated network equipment, which costs are not
otherwise reimbursed by RCN to WorldCom, and which
costs are invoiced to RCN with reasonable supporting
data, including but not limited to, splicing,
interconnection and locate costs.
(c) RCN shall pay all income taxes and all other taxes, fees,
levies, assessments and charges based upon or resulting
from the use of the Dedicated Fibers by RCN.
(d) RCN shall provide to WorldCom such network usage
(traffic measurement) reports as, in such form, and as
frequently as WorldCom may reasonably request from time-to-
time.
(e) RCN shall reasonably cooperate with WorldCom (but
without cost to RCN) in the securing of any tariffs,
approvals or authorizations which may be required for
WorldCom to construct, install and maintain the WorldCom
Facilities.
(f) RCN shall be solely responsible for all costs and
expenses associated within the RCN Laterals, any laterals
connecting two or more buildings which are not in the
public right of way and which do not connect to the
Dedicated Fibers, and any and all inside plant (including
buildup POP or co-location areas, equipment and inside
wiring); including without limitation, construction costs,
repair, maintenance and replacement costs, utilities, rents
and other lease changes, and building access costs.
(g) RCN shall be solely responsible for all costs and
expenses associated with any equipment necessary for RCN to
use the Dedicated Fibers for the purposes permitted by this
Agreement, including acquisition, repair, maintenance and
replacement costs associated with such equipment.
(h) RCN shall not effect any interconnection to or splicing
of the Dedicated Fibers and all such interconnections and
splicing shall be undertaken only by WorldCom.
19. Regulatory Risk. RCN shall bear the entire economic and legal
risk attendant to or resulting from the extent to which RCN does not obtain or
maintain during the Term any regulatory authorization, approval, franchise or
permit necessary for RCN to use the Dedicated Fibers and WorldCom Laterals for
the purposes permitted by this Agreement. RCN acknowledges that it intends to
obtain a license from the City of New York, New York respecting RCN's
provision of video programming services and telephony and data services
(herein collectively called the "RCN License"). RCN acknowledges receipt of a
copy of WorldCom's franchise agreement with the City of New York, New York
(herein called the "WorldCom Franchise Agreement"). If any approvals or
consents are necessary or appropriate under the WorldCom Franchise Agreement
in order to permit RCN's use of the Dedicated Fibers and/or WorldCom Laterals
hereunder, RCN shall be responsible for obtaining the same, whether in
conjunction with the RCN License or otherwise; provided, WorldCom shall
cooperate and consult with RCN, and use its reasonable good faith efforts to
assist RCN, in the acquisition of any such approvals or consents by RCN.
20. Ownership. WorldCom shall at all times own all equitable and
legal title to the WorldCom Facilities and WorldCom Laterals; provided, if at
any time prior to January 1, 2017, or the tenth anniversary of the end of the
Term, whichever occurs first, RCN shall obtain all necessary regulatory
authorities to access public rights of way, WorldCom shall transfer all of its
rights, titles and interests to the WorldCom Laterals (excluding the one
innerduct reserved for WorldCom) to RCN and thereafter RCN shall be
responsible for all maintenance and repair of the WorldCom Laterals. After
the expiration of the Term, WorldCom may, at its discretion, lease network
capacity to RCN over the Dedicated Fibers, where such capacity is available
and upon such terms as WorldCom and RCN may agree (if they agree).
21. Default. A Party (as "Terminating Party") may terminate this
Agreement (and thus the Term and RCN's right to use the Dedicated Fibers and
WorldCom Laterals) upon the failure of the other Party (as "Defaulting Party")
to cure any of the following within 30 days following delivery of written
notice from the Terminating Party to the Defaulting Party:
(a) the failure of the Defaulting Party to pay any monetary
obligation due in accordance with the provisions of this
Agreement; or
(b) the insolvency, arrangement with creditors, receivership
or dissolution of the Defaulting Party; or
(c) the institution of bankruptcy proceedings by or against
the Defaulting Party; or
(d) the assignment or attempted assignment of this Agreement
or any interest herein by the Defaulting Party, except as
permitted by paragraph 30 hereof;
(e) the breach of any provision of this Agreement by the
Defaulting Party not otherwise referred to in the following
sentence.
In the event any payment due hereunder shall be disputed by RCN, such
payment shall nevertheless be made when due and in the event such dispute
is thereafter resolved in favor of RCN, the amount of any overpayment shall
be credited against future payments due from RCN to WorldCom. Upon
termination of this Agreement under this paragraph, a Party may recover
from the other Party all monetary obligations owed by the other Party under
this Agreement at the time of termination.
22. Service Problems. RCN hereby agrees to promptly notify
WorldCom of any failure, cessation, interruption, delay or other problem which
RCN may become aware of relating to the Dedicated Fibers or the WorldCom
Laterals (herein called "Service Problems"). Such notification shall be made
in such form, to such locations and at such telephone numbers as WorldCom may
designate in writing from time to time, except that no such notification shall
occur until and unless RCN shall have reasonably determined that such problems
are not caused by the action or omission of, or by any cause within the
control of, RCN or its customers. Notwithstanding any other provision of this
Agreement, in the event of the occurrence of Service Problems on account of
WorldCom's negligence, WorldCom shall forthwith as soon as practicable (after
notification thereof) undertake all reasonable good faith efforts to cure such
Service Problems in a timely manner, in accordance with industry standards,
and in conformity with its own policies and procedures. The obligation
provided for in the preceding sentence shall be WorldCom's sole and exclusive
obligation respecting or arising out of any Service Problem.
23. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES ON
ACCOUNT OF LOSS OF REVENUE, PROFITS, CUSTOMERS, CLIENTS OR GOODWILL ARISING IN
ANY MANNER FROM OR UNDER THIS AGREEMENT OR THE NEGLIGENT OR NON-NEGLIGENT
PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
24. Force Majeure. Without limiting the generality of any other
provisions of this Agreement, WorldCom shall not be liable for any failure in
performance of any of its obligations under this Agreement when such failure
results from acts or events beyond WorldCom's reasonable control, including,
but not limited to, acts of or failures to act by RCN, other contractors or
suppliers to RCN or customers, acts of vandalism, acts of God, acts of any
civil or military authority, government regulations, war, terrorist acts,
riots, insurrections, explosions, fires, earthquakes, nuclear accidents,
floods or seismic action, other environmental disturbances, abnormal weather
conditions, power blackouts caused by acts of God, embargoes, strikes or other
labor-related disputes, or delays by WorldCom's subcontractors or suppliers.
25. End of Term. If the Term shall not have been terminated early
pursuant to paragraph ? above, or as a result of RCN having been a Defaulting
Party, then if and to the extent that RCN shall have obtained such regulatory
and other governmental authorities as shall be required in connection
therewith, at such termination of the Term, WorldCom shall, at WorldCom's sole
option, either:
(a) sell to RCN WorldCom's right, title and interest in and
to such of the Dedicated Fibers as WorldCom determines, in
its sole discretion, are then, and likely will in the
future be, excess facilities which WorldCom expects not to
utilize in the conduct of any of the business operations of
WorldCom or any of its affiliates or customers, all for
such sale price and on such other terms and conditions as
and if the Parties may agree upon in writing (if they
agree), or
(b) permit RCN to extend this Agreement for a period of five
years (with RCN having an option to extend for an
additional period of five years exercisable six months
prior to expiration) on such terms and conditions,
including the payment of consideration to WorldCom at then
market prices, as WorldCom and RCN may agree upon in
writing (if they agree).
In the event WorldCom and RCN shall fail to so agree as
provided above, the Term, the grant of the indefeasible right of use to RCN
hereunder and this Agreement shall terminate.
26. Interest. Notwithstanding the right of either Party to cure a
default under this Agreement, in the event that a Party fails to pay any
monetary obligation under this Agreement, when due, interest shall accrue on
such obligation at a variable interest rate equal to 150% of the "Prime Rate"
(or the highest "Prime Rate", if more than one) as published in the Money
Rates Section of The Wall Street Journal (or, if no longer published, any
comparable substitute index selected by the party owed such payment) or, if
less, the maximum rate allowed by law.
27. Names and Marks. Neither Party shall be deemed to have
hereunder or otherwise acquired any right to use the name, service marks,
trademarks, patents or other intangible property of the other Party. Neither
Party shall take any action which would compromise the name, service marks,
copyrights, trademarks, patents or other intangible property of the other
Party.
28. No Offset. In no event shall a Party have any right of offset
or recoupment against its performance or its monetary obligations under this
Agreement on account of claims against the other Party.
29. Audit Rights. Upon reasonable prior notice each Party shall
have the right to audit the other Party's relevant operations and facilities
(as they relate solely to this Agreement) to monitor such other Party's
compliance with the terms and provisions of this Agreement.
30. Assignment. Neither Party may directly or indirectly (by
change of control, merger or otherwise), by operation of law or otherwise,
assign all or any portion of its rights under this Agreement without the other
Party's prior written consent, which consent may be given or withheld in the
sole discretion of such other party; provided:
(a) WorldCom may assign its rights under this Agreement
either to a successor in interest of WorldCom or to an
affiliate of WorldCom without such consent; upon such
assignment, WorldCom hereby agrees to cause such assignee
to contemporaneously therewith agree in writing to perform
all of WorldCom's obligations under this Agreement,
whereupon WorldCom shall be released from liability
hereunder;
(b) RCN may assign its rights under this Agreement to an
affiliate of RCN without such consent; upon such
assignment, RCN hereby agrees to cause such assignee to
contemporaneously therewith agree in writing to perform all
of RCN's obligations under this Agreement, whereupon RCN
shall be released from liability hereunder;
(c) WorldCom may contract with, or delegate to, anyone,
including an affiliate, performance of its obligations
hereunder, so long as WorldCom shall remain liable
therefor, and such contractor or delegatee is reasonably
qualified to effect such performance;
(d) WorldCom acknowledges that the RCN Reorganization shall
not constitute a prohibited assignment or change in control
of RCN.
Subject to the foregoing, this Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto and their permitted successors
and assigns.
31. Notice. All notices required or permitted under the terms of
this Agreement shall be in writing and shall be delivered either personally or
by prepaid nationally-recognized commercial overnight delivery service which
maintains evidence of receipt (such as Federal Express), addressed as follows:
If to WorldCom: Jodi Caro, Esq.
WorldCom, Inc.
One Tower Lane, Suite 1600
Oakbrook Terrace, Illinois 60181
with a copy to: MFS Communications Company, Inc.
Attention: Shared Services
11808 Miracle Hills Drive
Omaha, Nebraska 68154
If to RCN: RCN Telecom Servcies of New York, Inc.
Attention: President
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Raymond B. Ostroski, Esq.
General Counsel
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Nicolas A. Kensington, Esq.
Eric J. Krathwohl, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
or at such other address as the entity to which notice is to be
given may have communicated to the other Party in writing in accordance
herewith. Any such notice shall be deemed to have been "delivered" when
physically delivered if delivered personally or on the second business day
after dispatch if delivered by commercial overnight delivery service (such as
Federal Express). To the extent that a notice may be delivered under, or is
required to be delivered under, any paragraph of this Agreement, such notice
shall refer specifically to such paragraph.
32. Publicity. Except as may be otherwise required by law or in
connection with any relevant regulatory proceeding, each Party shall obtain the
written consent of the other Party prior to releasing any public announcements,
press releases, sales brochures, advertising or other publicity materials which
may relate specifically to this Agreement, and prior to disclosing any of the
terms of this Agreement; however, any such consent shall not be unreasonably
withheld or unduly delayed.
33. Governing Law. This Agreement shall be governed by, and
interpreted pursuant to the laws of, the State of New York.
34. Modification. This Agreement may be amended, changed or
otherwise modified only by written document which specifically refers to this
paragraph and which is executed by both RCN and WorldCom, except as may be
otherwise provided by the specific terms of this Agreement.
35. Entire Agreement. This Agreement sets forth the entire
agreement of the Parties with respect to the subject matter hereof and this
Agreement supersedes and cancels all other agreements (whether written or
oral) between the Parties (including their respective predecessors in interest)
with respect to the subject matter hereof. Without limiting the foregoing, the
interim WorldCom (then MFS)/RCN April 1996 Telecommunications Services
Agreement is hereby specifically canceled and terminated. (References in this
Agreement to Exhibits shall be deemed to be references to the exhibits
attached hereto and hereby incorporated herein.)
36. Invalid Provisions. To the extent that any terms or
provisions of this Agreement shall be finally determined by a court of
competent jurisdiction to be invalid, such invalidity shall not affect,
release or modify any other terms or provisions hereof.
37. Specific Performance. The Parties agree that irreparable
damage will result if this Agreement is not performed in accordance with its
terms and that the provisions hereof and the obligations of the Parties
hereunder shall be specifically enforceable in a court of equity or other
tribunal with jurisdiction by a degree of specific performance and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies and all other remedies provided for in this Agreement shall however be
cumulative and not exclusive and shall be in addition to any other remedies
that the Parties may have under this Agreement, at law or in equity.
38. Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Party shall execute and deliver such
additional documents and instruments and perform such additional acts as may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and the transactions contemplated hereby and to otherwise further
and implement the intent and purposes of this Agreement.
39. Reference Date. This Agreement shall be dated, for reference
purposes, _________, 1997.
METROPOLITAN FIBER SYSTEMS OF NEW YORK,
INC.
By:
-----------------------------------
Title:
RCN TELECOM SERVICES OF
NEW YORK, INC.
By:
-----------------------------------
Title:
<PAGE>
/TEXT>
EXHIBIT 10.4
TELEPHONE SERVICE TO RESELLER AGREEMENT
---------------------------------------
FOR BOSTON
----------
METROPOLITAN FIBER SYSTEMS/McCOURT, INC., a Delaware
corporation (herein called "WorldCom"), and RCN TELECOM SERVICES OF
MASSACHUSETTS, INC., a Massachusetts corporation (herein called "Reseller"),
hereby agree as follows:
1. Parties. Each of WorldCom and Reseller are herein sometimes
called a "Party." The term "affiliate" shall have the same meaning as is
ascribed to that term in the Securities Exchange Act of 1934.
2. Service Area. The "Service Area" is herein defined as the
metropolitan area of Boston, Massachusetts.
3. Reseller's Business. Reseller is engaged in the business
(herein called the "Reseller's Business") of providing local and long distance
telephone service to Reseller's customers (herein called "Subscribers") in the
Service Area.
4. Telephone Service. "Telephone Service" is hereby defined as
the providing by WorldCom of:
(a) local switched voice and data services via DS-1 which
services include WorldCom dialtone with basic line features
and operator services, and
(b) such other telecommunications services as WorldCom and
Reseller may agree upon from time to time.
5. Provision of Telephone Service. In consideration of Reseller's
paying to WorldCom the WorldCom Wholesale Price (as hereafter defined)
thereof, and for other consideration received, WorldCom hereby agrees to
provide Telephone Service to Reseller during the Term (as hereafter defined)
pursuant to the terms and conditions of this Agreement. In addition, subject to
BellCore approval and other relevant industry Number Plan Administration
guidelines and technical capabilities, upon the request of Reseller made within
one year from the date of execution hereof, WorldCom will cooperate with
Reseller in the transfer to Reseller of the following two NXX Codes in
Massachusetts: 617-948 and 617-879. In addition, subject to availability and
the agreement of the Parties as to the consideration therefor, Reseller will be
allowed to lease DS-1 facilities from WorldCom or resold LEC facilities.
6. Term. The "Term" is hereby defined as being the period which
commences on the date of this Agreement and which ends on January 1, 2000,
unless earlier terminated pursuant to the terms of this Agreement.
7. Early Termination. Notwithstanding any other provision hereof,
either Party may, by written notice to the other Party, terminate the Term,
the providing of Telephone Service and/or this Agreement, in whole or in part,
without incurring any liability to anyone if:
(a) by final order of a court or other governmental
authority of competent jurisdiction, either WorldCom is
prohibited from providing Telephone Service hereunder or
Reseller is prohibited from reselling Telephone Service to
its Subscribers; or
(b) a change in control (that is a change in the ownership of at
least 50% of the voting or equity interests of Reseller)
occurs, directly or indirectly, in a single transaction or
in a series of transactions, or if substantially all of the
assets of Reseller are transferred to anyone not currently
an affiliate of Reseller; provided, WorldCom agrees that
the current planned corporate restructuring of C-TEC
Corporation, the parent company of Reseller, whereby C-TEC
Corporation will be separated into three separate public
companies (with separate lines of business consisting of
the telephone and engineering business, the integrated
services and NY/NJ/PA cable business and the Michigan cable
business) (herein called the "RCN Reorganization") shall
not constitute a change in control of Reseller; or
(c) the Dark Fiber IRU Agreement entered into between the
Parties contemporaneously herewith terminates according to
its terms; or
(d) the aggregate number of subscribers for dialtone lines in
the Service Area and in Manhattan, New York, New York
(which is the subject of a Telephone Service to Reseller
Agreement between the Parties) shall fall below 250; or
(e) WorldCom and Reseller effect the transfer of the two NXX
Codes described in paragraph 5 above; or
(f) Reseller determines that the taxes or franchise fees, if
any, reimbursable by Reseller to WorldCom hereunder
exceeded Reseller's original estimation thereof; provided,
nothing contained herein shall relieve Reseller for all
such reimbursements due or accrued hereunder through the
date of such termination.
WorldCom agrees to provide notice to Reseller of any claim made, or the
institution of any action or proceeding, to prohibit WorldCom from
providing Telephone Service hereunder and to reasonably cooperate with
Reseller (at Reseller's cost and expense) in contesting such claim, action
or proceeding.
8. Tariffs. To the extent that Telephone Service may be provided
by WorldCom pursuant to any existing applicable WorldCom-filed federal or
state tariffs, all of the terms of this Agreement shall be subordinate and
subject thereto, and to the extent that a conflict exists between such
tariffs and this Agreement, such tariffs shall control.
9. WorldCom Wholesale Price. In consideration of WorldCom's
provision of Telephone Service hereunder, Reseller hereby agrees to pay to
WorldCom, monthly, and within 30 days after invoice, the WorldCom Wholesale
Price therefor as determined and invoiced by WorldCom. The "WorldCom
Wholesale Price" is WorldCom's wholesale price for Telephone Service as
determined from time-to-time by WorldCom in its discretion, taking into
consideration prevailing market conditions, available WorldCom facilities,
other considerations paid to WorldCom and other factors fairly deemed relevant
by WorldCom. The current WorldCom Wholesale Price is set forth on Exhibit 9.
WorldCom shall advise Reseller in writing periodically the current WorldCom
Wholesale Price for Telephone Service and any changes thereto.
10. Limitations. WorldCom's obligation to provide Telephone
Service to Reseller hereunder is subject to:
(a) the availability and capacity of relevant WorldCom
facilities; and to
(b) the absence of any final order or direction from any
regulatory authority in relation to this Agreement or the
provision of Telephone Service hereunder:
(i) to the effect that WorldCom cannot so provide or
continue to provide Telephone Service to Reseller
hereunder, or
(ii) which adversely and materially affects any material
interests of WorldCom or its affiliates whether or not
related to this Agreement;
accordingly, WorldCom shall be relieved from WorldCom's obligation to provide
such Telephone Service as and to the extent affected thereby. WorldCom agrees
to provide notice to Reseller of any claim made, or the institution of any
action or proceeding, to prevent the provision of Telephone Services to
Reseller hereunder and to reasonably cooperate with Reseller (at Reseller's
cost and expense) in contesting such claim, action or proceeding.
11. Reseller Undertakings. During the Term, and with
respect to the Telephone Service to be provided hereunder:
(a) Reseller shall be solely responsible for, and WorldCom
shall have no liability or responsibility for or
respecting, the following:
(i) directory listings with all relevant incumbent
local exchange companies,
(ii) E-911 data exchange,
(iii) all other appropriate arrangements with all
relevant incumbent local exchange companies,
(iv) E-911 data integrity,
(v) all customer (Subscriber) services,
(vi) all end-user (Subscriber) billings and
collections,
(vii) all tariff filings with appropriate state and
federal authorities, and
(viii) compliance with all of WorldCom's network
interface procedures;
(b) Reseller shall comply with WorldCom's Equal Access and
Presubscription Procedures as promulgated from time to time
by WorldCom, a copy of the current version of which has
been heretofore provided to Reseller;
(c) Reseller shall semi-annually in advance provide to
WorldCom forecasts (by month) of the Telephone Service
which Reseller expects WorldCom to provide including
minutes of use and peak-hour busy periods;
(d) Reseller shall from time to time, but no less frequently
than semi-annually, provide to WorldCom Reseller's
Subscribers' end user network data elements and such other
data as WorldCom may reasonably require so as to enable
WorldCom to synchronize WorldCom's relevant database with
the relevant database of Reseller;
(e) Reseller shall, in good faith and to the extent
reasonable and necessary, in the course of the conduct of
the Reseller's Business or in performing under or with
respect to this Agreement, undertake or suffer no action
which would adversely and materially affect the material
rights or interests of WorldCom or its affiliates; without
limiting the generality of the foregoing, Reseller will not
sell, resell or otherwise distribute any Telephone Service
to any Relevant Competitor for any purpose or use
whatsoever (a "Relevant Competitor" is any entity which
provides Telephone Service to end users or other
Resellers);
(f) Reseller shall collect from its Subscribers and remit to
relevant taxing authorities, as and when required by law,
all taxes arising out of or in any way respecting this
Agreement or the Telephone Service; and
(g) Reseller shall reimburse WorldCom for any taxes or
franchise fees assessed in relation to this Agreement or
the Telephone Service that has been paid by WorldCom
(excluding income taxes).
(h) Reseller shall not use (or knowingly permit the use of) the
Telephone Service provided hereunder for any unlawful
purpose.
12. WorldCom Undertakings. During the Term:
(a) WorldCom will at all times during the Term use its
reasonable efforts, in good faith, to provide the Telephone
Service hereunder; and
(b) the quality of service (of the Telephone Service)
provided by WorldCom hereunder shall be consistent with
that regularly provided by WorldCom to its end-users and
consistent with government regulations.
WORLDCOM MAKES NO OTHER UNDERTAKINGS, REPRESENTATIONS OR WARRANTIES ABOUT
THE TELEPHONE SERVICE TO BE PROVIDED HEREUNDER, WHETHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
13. Service Problems. Reseller hereby agrees to promptly notify
WorldCom of any failure, cessation, interruption, delay or other problem in
the provision of Telephone Service which Reseller may become aware of relating
to the provision of Telephone Service hereunder (herein called "Service
Problems"). Such notification shall be made in such form, to such locations
and at such telephone numbers as WorldCom may designate in writing from time
to time, except that no such notification shall occur until and unless
Reseller shall have reasonably determined that such problems are not caused by
the action or omission of, or by any cause within the control of, Reseller or
its Subscribers. Notwithstanding any other provision of this Agreement, in
the event of the occurrence of Service Problems on account of WorldCom's
negligence, WorldCom shall forthwith as soon as practicable (after
notification thereof) undertake all reasonable good faith efforts to cure such
Service Problems in a timely manner, in accordance with industry standards,
and in conformity with its own policies and procedures. The obligation
provided for in the preceding sentence shall be WorldCom's sole and exclusive
obligation respecting or arising out of any Service Problem.
14. Force Majeure. Without limiting the generality of any other
provisions in this Agreement, WorldCom shall not be liable for any failure in
performance of any of its obligations under this Agreement when such failure
results from acts or events beyond WorldCom's reasonable control, including,
but not limited to, acts of or failures to act by Reseller, other contractors
or suppliers to Reseller or Subscribers, random acts of vandalism, acts of God,
acts of any civil or military authority, government regulations, war, terrorist
acts, riots, insurrections, explosions, fires, earthquakes, nuclear accidents,
floods or seismic action, other environmental disturbances, abnormal weather
conditions, power blackouts caused by acts of God, embargoes, strikes or other
labor-related disputes, or delays by WorldCom's subcontractors or suppliers.
15. WorldCom Representations. WorldCom hereby states, represents
and covenants to Reseller that WorldCom is a duly organized and validly
existing corporation under the laws of the State of Delaware, and WorldCom has
full right and authority to execute this Agreement and to perform all of
WorldCom's obligations hereunder.
16. Reseller Representations. Reseller hereby states, represents
and covenants to WorldCom as follows:
(a) Reseller is a duly organized and validly existing
corporation under the laws of the State of Massachusetts,
and Reseller has full right and authority to execute this
Agreement and to perform all of Reseller's obligations
hereunder;
(b) Reseller has obtained, or will promptly obtain at its own
expense, any licenses, approvals and/or regulatory
authorities that may be required by law in connection with
Reseller's use or receipt of Telephone Service hereunder or
as otherwise may be necessary in connection with this
Agreement; and
(c) Reseller hereby acknowledges that, except as specifically
set forth in this Agreement, WorldCom has not either hereby
or otherwise made any representation, warranty, covenant or
undertaking whatsoever to Reseller or anyone as to the
character, capacity or usefulness of the Telephone Service,
or as to whether Reseller must first obtain or maintain any
certificate or authority or obtain any other regulatory
approval, or file any tariff respecting the use of the
Telephone Service, or as to whether or not Reseller can
utilize the Telephone Service in the conduct of the
Reseller's Business, or as to whether WorldCom can provide
the Telephone Service to Reseller hereunder without prior
regulatory authority or approval.
17. Indemnification. Each Party (as "Indemnitor") shall indemnify,
defend and hold harmless the other Party and its affiliates (collectively as
"Indemnitee") from and against any and all claims, liabilities, judgments,
costs, damages, fines, assessments, penalties, expenses (including reasonable
attorney's fees) or causes of action which may relate to or result from:
(a) any breach of any provision in this Agreement by
Indemnitor, its employees or agents, or
(b) any misrepresentation, negligence or illegal act of
Indemnitor, its employees or agents, arising out of the
Indemnitor's performance or non-performance hereunder.
Without limiting the generality of the foregoing, Reseller shall further
indemnify, defend and hold WorldCom and its affiliates harmless from and
against any and all claims, liabilities, disputes costs, damages and
expenses (including reasonable attorney's fees) or causes of action
resulting from any claim of libel, fraud (including toll fraud), slander or
patent or trademark infringement arising from:
(c) the combination or use of Telephone Service with other
Reseller-provided services or facilities, or
(d) Reseller's marketing, advertising, sales or promotional
activities, or
(e) the conduct of Reseller's Business.
18. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES ON
ACCOUNT OF LOSS OF REVENUE, PROFITS, CUSTOMERS, CLIENTS OR GOODWILL ARISING IN
ANY MANNER FROM OR UNDER THIS AGREEMENT OR THE PERFORMANCE OR NONPERFORMANCE
OF OBLIGATIONS HEREUNDER. THE LIABILITY OF WORLDCOM WITH RESPECT TO THE
NEGLIGENT PROVISION OF ANY TELEPHONE SERVICE UNDER THIS AGREEMENT SHALL BE
LIMITED TO A CREDIT TO BE APPLIED AGAINST FUTURE TELEPHONE SERVICE PROVIDED
HEREUNDER IN AN AMOUNT NOT TO EXCEED AN AMOUNT EQUAL TO THE CHARGES, INCLUDING
ANY PRORATED MONTHLY RECURRING CHARGES, FOR THE PERIOD DURING WHICH TELEPHONE
SERVICE WAS AFFECTED.
19. Default. A Party (as "Terminating Party") may terminate this
Agreement upon the failure of the other Party (as "Defaulting Party") to cure
any of the following within 30 days following delivery of written notice
thereof:
(a) the insolvency, corporate reorganization, arrangement
with creditors, receivership or dissolution of the
Defaulting Party; or
(b) the institution of bankruptcy proceedings by or against
the Defaulting Party; or
(c) the breach of any provision of this Agreement by the
Defaulting Party not otherwise referred to in the following
sentence.
Notwithstanding any other provision of this Agreement, in the event that
Reseller fails to timely and fully pay to WorldCom when due the WorldCom
Wholesale Price for Telephone Service in accordance with the provisions of
paragraph 9 of this Agreement, WorldCom may terminate this Agreement and
the providing of Telephone Service hereunder if, following a written notice
of default which refers specifically to this paragraph, Reseller shall fail
to pay, in full, all outstanding amounts due under this Agreement within
five business days after the delivery of said notice of default. Upon
termination of this Agreement under this paragraph, a Party may recover
from the other Party all monetary obligations owed by the other Party under
this Agreement at the time of termination.
20. Interest. Notwithstanding the right of either Party to cure a
default under this Agreement, in the event that a Party fails to pay when due
any monetary obligation under this Agreement, when due, interest shall accrue
on such obligation at a variable interest rate equal to 150% of the "Prime
Rate" (or the highest "Prime Rate", if more than one) as published in the
Money Rates Section of The Wall Street Journal (or, if no longer published,
any comparable substitute index selected by the party owed such payment) or,
if less, the maximum rate allowed by law.
21. Names and Marks. Neither Party shall be deemed to have
hereunder or otherwise acquired any right to use the name, service marks,
trademarks, patents or other intangible property of the other Party. Neither
Party shall take any action which would compromise the name, service marks,
copyrights, trademarks, patents or other intangible property of the other
Party.
22. No Offset. In no event shall a Party have any right of offset
or recoupment against its performance or its monetary obligations under this
Agreement on account of claims against the other Party.
23. Assignment. Neither Party may directly or indirectly (by
change of control, merger or otherwise), by operation of law or otherwise,
assign all or any portion of its rights under this Agreement without the other
Party's prior written consent, which consent may be given or withheld in the
sole discretion of such other party; provided:
(a) WorldCom may assign its rights under this Agreement
either to a successor in interest of WorldCom or to an
affiliate of WorldCom without such consent; upon such
assignment, WorldCom hereby agrees to cause such assignee
to contemporaneously therewith agree in writing to perform
all of WorldCom's obligations under this Agreement,
whereupon WorldCom shall be released from liability
hereunder;
(b) Reseller may assign its rights under this Agreement to an
affiliate of Reseller without such consent; upon such
assignment, Reseller hereby agrees to cause such assignee
to contemporaneously therewith agree in writing to perform
all of Reseller's obligations under this Agreement,
whereupon Reseller shall be released from liability
hereunder;
(c) WorldCom may contract with, or delegate to, anyone,
including an affiliate, performance of its obligations
hereunder, so long as WorldCom shall remain liable
therefore, and such contractor or delegatee is reasonably
qualified to effect such performance;
(d) WorldCom acknowledges that the RCN Reorganization shall
not constitute a prohibited assignment or change in control
of Reseller.
(e) WorldCom acknowledges that Reseller may enter into a joint
venture with Boston Edison Company with the intended
purpose of providing telephone services and video
programming services over certain facilities; WorldCom
agrees that such joint venture shall not constitute a
prohibited assignment or change in control of Reseller
provided that Reseller maintains at least a 50% equity
interest in such joint venture, WorldCom is provided such
documentation concerning the nature of such joint venture
as WorldCom reasonably requests, such joint venture will
not otherwise violate or breach any other term or provision
of this Agreement, and such joint venture fully observes
and performs all of the duties, obligations, liabilities
and responsibilities of Reseller hereunder.
Subject to the foregoing, this Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto and their permitted successors
and assigns.
24. No Partnership. The Parties acknowledge and agree that this
Agreement does not create a partnership between, a joint venture of, or an
agency relationship between, WorldCom and Reseller.
25. Notice. All notices required or permitted under the terms of
this Agreement shall be in writing and shall be delivered either personally or
by prepaid nationally-recognized commercial overnight delivery service which
maintains evidence of receipt (such as Federal Express), addressed as follows:
If to WorldCom: Jodi Caro, Esq.
WorldCom, Inc.
One Tower Lane, Suite 1600
Oakbrook Terrace, Illinois 60181
with a copy to: MFS Communications Company, Inc.
11808 Miracle Hills Drive
Omaha, Nebraska 68154
Attention: Shared Services
If to Reseller: RCN Telecom Services of Massachusetts,
Inc.
Attention: President
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Raymond Ostroski, Esq.
General Counsel
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Nicolas A. Kensington, Esq.
Eric J. Krathwohl, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
or at such other address as the entity to which notice is to be given may have
communicated to the other Party in writing in accordance herewith. Any such
notice shall be deemed to have been "delivered" when physically delivered if
delivered personally or on the second business day after dispatch if delivered
by commercial overnight delivery service (such as Federal Express). To the
extent that a notice may be delivered under, or is required to be delivered
under, any paragraph of this Agreement, such notice shall refer specifically to
such paragraph.
26. Publicity. Except as may be otherwise required by law or in
connection with any relevant regulatory proceeding, each Party shall obtain the
written consent of the other Party prior to releasing any public announcements,
press releases, sales brochures, advertising or other publicity materials which
may relate specifically to this Agreement, and prior to disclosing any of the
terms of this Agreement; however, any such consent shall not be unreasonably
withheld or unduly delayed.
27. Governing Law. This Agreement shall be governed by, and
interpreted pursuant to the laws of, the Commonwealth of Massachusetts.
28. Modification. This Agreement may be amended, changed or
otherwise modified only by written document which is executed by both Reseller
and WorldCom, except as may be otherwise provided by the specific terms of
this Agreement.
29. Entire Agreement. This Agreement sets forth the entire
agreement of the Parties with respect to the subject matter hereof and this
Agreement supersedes and cancels all other agreements (whether written or
oral) between WorldCom and Reseller (or their respective predecessors in
interest) relating to Telephone Service within the Service Area. Without
limiting the foregoing, the interim WorldCom (then MFS)/RCN April 1996
Telecommunications Services Agreement is hereby specifically canceled and
terminated. (References in this Agreement to Exhibits shall be deemed to be
references to the exhibits attached hereto and hereby incorporated herein.)
30. Invalid Provisions. To the extent that any terms or
provisions of this Agreement shall be finally determined by a court of
competent jurisdiction to be invalid, such invalidity shall not affect,
release or modify any other terms or provisions hereof.
31. Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Party shall execute and deliver such
additional documents and instruments and perform such additional acts as may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and the transactions contemplated hereby and to otherwise further
and implement the intent and purposes of this Agreement.
32. Reference Date. This Agreement shall be dated, for reference
purposes, _______________, 1997.
METROPOLITAN FIBER SYSTEMS/McCOURT,
INC.
By:
-----------------------------------
Title:
RCN TELECOM SERVICES OF
MASSACHUSETTS, INC.
By:
-----------------------------------
Title:
EXHIBIT 10.5
TELEPHONE SERVICE TO RESELLER AGREEMENT
--------------------------------------
FOR NEW YORK
------------
METROPOLITAN FIBER SYSTEMS OF NEW YORK, INC., a Delaware
corporation (herein called "WorldCom"), and RCN TELECOM SERVICES OF NEW YORK,
INC., a New York corporation (herein called "Reseller"), hereby agree as
follows:
1. Parties. Each of WorldCom and Reseller are herein
sometimes called a "Party." The term "affiliate" shall have the same meaning
as is ascribed to that term in the Securities Exchange Act of 1934.
2. Service Area. The "Service Area" is herein defined as the
Borough of Manhattan, New York, New York.
3. Reseller's Business. Reseller is engaged in the business
(herein called the "Reseller's Business") of providing local and long distance
telephone service to Reseller's customers (herein called "Subscribers") in the
Service Area.
4. Telephone Service. "Telephone Service" is hereby defined as
the providing by WorldCom of:
(a) local switched voice and data services via DS-1 which
services include WorldCom dialtone with basic line features
and operator services, and
(b) such other telecommunications services as WorldCom and
Reseller may agree upon from time to time.
5. Provision of Telephone Service. In consideration of Reseller's
paying to WorldCom the WorldCom Wholesale Price (as hereafter defined)
thereof, and for other consideration received, WorldCom hereby agrees to
provide Telephone Service to Reseller during the Term (as hereafter
defined) pursuant to the terms and conditions of this Agreement. In
addition, subject to BellCore approval and other relevant industry Number
Plan Administration guidelines and technical capabilities, upon the request
of Reseller made within one year from the date of execution hereof,
WorldCom will cooperate with Reseller in the transfer to Reseller of the
following two NXX Codes in New York: 212-217 and 212-655. In addition,
subject to availability and the agreement of the Parties as to the
consideration therefor, Reseller will be allowed to lease DS-1 facilities
from WorldCom or resold LEC facilities.
6. Term. The "Term" is hereby defined as being the period
which commences on the date of this Agreement and which ends on January 1,
2000, unless earlier terminated pursuant to the terms of this Agreement.
7. Early Termination. Notwithstanding any other provision hereof,
either Party may, by written notice to the other Party, terminate the Term,
the providing of Telephone Service and/or this Agreement, in whole or in
part, without incurring any liability to anyone if:
(a) by final order of a court or other governmental authority of
competent jurisdiction, either WorldCom is prohibited from
providing Telephone Service hereunder or Reseller is
prohibited from reselling Telephone Service to its
Subscribers; or
(b) a change in control (that is a change in the ownership
of at least 50% of the voting or equity interests of
Reseller) occurs, directly or indirectly, in a single
transaction or in a series of transactions, or if
substantially all of the assets of Reseller are transferred
to anyone not currently an affiliate of Reseller; provided,
WorldCom agrees that the current planned corporate
restructuring of C-TEC Corporation, the parent company of
Reseller, whereby C-TEC Corporation will be separated into
three separate public companies (with separate lines of
business consisting of the telephone and engineering
business, the integrated services and NY/NJ/PA cable
business and the Michigan cable business (herein called the
"RCN Reorganization") shall not constitute a change in
control of Reseller; or
(c) the Dark Fiber IRU Agreement entered into between the
Parties contemporaneously herewith terminates according to
its terms; or
(d) the aggregate number of subscribers for dialtone lines in
the Service Area and in Boston, Massachusetts (which is the
subject of a Telephone Service to Reseller Agreement between
the Parties) shall fall below 250; or
(e) WorldCom and Reseller effect the transfer of the two NXX
Codes described in paragraph 5 above; or
(f) Reseller determines that the taxes or franchise fees, if
any, reimbursable by Reseller to WorldCom hereunder exceeded
Reseller's original estimation thereof; provided, nothing
contained herein shall relieve Reseller for all such
reimbursements due or accrued hereunder through the date of
such termination.
WorldCom agrees to provide notice to Reseller of any claim made, or the
institution of any action or proceeding, to prohibit WorldCom from
providing Telephone Service hereunder and to reasonably cooperate with
Reseller (at Reseller's cost and expense) in contesting such claim, action
or proceeding.
8. Tariffs. To the extent that Telephone Service may be provided
by WorldCom pursuant to any existing applicable WorldCom-filed federal or
state tariffs, all of the terms of this Agreement shall be subordinate and
subject thereto, and to the extent that a conflict exists between such
tariffs and this Agreement, such tariffs shall control.
9. WorldCom Wholesale Price. In consideration of WorldCom's
provision of Telephone Service hereunder, Reseller hereby agrees to pay to
WorldCom, monthly, and within 30 days after invoice, the WorldCom Wholesale
Price therefor as determined and invoiced by WorldCom. The "WorldCom
Wholesale Price" is WorldCom's wholesale price for Telephone Service as
determined from time-to-time by WorldCom in its discretion, taking into
consideration prevailing market conditions, available WorldCom facilities,
other considerations paid to WorldCom and other factors fairly deemed relevant
by WorldCom. The current WorldCom Wholesale Price is set forth on Exhibit 9.
WorldCom shall advise Reseller in writing periodically the current WorldCom
Wholesale Price for Telephone Service and any changes thereto.
10. Limitations. WorldCom's obligation to provide Telephone
Service to Reseller hereunder is subject to:
(a) the availability and capacity of relevant WorldCom
facilities; and to
(b) the absence of any final order or direction from any
regulatory authority in relation to this Agreement or the
provision of Telephone Service hereunder:
(i) to the effect that WorldCom cannot so provide or
continue to provide Telephone Service to Reseller
hereunder, or
(ii) which adversely and materially affects any material
interests of WorldCom or its affiliates whether or not
related to this Agreement;
accordingly, WorldCom shall be relieved from WorldCom's obligation to
provide such Telephone Service as and to the extent affected thereby.
WorldCom agrees to provide notice to Reseller of any claim made, or the
institution of any action or proceeding, to prevent the provision of
Telephone Services to Reseller hereunder and to reasonably cooperate with
Reseller (at Reseller's cost and expense) in contesting such claim, action
or proceeding.
11. Reseller Undertakings. During the Term, and with respect to
the Telephone Service to be provided hereunder:
(a) Reseller shall be solely responsible for, and WorldCom
shall have no liability or responsibility for or respecting, the following:
(i) directory listings with all relevant incumbent
local exchange companies,
(ii) E-911 data exchange,
(iii) all other appropriate arrangements with all
relevant incumbent local exchange companies,
(iv) E-911 data integrity,
(v) all customer (Subscriber) services,
(vi) all end-user (Subscriber) billings and collections,
(vii) all tariff filings with appropriate state and federal
authorities, and
(viii) compliance with all of WorldCom's network interface
procedures;
(b) Reseller shall comply with WorldCom's Equal Access and
Presubscription Procedures as promulgated from time to time
by WorldCom, a copy of the current version of which has been
heretofore provided to Reseller;
(c) Reseller shall semi-annually in advance provide to
WorldCom forecasts (by month) of the Telephone Service which
Reseller expects WorldCom to provide including minutes of
use and peak-hour busy periods;
(d) Reseller shall from time to time, but no less frequently
than semi-annually, provide to WorldCom Reseller's
Subscribers' end user network data elements and such other
data as WorldCom may reasonably require so as to enable
WorldCom to synchronize WorldCom's relevant database with
the relevant database of Reseller;
(e) Reseller shall, in good faith and to the extent reasonable
and necessary, in the course of the conduct of the
Reseller's Business or in performing under or with respect
to this Agreement, undertake or suffer no action which would
adversely and materially affect the material rights or
interests of WorldCom or its affiliates; without limiting
the generality of the foregoing, Reseller will not sell,
resell or otherwise distribute any Telephone Service to any
Relevant Competitor for any purpose or use whatsoever (a
"Relevant Competitor" is any entity which provides Telephone
Service to end users or other Resellers);
(f) Reseller shall collect from its Subscribers and remit to
relevant taxing authorities, as and when required by law,
all taxes arising out of or in any way respecting this
Agreement or the Telephone Service; and
(g) Reseller shall reimburse WorldCom for any taxes or franchise
fees assessed in relation to this Agreement or the Telephone
Service that has been paid by WorldCom (excluding income
taxes).
(h) Reseller shall not use (or knowingly permit the use of) the
Telephone Service provided hereunder for any unlawful
purpose.
12. WorldCom Undertakings. During the Term:
(a) WorldCom will at all times during the Term use its
reasonable efforts, in good faith, to provide the Telephone
Service hereunder; and
(b) the quality of service (of the Telephone Service)
provided by WorldCom hereunder shall be consistent with that
regularly provided by WorldCom to its end-users and
consistent with government regulations.
WORLDCOM MAKES NO OTHER UNDERTAKINGS, REPRESENTATIONS OR WARRANTIES ABOUT
THE TELEPHONE SERVICE TO BE PROVIDED HEREUNDER, WHETHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
13. Service Problems. Reseller hereby agrees to promptly notify
WorldCom of any failure, cessation, interruption, delay or other problem in
the provision of Telephone Service which Reseller may become aware of relating
to the provision of Telephone Service hereunder (herein called "Service
Problems"). Such notification shall be made in such form, to such locations
and at such telephone numbers as WorldCom may designate in writing from time
to time, except that no such notification shall occur until and unless
Reseller shall have reasonably determined that such problems are not caused by
the action or omission of, or by any cause within the control of, Reseller or
its Subscribers. Notwithstanding any other provision of this Agreement, in
the event of the occurrence of Service Problems on account of WorldCom's
negligence, WorldCom shall forthwith as soon as practicable (after
notification thereof) undertake all reasonable good faith efforts to cure such
Service Problems in a timely manner, in accordance with industry standards,
and in conformity with its own policies and procedures. The obligation
provided for in the preceding sentence shall be WorldCom's sole and exclusive
obligation respecting or arising out of any Service Problem.
14. Force Majeure. Without limiting the generality of any other
provisions in this Agreement, WorldCom shall not be liable for any failure in
performance of any of its obligations under this Agreement when such failure
results from acts or events beyond WorldCom's reasonable control, including,
but not limited to, acts of or failures to act by Reseller, other contractors
or suppliers to Reseller or Subscribers, random acts of vandalism, acts of God,
acts of any civil or military authority, government regulations, war, terrorist
acts, riots, insurrections, explosions, fires, earthquakes, nuclear accidents,
floods or seismic action, other environmental disturbances, abnormal weather
conditions, power blackouts caused by acts of God, embargoes, strikes or other
labor-related disputes, or delays by WorldCom's subcontractors or suppliers.
15. WorldCom Representations. WorldCom hereby states, represents
and covenants to Reseller that WorldCom is a duly organized and validly
existing corporation under the laws of the State of Delaware, and WorldCom has
full right and authority to execute this Agreement and to perform all of
WorldCom's obligations hereunder.
16. Reseller Representations. Reseller hereby states, represents
and covenants to WorldCom as follows:
(a) Reseller is a duly organized and validly existing
corporation under the laws of the State of New York, and
Reseller has full right and authority to execute this
Agreement and to perform all of Reseller's obligations
hereunder;
(b) Reseller has obtained, or will promptly obtain at its own
expense, any licenses, approvals and/or regulatory
authorities that may be required by law in connection with
Reseller's use or receipt of Telephone Service hereunder or
as otherwise may be necessary in connection with this
Agreement; and
(c) Reseller hereby acknowledges that, except as specifically
set forth in this Agreement, WorldCom has not either hereby
or otherwise made any representation, warranty, covenant or
undertaking whatsoever to Reseller or anyone as to the
character, capacity or usefulness of the Telephone Service,
or as to whether Reseller must first obtain or maintain any
certificate or authority or obtain any other regulatory
approval, or file any tariff respecting the use of the
Telephone Service, or as to whether or not Reseller can
utilize the Telephone Service in the conduct of the
Reseller's Business, or as to whether WorldCom can provide
the Telephone Service to Reseller hereunder without prior
regulatory authority or approval.
17. Indemnification. Each Party (as "Indemnitor") shall indemnify,
defend and hold harmless the other Party and its affiliates (collectively as
"Indemnitee") from and against any and all claims, liabilities, judgments,
costs, damages, fines, assessments, penalties, expenses (including reasonable
attorney's fees) or causes of action which may relate to or result from:
(a) any breach of any provision in this Agreement by
Indemnitor, its employees or agents, or
(b) any misrepresentation, negligence or illegal act of
Indemnitor, its employees or agents, arising out of the
Indemnitor's performance or non-performance hereunder.
Without limiting the generality of the foregoing, Reseller shall further
indemnify, defend and hold WorldCom and its affiliates harmless from and
against any and all claims, liabilities, disputes costs, damages and
expenses (including reasonable attorney's fees) or causes of action
resulting from any claim of libel, fraud (including toll fraud), slander or
patent or trademark infringement arising from:
(c) the combination or use of Telephone Service with other
Reseller-provided services or facilities, or
(d) Reseller's marketing, advertising, sales or promotional
activities, or
(e) the conduct of Reseller's Business.
18. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES ON
ACCOUNT OF LOSS OF REVENUE, PROFITS, CUSTOMERS, CLIENTS OR GOODWILL ARISING IN
ANY MANNER FROM OR UNDER THIS AGREEMENT OR THE PERFORMANCE OR NONPERFORMANCE
OF OBLIGATIONS HEREUNDER. THE LIABILITY OF WORLDCOM WITH RESPECT TO THE
NEGLIGENT PROVISION OF ANY TELEPHONE SERVICE UNDER THIS AGREEMENT SHALL BE
LIMITED TO A CREDIT TO BE APPLIED AGAINST FUTURE TELEPHONE SERVICE PROVIDED
HEREUNDER IN AN AMOUNT NOT TO EXCEED AN AMOUNT EQUAL TO THE CHARGES, INCLUDING
ANY PRORATED MONTHLY RECURRING CHARGES, FOR THE PERIOD DURING WHICH TELEPHONE
SERVICE WAS AFFECTED.
19. Default. A Party (as "Terminating Party") may terminate this
Agreement upon the failure of the other Party (as "Defaulting Party") to cure
any of the following within 30 days following delivery of written notice
thereof:
(a) the insolvency, corporate reorganization, arrangement
with creditors, receivership or dissolution of the
Defaulting Party; or
(b) the institution of bankruptcy proceedings by or against
the Defaulting Party; or
(c) the breach of any provision of this Agreement by the
Defaulting Party not otherwise referred to in the following
sentence.
Notwithstanding any other provision of this Agreement, in the event that
Reseller fails to timely and fully pay to WorldCom when due the WorldCom
Wholesale Price for Telephone Service in accordance with the provisions of
paragraph 9 of this Agreement, WorldCom may terminate this Agreement and
the providing of Telephone Service hereunder if, following a written notice
of default which refers specifically to this paragraph, Reseller shall fail
to pay, in full, all outstanding amounts due under this Agreement within
five business days after the delivery of said notice of default. Upon
termination of this Agreement under this paragraph, a Party may recover
from the other Party all monetary obligations owed by the other Party under
this Agreement at the time of termination.
20. Interest. Notwithstanding the right of either Party to cure a
default under this Agreement, in the event that a Party fails to pay when due
any monetary obligation under this Agreement, when due, interest shall accrue
on such obligation at a variable interest rate equal to 150% of the "Prime
Rate" (or the highest "Prime Rate", if more than one) as published in the
Money Rates Section of The Wall Street Journal (or, if no longer published,
any comparable substitute index selected by the party owed such payment) or,
if less, the maximum rate allowed by law.
21. Names and Marks. Neither Party shall be deemed to have
hereunder or otherwise acquired any right to use the name, service marks,
trademarks, patents or other intangible property of the other Party. Neither
Party shall take any action which would compromise the name, service marks,
copyrights, trademarks, patents or other intangible property of the other
Party.
22. No Offset. In no event shall a Party have any right of offset
or recoupment against its performance or its monetary obligations under this
Agreement on account of claims against the other Party.
23. Assignment. Neither Party may directly or indirectly (by
change of control, merger or otherwise), by operation of law or otherwise,
assign all or any portion of its rights under this Agreement without the other
Party's prior written consent, which consent may be given or withheld in the
sole discretion of such other party; provided:
(a) WorldCom may assign its rights under this Agreement
either to a successor in interest of WorldCom or to an
affiliate of WorldCom without such consent; upon such
assignment, WorldCom hereby agrees to cause such assignee to
contemporaneously therewith agree in writing to perform all
of WorldCom's obligations under this Agreement, whereupon
WorldCom shall be released from liability hereunder;
(b) Reseller may assign its rights under this Agreement to an
affiliate of Reseller without such consent; upon such
assignment, Reseller hereby agrees to cause such assignee to
contemporaneously therewith agree in writing to perform all
of Reseller's obligations under this Agreement, whereupon
Reseller shall be released from liability hereunder;
(c) WorldCom may contract with, or delegate to, anyone,
including an affiliate, performance of its obligations
hereunder, so long as WorldCom shall remain liable
therefore, and such contractor or delegatee is reasonably
qualified to effect such performance;
(d) WorldCom acknowledges that the RCN Reorganization shall not
constitute a prohibited assignment or change in control of
Reseller.
Subject to the foregoing, this Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto and their permitted successors
and assigns.
24. No Partnership. The Parties acknowledge and agree that this
Agreement does not create a partnership between, a joint venture of, or an
agency relationship between, WorldCom and Reseller.
25. Notice. All notices required or permitted under the terms of
this Agreement shall be in writing and shall be delivered either personally or
by prepaid nationally-recognized commercial overnight delivery service which
maintains evidence of receipt (such as Federal Express), addressed as follows:
If to WorldCom: Jodi Caro, Esq.
WorldCom, Inc.
One Tower Lane, Suite 1600
Oakbrook Terrace, Illinois 60181
with a copy to: MFS Communications Company, Inc.
11808 Miracle Hills Drive
Omaha, Nebraska 68154
Attention: Shared Services
If to Reseller: RCN Telecom Services of New York, Inc.
Attention: President
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Raymond Ostroski, Esq.
General Counsel
105 Carnegie Center Building
Princeton, NJ 08540
with a copy to: Nicolas A. Kensington, Esq.
Eric J. Krathwohl, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
or at such other address as the entity to which notice is to be given may have
communicated to the other Party in writing in accordance herewith. Any such
notice shall be deemed to have been "delivered" when physically delivered if
delivered personally or on the second business day after dispatch if delivered
by commercial overnight delivery service (such as Federal Express). To the
extent that a notice may be delivered under, or is required to be delivered
under, any paragraph of this Agreement, such notice shall refer specifically to
such paragraph.
26. Publicity. Except as may be otherwise required by law or in
connection with any relevant regulatory proceeding, each Party shall obtain the
written consent of the other Party prior to releasing any public announcements,
press releases, sales brochures, advertising or other publicity materials which
may relate specifically to this Agreement, and prior to disclosing any of the
terms of this Agreement; however, any such consent shall not be unreasonably
withheld or unduly delayed.
27. Governing Law. This Agreement shall be governed by, and
interpreted pursuant to the laws of, the State of New York.
28. Modification. This Agreement may be amended, changed or
otherwise modified only by written document which is executed by both Reseller
and WorldCom, except as may be otherwise provided by the specific terms of
this Agreement.
29. Entire Agreement. This Agreement sets forth the entire
agreement of the Parties with respect to the subject matter hereof and this
Agreement supersedes and cancels all other agreements (whether written or
oral) between WorldCom and Reseller (or their respective predecessors in
interest) relating to Telephone Service within the Service Area. Without
limiting the foregoing, the interim WorldCom (then MFS)/RCN April 1996
Telecommunications Services Agreement is hereby specifically canceled and
terminated. (References in this Agreement to Exhibits shall be deemed to be
references to the exhibits attached hereto and hereby incorporated herein.)
30. Invalid Provisions. To the extent that any terms or
provisions of this Agreement shall be finally determined by a court of
competent jurisdiction to be invalid, such invalidity shall not affect,
release or modify any other terms or provisions hereof.
31. Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Party shall execute and deliver such
additional documents and instruments and perform such additional acts as may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and the transactions contemplated hereby and to otherwise further
and implement the intent and purposes of this Agreement.
32. Reference Date. This Agreement shall be dated, for reference
purposes, _______________, 1997.
METROPOLITAN FIBER SYSTEMS OF NEW YORK,
INC.
By:
----------------------------------
Title:
RCN TELECOM SERVICES OF
NEW YORK, INC.
By:
----------------------------------
Title:
EXHIBIT 10.6
OVS AGREEMENT
-------------
RCN Telecom Services, Inc. ("RCN") and MFS Communications
Company, Inc. ("MFS") hereby agree as follows:
1. VDT Services Agreement. On October 9, 1995, MFS and RCN
entered into a certain letter agreement (the "VDT Services Agreement")
respecting the provision by MFS (or its affiliates) to RCN (or its affiliates)
of video dialtone common carrier capacity (the "VDT Services") in Boston,
Massachusetts. Upon implementation by RCN of an open video system to
distribute video programming services over the Dedicated Fibers, the VDT
Services Agreement will be terminated.
2. IRU Agreements. Contemporaneously herewith affiliates of
MFS, as grantors, and affiliates of RCN, as users, have entered into two dark
fiber IRU agreements (the "IRU Agreements") respecting certain fibers
("Dedicated Fibers") in Boston, Massachusetts and in the Borough of Manhattan,
New York, New York (the "Service Areas"). The affiliates of RCN may use the
Dedicated Fibers provided under the IRU Agreements solely for the purposes of
providing video programming services to end-user retail customers pursuant to
the VDT Services Agreement or, upon implementation by RCN (or its affiliates)
of an open video system, as part of such open video system, and telephony and
data services to residential end-user retail customers.
3. RCN OVS Certification. On or about February 27, 1997, the
Federal Communications Commission ("FCC") granted OVS Certificates to
affiliates of RCN covering the Service Areas. On or about February 28, 1997,
RCN filed with the FCC Notices of Intent of establish open video systems in the
Service Areas, and RCN and its affiliates will use their best efforts to
implement open video systems in the Service Areas on June 2, 1997 or as soon
as practicable after that date.
4. MFS OVS Certification. On or about December 9, 1995, the FCC
granted a certificate to affiliates of MFS for the operation of an open video
system covering the Service Areas ("OVS Certificate"). MFS agrees to
cooperate with RCN and use its reasonable good faith efforts (including
requests for extensions), so that the OVS Certificate of MFS would not be
withdrawn or canceled until (a) the date RCN (or its affiliates) becomes
certified to and implements OVS service, (b) the receipt of a final order or
directive of any federal, state or local regulatory authority prohibiting this
Agreement or canceling or terminating the OVS certificate of MFS, or (c) the
expiration or earlier termination of the IRU Agreement in the applicable
Service Area, or (d) December 31, 1997; provided, and notwithstanding anything
contained herein to the contrary, in no event shall MFS be required to file a
notice of intent to provide OVS Service, be required to request any extension
of its OVS Certificate beyond December 31, 1997, or be responsible or liable
in any manner if any request for extension by MFS is denied.
5. Consideration. RCN shall be responsible, and shall reimburse
MFS, for any obligations of whatever nature imposed upon MFS (or its
affiliates) as a common carrier provider or otherwise respecting RCN's
provision of video services. In addition, in the event RCN does not become
certified to and does not implement OVS Service prior to December 31, 1997,
RCN agrees to pay MFS consideration equal to fifteen percent (15%) of the
gross video receipts of RCN (or RCN's affiliates) in the Service Areas from
and after the date MFS (or its affiliates) first provided VDT Service to RCN
in the Service Areas.
6. Regulatory Risk. All regulatory risk associated with the
providing of video services by RCN shall be borne by RCN. Without limiting the
foregoing, RCN shall be fully responsible for obtaining all regulatory
operating authorities relating to either OVS Service or VDT Services and RCN
hereby indemnifies and agrees to hold harmless MFS (and its affiliates) from
all consequences of any final regulatory determination which is unfavorable to
RCN, RCN's affiliates or customers of RCN or its affiliates, or adverse to the
interests of MFS or its affiliates.
7. Binding Effect. This agreement shall be binding upon or
inure to the benefit of the parties hereto and their respective successors and
assigns.
DATED: May 8, 1997.
RCN TELECOM SERVICES, INC.
By /s/ Mark Hobat
-----------------------------
Title: President
MFS COMMUNICATION COMPANY, INC.
By /s/ Ronald Beaumont
-----------------------------
Title: EXECUTIVE VICE
PRESIDENT
EXHIBIT 10.7
- ------------------------------------------------------------------------------
JOINT VENTURE AGREEMENT
between
RCN TELECOM SERVICES, INC.
and
BOSTON ENERGY TECHNOLOGY GROUP, INC.
Dated as of December 23, 1996
- ------------------------------------------------------------------------------
ARTICLE 1
THE JOINT VENTURE
-----------------
Page
----
1.1 Purpose.............................................................. 1
1.2 Structure............................................................ 1
1.3 Defined Terms........................................................ 2
1.4 Timing of the Joint Venture........................................... 5
ARTICLE 2
CONDITIONS TO CLOSING
---------------------
2.1 Conditions to Obligation of RCN to Close............................. 8
(a) Representations, Warranties and Covenants True at the
Closing Date
(b) H-S-R Act and Other Governmental Approvals
(c) Budget
(d) Other Agreements
(e) Approval by BETG-Sub
(f) BECO Assignments
2.2 Conditions to Obligations of BETG to Close........................... 9
(a) Representations, Warranties and Covenants True at the
Closing Date
(b) H-S-R Act and Other Governmental Approvals
(c) Budget
(d) Other Agreements
(e) Approval by RCN-Sub
ARTICLE 3
NEWCO
-----
3.1 Purpose............................................................. 10
3.2 Form................................................................ 10
3.3 Members and Capitalization.......................................... 10
ARTICLE 4
PRINCIPAL AGREEMENTS
--------------------
4.1 Management Agreement................................................ 11
4.2 Telecommunications Services Agreement............................... 11
4.3 Electric Services Agreement......................................... 11
4.4 Registration Rights and Conversion Agreement......................... 11
4.5 Joint Investment and Noncompetition Agreement....................... 11
4.6 MFS Agreement....................................................... 11
ARTICLE 5
COVENANTS
---------
5.1 Best Efforts........................................................ 11
5.2 Public Announcements................................................ 12
5.3 Confidentiality..................................................... 13
5.4 RCN Telecommunications Services Agreement........................... 13
5.5 Sale of Fiber....................................................... 13
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Representations and Warranties of RCN............................... 13
(a) Organization and Standing
(b) Authority; Enforceability
(c) No Conflict
(d) Consents and Governmental Authorizations
(e) No Brokers
(f) No Undisclosed Partners
(g) PUHCA
(h) Litigation
6.2 Representations and Warranties of BETG.............................. 15
(a) Organization and Standing
(b) Authority; Enforceability
(c) No Conflict
(d) Consents and Governmental Authorizations
(e) No Brokers
(f) No Undisclosed Partners
(g) PUHCA
(h) Litigation
ARTICLE 7
TERMINATION AND EXPENSES
------------------------
7.1 Termination......................................................... 16
7.2 Liabilities in Event of Termination................................. 17
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Survival............................................................ 17
8.2 Successors and Permitted Assigns; Assignment........................ 17
8.3 Notices............................................................. 17
8.4 Amendments and Waivers.............................................. 19
8.5 Governing Law; Severability.......................................... 19
8.6 Arbitration......................................................... 19
8.7 Specific Performance................................................ 20
8.8 Expenses............................................................ 20
8.9 Counterparts; Effectiveness......................................... 21
8.10 Headings............................................................. 21
8.11 Entire Agreement.................................................... 21
8.12 Interpretation...................................................... 21
8.13 Expiration.......................................................... 21
SCHEDULES
1.1(a) Relevant Market
1.2(b) RCN-Sub
1.2(c) BETG-Sub
1.3(a) BECO Authorizations
1.3(b) IRU Terms
1.3(c) NEWCO Authorizations
1.3(d) RCN Authorizations
EXHIBITS
1. Initial LLC Agreement
2. Operating Agreement
3. Management Agreement
4. Telecommunications Services Agreement
5. Electric Services Agreement
6. Registration Rights and Conversion Agreement
7. Joint Investment and Noncompetition Agreement
JOINT VENTURE AGREEMENT
-----------------------
THIS JOINT VENTURE AGREEMENT (the "Agreement") is made as of this 23rd
day of December, 1996, by and between RCN Telecom Services, Inc, a Delaware
corporation, and Boston Energy Technology Group, Inc., a Massachusetts
corporation and wholly-owned subsidiary of Boston Edison Company, a
Massachusetts corporation ("BECO").
The parties hereto agree as follows:
ARTICLE 1
THE JOINT VENTURE
-----------------
1.1 Purpose. The purpose of this Agreement is to set forth the terms
and conditions upon which RCN Telecom Services, Inc., directly or indirectly
through one of its Affiliates to be designated by it (collectively, "RCN"),
and Boston Energy Technology Group, Inc., directly or indirectly through one
of its Affiliates to be designated by it (collectively, "BETG"), will
organize, finance and participate in an entity that will: (i) create, own and
operate a communications network and (ii) provide voice, video, data, other
communications services and the communications support component of
energy-related customer services offered by BECO, in the cities and towns set
forth on Schedule 1.1(a) attached hereto (the "Relevant Market"). For
purposes of this Agreement, the entity to be formed by RCN and BETG is
referred to as "NEWCO," and the network of agreements to be established among
RCN, BETG, NEWCO and their Affiliates is referred to as the "Joint Venture."
1.2 Structure. (a) Each of RCN and BETG shall invest in NEWCO,
subject to the fulfillment (or waiver) of each of the conditions specified in
this Agreement. Each of RCN and BETG shall invest through a vehicle to be
formed separately by RCN and BETG for such purpose under the laws of
Massachusetts or another state in the United States (such separate entities
hereinafter referred to as "RCN-Sub" and "BETG-Sub", respectively), all of the
equity of which will be held, directly or indirectly, by RCN and/or BETG,
respectively.
(b) RCN will, prior to the Closing Date (as hereinafter
defined), determine the details of the organizational form and ownership of
RCN-Sub, and, upon such determination, the form and details regarding such
entity shall be prepared by RCN and set forth on Schedule 1.2(b) to be
attached hereto. Such organizational form may include a structure in which RCN
and RCN-Sub have a common parent entity, directly or indirectly.
(c) BETG will, prior to the Closing Date, determine the details
of the organizational form and ownership of BETG-Sub, and, upon such
determination, the form and details regarding such entity shall be prepared by
BETG and set forth on Schedule 1.2(c) to be attached hereto. Such
organizational form may include a structure in which BETG and BETG-Sub have a
common parent entity, directly or indirectly.
1.3 Defined Terms.
(a) As used herein, the following terms have the following
meanings:
"AAA" means the American Arbitration Association.
"Affiliate" means, as to any Person, any other Person Controlling,
Controlled by or under Common Control with that first Person.
"Basic Agreements" means this Agreement, the Initial LLC Agreement, the
Operating Agreement, the Registration Rights and Conversion Agreement, the
Joint Investment and Non-Competition Agreement, the IRU Agreement, the
Management Agreement, the Telecommunications Services Agreements and the
Electric Services Agreement, provided that the form of the Basic Agreements
shall be revised to the extent necessary to be consistent with the terms of
the IRU Agreement.
"BECO Assignments" shall mean the agreements pursuant to which BECO and
its Affiliates will assign to BETG-Sub the ownership of, or the right to use,
the portions of the BETG Facilities owned by them or which they have the right
to use.
"BETG Authorizations" means all regulatory consents, authorizations and
approvals with respect to BETG and its Affiliates that may be necessary for
BETG and its Affiliates to enter into and perform their obligations under the
Basic Agreements as set forth on Schedule 1.3(a) and for BECO to enable
BETG-Sub to perform such obligations.
"BETG Contributed Assets" has the meaning set forth in the Operating
Agreement.
"BETG Facilities" shall have the meaning to be set forth in the IRU
Agreement.
"Business Plan" shall have the meaning set forth in Section 2.1(c)
hereof.
"Capital Lease" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which
would, in accordance with GAAP, be required to be classified and accounted for
as a capital lease on a balance sheet of such Person.
"Control" of an Entity means power to direct or cause the direction of
the management or policies of such Entity, whether through the ownership of
voting securities, by agreement or otherwise.
"Closing Date" shall have the meaning set forth in Section 1.4(c).
"DPU" means the Massachusetts Department of Public Utilities, or any
successor thereto.
"Entity" means any corporation, limited liability company, general
partnership, limited partnership, venture, trust, business trust, estate or
other entity.
"FCC" means the Federal Communications Commission, or any successor
thereto.
"FERC" means the Federal Energy Regulatory Commission, or any successor
thereto.
"Final Order" means a consent, authorization or approval of a regulatory
authority with respect to which no appeal, petition for rehearing,
reconsideration, or stay, and no other administrative or judicial action
contesting such consent, authorization or approval is pending and as to which
the time for filing any such appeal, petition, or other action has expired or,
if filed, has been denied, dismissed, or withdrawn and the time for
instituting any further legal proceeding has lapsed.
"GAAP" means the generally accepted accounting principles in the United
States of America in effect from time to time.
"Holding Company" means a Holding Company as defined in Section 2(a)(7)
of PUHCA.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Initial Agreements" means this Agreement and the Initial LLC Agreement.
"Initial LLC Agreement" means that certain operating agreement of NEWCO
between BETG and RCN, of even date herewith, a copy of which is annexed hereto
as Exhibit 1.
"IRU Agreement" shall mean the agreement to be entered into between
BETG-Sub and NEWCO, in form and substance satisfactory to RCN and BETG,
incorporating the concepts set forth in Schedule 1.3(b) hereof.
"Liens" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to or
of such Person under any conditional sale or other title retention agreement
or Capital Lease with respect to, any property or asset owned or held by such
Person, or the signing or filing of a financing statement which names such
Person as debtor, or the signing of any security agreement authorizing any
other party as the secured party thereunder to file any financing statement.
"MFS" means Metropolitan Fiber Systems/McCourt, Inc., a Delaware
corporation or an Affiliate thereof.
"Network" means the communications system to be constructed by or on
behalf of NEWCO, and operated by NEWCO, for the provision of the Services.
"NEWCO Authorizations" means all regulatory consents, authorizations or
approvals with respect to NEWCO that are necessary for NEWCO to conduct the
business of the Joint Venture as set forth on Schedule 1.3(c).
"Operating Agreement" shall mean the Amended and Restated Operating
Agreement of NEWCO to be entered into by BETG-Sub and RCN-Sub, substantially
in the form attached hereto as Exhibit 2.
"OVS" or "Open Video System" means a facility consisting of a set of
transmission paths and associated signal generation, reception, and control
equipment that is designed to provide cable service which includes video
programming and which is provided to multiple subscribers within a community,
provided that the Federal Communications Commission has certified such system.
This definition is intended to comply with the Communications Act of 1974, as
amended, Section 651 et. seq., 47 U.S.C. Section 571 et. seq. and the rules
and regulations promulgated by the Federal Communications Commission, 47
C.F.R. 76 1500 et seq.
"Person" means any natural person or Entity.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended
from time to time, 15 U.S.C. Section 79-792-6.
"RCN Authorizations" means all regulatory consents, authorizations and
approvals with respect to RCN that may be necessary for RCN to enter into and
perform its obligations under the Basic Agreements as set forth on Schedule
1.3(d).
"RCN Contributed Assets" has the meaning set forth in the Operating
Agreement.
"Services" means the provision of data, voice, video, other
communication services and the communications support component of
energy-related customer services offered by BECO, to residential and
commercial customers in the Relevant Market or elsewhere.
"Subsidiaries" means each corporation or other Person in which a Person
has Control.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Term Section
---- -------
Arbitration Notice 8.6(c)
BETG 1.1
BETG-Sub 1.2
Business Plan 2.1(c)
Electric Services Agreement 4.3
Joint Investment and Non- 4.5
Competition Agreement
Joint Venture 1.1
Liens 1.3
Management Agreement 4.1
NEWCO 1.1
OVS 1.1
RCN 1.1
RCN-Sub 1.2
Registration Rights and Conversion
Agreement 4.4
Relevant Market 1.1
Representatives 5.3
Telecommunications
Services Agreement 4.2
1.4 Timing of the Joint Venture. (a) Concurrently with the
execution and delivery of this Agreement,
(i) RCN and BETG have agreed on the Basic Agreements
(other than the IRU Agreement).
(ii) RCN and BETG have caused NEWCO to be formed by filing a
Certificate of Organization with the Secretary of
State of the Commonwealth of Massachusetts and have
executed and delivered the Initial LLC Agreement, as
the initial members of NEWCO, as contemplated by
Section 3.3(a).
(iii) This Agreement, the other Basic Agreements to which
RCN and BETG are parties and the consummation of the
transactions contemplated hereby and thereby have been
approved by the respective Boards of Directors of RCN
and BETG.
(b) Promptly following the execution and delivery of this
Agreement by the parties,
(i) RCN shall file, or shall cause NEWCO to file, all
necessary applications for the NEWCO Authorizations,
and shall diligently prosecute such applications and
use its best efforts to obtain such NEWCO
Authorizations as expeditiously as possible.
(ii) BETG shall file (or cause to be filed) all necessary
applications for the BETG Authorizations, and shall
diligently prosecute such applications and use its
best efforts to obtain such BETG Authorizations as
expeditiously as possible.
(iii) RCN shall file (or cause to be filed) all necessary
applications for the RCN Authorizations, and shall
diligently prosecute such applications and use its
best efforts to obtain such RCN Authorizations as
expeditiously as possible.
(iv) NEWCO shall engage in such other activities as RCN and
BETG shall agree.
(c) As soon as practicable after the satisfaction of the
conditions set forth in Article 2 (the "Closing Date"), the parties shall
execute the Basic Agreements that were not previously executed and fund
NEWCO's initial capital requirements (the "Closing"). At the Closing,
(i) RCN shall deliver, or cause to be delivered, the
following:
(A) To all counterparties, the executed Basic
Agreements (other than the Initial Agreements).
(B) To NEWCO, such instruments of conveyance,
transfer or assignment as shall be sufficient to
convey, transfer and assign to NEWCO the RCN
Contributed Assets, free and clear of any Liens.
(C) To BETG, an opinion of RCN's counsel, in form and
substance reasonably satisfactory to BETG dated
as of the Closing Date, with respect to the
organization and authority of RCN, the
enforceability of the Basic Agreements against
RCN, the inapplicability of PUHCA and the
receipt of all governmental approvals required
for NEWCO, RCN and RCN's Affiliates to satisfy
their obligations under the Basic Agreements.
` (D) To NEWCO, an Instrument of Adherence, signed by
C-Tec Corporation, relative to the Joint
Investment and Non-Competition Agreement, in
form and substance reasonably satisfactory to
BETG.
(ii) BETG shall deliver, or cause to be delivered, the
following:
(A) To all counterparties, the executed Basic
Agreements (other than the Initial Agreements).
(B) To NEWCO, such instruments of conveyance,
transfer or assignment as shall be sufficient to
convey, transfer and assign to NEWCO the BETG
Contributed Assets, free and clear of any Liens.
(C) To RCN, an opinion of BETG's counsel, in form and
substance reasonably satisfactory to RCN, dated
as of the Closing Date, with respect to the
organization and authority of BETG, the
enforceability of the Basic Agreements against
BETG, Massachusetts transmission tower law
(Chapter 166 Section 25A), the inapplicability
of PUHCA and the receipt of all governmental
approvals required for BETG and its Affiliates
to satisfy their obligations under the Basic
Agreements.
(D) To NEWCO, an Instrument of Adherence, signed by
BECO, relative to the Joint Investment and
Non-Competition Agreement, in form and substance
reasonably satisfactory to RCN.
(iii) RCN-Sub and BETG-Sub shall deliver to NEWCO by wire
transfer of immediately available funds the initial
capital contributions set forth in the Budget and in
Section 4.1 of the Operating Agreement.
ARTICLE 2
CONDITIONS TO CLOSING
---------------------
2.1 Conditions to Obligations of RCN to Close. The obligations of RCN
under Section 1.4(c) of this Agreement are subject to the fulfillment and
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any one or more of which may only be waived in writing, in whole
or in part, by RCN:
(a) Representations, Warranties and Covenants True at the
Closing Date. (i) All representations and warranties of BETG contained in
this Agreement and in the other Initial Agreements shall be true and correct
in all material respects at and as of the Closing Date as though such
representations and warranties had been made or given on such date (except to
the extent such representations and warranties speak as of an earlier date),
except (x) for changes contemplated by this Agreement and (y) where the
failure to be true and correct does not and can not have a material adverse
effect on the business, property, financial condition, shareholders' equity,
results of operations or prospects of BETG and its Affiliates, taken as a
whole, or a material adverse effect on the Joint Venture; (ii) BETG shall have
performed and complied with, in all material respects, its obligations under
the Initial Agreements that are to be performed or complied with by it prior
to or on the Closing Date; and (iii) BETG shall deliver a certificate signed
by one of its duly authorized officers certifying as to the fulfillment of the
conditions set forth in the foregoing clauses (i) and (ii).
(b) H-S-R Act and Other Governmental Approvals. (i) The
pre-transaction filing and waiting period requirements applicable to the Joint
Venture under the H-S-R Act shall have expired or shall have been terminated
or there shall have been available an exemption therefrom; (ii) any necessary
federal, state or local regulatory approvals (including the RCN
Authorizations, the BETG Authorizations and the NEWCO Authorizations) shall
have been obtained and (iii) there shall not be any governmental or
nongovernmental litigation or proceeding pending that restrains, prohibits or
prevents or, with respect to governmental litigation or proceedings, threatens
to restrain, prohibit or prevent the parties from consummating the
transactions contemplated by any of the Basic Agreements.
(c) Business Plan. RCN and BETG shall have agreed on a one-year
business plan (a "Business Plan"), including (i) an operating budget, (ii) a
budget for capital expenditures for NEWCO's first fiscal year, (iii) the
initial capital contributions required from both parties, (iv) sales and
marketing plan, (v) financial pro forma balance sheet, income statement and
statement of cash flows and (vi) performance milestones.
(d) Other Agreements. Each of BETG and its Affiliates shall
have executed and delivered all of the Basic Agreements to which it is
required to be a party.
(e) Approval by BETG-Sub. This Agreement and the other Basic
Agreements shall have been approved by the Board of Directors of BETG-Sub.
(f) BECO Assignments. The BECO Assignments shall be reasonably
satisfactory to RCN in form and substance.
(g) IRU Agreement. BETG-Sub shall have entered into the IRU
Agreement.
2.2 Conditions to Obligations of BETG to Close. The obligations of
BETG under Section 1.4(c) of this Agreement are subject to the fulfillment and
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any one or more of which may only be waived in writing, in whole
or in part, by BETG:
(a) Representations, Warranties and Covenants True at the
Closing Date. (i) All representations and warranties of RCN contained in this
Agreement and in the other Initial Agreements shall be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties had been made or given on such date (except to the extent such
representations and warranties speak as of an earlier date), except (x) for
changes contemplated by this Agreement and (y) where the failure to be true
and correct does not and can not have a material adverse effect on the
business, property, financial condition, shareholders' equity, results of
operations or prospects of RCN and its Affiliates, taken as a whole, or a
material adverse effect on the Joint Venture; (ii) RCN shall have performed and
complied with, in all material respects, its obligations under the Initial
Agreements that are to be performed or complied with by it prior to or on the
Closing Date; and (iii) RCN shall deliver a certificate signed by one of its
duly authorized officers certifying as to the fulfillment of the conditions
set forth in the foregoing clauses (i) and (ii).
(b) H-S-R Act and Other Governmental Approvals. (i) The
pre-transaction filing and waiting period requirements applicable to the Joint
Venture under the H-S-R Act shall have expired or shall have been terminated
or there shall have been available an exemption therefrom; (ii) any necessary
federal, state or local regulatory approvals (including the RCN
Authorizations, the BETG Authorizations and the NEWCO Authorizations) shall
have been obtained and (iii) there shall not be any governmental or
nongovernmental litigation or proceeding pending that restrains, prohibits or
prevents or, with respect to governmental litigation and proceedings,
threatens to restrain, prohibit or prevent the parties from consummating the
transactions contemplated by any of the Basic Agreements.
(c) Business Plan. RCN and BETG shall have agreed to the
Business Plan.
(d) Other Agreements. Each of RCN and NEWCO shall have executed
and delivered all of the Basic Agreements to which it is required to be a
party.
(e) Approval by RCN-Sub. This Agreement and the other Basic
Agreements shall have been approved by the Board of Directors of RCN-Sub.
(f) IRU Agreement. NEWCO shall have entered into the IRU
Agreement.
(g) MFS. NEWCO shall not be restricted by any non-compete
agreement with MFS.
ARTICLE 3
NEWCO
-----
3.1 Purpose. The purpose of NEWCO shall be (a) before the Closing
Date, (i) to apply for the NEWCO Authorizations and to hold the NEWCO
Authorizations, and (ii) to engage in such other activities as RCN and BETG
shall agree and (b) from and after the Closing Date (i) to enter into the
Basic Agreements to which it is a party, (ii) to purchase, construct, lease
and operate the Network to provide the Services, and (iii) to market the
Services to business and residential customers in the Relevant Market.
3.2 Form. NEWCO shall be a Massachusetts limited liability company,
and shall be governed initially by the Initial LLC Agreement and, from and
after the Closing Date, by the Operating Agreement.
3.3 Members and Capitalization. (a) On the date hereof, NEWCO will be
constituted under the Initial LLC Agreement as contemplated by Section
1.4(a)(ii) and shall have the following membership interests:
Member Membership Interest
------ -------------------
RCN 51%
BETG 49%
(b) If the Closing occurs pursuant to Section 1.4(c), RCN will assign
its membership interest in NEWCO to RCN-Sub, BETG will assign its membership
interest in NEWCO to BETG-Sub, and RCN-Sub and BETG-Sub will enter into the
Operating Agreement and make capital contributions to NEWCO in the amounts and
upon the terms set forth in the Operating Agreement.
(c) The parties agree that, prior to the Closing Date, NEWCO's sole
purpose shall be as set forth in clause (a) of Section 3.1, and its cash
requirements shall be satisfied by loans from RCN and BETG, such cash
requirements and the terms on which such loans may be made to be mutually
agreed by RCN and BETG.
(d) In the event that this Agreement is terminated and the Joint
Venture abandoned prior to the Closing Date, RCN and BETG shall cause any
loans made by them to NEWCO to be repaid and NEWCO to be dissolved.
ARTICLE 4
PRINCIPAL AGREEMENTS
--------------------
4.1 Management Agreement. On the Closing Date, NEWCO, RCN Operating
Services, Inc. and BETG-Sub shall enter into a Management Agreement
substantially in the form attached to this Agreement as Exhibit 3 (the
"Management Agreement").
4.2 Telecommunications Services Agreement. On the Closing Date, NEWCO
and BECO shall enter into a Telecommunications Services Agreement
substantially in the form attached to this Agreement as Exhibit 4 (the
"Telecommunications Services Agreement").
4.3 Electric Services Agreement. On the Closing Date, NEWCO and BETG
shall enter into an Electric Services Agreement substantially in the form
attached to this Agreement as Exhibit 5 (the "Electric Services Agreement").
4.4 Registration Rights and Conversion Agreement. On the Closing
Date, C-Tec Corporation and BETG-Sub shall enter into a Registration Rights
and Conversion Agreement substantially in the form attached to this Agreement
as Exhibit 6 (the "Registration Rights and Conversion Agreement").
4.5 Joint Investment and Noncompetition Agreement. On the Closing
Date, NEWCO, RCN-Sub and BETG-Sub shall enter into a Joint Investment and
Noncompetition Agreement substantially in the form attached to this Agreement
as Exhibit 7 (the "Joint Investment and Noncompetition Agreement"), and will
deliver appropriate adherence agreements from BECO and RCN.
4.6 MFS Agreement. NEWCO may enter into an agreement with MFS upon
terms and conditions approved by BETG in accordance with Section 7.1(g) hereof.
ARTICLE 5
COVENANTS
---------
5.1 Best Efforts. (a) Upon the terms and subject to the conditions of
this Agreement and the other agreements, documents and instruments pursuant to
which the transactions contemplated hereby are to be consummated, RCN and BETG
will use their best efforts to take, and to cause RCN-Sub and BETG-Sub,
respectively, to take, all other actions, and to do, or cause to be done, all
other things necessary, proper or advisable to carry out its obligations under
this Agreement and to consummate and make effective the transactions
contemplated hereby and by the other Basic Agreements, including, without
limitation, the following:
(i) as soon as practicable following the execution of this
Agreement, to make all applications and filings and to use its best
efforts to obtain all other authorizations and consents required to be
obtained by such party or its Affiliates in connection with the
consummation of the transactions contemplated by this Agreement and by
the other Basic Agreements;
(ii) in the event any changes in the structure or the terms of
the transactions or agreements contemplated by this Agreement or by any
of the other Basic Agreements are required to facilitate obtaining the
authorizations required in order to achieve the purposes of the Joint
Venture, to use their best efforts to accommodate such changes to the
extent they would not adversely affect such party's rights or
obligations hereunder (or under any other agreement, document or
instrument contemplated hereby), or have an adverse effect on the
proposed businesses or prospects of the Joint Venture, or such party's
proposed investment in NEWCO; and
(iii) subject to Section 6.1(h), in the event any claim, action,
suit, investigation or other proceeding by any governmental authority or
other person is commenced which questions the validity or legality of
any of the transactions contemplated hereby or by any of the other Basic
Agreements or any injunction or other order is issued in any such
proceeding, to cooperate with the other party hereto regarding the
defense of such proceedings and the removal of any such impediment to
the consummation of such transactions and to use its best efforts to
have such injunction or other order dissolved.
(b) Each of the parties hereto agrees to keep the other parties
hereto informed as to all material developments and communications relating to
the transactions contemplated by this Agreement.
(c) The parties hereto shall use their best efforts to agree on
the Business Plan within 30 days of the date hereof.
(d) The parties hereto shall use their best efforts to agree on
the form of the IRU Agreement within 30 days of the date hereof.
(e) RCN shall use its best efforts to cause MFS to enter into an
agreement on terms and conditions satisfactory to BETG, acting reasonably.
(f) BETG shall use its best efforts to obtain from BECO all
rights necessary to satisfy all of its obligations under the Basic Agreements.
5.2 Public Announcements. Except as required by law, any governmental
agency or any securities exchange, the parties hereto agree to obtain the
prior approval of each other before issuing (or allowing their Affiliates to
issue) any press release, public disclosure or other announcement with respect
to this Agreement or any of the transactions contemplated by this Agreement.
In the event either party hereto is so required by law, any governmental
agency or any securities exchange to make a public disclosure or other
announcement as aforesaid, it shall use its best efforts to afford the other a
reasonable opportunity to review the form and content of the announcement or
disclosure prior to making same.
5.3 Confidentiality. Each of the parties hereto will hold, and will
use its reasonable, good faith efforts to cause its respective shareholders,
partners, members, directors, officers, employees, accountants, counsel,
consultants, agents and financial or other advisors (collectively
"Representatives") to hold, in confidence, all information (whether oral or
written), including this Agreement and the documents contemplated herein,
concerning the transactions contemplated by this Agreement furnished to such
party by or on behalf of any other party in connection with such transactions,
unless legally compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar process, or by order of a
court or tribunal of competent jurisdiction, or in order to comply with
applicable rules or requirements of any stock exchange, government department
or agency or other regulatory authority, or by requirements of any securities
law or regulation or other legal requirement) to disclose any such information
or documents, and except to the extent that such information or documents can
be shown to have been (a) previously known on a nonconfidential basis by such
party, (b) in the public domain through no fault of such party or (c) acquired
by such party on a nonconfidential basis from sources not known by such party
to be bound by any obligation of confidentiality in relation thereto.
Notwithstanding the foregoing provisions of this Section 5.3, each party may
disclose such information to its Representatives in connection with the
transactions contemplated by this Agreement or any of the other Basic
Agreements and to its lenders in connection with obtaining the financing for
the transactions contemplated by this Agreement so long as such
Representatives and lenders are informed by such party of the confidential
nature of such information and are directed by such party to treat such
information confidentially, and to certain governmental agencies in connection
with the procurement of governmental authorizations contemplated by this
Agreement. The obligation of each party to hold any such information in
confidence shall be satisfied if such party exercises the same care with
respect to such information as it would take to preserve the confidentiality
of its own similar information. If this Agreement is terminated, each party
will, and will use its reasonable, good faith efforts to cause its respective
Representatives and lenders to, destroy or deliver to the other party, upon
request, all documents and other materials, and all copies thereof, obtained
by such party or on its behalf from the other party hereto in connection with
this Agreement that are subject to such confidence.
5.4 RCN Telecommunications Services Agreement. In the event that RCN
or any of its Affiliates should procure telecommunications services which
NEWCO can provide, NEWCO and RCN or such Affiliate of RCN shall enter into a
telecommunications agreement with NEWCO upon substantially the same terms and
conditions as the Telecommunications Services Agreement.
5.5 Sale of Fiber. Without the prior written consent of RCN, BETG
shall not, and shall not permit BECO to, sell, lease or transfer any part of
its existing fiber optic network.
ARTICLE 6
REPRESENTATION AND WARRANTIES
-----------------------------
6.1 Representations and Warranties of RCN. RCN represents and
warrants, as of the date hereof, and, as of the Closing Date, as follows:
(a) Organization and Standing. RCN is a corporation duly
incorporated, validly existing and in corporate good standing under the laws
of the State of Delaware.
(b) Authority; Enforceability. RCN has the corporate power and
authority to execute and deliver the Initial Agreements, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Such execution, delivery, performance and
consummation have been duly authorized by all necessary corporate action on
the part of RCN. The Initial Agreements have been duly executed and delivered
by RCN and constitute valid and legally binding obligations of RCN, enforceable
against RCN in accordance with their terms except as such enforceability may
be limited by applicable bankruptcy, insolvency, moratorium, reorganization,
or other laws affecting creditors' rights generally or by the availability of
equitable remedies.
(c) No Conflict. The execution, delivery and performance by
RCN of each of the Initial Agreements (i) do not contravene any provision of
RCN's charter or by-laws; (ii) do not violate or conflict with any law,
regulation or contractual restriction to which RCN is subject; and (iii) shall
not result in the creation of, or violate or conflict with, any Lien upon or
with respect to any of its properties.
(d) Consents and Governmental Authorizations. Except for the RCN
Authorizations and NEWCO Authorizations, no consent, order, approval or
authorization or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due execution,
delivery and performance by RCN and NEWCO of any of the Basic Agreements and
the consummation of the transactions contemplated thereby.
(e) No Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission, or to the
reimbursement of any of its expenses, in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
RCN.
(f) No Undisclosed Partners. RCN has no obligation or
agreement, either actual or contingent, to share any portion of its interest
in NEWCO with any Person.
(g) PUHCA. RCN is not a Holding Company or otherwise subject to
regulation under PUHCA and the execution and delivery of the Initial
Agreements do not cause RCN to become a Holding Company or otherwise subject
to PUHCA.
(h) Litigation. There is no action, suit, proceeding, or
investigation pending or, to the best knowledge of RCN, threatened, against or
affecting RCN, or its properties, assets or business, in any court or before
or by any governmental department, board, agency or instrumentality, or any
arbitrator, that materially affects or impairs RCN's ability to enter into
this Agreement or any other Basic Agreement, or to consummate the transactions
contemplated hereby or thereby.
6.2 Representations and Warranties of BETG. BETG represents and
warrants, as of the date hereof, and, as of the Closing Date, as follows:
(a) Organization and Standing. BETG is a corporation duly
incorporated, validly existing and in corporate good standing under the laws
of the Commonwealth of Massachusetts.
(b) Authority; Enforceability. BETG has the corporate power
and authority to execute and deliver the Initial Agreements, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Such execution, delivery, performance and
consummation have been duly authorized by all necessary corporate action on
the part of BETG. The Initial Agreements have been duly executed and
delivered by BETG and constitute the valid and legally binding obligations of
BETG, enforceable against BETG in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting creditors' rights
generally or by the availability of equitable remedies.
(c) No Conflict. The execution, delivery and performance by
BETG of each of the Initial Agreements (i) do not contravene any provision of
BETG's charter or by-laws; (ii) do not violate or conflict with any law,
regulation or contractual restriction to which BETG is subject; and (iii)
shall not result in the creation of, or violate or conflict with, any Lien
upon or with respect to any of its properties.
(d) Consents and Governmental Authorizations. Except for the
BETG Authorizations, no consent, order, approval or authorization or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
BETG of any of the Basic Agreements and the consummation of the transactions
contemplated thereby.
(e) No Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission, or to the
reimbursement of any of its expenses, in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
BETG.
(f) No Undisclosed Partners. BETG has no obligation or
agreement, either actual or contingent, to share any portion of its interest
in NEWCO with any Person.
(g) PUHCA. BETG is not a Holding Company or otherwise subject to
regulation under PUHCA and the execution and delivery of the Initial
Agreements do not cause RCN to become a Holding Company or otherwise subject
to PUHCA.
(h) Litigation. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of BETG, threatened, against
or affecting BETG or its properties, assets or business, in any court or
before or by any governmental department, board, agency or instrumentality, or
any arbitrator, that materially affects or impairs BETG's ability to enter into
this Agreement or any other Basic Agreement, or to consummate the transactions
contemplated hereby or thereby.
ARTICLE 7
TERMINATION AND EXPENSES
------------------------
7.1 Termination. Notwithstanding anything herein or in any of the
Initial Agreements, this Agreement may be terminated and the Joint Venture
abandoned at any time prior to the Closing Date:
(a) by mutual consent of RCN and BETG;
(b) by either RCN or BETG, if either RCN or BETG receives a
Final Order denying an RCN Authorization, a BETG Authorization or NEWCO
Authorization;
(c) by either RCN or BETG, if the Closing shall not have
occurred on or before June 30, 1997, unless such failure so to consummate
shall be due to the failure of the party seeking to terminate this Agreement
to perform in all material respects each of its obligations under this
Agreement required to be performed by it on or prior to the Closing Date
pursuant to the terms hereof (unless such failure to consummate is due to the
failure to obtain the BETG Authorizations, RCN Authorizations or NEWCO
Authorizations in which case such date shall be extended for an additional
three months);
(d) by RCN, if there has been a material breach of a
representation or warranty in any Initial Agreement by BETG, and BETG fails to
cure such breach within 15 days after notice thereof from RCN, or a material
breach by BETG of any covenant set forth in any Initial Agreement or a failure
of any condition to which the obligations of RCN are subject, and such breach
or failure has not been waived expressly in writing;
(e) by BETG, if there has been a material breach of a
representation or warranty in any Initial Agreement by RCN and RCN fails to
cure such breach within 15 days after notice thereof from BETG or a material
breach by RCN of any covenant set forth in any Initial Agreement or a failure
of any condition to which the obligations of BETG are subject, and such breach
or failure has not been waived expressly in writing;
(f) by either RCN or BETG if a Business Plan is not agreed upon
within 60 days after the date hereof;
(g) by BETG if NEWCO has not presented to BETG a form of
agreement with MFS satisfactory to BETG, acting reasonably, within 60 days
after the date hereof; BETG shall approve or disapprove of such form of
agreement not later than 10 days after presentation by NEWCO; such agreement
shall be signed, in the form so approved, within 20 days after the date of
such approval;
(h) by either BETG or RCN if the form of IRU Agreement has not
been agreed to by them within 60 days after the date hereof; or
(i) by either BETG or RCN if they shall not have determined the
Agreed Value (as defined in the Operating Agreement) of the RCN Contributed
Assets and the BETG Contributed Assets within 60 days after the date hereof.
7.2 Liabilities in Event of Termination. In the event of the
termination and abandonment of this Agreement and the transactions
contemplated hereby, this Agreement shall become void and have no effect, and
RCN, BETG and their respective directors, officers, employees and shareholders
shall have no obligation or liability to each other hereunder, except (a) for
those obligations set forth in Sections 5.2 and 5.3, (b) for any obligations
of RCN and BETG arising from the activities of the Joint Venture prior to such
termination and (c) that nothing herein shall relieve any party from liability
for any breach of this Agreement.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Survival. The representations and warranties of each of the
parties contained in this Agreement shall survive until the Closing.
8.2 Successors and Permitted Assigns; Assignment.
(a) Subject to Section 8.2(b), the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and to the extent applicable heirs,
executors, administrators and legal representatives.
(b) Neither party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the prior written
consent of each of the parties hereto. Notwithstanding the foregoing, a party
may assign its rights and obligations under this Agreement to an Affiliate
provided that the assigning party will continue to be responsible for its
liabilities and obligations hereunder.
8.3 Notices. All notices, requests and other communications hereunder
shall be deemed to have been duly delivered, given or made to or upon any
party hereto if in writing and delivered by hand against receipt, or by
certified or registered mail, postage prepaid, return receipt requested, or to
a courier who guarantees next business day delivery or sent by telecopy (with
confirmation), to such party at its address set forth below or to such other
address as such party may at any time, or from time to time, direct by notice
given in accordance with this Section 8.3.
if to RCN:
RCN Telecom Services, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael A. Adams and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
if to BETG:
Boston Energy Technology Group, Inc.
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant General Counsel
with a copy to:
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114
Fax: (617) 367-2315
Attention: Andrew B. White, Esq.
The date of delivery of any such notice, request or other communication shall
be the earlier of (i) the date of actual receipt or (ii) three business days
after such notice, request or other communication is sent if sent by certified
or registered mail, (iii) if sent by courier who guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
8.4 Amendments and Waivers. (a) Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement,
or in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
8.5 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT
REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF
ANOTHER JURISDICTION. If any provision of this Agreement or its application
to any Person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of such provision to other
Persons or circumstances is not affected and such provision shall be enforced
to the greatest extent permitted by law.
8.6 Arbitration. (a) In the event of any dispute between the parties
hereto as to a matter referred to herein or as to the interpretation of any
part of this Agreement, including but not limited to this Section 8.6 or as to
the determination of any rights or obligations or entitlements arising from or
related to this Agreement or as to the calculation of any amounts payable
under this Agreement, the parties shall refer the matter to their respective
chief executive officers for resolution.
(b) Should the chief executive officers of the respective
parties fail to resolve the dispute within 20 days from such referral, the
parties agree that such dispute will not be referred to any court but will be
referred to binding arbitration, and the provisions of this Section 8.6 shall
apply.
(c) The arbitration shall be governed by the AAA Commercial
Arbitration Rules (the "Rules"), as modified by this Section 8.6 and by the
United States Arbitration Act, 9 U.S.C. Section et seq. (the "Arbitration
Act"). Any conflict between the Rules and the Arbitration Act shall be
decided in favor of the Rules. The party wishing to submit such matter to
arbitration shall give written notice (the "Arbitration Notice") to the
other party (the "Respondent") of its intention to arbitrate. The place of
the arbitration shall be Boston, Massachusetts. The arbitration shall be
conducted, and the final resolution of the dispute (the "Award") shall be
rendered by one arbitrator (the "Arbitrator") to be mutually selected by
the parties. If the parties cannot agree to a mutually acceptable
Arbitrator within seven days of Respondent's receipt of the Arbitration
Notice, the Arbitrator shall be selected in accordance with rule 13 of the
Rules.
(d) All hearings shall be held within 30 days following the
appointment of the Arbitrator. At a time designated by the Arbitrator, each
party shall simultaneously submit to the Arbitrator and exchange with each
other its final proposed Award, and in rendering the final Award, the
Arbitrator shall be limited to choosing the Award proposed by either of the
parties without modification. The Arbitrator shall issue the final Award no
later than 15 days from the completion of the hearings. The Award of the
Arbitrator shall be final and binding. Judgment on any Award may be entered
in any court having jurisdiction thereof.
(e) To the extent that the parties pursue a judicial remedy in
aid of arbitration, each party consents and submits to the non-exclusive
jurisdiction of and venue in the federal courts located in Boston,
Massachusetts (or, in case such a federal court does not have jurisdiction,
the state courts located in Boston, Massachusetts). Each party consents to
service of the notice of arbitration, and any other paper in the arbitration,
by registered mail or personal delivery at its address specified in Section
8.3 hereof. Nothing in this subsection (e) shall limit the jurisdiction of
other courts for purposes of enforcement of a final arbitral Award.
(f) The fact that any party has invoked the provisions of this
Section 8.6 shall be considered to be confidential information under Section
5.3 of this Agreement and shall not relieve either party of any obligations it
may otherwise have to continue performance in accordance with the provisions
of this Agreement.
(g) This agreement to arbitrate a dispute in accordance with
this Section 8.6 and any Award made hereunder shall be binding upon the
successors and assigns and any trustee or receiver of each Member.
8.7 Specific Performance. The parties agree that irreparable damage
will result if this Agreement is not performed in accordance with its terms,
and the parties agree that any damages available at law for a breach of this
Agreement would not be an adequate remedy. Therefore, the provisions hereof
and the obligations of the parties hereunder shall be enforceable in a court
of equity, or other tribunal with jurisdiction, by a decree of specific
performance in aid of arbitration, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such remedies and all other
remedies provided for in this Agreement shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies that the parties may
have under this Agreement, at law or in equity.
8.8 Expenses. All expenses incurred by any party hereto in connection
with the negotiation, preparation and consummation of this Agreement and the
transactions contemplated hereby shall be borne by such party except as
otherwise expressly provided in any provision of this Agreement.
8.9 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signature thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
8.10 Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8.11 Entire Agreement. This Agreement, the Exhibits attached (or to be
attached) hereto and the agreements, documents and instruments contemplated
hereby, constitute the entire agreement between the parties with respect to
the subject matter hereof, and supersede all prior agreements and
understandings, whether oral or written, between or among any of the parties
hereto with respect to the subject matter hereof.
8.12 Interpretation. In any dispute concerning the construction or
interpretation of any provision of this Agreement or any ambiguity thereof,
there shall be no presumption that the Agreement or any provision hereof be
construed against the party who drafted this Agreement.
8.13 Expiration. This Agreement shall be superseded at the Closing by
the Basic Agreements (except the Initial Agreements) and all terms and
conditions of this Agreement shall expire and terminate at such time.
8.14 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each party shall execute and deliver any
additional documents and instruments and perform any additional acts that may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and such transactions.
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
as of the date first set forth above.
RCN TELECOM SERVICES, INC.
By
-----------------------------------
Name: Michael A. Adams
Title: President
BOSTON ENERGY TECHNOLOGY
GROUP, INC.
By
-----------------------------------
Name: Richard S. Hahn
Title: Duly Authorized Signatory
SCHEDULE 1.1(a)
Relevant Market
Areas Included in Relevant Market
- ---------------------------------
The following cities, towns or local municipalities (See Attached Map).
Acton Lexington Walpole
Arlington Lincoln Waltham
Ashland Maynard Watertown
Bedford Medfield Wayland
Bellingham Medway Weston
Boston Millis Westwood
Brookline Milton Winchester
Burlington Natick Woburn
Canton Needham
Carlisle Newton
Chelsea Norfolk
Dedham Sharon
Dover Sherborn
Framingham Somerville
Holliston Stoneham
Hopkinton Sudbury
Note: Boston shall be defined to include Allston, Brighton, Charlestown,
Dorchester, East Boston, Hyde Park, Jamaica Plain, Mattapan, Roslindale,
South Boston and West Roxbury.
Note: The parties, by mutual agreement, may expand the Relevant Market to
include the municipalities of Cambridge, Belmont, Concord, Wellesley,
Norwood, Braintree, Quincy and Weymouth.
SCHEDULE 1.3(a)
BETG AUTHORIZATIONS
I. Authorizations for BECO
1. DPU approval of an increase in BECO's investment in BETG
2. DPU approval of the Telecommunications Services Agreement with
NEWCO
II. Authorizations for BETG
1. Expiration of the H-S-R waiting period
III. Authorizations for BETG-Sub
1. FCC approval of "exempt telecommunications company" (ETC) status
SCHEDULE 1.3(b)
IRU TERMS
A fundamental premise of the NEWCO joint venture is the
contribution by both parties of their special assets and capabilities.
Accordingly, at the Closing RCN shall contribute certain assets to NEWCO,
including its customer base, and will furnish its skill in a cost effective
and timely manner in managing NEWCO. Similarly, at the Closing, BETG's
contribution will be the construction of the Network, utilizing the benefits
which BETG can provide, and the availability of the Network (including the
portions already built) to NEWCO's existing and future customers.
The IRU Agreement shall detail these fundamental contributions by
BETG and its Affiliates. The basic concepts shall be as follows:
1. BETG-Sub shall provide construction services to build out
the Network in a timely and cost-effective manner, as requested by NEWCO from
time to time, so long as such activity does not interfere with BECO's
provision of electric service. The details of the ownership of, and
compensation for, the Network shall be as agreed by the parties.
2. BETG-Sub shall make available to NEWCO, and NEWCO shall
acquire from BETG-Sub, on terms to be negotiated, through an indefeasible
right of use, (a) all of the available capacity of BECO's existing fiber
backbone and (b) the ability to utilize all of the real estate, poles or other
easements, rights-of way, leases, licenses, locations or other interests which
BECO and its Affiliates have contracted or otherwise been granted, or will
contract or be granted hereafter, to the extent necessary for the construction
and operation of the Network.
3. BETG-Sub shall make the Network available to NEWCO through
December 31, 2050 or, if sooner, the termination of the business contemplated
by the Joint Venture Agreement.
4. BETG-Sub shall maintain the Network, as requested by NEWCO.
SCHEDULE 1.3(c)
NEWCO AUTHORIZATIONS
(a) The issuance by the FCC of all necessary authorizations for NEWCO to
provide interstate and international telecommunications services and OVS; and
(b) The issuance by the DPU of all necessary authorizations for NEWCO to
provide intrastate telecommunications services.
SCHEDULE 1.3(d)
RCN AUTHORIZATIONS
(a) Expiration of the H-S-R waiting period.
EXHIBIT 10.8
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
RCN-BECOCOM, LLC
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
-----------
1.1 Certain Definitions............................................ 2
1.2 Other Definitions.............................................. 12
1.3 Construction................................................... 12
ARTICLE 2
ORGANIZATION
------------
2.1 Organization................................................... 12
2.2 Name........................................................... 12
2.3 Registered Office; Registered Agent; Principal Office in the
United States; Other Offices................................... 12
2.4 Purpose........................................................ 13
2.5 Company Powers................................................. 13
2.6 Foreign Qualification Governmental Filings..................... 14
2.7 Term........................................................... 14
2.8 No State-Law Partnership....................................... 14
2.9 Activities of the Members...................................... 14
ARTICLE 3
MEMBERS; DISPOSITIONS OF INTERESTS
----------------------------------
3.1 Members........................................................ 14
3.2 Restrictions on the Disposition of an Interest................. 15
3.3 Change of Control.............................................. 18
3.4 Interests in a Member.......................................... 20
3.5 Liability to Third Parties..................................... 20
ARTICLE 4
CAPITAL CONTRIBUTIONS
---------------------
4.1 Initial Capital Contributions.................................. 20
4.2 Additional Capital Calls....................................... 21
4.3 Failure to Pay a Capital Call.................................. 21
4.4 Return of Contributions........................................ 22
ARTICLE 5
INTENTIONALLY DELETED
---------------------
ARTICLE 6
MEMBER ACCOUNTS; ALLOCATIONS OF PROFIT AND LOSS; DISTRIBUTIONS
--------------------------------------------------------------
6.1 Capital Accounts............................................... 22
6.2 Allocations for Capital Account and Tax Purposes............... 23
ARTICLE 7
MANAGEMENT
----------
7.1 Management by the Members...................................... 26
7.2 Representatives................................................ 27
7.3 Place of Meeting of Representatives............................ 27
7.4 Regular Meetings of Representatives............................ 27
7.5 Special Meetings of Representatives............................ 27
7.6 Representative Compensation; Reimbursement..................... 28
7.7 Manner of Acting and Adjournment of Members.................... 28
7.8 Fundamental Business Actions................................... 28
7.9 Indemnification................................................ 31
7.10 Business Plan; Budget.......................................... 33
ARTICLE 8
RIGHTS OF MEMBERS
-----------------
8.1 Access to Information.......................................... 35
8.2 Audits......................................................... 35
ARTICLE 9
TAXES
-----
9.1 Tax Returns.................................................... 35
9.2 Tax Elections.................................................. 35
9.3 Tax Matters Partner............................................ 35
ARTICLE 10
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
------------------------------------------
10.1 Accounting..................................................... 36
10.2 Fiscal Year.................................................... 36
10.3 Statements and Reports......................................... 36
10.4 Inspection..................................................... 37
10.5 Bank Accounts.................................................. 37
ARTICLE 11
WITHDRAWAL, EXPULSION, BANKRUPTCY, ETC.
---------------------------------------
11.1 Withdrawal..................................................... 37
11.2 Bankrupt Members............................................... 37
ARTICLE 12
TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY
-------------------------------------------------------
12.1 Termination and Dissolution.................................... 38
12.2 Liquidation.................................................... 39
ARTICLE 13
GENERAL PROVISIONS
------------------
13.1 Representations................................................ 40
13.2 Additional Representations of RCN-Sub.......................... 41
13.3 Offset......................................................... 42
13.4 Notices........................................................ 42
13.5 Entire Agreement; Supersedure.................................. 43
13.6 Effect of Waiver or Consent.................................... 43
13.7 Amendment or Modification...................................... 43
13.8 Public Announcements........................................... 44
13.9 Confidentiality................................................ 44
13.10 Binding Effect................................................. 45
13.11 Governing Law; Severability.................................... 45
13.12 Specific Performance........................................... 45
13.13 Further Assurances............................................. 45
13.14 Counterparts................................................... 45
13.15 Interpretation................................................. 45
13.16 Use of Name.................................................... 45
13.17 Continued Support of RCN-Sub................................... 46
This AMENDED AND RESTATED OPERATING AGREEMENT OF RCN-BecoCom, LLC (this
"Agreement") is made and entered into effective as of June 17, 1997 (the
"Effective Date"), by and among the Members (as defined below).
WHEREAS, on December 23, 1996 RCN Telecom Services, Inc., a Delaware
corporation ("RCN"), and Boston Energy Technology Group, Inc., a Massachusetts
corporation ("BETG"), entered into the RCN-BETG, LLC Operating Agreement; and
WHEREAS, Boston Edison Company, a Massachusetts corporation ("BECO"), and
C-Tec Corporation, a Delaware corporation ("C-Tec"), have each executed
instruments of adherence with respect to certain provisions hereof; and
WHEREAS, RCN-BETG, LLC has changed its name to RCN-BecoCom, LLC; and
WHEREAS, RCN and BETG wish to revise the terms of their participations
in RCN-BecoCom, LLC, and to assign their interests therein to their respective
affiliates;
NOW, THEREFORE in consideration of the mutual covenants, rights, and
obligations set forth in this Agreement, the benefits to be derived therefrom,
and other good and valuable consideration, the receipt and the sufficiency of
which each Member acknowledges, the Members agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings:
"AAA" shall have the meaning set forth in Section 3.3(iv).
"Act" means the Massachusetts Limited Liability Company Act, Mass.
Gen. Laws Ann. Ch. 156C, Section 1, et seq. and any successor
statute, as amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as
of the end of the relevant fiscal year of the Company (i) increased by
an amount equal to the sum of such Member's allocable share of the
Company's Minimum Gain attributable to Company Nonrecourse Liabilities
and such Member's allocable share of the Company's Minimum Gain
attributable to Member Nonrecourse Debt, in each case as computed on the
last day of such fiscal year in accordance with applicable Regulations
and (ii) reduced by all reasonably expected adjustments, allocations and
distributions described in Regulations Sections 1.704 -
1(b)(2)(ii)(d)(4), (5) and (6). This definition of Adjusted Capital
Account Deficit is intended to comply with the provisions of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
"Affiliate" means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with that first
Person.
"Agreed Value" of any Contributed Property means the value of such
property or other consideration (a) as agreed by all of the Members and
as listed on Schedule I for that Contributed Property contributed as of
the Closing, and (b) as determined by all of the Members using such
reasonable method of valuation as they may adopt for that Contributed
Property contributed after the Closing; provided, however, that the
Agreed Value of any property deemed contributed to the Company for
federal income tax purposes upon termination and reconstitution thereof
pursuant to Section 708 of the Code shall be determined in accordance
with Section 6.2(c).
"Agreement" has the meaning given that term in the introductory
paragraph hereof.
"Appraiser" has the meaning given that term in Section 3.3(i).
"Appraiser's Certificate" has the meaning given that term in
Section 3.3(ii).
"Arbitrator" has the meaning given that term in Section 7.8(e)(i).
"Arbitration Act" has the meaning given that term in Section
7.8(e)(i).
"Award" has the meaning given that term in Section 7.8(e)(i).
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the benefit of
creditors, (ii) files a voluntary bankruptcy petition, (iii)
becomes the subject of an order for relief or is declared
insolvent in any federal or state bankruptcy or insolvency
proceeding, (iv) files a petition or answer seeking for such
Member a reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law, (v)
files an answer or other pleading admitting or failing to contest
the material allegations of a petition filed against such Member
in a proceeding of the type described in clauses (i)-(iv), (vi)
seeks, consents to, or acquiesces in the appointment of a trustee,
receiver, or liquidator of the Member or of all or any substantial
part of the Member's properties, or
(b) with respect to which (i) a proceeding is commenced
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law and 90
days have expired without the proceeding being dismissed, or (ii)
without that Member's consent or acquiescence, a trustee,
receiver, or liquidator is appointed of that Member or of all or
any substantial part of its properties and 90 days have expired
without the appointment being vacated or stayed, or if stayed, 90
days have expired after the date of expiration of a stay, unless
the appointment has been vacated.
"Basic Agreements" has the meaning set forth in the Construction
and Indefeasible Right of Use Agreement, dated as of the date hereof, by
and between BecoCom and the Company (the "IRU Agreement").
"BecoCom" means BecoCom, Inc., a Massachusetts corporation and a
wholly-owned subsidiary of BETG.
"BecoCom Contributed Assets" means those certain existing assets
listed in footnote 2 of Schedule 1.
"Budget" has the meaning set forth in Section 7.10.
"Business Day" means any day other than a Saturday, a Sunday or a
holiday on which banks in Massachusetts generally are closed.
"Business Plan" has the meaning set forth in Section 7.10 hereof.
"Capital Account" means the capital accounts maintained with
respect to Membership Interests pursuant to Section 6.1.
"Capital Call" means a request for additional contributions of
capital to the Company.
"Carrying Value" means, with respect to any asset, the asset's
adjusted tax basis for federal income tax purposes except as follows:
(a) The initial Carrying Value of any asset contributed to
the Company by a Member shall be the Agreed Value of such asset;
(b) Consistent with the provisions of Section
1.704-1(b)(2)(iv)(f) of the Regulations, the Carrying Value of all
Company assets shall be adjusted to equal their respective gross
fair market values upon the happening of any of the following
events: (i) issuance of additional Membership Interests to new or
existing Members for more than a de minimis amount of cash or
Contributed Property, (ii) immediately prior to a distribution to
a Member of more than a de minimis amount of Company property
(other than a distribution solely of cash that is not in
redemption or retirement of a Membership Interest) in consideration
for an interest in the Company and (iii) the liquidation of the
Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g).
(c) The Carrying Values of Company assets shall be
increased or decreased to reflect any adjustments to the adjusted
basis of such assets pursuant to Section 734(b) or Section 743(b)
of the Code, but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m), Section 6.2(b)(vii)
hereof and paragraph (e) of the definition of Net Income or Net
Loss.
If the Carrying Value of an asset has been determined or adjusted
pursuant to subparagraphs (a), (b) or (c) of the definition for Carrying
Value, such Carrying Value shall be adjusted thereafter by the Depreciation
taken into account with respect to such asset for purposes of computing the
amount of Net Income or Net Loss.
"Cash Capital Contribution" means the amount set forth under the
column "Cash Capital Contribution" on Schedule 1.
"Category A Fundamental Business Actions" has the meaning given
that term in Section 7.8(a).
"Category B Fundamental Business Actions" has the meaning given
that term in Section 7.8(b).
"Certificate" has the meaning given that term in Section 2.1.
"Certificate Date" has the meaning given that term in Section
3.3(ii).
"Change of Control" of a Member shall be deemed to have occurred
when (i) an Entity, other than a Member Parent of such Member or a
Wholly Owned Affiliate of such Member Parent (an "Unaffiliated Entity")
shall acquire (whether by merger, consolidation, sale, assignment,
lease, transfer or otherwise, in one transaction or a series of related
transactions), or otherwise beneficially own, directly or indirectly,
more than 50% of the outstanding voting interests in such Member
entitled to vote generally in the election of directors, managers or
other members of the management group of such Member or otherwise
control such Member (a "Control Entity"), (ii) the Member Parent of such
Member shall otherwise cease to beneficially own a majority of such
outstanding voting securities in such Member or any Control Entity of
such Member, or (iii) an Unaffiliated Entity shall become a Control
Entity of a Member Parent after the Effective Date.
"Code" means the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time.
"Company" means RCN-BecoCom, LLC, a Massachusetts limited liability
company.
"Company Debt" shall have the meaning set forth in Section
2.5(a)(iv).
"Company Nonrecourse Deductions" means, with respect to Company
Nonrecourse Liabilities, the amount of deductions, losses and expenses
equal to the net increase during the year in Minimum Gain attributable
to Company Nonrecourse Liabilities, reduced (but not below zero) by the
proceeds, if any, of such Company Nonrecourse Liabilities distributed
during the year, as determined in accordance with applicable
Regulations.
"Company Nonrecourse Liabilities" means nonrecourse liabilities
(or portions thereof) of the Company for which no Member (or any Person
related to a Member) bears the Economic Risk of Loss.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Act, but excluding cash, contributed to
the Company (or deemed contributed to the Company on termination and
reconstitution thereof pursuant to Section 708 of the Code).
"Control" of an Entity means power to direct or cause the
direction of the management or policies of such Entity, whether through
the ownership of voting securities, by agreement or otherwise.
"Deadlock Event" shall have the meaning set forth in Section
7.8(c)(ii) hereof.
"Default Interest Rate" means three percent above LIBOR.
"Delinquent Member" with respect to a Capital Call means a Member
who fails to pay its portion of such Capital Call at the time and in the
amount required under this Agreement.
"Depreciation" means, for each fiscal year or other relevant
period, an amount equal to the depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or
other relevant period, except that if the Carrying Value of an asset
differs from its adjusted basis for federal income tax purposes at the
beginning of such year, Depreciation shall be an amount which bears the
same ratio to such beginning Carrying Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such
year bears to such beginning adjusted tax basis; provided, however, that
if the adjusted basis for federal income tax purposes of an asset at the
beginning of such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method
selected by the Tax Matters Partner.
"Dispose," "Disposing," or "Disposition" means a sale, assignment,
transfer, exchange, pledge, grant of a security interest, or other
disposition or encumbrance, or the acts thereof.
"Disputing Member" has the meaning given that term in Section
7.8(d)(i).
"Dispute Notice" has the meaning given that term in Section
7.8(d)(i).
"Dispute Price" has the meaning given that term in Section
7.8(d)(i).
"Economic Risk of Loss" has the meaning ascribed to it in Section
1.752-2 of the Regulations.
"Effective Date" has the meaning given that term in the
introductory paragraph hereof.
"Entity" means any corporation, limited liability company, general
partnership, limited partnership, venture, trust, business trust, estate
or other entity.
"Exchange Agreement" means that certain Exchange Agreement entered
into between BecoCom and C-Tec of even date herewith.
"Exchange Securities" means any securities into which a Membership
Interest (or any part thereof) is exchanged pursuant to the Exchange
Agreement.
"Fair Market Value" has the meaning given that term in Section 3.3.
"First Appraiser" has the meaning given that term in Section
3.3(i).
"Fundamental Business Actions" has the meaning given that term in
Section 7.8.
"GAAP" means the generally accepted accounting principles in the
United States of America in effect from time to time.
"General Interest Rate" means a rate per annum equal to the lesser
of (a) a varying rate per annum that is equal to the interest rate
publicly quoted by Citibank, N.A. from time to time as its prime
commercial or similar reference interest rate, with adjustments in that
varying rate to be made on the same date as any change in that rate, and
(b) the maximum rate permitted by applicable law.
"Governmental Entity" has the meaning given that term in Section
2.5(c).
"Higher Value" has the meaning given that term in Section 3.3(iii).
"Holding Company" means a Holding Company as defined in Section
2(a)(7) of PUHCA.
"Initial Capital Contribution" has the meaning given that term in
Section 4.1.
"Initial LLC Agreement" means that certain operating agreement,
dated as of December 23, 1996, entered into by RCN and BETG.
"Investment Percentage" of a Person means the percentage set forth
opposite such Person's name on Schedule 2, as adjusted on account of
Capital Calls (pursuant to Section 4.3), Dispositions (pursuant to
Section 3.2, but not Dispositions in exchange for Exchange Securities
pursuant to the Exchange Agreement) or the disposition of Exchange
Securities received upon an exchange made pursuant to the Exchange
Agreement.
"Joint Investment and Non-Competition Agreement" shall mean that
certain Joint Investment and Non-Competition Agreement entered into by
RCN-Sub, BecoCom and NEWCO of even date herewith.
"LIBOR" means the rate of interest equal to the average (rounded
upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum
at which dollar deposits in immediately available funds are offered in
the London interbank eurodollar market as at or about 2:00 P.M. New York
time on the date the Default Interest Rate becomes effective, adjusted
from time to time as such rate changes.
"Lower Value" has the meaning given that term in Section 3.3(iii).
"Majority Interest" means, in combination, Membership Interests of
one or more Members which, in the aggregate, are entitled to a combined
Sharing Ratio of more than 50%.
"Management Agreement" means that certain Management Agreement
entered into by and among RCN Operating Services, Inc., BecoCom and the
Company of even date herewith.
"Manager" shall have the meaning set forth in Section 7.10(b).
"Member" means any Person executing this Agreement as of the date
hereof as a member or hereafter admitted to the Company as a member as
provided in this Agreement, but does not include any Person who has
ceased to be a member in the Company.
"Membership Interest" means the interest of a Member in the
Company, including, without limitation, such rights to distributions
(liquidating or otherwise), allocations, information and to consent or
approve as shall be provided by law or by this Agreement.
"Member Nonrecourse Debt" means any nonrecourse debt of the
Company for which any Member bears the Economic Risk of Loss.
"Member Nonrecourse Deductions" means, with respect to Member
Nonrecourse Debt, the amount of deductions, losses and expenses equal to
the net increase during the year in Minimum Gain attributable to Member
Nonrecourse Debt, reduced (but not below zero) by the proceeds, if any,
of such Member Nonrecourse Debt distributed during the year to the
Members who bear the Economic Risk of Loss for such debt, as determined
in accordance with applicable Regulations.
"Member Parent" means, with respect to RCN-Sub, RCN (as defined
above), and, with respect to BecoCom, BETG, and their respective
successors and assigns, whether by means of merger, spinoff or otherwise.
"Minimum Gain" means (i) with respect to Company Nonrecourse
Liabilities, the amount of gain that would be realized by the Company if
it disposed of (in a taxable transaction) all Company properties that
are subject to Company Nonrecourse Liabilities in full satisfaction of
such liabilities, computed in accordance with applicable Regulations or
(ii) with respect to each Member Nonrecourse Debt, the amount of gain
that would be realized by the Company if it disposed of (in a taxable
transaction) the Company property that is subject to such Member
Nonrecourse Debt in full satisfaction of such debt, computed in
accordance with applicable Regulations.
"Net Agreed Value" means (i) in the case of any Contributed
Property, the Agreed Value of such property reduced by any liabilities
either assumed by the Company upon such contribution or to which such
property is subject when contributed, and (ii) in the case of any
property distributed to a Member by the Company, the Company's Carrying
Value of such property (as adjusted pursuant to Section 6.2(d)(ii)) at
the time such property is distributed, reduced by any liabilities either
assumed by such Member upon such distribution or to which such property
is subject at the time of distribution, in either case, as determined
under Section 752 of the Code.
"Net Income" or "Net Loss" means, for each fiscal year or other
period, the taxable income or loss of the Company, as determined in
accordance with Section 703 of the Code, with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Income or Net Loss shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i)
and not otherwise taken into account in computing Net Income or
Net Loss shall be subtracted from such taxable income or loss;
(c) In the event that the Carrying Value of any Company
asset is adjusted pursuant to paragraph (b) of the definition for
Carrying Value, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for
purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Carrying Value of the property disposed of, notwithstanding that
the adjusted tax basis of such property differs from its carrying
value;
(e) To the extent that an adjustment to the adjusted tax
basis of any Company asset pursuant to Section 734(b) or Section
743(b) of the Code is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
complete liquidation of a Member's Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing
Net Income or Net Loss;
(f) In lieu of depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, Depreciation shall be taken into account.
(g) Any items which are specially allocated pursuant to
Section 6.2(b) hereof shall not be taken into account in computing
Net Income or Net Loss.
"Nondelinquent Member" has the meaning given that term in Section
4.3(a).
"Notice" has the meaning given that term in Section 7.8(e)(i).
"Other Members" has the meaning given that term in Section
7.8(d)(i).
"Person" means any natural person or Entity.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended from time to time, 15 U.S.C. Section 79-792-6.
"Purchasing Members" has the meaning given that term in Section
11.2.
"RCN Contributed Assets" mean those certain existing assets listed
in footnote 1 of Schedule 1.
"RCN-Sub'" means RCN Telecom Services of Massachusetts, Inc., a
Massachusetts corporation and wholly-owned subsidiary of RCN.
"Regulations" means the final and temporary Income Tax Regulations
promulgated under the Code, as amended from time to time, and including
corresponding provisions of succeeding regulations.
"Relevant Market" means those certain cities and towns, as set
forth on Exhibit F attached hereto.
"Representative" has the meaning given that term in Section 7.2.
"Respondent" has the meaning given that term in Section 7.8(e)(i).
"Rules" has the meaning given that term in Section 7.8(e)(i).
"Second Appraiser" has the meaning given that term in Section
3.3(i).
"Secretary of State" means the Secretary of State of the
Commonwealth of Massachusetts.
"Selling Member's Interest" has the meaning given that term in
Section 3.3.
"Services" means the provision of data, voice, video, other
communications services, and the communications support of
energy-related customer services offered by BECO, to residential and
commercial customers in the Relevant Market or elsewhere.
"Sharing Ratio" with respect to a particular Member means the
percentage set forth opposite such Member's name on Schedule 1, as
adjusted on account of Dispositions (pursuant to Section 3.2 or pursuant
to the Exchange Agreement) or Capital Calls (pursuant to Section 4.3).
"Tax Matters Partner" means such Entity designated by Members
holding Sharing Ratios aggregating more than 50%.
"Third Appraiser" has the meaning given that term in Section
3.3(iv).
"Third Party Sale" has the meaning given that term in Section
3.2(b)(v).
"Third Value" has the meaning given that term in Section 3.3(iv).
"Unrealized Gain" or "Unrealized Loss" attributable to any item of
Company property means, as of any date of determination, the excess or
shortfall, respectively, of (a) the fair market value of such property
as of such date (as determined under Section 6.1(d)) over (b) the
Carrying Value of such property as of such date (prior to any adjustment
to be made pursuant to Section 6.1(d) as of such date).
"Wholly Owned Affiliate" means as to any Entity, (i) an Affiliate
all of the equity interests of which are owned, directly or indirectly,
by a Member or by another Wholly Owned Affiliate of such Member or (ii)
an Affiliate which owns, directly or indirectly, all of the equity
interests of a Member.
1.2 Other Definitions. Other terms defined herein have the meanings
so given them.
1.3 Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter.
All references to Articles and Sections refer to articles and Sections of this
Agreement, and all references to Exhibits are to Exhibits attached hereto,
each of which is made a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
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2.1 Organization. The Company was organized on December 24, 1996
pursuant to a Certificate of Organization filed in the office of the Secretary
of State (the "Certificate") and the Initial LLC Agreement as of December 23,
1996 by and between RCN and BETG. Concurrently with the execution of this
Agreement, RCN is assigning its Membership Interest to RCN-Sub and BETG is
assigning its Membership Interest to BecoCom, and each of BETG and RCN hereby
consents to the admission of RCN-Sub and BecoCom, as the case may be, as a
member, and the withdrawal of RCN and BETG, as the case may be.
2.2 Name. The name of the Company is "RCN-BecoCom, LLC" and all
Company business must be conducted in that name or such other names that
comply with applicable law as the Managers may select from time to time.
2.3 Registered Office; Registered Agent; Principal Office in the
United States; Other Offices. The registered office of the Company in the
Commonwealth of Massachusetts shall be the initial registered office
designated in the Certificate or such other office (which need not be a place
of business of the Company) as the Members may designate from time to time in
the manner provided by law. The registered agent of the Company in the
Commonwealth of Massachusetts shall be the initial registered agent designated
in the Certificate, or such other Person or Persons as the Members may
designate from time to time in the manner provided by law. The principal
office of the Company in the United States shall be at 419 Boylston Street,
Boston, Massachusetts 02199, or such other place(s) as the Members may
designate from time to time, which must be in the Commonwealth of
Massachusetts. The Company may have such other offices as the Members may
determine appropriate.
2.4 Purpose. Subject to Section 7.8, the business purpose of the
Company is (i) to create, lease and operate a network to provide the Services,
(ii) to market the Services to business and residential customers in the
Relevant Market, and (iii) to engage in and carry on any lawful business,
purpose or activity which is approved pursuant to Section 7.8 hereof not
prohibited by the Act or other applicable law.
2.5 Company Powers.
(a) In furtherance of the business purpose specified in Section
2.4 hereof, but subject to the limitations and restrictions set forth in this
Agreement, the Company shall be empowered to do or cause to be done, or omit
to do or cause to be done, any and all acts deemed to be necessary or
advisable in furtherance of the business purpose of the Company, including,
without limitation, the power and authority to:
(i) Have, maintain or close one or more offices within or
without the Commonwealth of Massachusetts and in connection therewith to
rent or acquire office space and to engage personnel;
(ii) Open, maintain and close bank and money market
accounts, including the power to draw checks or other orders for the
payment of moneys, and to invest such funds as are temporarily not
required for Company purposes in short-term investments;
(iii) Bring and defend actions and proceedings at law or
equity before any domestic or foreign governmental or regulatory
authority, agency or commission (each, a "Governmental Entity");
(iv) Have outstanding at any time any indebtedness
(including any indebtedness of subsidiaries) for money borrowed,
guarantee the obligations of others or otherwise become contingently
liable with respect to any indebtedness or obligations of others
(collectively, "Company Debt"), and, in connection therewith, to grant
security interests, if and only if the Company Debt was incurred in
connection with, or for the purpose of entering into, the financing of
the operations of the business of or for other business purposes of the
Company; provided, that "Company Debt" shall, for purposes of this
Agreement, be deemed to include all interest, fees (including commitment,
guaranty and facility fees), expenses thereon and all other amounts due
in respect thereof;
(v) Enter into, perform and carry out contracts and
agreements of every kind necessary or incidental to the accomplishment
of the Company's purposes, and to take or omit to take such other action
in connection with the business of the Company as may be necessary or
desirable to further the purposes of the Company; and
(vi) Carry on any other activities necessary to, in
connection with, or incidental to any of the foregoing or the Company's
business.
(b) Notwithstanding anything in Section 2.5(a) to the contrary,
the Company will not take any action, nor will any Member or officer or
employee of the Company take any action, which, in each such case, would cause
the Company, any Member or any Affiliate of a Member to be in violation of any
applicable statute, rule or regulation of any Governmental Entity.
2.6 Foreign Qualification Governmental Filings. Prior to the Company's
conducting business in any jurisdiction other than the Commonwealth of
Massachusetts, the Members shall cause the Company to comply, to the extent
procedures are available, with all requirements necessary to qualify the
Company as a foreign limited liability company in such jurisdiction. Each
Member shall execute, acknowledge, swear to and deliver all certificates and
other instruments conforming to this Agreement that are necessary or
appropriate to qualify, or, as appropriate, to continue or terminate such
qualification of, the Company as a foreign limited liability company in all
such jurisdictions in which the Company may conduct business.
2.7 Term. The Company commenced on the date the Certificate for the
Company was filed with the Secretary of State, and shall continue in existence
until December 31, 2060.
2.8 No State-Law Partnership. The Members intend that the Company not
be a partnership or limited partnership, and that no Member be a partner of
any other Member, for any purposes other than federal, state and local income
tax purposes, and this Agreement shall not be construed to suggest otherwise.
2.9 Activities of the Members. Except as expressly restricted by the
Joint Investment and Non-Competition Agreement, each Member and its Affiliates
may engage in or hold interests in other business ventures and activities of
any nature, including, without limitation, ventures and activities similar to
those of the Company, and neither the Company nor the other Members shall, by
virtue of this Agreement, have any interest or rights in or to such other
ventures or business or any liability or obligation with respect thereto.
ARTICLE 3
MEMBERS; DISPOSITIONS OF INTERESTS
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3.1 Members. The Members of the Company are the Persons executing
this Agreement and/or Persons admitted as substitute or additional Members
as permitted by this Article 3.
3.2 Restrictions on the Disposition of an Interest.
(a) Except as provided in this Section 3.2 and the Exchange
Agreement, a Disposition by a Member of all or any part of a Membership
Interest may be effected only with the prior express written consent of each
other Member. Any attempted Disposition by a Person of a Membership Interest,
or any part thereof, other than in accordance with this Section 3.2 or the
terms of the Exchange Agreement is void and the Company shall not recognize it.
(b) Subject to the provisions of Section 3.2(c), (d), (e), and
(f) and the Exchange Agreement, from and after the date that is three years
from the Effective Date, a Member may Dispose of part or all of its Membership
Interest provided that the Member who wishes to Dispose of its Membership
Interest (an "Offeror") first offers such Membership Interest to the other
Members (the "Offerees") and Disposes of such Membership Interest in
accordance with the following procedures:
(i) The Offeror shall give written notice of the material
terms of the offer, including the price, terms of payment, the Sharing
Ratio of such Offeror's Membership Interest offered and the Sharing
Ratios of all Membership Interests then held by the Offeror (an "Offer
Notice") to the Offerees and the Company.
(ii) Each Offeree shall have 60 days, commencing with the
date on which it has received the Offer Notice, to purchase all or part
of its proportionate share (to be determined by each Offeree's Sharing
Ratio or by such other basis upon which the Offerees agree) of the
Membership Interest offered. Any Membership Interest which an Offeree
does not elect to purchase may be purchased by the other Offerees in a
proportion equal to that which such Offerees' Sharing Ratios bear to
each other.
(iii) An Offeree may exercise this election to purchase the
Membership Interest by giving the Offeror and the Company written notice
thereof within 30 days of such Offeree's receipt of the Offer Notice,
and the Company shall then specify the date and time of the closing of
the purchase at the Company's principal office, which shall be
reasonably acceptable to the Offeror and the Offerees, but shall not be
later than 60 days following the Offerees' receipt of the Offer Notice
(unless the Offerees and the Offeror agree upon another time and/or
place of closing).
(iv) At the closing, the purchasing Offerees (if any) shall
purchase the Membership Interest at the price and on the terms set forth
in the Offer Notice, and the Offeror shall deliver such usual and
customary documents and instruments of transfer and conveyance.
(v) Should the Offerees fail to purchase all of the
offered Membership Interests specified in the Offer Notice, then the
Offeror shall not be required to Dispose of any of its Membership
Interest to the Offerees, but shall be permitted to Dispose of all (but
not less than all) of the offered Membership Interest specified in the
Offer Notice to a third party on terms no more favorable to the third
party than the terms set forth in the Offer Notice (a "Third Party
Sale"), provided that the Third Party Sale is consummated within 120
days of the date of the Offer Notice.
(vi) In addition to the rights set forth above in this
Section 3.2(b), if an Offeror proposes to sell more than 33% of its
Membership Interest in one or a series of Third Party Sales, whether
related or unrelated, the Offeror shall give notice to the Offerees and
the Company, not less than 30 and not more than 60 days prior to the
consummation of the Third Party Sale, of the material terms of the Third
Party Sale, including the price, terms of payment, and the Sharing Ratio
of such Offeror's Membership Interest offered and the Sharing Ratios of
all Membership Interests then held by the Offeror. Each Offeree who so
elects by written notice (an "Electing Member") to the Company and the
Offeror within 15 days thereafter shall be entitled to sell a portion of
its Membership Interest in the Third Party Sale that is equal to the
proportion that the Sharing Ratio of the Membership Interest being sold,
together with that previously sold, bears to the Sharing Ratio of the
Membership Interest originally owned by the Offeror.
(c) The Company may not recognize for any purpose any purported
Disposition of all or part of a Membership Interest unless and until the other
applicable provisions of this Section 3.2 have been satisfied and each
non-Disposing Member has received, on behalf of the Company, a document
(i) executed by both the Member effecting the Disposition
and the Person to which the Membership Interest or part thereof is
Disposed,
(ii) including the notice address of any Person to be
admitted to the Company as a Member and its agreement to be bound by
this Agreement in respect of the Membership Interest or part thereof
being obtained,
(iii) setting forth the Sharing Ratios after the Disposition
of the Member effecting the Disposition and the Person to which the
Membership Interest or part thereof is Disposed (which together must
total the sum of the Sharing Ratios of such Person and the Member
effecting the Disposition before the Disposition),
(iv) containing representations and warranties by such
Person and such Member that the Disposition was made in accordance with
all applicable laws and regulations (including securities laws) and
(v) containing a condition to closing requiring a
certificate, dated as of the date of the Disposition, duly executed by
such Person, to the effect that the representations and warranties in
Section 3.2 are true and correct with respect to that Person.
Each Disposition complying with the provisions of this Section
3.2(c) is effective as of the first day of the calendar month immediately
succeeding the month in which all requirements of this Section 3.2 have been
met.
(d) Notwithstanding the foregoing, the provisions of this
Section 3.2 shall not apply to any transfer from a Member to its Member
Parent, or a Wholly Owned Affiliate, provided that such transferee shall
comply with all of the requirements of Section 3.2(c) hereof.
(e) For the right of a Member to Dispose of a Membership
Interest or any part thereof and of any Person to be admitted to the Company
in connection therewith to exist or be exercised (if applicable), either (i)
the Membership Interest or part thereof subject to the Disposition or
admission must be registered under the Securities Act of 1933, as amended, and
any applicable state securities laws or (ii) the Company must receive a
favorable opinion of the Company's legal counsel or of other legal counsel
reasonably acceptable to each non-Disposing Member to the effect that the
Disposition or admission is exempt from registration under those laws. Each
non-Disposing Member, however, may waive the requirements of this Section
3.2(e).
(f) The Member effecting a Disposition shall pay, or reimburse
the Company for, all costs incurred by the Company in connection with the
Disposition or admission (including, without limitation, the legal fees
reasonably incurred in connection with the legal opinions referred to in
Section 3.2(e)) on or before the 10th Business Day after the receipt of the
Company's invoice for the amount due by that Person. If payment is not made
by the date due, the Person owing such amount shall pay interest on the unpaid
amount from the date due until paid at a rate per annum equal to the Default
Interest Rate, and such amount may be withheld from any future distributions.
(g) Notwithstanding any other provisions of this Agreement, if
the Investment Percentage of any Member becomes less than 25% (the "Minority
Member"), then for so long as the Minority Member's Investment Percentage
remains below 25%, the other Members (the "Majority Members") shall have the
option to purchase, pro rata based on their respective Investment Percentages,
the Membership Interest (not including any Exchange Securities) of the
Minority Member. The Majority Members (or any one of them) may initiate
procedures to determine the Fair Market Value (as defined in Section 3.3) of
the Membership Interest to be purchased in the manner provided in Section 3.3
below. Within 30 days after such determination of Fair Market Value, the
Majority Members shall purchase, or elect (by notice given to the Minority
Member) not to purchase, the Membership Interest of the Minority Member. Once
the Majority Members initiate procedures to determine Fair Market Value, the
option granted herein shall remain effective for 30 days after such Fair
Market Value is finally determined, regardless of whether, during such time,
the Minority Member's Investment Percentage becomes 25% or greater. If any of
the Majority Members elect not to purchase their pro rata share of the
Minority Member's Membership Interest, the other Majority Members may purchase
such additional share, pro rata based on their respective Investment
Percentages.
3.3 Change of Control. Upon any Change of Control of either RCN-Sub or
BecoCom, the Member subject to the Change of Control shall promptly give
notice thereof to the other Members and the Members not undergoing the Change
of Control shall be entitled to, at any time within a 90-day period following
the later of such notice or the effective date of such Change of Control,
purchase, on a pro rata basis based upon the respective Investment Percentages
(provided that, if any Member elects not to participate in such purchase, the
other Members may purchase their pro rata share), all but not less than all of
the Membership Interest of the Member undergoing the Change of Control, not
including any Exchange Securities held by such Member or its Affiliates (the
"Selling Member's Interest"), at a purchase price equal to the Fair Market
Value of the Selling Member's Interest determined as described below. The
"Fair Market Value", as of the date of determination, of a Selling Member's
Interest shall be determined (1) by mutual agreement of the Members or (2) if
no such agreement is reached within 10 days of the relevant date of
determination, as follows:
(i) Selection of Appraisers. The Member selling the
Selling Member's Interest, on the one hand, and the purchasing Members,
on the other hand, each shall designate by written notice to the Company
and each other Member a firm of recognized national standing familiar
with appraisal techniques applicable to assets of the type being
evaluated to serve as an appraiser (an "Appraiser") pursuant to this
Section 3.3 (the firms designated by the Members being referred to
herein as "First Appraiser" and the "Second Appraiser," respectively)
within 15 business days after the failure to reach agreement in
accordance with the terms of clause (1) above. In the event that either
Appraiser is not designated within the foregoing time period, the other
Appraiser will serve as the only Appraiser, and its appraisal will be
binding on all Members for purposes of this Section 3.3.
(ii) Evaluation Procedures. Each Appraiser shall be
directed to determine the Fair Market Value of the Selling Member's
Interest. Each Appraiser will also be directed to deliver a certificate
(an "Appraiser's Certificate") setting forth such Appraiser's valuation
of the Selling Member's Interest to each Member on or before the 30th
day after their respective designation (the "Certificate Date"), upon
the conclusion of its evaluation, and each Appraiser Certificate once
delivered may not be retracted or modified in any respect. Each
Appraiser will keep confidential all information disclosed by the
Company in the course of conducting its evaluation, and, to that end,
will execute such customary documentation as the Company may reasonably
request with respect to such confidentiality obligation. The Members
will cooperate in causing the Company to provide each Appraiser with
such information within the Company's possession that may be reasonably
requested in writing by the Appraiser for purposes of its evaluation
hereunder. Each Member shall have full access to each Appraiser's work
papers. Each Appraiser will be directed to comply with the provisions
of this Section 3.3, and to that end each party will provide to its
respective Appraiser a complete and correct copy of this Section 3.3
(and the definitions of capitalized terms used in this Section 3.3 that
are defined elsewhere in this Agreement).
(iii) Fair Market Value Determination. The Fair Market
Value of the Selling Member's Interest shall be determined on the basis
of the Appraiser's Certificates in accordance with the provisions of
this subparagraph (iv), provided, that there shall be no "controlling
interest premium" if the Selling Member's Interest has an Investment
Percentage of less than 66 2/3%, nor any "minority interest discount" if
the Selling Member's Interest has an Investment Percentage of greater
than 33 1/3%. The higher of the values set forth on the Appraisers
Certificates is hereinafter referred to as the "Higher Value," and the
lower of such values is hereinafter referred to as the "Lower Value."
If the Higher Value is not more than 110% of the Lower Value, the Fair
Market Value of the Selling Member's Interest will be the arithmetic
average of the Higher Value and the Lower Value. If the Higher Value is
more than 110% of the Lower Value, a third appraiser shall be selected
in accordance with the provisions of subparagraph (iv) below, and the
Fair Market Value of the Selling Member's Interest will be determined in
accordance with the provisions of subparagraph (v) below.
(iv) Selection of and Procedures for Third Appraiser. If
the Higher Value is more than 110% of the Lower Value, within seven days
thereafter the First Appraiser and the Second Appraiser shall agree upon
and jointly designate a third Appraiser (the "Third Appraiser"), by
written notice to each Member. If the First Appraiser and the Second
Appraiser cannot agree upon a Third Appraiser within seven days, the
Third Appraiser shall be chosen by the American Arbitration Association
("AAA") in Boston, Massachusetts. The First Appraiser and the Second
Appraiser shall direct the Third Appraiser to determine the Fair Market
Value of the Selling Member's Interest (the "Third Value") in accordance
with the provisions of subparagraph (ii) above, and to deliver to the
Members an Appraiser's Certificate on or before the 30th day after the
designation of such Appraiser hereunder. The Third Appraiser will be
directed to comply with the provisions of this Section 3.3, and to that
end each of the parties will provide to the Third Appraiser a complete
and correct copy of this Section 3.3 (and the definitions of capitalized
terms used in this Section 3.3 that are defined elsewhere in this
Agreement).
(v) Alternative Determination of Fair Market Value. Upon
the delivery of the Appraiser's Certificate of the Third Appraiser, the
Fair Market Value of the Selling Member's Interest will be determined as
provided in this subparagraph (v). The Fair Market Value of the Selling
Member's Interest will be (w) the Lower Value, if the Third Value is
less than the Lower Value, (x) the Higher Value, if the Third Value is
greater than the Higher Value, (y) the arithmetic average of the Third
Value and either the Higher Value or the Lower Value (whichever is
closer to the Third Value) if the Third Value falls within the range
between (and including) the Lower Value and the Higher Value and (z) the
Third Value, if the Lower Value and the Higher Value are equally close
to the Third Value.
(vi) Costs. Each Member will bear the cost of the
Appraiser designated by it or on its behalf. If the Higher Value is not
more than 115% of the Lower Value, or if the Higher Value and the Lower
Value are equally close to the Third Value, each Member shall bear 50%
of the cost of the Third Appraiser, if any; otherwise, the Member (or
group of Members, pro rata as per their Investment Percentages), whose
Appraiser's determination of the Fair Market Value of the Selling
Member's Interest is further away from the Third Value shall bear the
entire costs of the Third Appraiser. The Members agree to pay when due
the fees and expenses of the Appraisers in accordance with the foregoing
provisions.
(vii) Conclusive Determination. To the fullest extent
provided by law, the determination of the Fair Market Value of the
Selling Member's Interest made pursuant to this Section 3.3 shall be
final and binding on the Company and the Members hereto, and such
determination shall not be appealable to or reviewable by any court or
arbitrator, but judgment on such determination may be entered in any
court having jurisdiction thereof; provided, however, that the foregoing
shall not limit a Member's rights to seek arbitration of the obligations
of the other Members and the Company hereunder.
3.4 Interests in a Member. Notwithstanding the foregoing, without the
prior express written consent of each other Member, no Member shall Dispose of
all or any part of its Membership Interest in such a manner that, after the
Disposition, (i) the Company would be considered to have terminated within the
meaning of Section 708 of the Code if such termination would result in
material adverse tax consequences to the non-transferring Members or (ii) the
Company would become an association taxable as a corporation for federal
income tax purposes.
3.5 Liability to Third Parties. No Member shall have any personal
obligation for any liabilities of the Company, whether such liabilities arise
in contract, tort or otherwise, except to the extent that any such liabilities
are expressly assumed in writing by such Member; provided, however, that
nothing in this Section 3.5 shall be construed as an agreement by the Company
to indemnify or hold harmless any Member.
ARTICLE 4
CAPITAL CONTRIBUTIONS
---------------------
4.1 Initial Capital Contributions. Contemporaneously with the
execution hereof, (a) each Member shall make the Cash Capital Contribution set
forth opposite such Member's name on Schedule 1 (the "Initial Capital
Contribution") (to the extent not previously paid to the Company) and (b) each
of RCN-Sub and BecoCom shall contribute the RCN Contributed Assets and the
BecoCom Contributed Assets, respectively, to the Company and shall receive a
credit to the amount of its Initial Capital Contribution in the amount set
forth on Schedule 1.
4.2 Additional Capital Calls.
(a) Each Member shall be required to make payment when due, in
proportion to its respective Investment Percentage, of all of its share of the
Capital Calls set forth in the then annual Budget, as such may be amended from
time to time.
(b) In addition, subject to the limitations set forth in Section
7.8 hereof, upon 30 days prior written notice to the Members the Company may,
from time to time, issue Capital Calls, requiring the Members to make
additional contributions of capital to the Company in proportion to their
respective Investment Percentages. Capital Calls specifically referred to in
any annual Budget may be made by the chief executive officer of the Company.
4.3 Failure to Pay a Capital Call.
(a) If any Member fails to make payment when due of all or any
portion of its share of a Capital Call (a "Delinquent Member"), the secretary
of the Company shall give written notice of the failure to such Delinquent
Member, with a copy to all other Members. If the Delinquent Member fails to
pay the amount due within 10 days following receipt of notice, the secretary
shall promptly give notice of such failure to the other Members. At any time
within 15 days following receipt of such notice, then, unless the Members
other than the Delinquent Member ("Nondelinquent Members") elect to make
capital contributions in accordance with Section 4.3(b) hereof, (i) the amount
contributed by each Nondelinquent Member pursuant to the Capital Call shall be
treated as a loan to the Company for a term to be specified by such
Nondelinquent Member, bearing interest payable quarterly at the Default
Interest Rate and (ii) each Nondelinquent Member may make an additional loan
to the Company for a term to be specified by such Nondelinquent Member, also
bearing interest payable quarterly at the Default Interest Rate, in an amount
equal to all or any portion of the unpaid contribution. If two or more
Members desire to provide funds under clause (ii) of the preceding sentence,
the total amount of funds provided shall be allocated among such Members in
the same proportion as such Members' then current Sharing Ratios bear to each
other or in such other manner as they may agree.
(b) If a Nondelinquent Member so elects, then in lieu of making
loans to the Company in accordance with Section 4.3(a) hereof, (A) the amount
contributed by such Nondelinquent Member pursuant to the Capital Call shall be
treated as a contribution to the capital of the Company in exchange for an
additional interest in the Company and (B) each Nondelinquent Member may make
an additional contribution of capital to the Company in exchange for an
additional interest in the Company in an amount equal to all or any portion of
the unpaid contribution. If two or more Members desire to make capital
contributions under clause (B) of the preceding sentence, the total amount of
capital to be contributed shall be allocated among such Members in the same
proportion as such Members' then current Investment Percentages bear to each
other or in such other manner as they may agree.
(c) The amounts contributed pursuant to Section 4.3(b) hereof
shall increase the Capital Accounts of the contributing Members in accordance
with the terms of this Agreement. In addition, the Sharing Ratios and
Investment Percentages shall be recalculated (and such recalculated Sharing
Ratios and Investment Percentages shall thereafter apply for all purposes of
this Agreement) such that the Sharing Ratios and Investment Percentages of each
Member shall equal the ratio of its specified Capital Account to the aggregate
specified Capital Account of all of the Members, adjusted, in the case of
Sharing Ratios, to reflect any conversion pursuant to the Exchange Agreement.
(d) Notwithstanding any other provision of this Agreement, if a
Person's Capital Account ever equals $1 and such Person fails to make payment
to the Company of its entire share of the Company's next Capital Call, then
such Person's Investment Percentage and Sharing Ratio shall each equal zero %;
upon the payment of $1 to such Person, such Person's Membership Interest and
all rights hereunder shall be extinguished.
4.4 Return of Contributions. A Member is not entitled to the return
of any part of its Capital Contributions or to be paid interest in respect of
either its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of the other Members. A
Member is not required to contribute or to lend any cash or property to the
Company to enable the Company to return the other Members' Capital
Contributions.
ARTICLE 5
INTENTIONALLY DELETED
---------------------
ARTICLE 6
MEMBER ACCOUNTS; ALLOCATIONS OF PROFIT AND LOSS; DISTRIBUTIONS
--------------------------------------------------------------
6.1 Capital Accounts.
(a) A Capital Account shall be established and maintained for
each Member in accordance with the rules of Section 1.704-1(b)(2)(iv) of the
Regulations. Such Capital Account shall be increased by (i) the amount of
cash and the Net Agreed Value of all property transferred to the Company as
Capital Contributions with respect to such Member's Interest pursuant to this
Agreement and (ii) the amount of Net Income allocated to the Member pursuant
to Article 6 hereof, and decreased by (iii) the amount of cash and the Net
Agreed Value of all actual and deemed distributions of cash or property made
with respect to such Interest pursuant to this Agreement and (iv) the amount
of Net Loss allocated to the Member pursuant to Article 6 hereof.
(b) A transferee of a Membership Interest shall succeed to a pro
rata portion of the Capital Account of the transferor relating to the
Membership Interest so transferred; provided, however, that, if the transfer
causes a termination of the Company under Section 708(b)(1)(B) of the Code,
the rules under the Regulations promulgated under Section 708 of the Code
shall govern the treatment of the Company and the Members upon a termination
of the Company pursuant to Section 708 of the Code.
(c) Capital Accounts shall be adjusted, in a manner consistent
with this Section 6.1, to reflect any adjustments in items of the Company's
income, gain, loss or deduction that result from amended returns filed by the
Company or pursuant to an agreement by the Company with the Internal Revenue
Service or a final court decision.
6.2 Allocations for Capital Account and Tax Purposes.
(a) Net Income and Net Losses. After giving effect to the
special allocations set forth in Section 6.2(b), Net Income and Net Loss for
each taxable period shall be allocated as set forth below.
(i) Net Income shall be allocated between the Members in
the following manner:
(A) First, to each Member having a deficit balance
in its Capital Account, in the proportion that such deficit
balance bears to the total deficit balances in the Capital
Accounts of all Members, until each such Member has been allocated
Net Income equal to any such deficit balance in its Capital
Account;
(B) Second, to the Members previously allocated Net
Loss under Section 6.2(a)(ii)(A) pro rata to the extent of such
Net Loss previously allocated and not otherwise previously
recouped under Section 6.2(a)(i)(A) or this Section 6.2(a)(i)(B);
(C) Third, to the Members in accordance with their
respective Sharing Ratios.
(ii) Net Loss shall be allocated to the Members in the
following manner:
(A) First, to the Members in proportion to, and to
the extent of, the positive balances in their respective Capital
Accounts; and
(B) Second, the balance, if any, to the Members in
accordance with their respective Sharing Ratios.
(b) Special Allocations. Notwithstanding any other provision of
this Section 6.2, the following special allocations shall be made in the
following order:
(i) Company's Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 6.2, if there is a net decrease in
Minimum Gain attributable to Company's Nonrecourse Liabilities during
any Company taxable period, each Member shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Sections 1.704-2(f)(1)
and (6), 1.704-2(g)(2) and 1.704-1(j)(2)(i) of the Regulations, or any
successor provisions. For purposes of this Section 6.2(b), each
Member's Capital Account balance shall be determined, and the allocation
of income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 6.2(b)
with respect to such taxable period (other than allocations pursuant to
Sections 6.2(b)(v) and 6.2(b)(vi)). This Section 6.2(b)(i) is intended
to comply with the "partnership minimum gain chargeback" requirement in
Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
(ii) Chargeback of Member Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.2 (other than
Section 6.2(b)(i)), except as provided in Section 1.704-2(i)(4) of the
Regulations, if there is a net decrease in Minimum Gain attributable to
Member Nonrecourse Debt during any Company taxable period, any Member
with a share of Minimum Gain attributable to such Member Nonrecourse
Debt at the beginning of such taxable period shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Sections 1.704-2(i)(4)
and 1.704-2(j)(2)(ii) of the Regulations, or any successor provisions.
For purposes of this Section 6.2(b)(ii), each Member's Capital Account
balance shall be determined, and the allocation of income or gain
required hereunder shall be effected, prior to the application of any
other allocations pursuant to this Section 6.2(b), other than Sections
6.2(b)(i), 6.2(b)(v) and 6.2(b)(vi), with respect to such taxable
period. This Section 6.2(b)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(iii) Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations or distributions
described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income
and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations
promulgated under Section 704(b) of the Code, its Adjusted Capital
Account Deficit created by such adjustments, allocations or
distributions as quickly as possible unless such deficit balance is
otherwise eliminated pursuant to Section 6.2(b)(i) or (ii).
(iv) Gross Income Allocations. In the event any Member has
a deficit balance in its Capital Account at the end of any Company
taxable period in excess of the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of
Regulations Section 1.704-2(g)(1) and Section 1.704-2(i)(5), such Member
shall be specially allocated items of Company gross income and gain in
the amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 6.2(b)(iv) shall be made only if and
to the extent that such Member would have a deficit balance in its
Capital Account after all other allocations provided for in this Section
6.2(b) have been tentatively made as if this Section 6.2(b)(iv) were not
in this Agreement.
(v) Company Nonrecourse Deductions. Company Nonrecourse
Deductions for any taxable period shall be allocated to the Members in
accordance with their respective Sharing Ratios. If the Members
determine in their good faith discretion that the Company's Nonrecourse
Deductions must be allocated in a different ratio to satisfy the safe
harbor requirements of the Regulations promulgated under Section 704(b)
of the Code, the Members are authorized to revise the prescribed ratio
to the numerically closest ratio that does satisfy such requirements.
(vi) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any taxable period shall be allocated 100% to the Member
that bears the Economic Risk of Loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Section 1.704-2(i) of the Regulations.
If more than one Member bears the Economic Risk of Loss with respect to
a Member Nonrecourse Debt, such Member Nonrecourse Deductions
attributable thereto shall be allocated between or among such Members in
accordance with the ratios in which they share such Economic Risk of
Loss.
(vii) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Company asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in
determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset), or loss (if the adjustment decreases
such basis), and such item of gain or loss shall be specially allocated
to the Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of
the Regulations.
(viii) Any special allocations of items of income or gain
pursuant to Section 6.2(b)(iii) or (iv) shall be taken into account in
computing subsequent allocations pursuant to Section 6.2(a) so that, for
each Member, the net amount of any such special allocations and all
allocations pursuant to Section 6.2(a) shall, to the extent possible, be
equal to the net amount that would have been allocated to such Member
pursuant to the provisions of Section 6.2(a) without application of
Section 6.2(b)(iii) or (iv).
(c) Special Rules.
(i) It is intended that (a) the Capital Accounts be
maintained at all times in accordance with Section 704 of the Code and
applicable Regulations, (b) the Capital Accounts be increased or
decreased by any items required by the Regulations under Section 704(b)
of the Code to increase or decrease, respectively, a Member's Capital
Account, and (c) the provisions hereof relating to the Capital Accounts
be interpreted in a manner consistent therewith. The Members shall be
authorized to make appropriate amendments to the allocations of items
pursuant to this Section 6.2 if necessary in order to comply with
Section 704 of the Code or applicable Regulations thereunder.
(ii) All items of income, gain, loss, depreciation,
amortization and cost recovery deductible in respect of Contributed
Property for federal income tax purposes shall be allocated among the
Members in the manner provided under Section 704(c) of the Code that
takes into account the variation between the Agreed Value of such
property and its adjusted tax basis at the time of contribution. In the
event that the Carrying Value of any Company asset is adjusted pursuant
to paragraph (b) of the definition of Carrying Value hereof, subsequent
allocations of income, gain, loss and deduction with respect to such
asset shall take account any variation between the adjusted tax basis of
such asset and its Carrying Value in the same manner as under Section
704(c) of the Code and the Regulations thereunder.
(iii) Company Nonrecourse Liabilities. For purposes of
Section 1.752-3(a)(3) of the Regulations, the Members agree that Company
Nonrecourse Liabilities in excess of the sum of (A) the amount of
Minimum Gain attributable to Company Nonrecourse Liabilities and (B) the
total amount of taxable gain, if any, that would be allocated to the
Members under Section 704(c) of the Code if the Company were to dispose
of all Company assets (in a taxable transaction) subject to one or more
Company Nonrecourse Liabilities in full satisfaction thereof shall be
allocated among the Members in accordance with their respective Sharing
Ratios.
ARTICLE 7
MANAGEMENT
----------
7.1 Management by the Members. The business and affairs of the
Company shall be managed by the Members, subject to the binding effect of the
Management Agreement. The Members shall delegate authority to such officers,
employees, agents and/or representatives of the Company as they may from time
to time deem appropriate; provided, however, that for as long as the
Investment Percentage of BecoCom is at least 33 1/3%, BecoCom shall be entitled
to (i) appoint a qualified individual to serve as the Company's chief
financial officer; and (ii) appoint one full-time staff member serving the
Company in an operational capacity. Notwithstanding the immediately preceding
sentence, in the event RCN-Sub or an Affiliate of RCN-Sub is not the manager
under the Management Agreement, and for so long as the Sharing Ratio of
RCN-Sub is at least 33 1/3%, RCN-Sub shall be entitled to (A) appoint a
qualified individual to serve as a senior executive officer of the Company;
and (B) appoint one full-time staff member serving the Company in an
operational capacity. Any delegation of authority to take any action must be
approved in the same manner as would be required for the Members to directly
approve such action. No Member shall take any action in the name of or on
behalf of the Company, including without limitation assuming any obligation or
responsibility on behalf of the Company, unless such action, and the taking
thereof by such Member, shall have been expressly authorized by the Members or
shall be expressly and specifically authorized by this Agreement.
7.2 Representatives. The Members shall designate an aggregate of five
representatives (each, a "Representative"), pro rata in accordance with their
respective Investment Percentages rounded to the nearest whole number
(initially three Representatives appointed by RCN-Sub and two Representatives
appointed by BecoCom), to take any action required to be taken by Members
hereunder and to serve as an operating committee. Such appointment shall be
effected by written notice given to the Company and to each of the other
Members. In the event any Member appoints more than one Representative, each
other Member may rely on the action of any Representative as constituting the
actions of its Member. Each such representative shall be an officer or
employee or former employee of a Member or an Affiliate thereof.
7.3 Place of Meeting of Representatives. The Representatives may hold
their meetings at such place or places within or outside the Commonwealth of
Massachusetts as the Members holding Investment Percentages aggregating at
least 66 2/3% may from time to time determine or as may be designated in the
notice calling the meeting. If a meeting place is not so designated, the
meeting shall be held at the Company's principal office. Representatives may
participate by means of a conference telephone or similar communications
equipment by means of which all persons participating can hear each other, and
such participation shall constitute presence in person at the meeting.
7.4 Regular Meetings of Representatives. Regular meetings of the
Representatives may be held without notice at such time and place as shall be
designated from time to time by resolution of Members holding Investment
Percentages aggregating at least 66 2/3%, but such meetings shall be held at
least monthly through December 1998 unless otherwise specified by the Members.
If the date fixed for any such regular meeting is a Saturday, Sunday or legal
holiday under the laws of the state where such meeting is to be held, then the
meeting shall be held on the next succeeding business day or at such other
time as may be determined by resolution of Members holding Investment
Percentages aggregating at least 66 2/3%. At such meetings the
Representatives shall transact such business as may properly be brought before
the meeting.
7.5 Special Meetings of Representatives. Special meetings of the
Representatives may be called by any Member or by the chief executive officer
of the Company. Notice of each such meeting shall be given to each
Representative by telephone, telecopy, telegram or similar method (in which
case notice shall be given at least three days before the time of the meeting)
or sent by first-class mail (in which case notice shall be given at least
three days before the meeting), unless otherwise specified by the
Representatives. Each such notice shall state the time, place and purpose of
the meeting to be so held.
7.6 Representative Compensation; Reimbursement. Representatives shall
receive no compensation for performing their duties under this Agreement;
provided, however, that one Representative of each of the Members shall be
entitled to receive, out of Company funds available therefor, reimbursement of
all amounts expended by such Representative in payment of reasonable expenses
incurred by such Representative in attending meetings of the Representatives.
7.7 Manner of Acting and Adjournment of Members. Any action of the
Members shall require the affirmative vote (in person, by proxy or by written
consent) by the Representatives of Members holding a majority of the
Investment Percentages of all Members, unless otherwise required in this
Agreement.
7.8 Fundamental Business Actions. Notwithstanding anything to the
contrary set forth in this Agreement, for as long as BecoCom's Investment
Percentage is at least 33 1/3% the actions set forth below ("Fundamental
Business Actions") may not be taken by the Company without the affirmative
vote or consent of Members holding Investment Percentages aggregating at least
66 2/3%; Fundamental Business Actions shall be categorized as follows:
(a) Category A Fundamental Business Actions ("Category A
Fundamental Business Actions") shall mean:
(i) a merger, consolidation or reorganization of the
Company or a disposition of substantially all of its assets;
(ii) the issuance by the Company of any equity or
equity-like instruments including effecting an initial public offering
of equity securities;
(iii) voluntary liquidation, dissolution or winding-up of
the Company, except as specifically provided in Section 12.1, or
voluntary initiation by and with respect to the Company of bankruptcy or
similar proceedings;
(iv) amendments to the Company's Certificate of
Organization, this Agreement, or any of the Basic Agreements,
(v) expansion of the operations of the Company beyond the
Services; or
(vi) any acquisition of any other business which has a
purchase price of $1,000,000 or more.
(b) Category B Fundamental Business Actions ("Category B
Fundamental Business Actions") shall mean:
(i) individual capital expenditures in excess of 25% of
the amount set forth for such capital expenditures in the Budget during
any fiscal year;
(ii) capital commitments in aggregate in excess of 25% of
the amount set forth in the Budget during any fiscal year;
(iii) transactions with Affiliates in excess of $50,000
singularly or $500,000 in the aggregate in any fiscal year (except as
set forth in the Basic Agreements);
(iv) incurrence of Company Debt in excess of $5,000,000 in
the aggregate;
(v) guarantees made by the Company involving matters in
excess of $5,000,000 in the aggregate;
(vi) annual expenditures that exceed the amount set forth
in the Budget by more than 33% during any fiscal year;
(vii) appointment of and any change in the auditors of the
Company;
(viii) the granting of any lien to secure any debt to any
Member or any Affiliate of a Member; or
(ix) except as otherwise provided in Section 12.2, any
distribution of cash or other assets to the Members.
(c) Upon the occurrence of a dispute of any matter under this
Section 7.8, the Members shall first use their good faith efforts to resolve
such matter in a mutually satisfactory manner. If, after seven days from the
date on which any Member notifies the other Members that a dispute exists, the
Members cannot reach a mutually satisfactory solution, the Members shall
resolve such matter as provided herein:
(i) Each Member shall immediately refer the matter to its
chief executive officer for resolution of the matter.
(ii) Should the chief executive officers of the respective
Members fail to resolve the matter within 20 days from such referral,
the matter shall be considered a deadlock event (a "Deadlock Event"),
and shall be resolved in accordance with the provisions of paragraphs
(d) or (e) below, as the case may be.
(d) In the event of any Deadlock Event arising from a Category A
Fundamental Business Action, the parties agree that such Deadlock Event will
not be referred to any court but that one or more Members shall purchase the
entire Membership Interest of the other Member (not including Exchange
Securities held by such Member or its Affiliates) in accordance with the
provisions of this Section 7.8(d).
(i) Any Member (the "Disputing Member") may submit a
notice (a "Dispute Notice") to the other Members (the "Other Members")
within 60 days of the date the matter becomes a Deadlock Event. The
Dispute Notice shall set forth, in reasonable detail, the nature of the
dispute and the price (the "Dispute Price") at which the Disputing
Member is willing to either sell its Membership Interest to the Other
Members or purchase all Membership Interests from the Other Members.
(ii) The Dispute Price shall be determined by selecting a
price for the entire Company, and pro-rating such price by the Sharing
Ratio of the Membership Interest to be purchased or sold.
(iii) Within 30 days after the Other Members' receipt of the
Dispute Notice, the Other Members will signify in writing their
election, whether to buy the Disputing Member's Membership Interest at
the Dispute Price or to sell their Membership Interest at the Dispute
Price. If the Other Members fail to make such election within such 30
day period, the Disputing Member may, within 15 days thereafter, elect
to buy the Other Members' Membership Interests.
(iv) Each Member agrees to execute and deliver all deeds,
assignments, releases, agreements, receipts or other documents necessary
to consummate the transfer of the Membership Interests being sold and
delivered upon payment by the purchasing Member of the consideration
provided for in the Dispute Notice.
(v) The closing of the purchase and sale pursuant to this
Section 7.8(d) shall occur no later than 30 days following the receipt
of the election by the Disputing Member or the Other Members, as the
case may be.
(e) In the event of any Deadlock Event arising from a Category B
Fundamental Business Action or pursuant to Section 7.10(d), the parties agree
that such Deadlock Event will not be referred to any court but will be
referred to binding arbitration, and the provisions of this Section 7.8(e)
shall apply.
(i) The arbitration shall be governed by the AAA
Commercial Arbitration Rules (the "Rules"), as modified by this
Section 7.8(e), and by the United States Arbitration Act, 9 U.S.C.
Section 1 et seq. (the "Arbitration Act"). Any conflict between the
Rules and the Arbitration Act shall be decided in favor of the Rules.
The Member wishing to submit such matter to arbitration shall, within
seven days of the date the matter in dispute becomes a Deadlock
Event, give written notice (the "Notice") to the other Member (the
"Respondent") of its intention to arbitrate. The place of the
arbitration shall be Boston, Massachusetts. The arbitration shall be
conducted, and the final resolution of the Deadlock Event (the
"Award") shall be rendered by one arbitrator (the "Arbitrator") to be
mutually selected by the Members. If the Members cannot agree to a
mutually acceptable Arbitrator within seven days of Respondent's
receipt of the Notice, the Arbitrator shall be selected in accordance
with rule 13 of the Rules.
(ii) All hearings shall be held within 30 days following
the appointment of the Arbitrator. At a time designated by the
Arbitrator, each party shall simultaneously submit to the Arbitrator and
exchange with each other its final proposed Award, and in rendering the
final Award, the Arbitrator shall be limited to choosing the Award
proposed by either of the parties without modification. The Arbitrator
shall issue the final Award no later than 15 days from the completion of
the hearings. The Award of the Arbitrator shall be final and binding.
Judgment on any Award may be entered in any court having jurisdiction
thereof.
(iii) To the extent that the parties are permitted under
this Section 7.8(e) to pursue a judicial remedy in aid of arbitration,
each party consents and submits to the non-exclusive jurisdiction of and
venue in the federal courts located in Boston, Massachusetts (or, in
case such a federal court does not have jurisdiction, the state courts
located in Boston, Massachusetts). Each party consents to service of
the notice of arbitration, and any other paper in the arbitration, by
registered mail or personal delivery at its address specified in Section
13.3 hereof. Nothing in this subsection (iii) shall limit the
jurisdiction of other courts for purposes of enforcement of a final
arbitral Award.
(iv) The fact that any party has invoked the provisions of
this Section 7.8(e) shall be considered to be confidential information
under Section 13.9 of this Agreement and shall not relieve either party
of any obligations it may otherwise have to continue performance in
accordance with the provisions of this Agreement.
(v) This agreement to arbitrate a Deadlock Event in
accordance with this Section 7.8(e) and any Award made hereunder shall
be binding upon the successors and assigns and any trustee or receiver
of each Member.
7.9 Indemnification.
(a) Subject to paragraph (c) below, the Company shall indemnify,
defend and hold harmless any Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or on behalf of a Member), by reason of the fact that he is
or was a Representative or officer of the Company, or is or was an officer of
the Company serving at the request of the Company as a manager, director,
officer, employee or agent of another Entity against expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) Subject to paragraph (c) below, the Company shall indemnify
any Person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by or on behalf of
a Member to procure a judgment in its favor by reason of the fact that he is
or was a Representative or officer of the Company, or is or was an officer of
the Company serving at the request of the Company as a manager, director,
officer, employee or agent of another Entity against expenses (including
reasonable attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Company; except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable unless and only to the extent that the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
(c) Any indemnification under this Section 7.9 (unless ordered
by a court) shall be made by the Company only as authorized in the specific
case upon a determination that indemnification of the Representative or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (a) or (b) above. Such
determination shall be made (i) by a majority vote of the disinterested
Members, or (ii) if the Members so direct, by independent legal counsel in a
written opinion. Notwithstanding the foregoing, to the extent, however, that
a Representative or officer of the Company has been successful on the merits
or otherwise in defense of any action, suit or proceeding described above, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including reasonable attorneys' fees) actually and
reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
(d) For purposes of any determination under this Section 7.9, a
person shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, to have had no
reasonable cause to believe his conduct was unlawful, if his action is based
on the records or books of account of the Company or another enterprise, or on
information supplied to him by the officers of the Company or another
enterprise in the course of their duties, or on the advice of legal counsel
for the Company or another enterprise or on information or records given or
reports made to the Company or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Company or another enterprise. The term "another enterprise" as
used in this paragraph (d) shall mean any Entity which such person is or was
serving at the request of the Company.
(e) Notwithstanding the foregoing, any Representative or officer
may apply to any court of competent jurisdiction in the Commonwealth of
Massachusetts for indemnification to the extent otherwise permissible under
paragraphs (a) and (b) above by reason of the fact that he has met the
applicable standard of conduct. If successful, in whole or in part, the
Representative or officer seeking indemnification shall also be entitled to be
paid the expense of prosecuting such application.
(f) Expenses incurred by a Representative or officer in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Company in advance of the final disposition thereof upon
receipt of an undertaking to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in this Section 7.9.
(g) The indemnification and advancement of expenses in this
Section 7.9 shall not be deemed exclusive of any other rights which may apply,
it being the policy of the Company that indemnification of the persons
specified in paragraphs (a) and (b) above shall be made to the fullest extent
permitted by law. The provisions of this Section 7.9 shall not preclude the
indemnification of any person who is not specified herein but whom the Company
has the power or obligation to indemnify under the Act, or otherwise.
(h) The Company may purchase and maintain insurance on behalf of
the persons specified in Section 7.9(a) against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Company would have the power or the obligation to
indemnify him under this Section 7.9.
(i) The indemnification and advancement of expenses provided by
this Section 7.9 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a Representative or officer and
shall inure to the benefit of the heirs, executors and administrators of such
a person.
(j) Except for proceedings to enforce rights to indemnification
(which shall be governed by paragraph (e) above), the Company shall not be
obligated to indemnify any Representative or officer in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Members.
7.10 Business Plan; Budget. (a) All of the Members have adopted an
initial one-year business plan for the Company and shall cause to be prepared
an annual business plan for each succeeding year. Each business plan shall
include (i) an operating budget, (ii) a budget for capital expenditures, (iii)
a budget for capital contributions required from the Members (collectively,
the "Budget"), (iv) sales and marketing plan, (v) financial pro forma balance
sheet, income statement and statement of cash flows, and (vi) performance
milestones (collectively, a "Business Plan"). Once approved as provided in
this Section 7.10, the Budget may not be revised without the approval of
Members with Investment Percentages aggregating at least 66 2/3%. The
methodology for allocation of overhead in each Business Plan shall be that
utilized in the initial one-year Business Plan, unless an alternative
allocation method shall be agreed to by the Members with Investment
Percentages aggregating at least 66 2/3%.
(b) Each Budget shall set forth the operations of the Company
(including provision for employee incentive compensation, employee benefits
and compensation pursuant to the Management Agreement) between January 1 to
December 31 of the applicable year and shall be prepared by the manager (the
"Manager") of the Company (pursuant to the terms of the Management Agreement).
A preliminary budget shall be delivered to the Members by the Manager no later
than October 15 of the previous year. The Manager shall consult with Members,
as it deems appropriate, in the process of preparing such preliminary budget.
Each Member shall thereafter have 30 days to review the preliminary budget and
to propose revisions. The Manager and each Member shall then have an
additional 30 days to resolve any differences in and to finalize the Budget.
If, after such additional 30 day period, any Member continues to object to any
line item of such preliminary budget, such Member may deliver written notice
(the "Budget Dispute Notice") to the Manager, specifying in reasonable detail
its objections. Any Member who does not submit a Budget Dispute Notice within
the given time shall be deemed to have accepted the preliminary budget in its
entirety, which then shall become the Budget.
(c) If a Member submits a Budget Dispute Notice, the matter
shall be referred to the chief executive officers of the respective Members
for resolution.
(d) Should the chief executive officers of the respective
Members fail to resolve the matter within 20 days after such referral, the
matter shall be considered a Deadlock Event, to be resolved in accordance with
the provisions set forth in Section 7.8(e). Pending the resolution of such
Deadlock Event, (i) all line items not in dispute in the preliminary budget
shall take effect and (ii) (a) with respect to the 1998 and 1999 Budgets, the
amount budgeted in the previous year will be in effect, as if restated in the
new Budget, for those line items in dispute and (b) thereafter, the actual
amounts spent on the disputed line items in the previous year will be in
effect, as if restated in the new Budget, for those line items in dispute.
(e) At such time as all disputes on the preliminary budget have
been resolved, the preliminary budget as so resolved shall become the Budget.
ARTICLE 8
RIGHTS OF MEMBERS
-----------------
8.1 Access to Information. In addition to the other rights
specifically set forth in this Agreement, each Member shall have access to all
information to which a Member is entitled to have access pursuant to the Act
and such other information regarding the Company and its business and affairs,
as it may reasonably request from time to time.
8.2 Audits. Each Member shall have the right to conduct, or cause to
be conducted, from time to time, but in any case no more than once in any
calendar year, an audit of the books and records of the Company. Such audit
shall be conducted during normal business hours in a manner so as not to
disrupt the normal business operations of the Company. The Member conducting,
or causing to be conducted, the audit shall bear the entire expense of the
audit.
ARTICLE 9
TAXES
-----
9.1 Tax Returns. The Tax Matters Partner shall cause to be prepared
and filed all necessary federal and state income tax returns for the Company,
including making the elections described in Section 9.2. Each other Member
shall furnish to the Tax Matters Partner all pertinent information in its
possession relating to Company operations that is necessary to enable the
Company's income tax returns to be prepared and filed. The Tax Matters Partner
shall prepare all federal and state tax returns on a timely basis and shall
furnish to each other Member copies of returns that are actually filed
promptly after their filing.
9.2 Tax Elections. The Company shall make such elections on tax
returns as are deemed appropriate by the Tax Matters Partner. It is the
intent of the Members that the Company be treated as a partnership for federal
income tax purposes and, to the extent permitted by applicable law, for state
and local franchise and income tax purposes, and the Company will make any
election to achieve that status. Neither the Company nor any Member may make
an election for the Company to be excluded from the application of the
provisions of subchapter K of chapter 1 of subtitle A of the Code or any
similar provisions of applicable state or local law, and no provision of this
Agreement (including, without limitation, Section 2.8) shall be construed to
sanction or approve such an election.
9.3 Tax Matters Partner. The Tax Matters Partner shall take such
action as may be necessary to cause each other Member to become a "notice
partner" within the meaning of Section 6223 of the Code. The Tax Matters
Partner shall inform each other Member of all significant matters that may
come to its attention in its capacity as tax matters partner by giving notice
thereof on or before the fifth Business Day after becoming aware thereof and,
within that time, shall forward to each other Member copies of all significant
written communications it may receive in that capacity. The Tax Matters
Partner may take any action contemplated by Sections 6222 through 6232 of the
Code without the consent of each other Member, but this sentence does not
authorize the Tax Matters Partner to take any action left to the determination
of an individual Member under Sections 6222 through 6232 of the Code.
ARTICLE 10
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
------------------------------------------
10.1 Accounting. Except as may be otherwise agreed to by Members
holding Investment Percentages aggregating at least 66 2/3%, the Company will
maintain books and records for tax purposes in accordance with federal income
tax accounting principles utilizing the accrual method of accounting, and for
accounting purposes in accordance with GAAP. In addition, the Company shall
cause to be prepared with respect to each fiscal year of the Company financial
statements based on GAAP. Appropriate records will be kept so that upon each
closing of the Company books it is possible to determine, among other items
defined in this Agreement, (i) the amount of capital (whether in cash or as a
Contributed Asset) actually contributed by each Member; (ii) the amount of
cash or other property distributed to each Member; (iii) the effect of all
Company items of profit, loss, income, gain, loss, deduction or credit on each
Member's Capital Account; and (iv) all pertinent expenses and cash disbursement
accounts.
10.2 Fiscal Year. Except as may be otherwise determined by Members
holding Investment Percentages aggregating at least 66 2/3%, the fiscal year
of the Company shall be the twelve months ending December 31 of each year.
Notwithstanding the foregoing, the taxable year of the Company shall be
determined in accordance with Code Section 706(b).
10.3 Statements and Reports. Except as may be otherwise determined by
Members holding Investment Percentages aggregating at least 66 2/3%, as soon
as practicable, but in no event later than 90 days after the close of each
fiscal year of the Company, the Company will cause to be prepared and will
have furnished to each of the Members, with respect to such period, (i) a
profit and loss statement, (ii) a statement of cash flows, (iii) a Company
balance sheet as of the close of such period, and (iv) such other statements
showing in reasonable detail each Member's interest in each of the items
described in Section 10.1. The foregoing statements will be prepared in
accordance with GAAP, consistently applied, and audited by an independent
certified public accounting firm of national reputation which shall be
designated by Members holding Investment Percentages aggregating at least 66
2/3%, and the cost of preparing the statements and of each such audit will be
paid for by the Company. In addition, (i) unaudited quarterly financial
reports and updates with respect to the Company's business shall be prepared
and furnished to each Member as soon as practicable after the end of each
fiscal quarter, but in no event later than 45 days following the close of each
fiscal quarter and (ii) unaudited monthly internal reports and updates with
respect to the Company's business shall be prepared and furnished to each
Member as soon as practicable after the end of each calendar month, but in no
event later than 20 days following the last day of each month.
10.4 Inspection. The Company shall maintain or cause to be maintained
complete and accurate books and records with respect to its business. All
books of account and all other records of the Company including an executed
counterpart of this Agreement and all amendments hereto will at all times be
kept at the Company's principal place of business. Any Member and its
representatives may inspect the books and records of the Company. The Company
shall provide, during regular business hours, access to the facilities,
systems and books and records of the Company to the extent reasonably
necessary for such inspection. Whenever any such inspection is conducted by
any Member and its representatives, such Member shall advise the other Members
and permit the other Members and their representatives to be present during
such audit.
10.5 Bank Accounts. The Company shall maintain appropriate accounts at
one or more financial institutions for all funds of the Company. Such
accounts shall be used solely on the business of the Company. Withdrawal from
such accounts shall be made only upon the signature of those persons
authorized by the Members.
ARTICLE 11
WITHDRAWAL, EXPULSION, BANKRUPTCY, ETC.
---------------------------------------
11.1 Withdrawal. Each Member agrees that it will not resign or
withdraw from the Company without the consent of each other Member. If a
Member attempts or purports to resign or withdraw from the Company in breach
of this Section 11.1, the other Members may (i) recover damages from such
breaching Member, including, without limitation, the reasonable cost of
obtaining replacement of the services that such breaching Member is obligated
to perform (if any), (ii) seek specific performance of such breaching Member's
obligations to the Company (and each Member hereby waives any defense that
money damages would be a satisfactory remedy for such breach), (iii) pursue
any other remedies available under applicable law, if any, and (iv) effect
recovery of damages by offsetting those damages against the amount otherwise
distributable to such Member.
11.2 Bankrupt Members. This Section 11.2 shall apply if any Member
becomes a Bankrupt Member. In such event, the other Members (the "Purchasing
Members"), shall have the option (but not the obligation), exercisable by
notice to the Bankrupt Member (or its representative) at any time prior to the
90th day after receipt of notice or obtaining actual knowledge of the
occurrence of the event causing such Member to become a Bankrupt Member, to
buy or cause their designee to buy, and on the exercise of this option the
Bankrupt Member (or its representative) shall sell, its Membership Interest
(not including any Exchange Securities held by the Bankrupt Member or its
Affiliates). The purchase shall be made by the Purchasing Members in
proportion to their respective Percentage Interests at the relevant time. The
purchase price shall be an amount equal to the fair market value of the
Membership Interest determined by agreement by the Bankrupt Member (or its
representative) and the Purchasing Members; however, if those Persons do not
agree on the fair market value on or before the 30th day following the
exercise of the option, such fair market value shall be determined by an
independent appraiser mutually satisfactory to the Bankrupt Member and the
Purchasing Members (without any "controlling interest premium" if the Bankrupt
Member's Membership Interest has a Sharing Ratio of less than 66 2/3%, nor any
"minority interest discount" if the Bankrupt Member's Membership Interest has
a Sharing Ratio of greater than 33 1/3%. The Purchasing Members shall pay the
fair market value as so determined in four equal cash installments, the first
due on closing and the remainder (together with accumulated interest on the
amount unpaid at the General Interest Rate) due on each of the first three
anniversaries of the closing. The payment to be made to the Bankrupt Member
or its representative under this Section 11.2 is in complete liquidation and
satisfaction of all the rights and interest of the Bankrupt Member and its
representative (and of all Persons claiming by, through, or under the Bankrupt
Member and its representative) in and in respect of the Company, including,
without limitation, any Membership Interest, any rights in specific Company
property, any rights with respect to the management, control or operation of
the Company and any rights against the Company and (insofar as the affairs of
the Company are concerned) against the Members.
ARTICLE 12
TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY
-------------------------------------------------------
12.1 Termination and Dissolution.
Except as provided below in this Section 12.1, the Company shall
terminate and dissolve upon the earliest to happen of any of the following
events:
(a) The expiration of its term;
(b) The Company shall have only one Member;
(c) A decision approved by Members holding Investment Percentages
aggregating at least 80% to dissolve the Company;
(d) The death, insanity, retirement, resignation, expulsion,
bankruptcy or dissolution of a Member;
(e) A sale of all or substantially all of the assets of the
Company; or
(f) The happening of any other event, act or omission causing
the dissolution of the Company under the Act or any other
laws of the Commonwealth of Massachusetts.
The dissolution of the Company shall be effective on the day on
which the event occurs giving rise to the dissolution, unless (and only if and
to the extent permitted by the Act), Members holding Investment Percentages
aggregating at least 66 2/3% of the remaining Sharing Ratios elect to continue
the Company in the manner provided by the Act. Any necessary certificate of
dissolution shall be filed under the Act upon the dissolution and the
commencement of winding up of the Company; provided, however, that the Company
shall not terminate until the assets of the Company have been distributed as
provided in Section 12.2.
12.2 Liquidation.
(a) As soon as practicable after the dissolution of the Company,
the Liquidator (as defined in Section 12.2(e)) shall notify Members of such
fact and shall prepare a plan as to whether and in what manner the assets of
the Company shall be liquidated.
(b) The Liquidator shall take full account of the Company's
assets and liabilities. The Company's assets shall be liquidated as promptly
as is consistent with obtaining the fair market value thereof and after the
allocation of Net Income or Net Loss in accordance with Article 6 above, the
proceeds of liquidation shall be applied and distributed in the following
order and priority:
(i) First, to secured creditors (including Members and
their Affiliates) in accordance with the priority of their
security interests;
(ii) Next, to the payment of debts and liabilities of the
Company to general unsecured creditors;
(iii) Next, to the establishment of any reserves which are
reasonably necessary for contingent, unmatured, unliquidated,
disputed, or unforeseen liabilities and obligations of the Company;
(iv) Last, to the Members in proportion to the positive
balances in their respective Capital Accounts.
(c) The amount of any reserves established pursuant to Section
12.2(b)(iii) above shall be determined with the approval of the Members who
are, or may be, liable for any liabilities or obligations of the Company for
which such reserves are being established. If any or all of the amount of the
reserves are no longer required by the Company and become available for
distribution to the Members, such amounts shall be distributed to the Members
in accordance with Section 12.2(b)(iv) above.
(d) Distributions to Members pursuant to this Section 12.2 may
be made pursuant to a trust established for the benefit of the Members for the
purpose of liquidating the assets of the Company, collecting amounts owed to
the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company. The assets of any such trust shall be distributed
to the Members from time to time, in the reasonable discretion of the
Liquidator, in the same proportions as would have applied pursuant to this
Agreement to liquidating distributions by the Company to the Members.
(e) For the purposes of this Agreement, the "Liquidator" shall
be appointed by the Members from among their number; provided, however that if
upon the dissolution of the Company there is no Member willing or permitted to
serve as Liquidator, the trustee, receiver or other fiduciary who is appointed
or is otherwise authorized by consent of Members holding Investment
Percentages aggregating at least 66 2/3% to act on behalf of the Company in
its dissolution, winding up and liquidation, shall act as liquidator.
ARTICLE 13
GENERAL PROVISIONS
------------------
13.1 Representations. Each Member hereby represents and warrants to
the Company and each other Member that:
(a) If such Member is not a natural person, it is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and is duly qualified to conduct business in all
jurisdictions where such qualification is required.
(b) It has the power and authority (corporate or otherwise) to
execute, deliver and perform its obligations under this Agreement. Such
execution, delivery and performance have been duly authorized by all necessary
action on the part of such Member and do not and will not contravene the
organizational documents of such Member or conflict with, result in a breach
of, or entitle any party (with due notice or lapse of time or both) to
terminate, accelerate or call a default with respect to, any agreement or
instrument to which such Member is a party or by which such Member is bound.
The execution, delivery and performance by such Member of this Agreement will
not result in any violation by such Member of any law, rule or regulation
applicable to such Member. Such Member is not a party to, nor subject to or
bound by, any judgment, injunction or decree of any court or other
Governmental Entity which may restrict or interfere with the performance of
this Agreement by such Member. This Agreement is a valid and binding
obligation of such Member enforceable against such Member in accordance with
its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) the remedy of
specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(c) Except as set forth on Schedule 13.1(c), no consent, waiver,
approval, authorization or order of, or registration, qualification or filing
with, any court or other Governmental Entity is required for the execution,
delivery and performance by such Member of this Agreement and the consummation
by such Member of the transactions contemplated hereby. No consent or waiver
of any party to any contract to which such Member is a party or by which it is
bound is required for the execution, delivery and performance by such Member
of this Agreement.
(d) Such Member is acquiring the Membership Interest hereunder
for its own account for investment and not with a view to the distribution
thereof, and such Member shall not offer to sell or otherwise dispose of any
of the Membership Interests so acquired by it in violation of the registration
requirements of the Securities Act or applicable state securities laws. Such
Member has such knowledge and experience in financial, business and tax
matters that such Member is capable of evaluating the merits and risks
relating to such Member's Membership Interest and is capable of bearing the
risk of loss of its entire investment in the Company.
(e) There is no action, suit, grievance, arbitration or
proceeding pending or, to the knowledge of such Member, threatened against or
affecting such Member at law or in equity, before any federal, state,
municipal or other governmental court, department, commission, board,
arbitrator, bureau, agency or instrumentality which prohibits or impairs its
ability to execute and deliver this Agreement or the other Basic Agreements or
to consummate any of the transactions contemplated hereby or thereby. To the
knowledge of such Member, it has not received written notice of any pending or
threatened investigation, inquiry or review by any Governmental Entity.
(f) No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission, or to the reimbursement of any
of its expenses, in connection with the transactions contemplated by this
Agreement based upon arrangements made by it or on its behalf.
(g) Such Member has no obligation or agreement, either actual or
contingent, to share any portion of its interest in the Company with any
Person.
(h) Such Member is not a Holding Company or otherwise subject to
regulation under PUHCA and the execution and delivery of the Basic Agreements
do not cause such Member to become a Holding Company or otherwise subject to
PUHCA.
13.2 Additional Representations of RCN-Sub. RCN-Sub hereby represents
and warrants to the Company and BecoCom that:
(a) RCN-Sub has the full and unrestricted right and authority to
contribute the RCN Contributed Assets to the Company.
(b) RCN-Sub has marketable title to all of the RCN Contributed
Assets, free and clear of all liens and encumbrances of any nature.
Notwithstanding the foregoing, with respect to the RCN-Sub's interest as a
lessee under any of the premises and locations included in the RCN Contributed
Assets, RCN-Sub has the unrestricted right to assign such interests to the
Company (or if the consent of any lessor of any such premises is required to
permit such assignment, such consent has been obtained in writing on or prior
to the date hereof).
(c) All items of equipment included in the RCN Contributed
Assets, including without limitation, the "Cable TV Headend" and the
"Telephone Switch" referenced on Schedule 1 hereto, are (i) in good operating
condition and order, reasonable wear and tear excepted, (ii) are suitable to
provide their intended functions and (iii) comply in all material respects
with all applicable laws, rules and regulations.
(d) All specifications and other technical information relating
to all items of equipment included in the RCN Contributed Assets, including,
without limitation, the "Cable TV Headend" and the "Telephone Switch"
referenced on Schedule 1 hereto, have been provided by RCN-Sub to BecoCom.
13.3 Offset. Whenever the Company is to pay any sum to any Member, any
amounts such Member owes the Company may be deducted from that sum before
payment.
13.4 Notices. All notices, request and other communication hereunder
shall be deemed to have been duly delivered, given or made to or upon any
party hereto if in writing and delivered by hand against receipt, or by
certified or registered mail, postage prepaid, return receipt requested, or to
a courier who guarantees next Business Day delivery or sent by telecopy (with
confirmation) to such party at its address set forth below or to such other
address as such party may at any time, or from time to time, direct by notice
given in accordance with this Section 13.4.
if to RCN-Sub:
RCN Telecom Services of Massachusetts, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
if to BecoCom:
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Legal Counsel
with a copy to:
Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
The date of delivery of any such notice, request or other communication shall
be the earlier of (i) the date of actual receipt or (ii) three Business Days
after such notice, request or other communication is sent if sent by certified
or registered mail, (iii) if sent by courier who guarantees next Business Day
delivery, the Business Day next following the day such notice, request or
other communication is actually delivered to the courier or (iv) the day
actually telecopied.
13.5 Entire Agreement; Supersedure. This Agreement constitutes the
entire agreement of the Members relating to the Company and supersedes all
prior contracts or agreements with respect to the Company, whether oral or
written except the Basic Agreements.
13.6 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by
that Person of its obligations with respect to the Company is not a consent or
waiver to or of any other breach or default in the performance by that Person
of the same or any other obligations of that Person with respect to the
Company. Failure on the part of a Person to complain of any act of any Person
or to declare any Person in default with respect to the Company, irrespective
of how long that failure continues, does not constitute a waiver by that
Person of its rights with respect to that default until the applicable
limitations period has expired.
13.7 Amendment or Modification. This Agreement may be amended or
modified from time to time only by a written instrument executed by Members
holding Investment Percentages aggregating at least 66 2/3%, provided,
however, that so long as BecoCom's Investment Percentage is greater than 33
1/3%, amendments to Section 7.8 also will require the written consent of
BecoCom.
13.8 Public Announcements. Except as required by law, any governmental
agency or any securities exchange, the parties hereto agree to obtain the
prior approval of each other before issuing (or allowing their Affiliates to
issue) any press release, public disclosure or other announcement with respect
to this Agreement or any of the transactions contemplated by this Agreement.
In the event either party hereto is so required by law, any governmental
agency or any securities exchange to make a public disclosure or other
announcement as aforesaid, it shall use its best efforts to afford the other a
reasonable opportunity to review the form and content of the announcement or
disclosure prior to making same. In addition, the Members will consult on a
regular basis with regard to joint marketing and positioning efforts for the
Company. Each Member shall also use its reasonable efforts to prohibit its
employees, agents, consultants and representatives from utilizing the
corporate names "Boston Edison Company" as to BecoCom, and "RCN Telecom
Services, Inc." and "RCN Corporation" as to RCN-Sub, with respect to any
matters involving public officials or media activities, without having first
consulted with the other.
13.9 Confidentiality. Each of the parties hereto will hold, and will
use its reasonable, good faith efforts to cause its respective shareholders,
partners, members, directors, officers, employees, accountants, counsel,
consultants, agents and financial or other advisors (collectively "Agents") to
hold, in confidence, all information (whether oral or written), including this
Agreement and the documents contemplated herein, concerning the transactions
contemplated by this Agreement furnished to such party by or on behalf of any
other party in connection with such transactions, unless legally compelled (by
deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process, or by order of a court or tribunal of
competent jurisdiction, or in order to comply with applicable rules or
requirements of any stock exchange, government department or agency or other
regulatory authority, or by requirements of any securities law or regulation
or other legal requirement) to disclose any such information or documents, and
except to the extent that such information or documents can be shown to have
been (a) previously known on a nonconfidential basis by such party, (b) in the
public domain through no fault of such party or (c) acquired by such party on
a nonconfidential basis from sources not known by such party to be bound by
any obligation of confidentiality in relation thereto. Notwithstanding the
foregoing provisions of this Section 13.9, each party may disclose such
information to its Agents in connection with the transactions contemplated by
this Agreement or any of the other Basic Agreements and to its lenders in
connection with obtaining the financing for the transactions contemplated by
this Agreement so long as such Agents and lenders are informed by such party
of the confidential nature of such information and are directed by such party
to treat such information confidentially and to certain governmental agencies
in connection with the procurement of the governmental authorizations
contemplated by this Agreement. The obligation of each party to hold any such
information in confidence shall be satisfied if such party exercises the same
care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is
terminated, each party will, and will use its reasonable, good faith efforts
to cause its respective Agents and lenders to destroy or deliver to the other
party, upon request, all documents and other materials, and all copies
thereof, obtained by such party or on its behalf from the other party hereto
in connection with this Agreement that are subject to such confidence.
13.10 Binding Effect. Subject to the restrictions on Dispositions set
forth in this Agreement this Agreement is binding on and inures to the benefit
of the Members and their respective heirs, legal representatives, successors,
and assigns.
13.11 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT
REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF
ANOTHER JURISDICTION. If any provision of this Agreement or its application
to any Person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of such provision to other
Persons or circumstances is not affected and such provision shall be enforced
to the greatest extent permitted by law.
13.12 Specific Performance. The Members agree that irreparable damage
will result if this Agreement is not performed in accordance with its terms,
and the Members agree that any damages available at law for a breach of this
Agreement would not be an adequate remedy. Therefore, the provisions hereof
and the obligations of the Members hereunder shall be enforceable in a court
of equity, or other tribunal with jurisdiction, by a decree of specific
performance in aid of arbitration, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such remedies and all other
remedies provided for in this Agreement shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies that a Member may
have under this Agreement, at law or in equity.
13.13 Further Assurances. In connection with this Agreement and the
transactions contemplated by it, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and such transactions.
13.14 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document. All counterparts shall be construed together and constitute the
same instrument.
13.15 Interpretation. In the event of any dispute concerning the
construction or interpretation of any provision of this Agreement or any
ambiguity thereof, there shall be no presumption that this Agreement or any
provision hereof be construed against the party who drafted this Agreement.
13.16 Use of Name. Promptly after the expiration date of the Term (as
defined in the Management Agreement), including any extensions thereof, the
Members shall cause the Company to change its name so as not to include "RCN",
"Residential Communications Network" or any other term which could cause
confusion with RCN and its Affiliates, and to not use any such name from and
after such date; provided, that RCN shall grant an exclusive license to the
Company to use any such name in the Relevant Market for a period not to exceed
one year, in the discretion of the Company.
13.17 Continued Support of RCN-Sub. For a period of two years after
RCN-Sub is no longer a Member of the Company, RCN-Sub or its Affiliates shall
continue to provide to the Company (or its successor) such assets and services
necessary to operate the Company and which were theretofore provided by
RCN-Sub or its Affiliates at cost. Notwithstanding the preceding sentence,
RCN-Sub's obligation to continue providing the Company with such assets and
services is conditioned upon RCN-Sub or any of its Affiliates not being
subject to any prohibition by an outside third party, whether financial or
otherwise, to provide such assets and services.
EXECUTED effective as of the date first set forth above.
MEMBERS:
RCN TELECOM SERVICES
OF MASSACHUSETTS, INC.
By: __________________________
Name:_________________________
Title:________________________
BECOCOM, INC.
By: __________________________
Name:_________________________
Title:________________________
WITHDRAWING MEMBERS:
RCN TELECOM SERVICES, INC.
By: __________________________
Name:_________________________
Title:________________________
BOSTON ENERGY TECHNOLOGY
GROUP, INC.
By: __________________________
Name:_________________________
Title:________________________
SCHEDULE 1
----------
Capitalization
Sharing Cash Capital Non-Cash Capital
Member Ratio Contribution Contribution Accounts
- --------- --------- -------------- ---------------- -------------
RCN-Sub 51% $1,060,911 $13,445,527(1) $14,506,438
BecoCom 49% $2,343,162 $11,594,396(2) $13,937,558
TOTAL 100% $3,404,073 $25,039,923 $28,443,996
- ----------
(1) Represents the Agreed Value of the business developed by RCN and its
Affiliates prior to the Closing to provide Services in the Relevant
Market, including access to space, equipment (which includes, without
limitation, the "Cable TV Headend" and the "Telephone Switch") and
customers. Includes, without limitation, the rights granted pursuant to
the Dark Fiber IRU Agreement, dated May 8, 1997, by and between RCN and
Affiliates of Metropolitan Fiber Systems/WorldCom ("WorldCom") and the
services to be received pursuant to the Telephone Service to Reseller
Agreement, dated May 8, 1997, by and between RCN and WorldCom.
(2) Represents (i) the Agreed Value as of May 31, 1997 of access to and the
use of the "Existing BecoCom Facilities" pursuant to (and as such term
is used in) the IRU Agreement, and (ii) in the future, if the Company
requests that BecoCom expand the fiber optic network using transmission
rights of ways that connect to other transmission stations, BecoCom will
provide up to 150 square feet at these transmission stations as a part
of its initial contributed assets. The Company will pay to BecoCom a
ROW use fee, property taxes, O&M, and other fees associated with this
expansion as described in the IRU Agreement.
SCHEDULE 2
----------
Impact of Various Transactions on Investment Percentage(*)
- ---------
(*) The calculations in cases 1-6 assume a 49% Sharing Ratio as a starting
point. If the Sharing Ratio is altered due to capital calls or
dispositions, the calculations set forth herein would be similarly
altered.
(1) Total Exchange - No Disposition
-------------------------------
Member exchanges its entire 49% Membership Interest to securities
- Sharing Ratio = 0
- Investment Percentage = 49%
(2) Total Exchange - Total Disposition
----------------------------------
- Upon disposition of securities
- Sharing Ratio = 0
- Investment Percentage = 0
(3) Total Exchange - Partial Disposition
------------------------------------
a) Upon disposition of 50% of the securities received
- Sharing Ratio = 0
- Investment Percentage = 24.5% (50% of 49%)
b) Upon disposition of 25% of the securities received
- Sharing Ratio = 0
- Investment Percentage = 36.75% (49%-25% of 49%)
(4) Partial Exchange - No Disposition
---------------------------------
a) Upon exchange of 25% of Membership Interest
- Sharing Ratio = 36.75%
- Investment Percentage = 49%
b) Upon exchange of 50% of Membership Interest
- Sharing Ratio = 24.5%
- Investment Percentage = 49%
(5) Partial Exchange - Total Disposition
------------------------------------
a) Upon exchange of 25% of Membership Interest and disposition
of all the securities received
- Sharing Ratio = 36.75%
- Investment Percentage = 36.75%
b) Upon exchange of 50% of Membership Interest and disposition
of all the securities received
- Sharing Ratio = 24.5%
- Investment Percentage = 24.5%
(6) Partial Exchange - Partial Disposition
--------------------------------------
a) Upon exchange of 25% of Membership Interest and disposition
of 33 1/3% of the Securities received
- Sharing Ratio = 36.75%
- Investment Percentage = 45% (36.75 + (100-33 1/3)% of
(49-36.75))
b) Upon exchange of 60% of Membership Interest and disposition
of 75% of the Securities received
- Sharing Ratio = 19.6%
- Investment Percentage = 26.95% (19.6 + (100-75)% of
(49-19.6))
(7) Subsequent Transactions
-----------------------
a) If, following the transactions in case 6(a) above, the
Member exchanges an additional 10% Membership Interest and
disposes of 30% of the securities then held as a result of
such exchange and the earlier exchange
- Sharing Ratio = 26.75%
- Investment Percentage = 39.53% (45-30% of (45-26.75))
b) If, following the transactions in case 6(b) above, the
Member disposes of 40% of the securities then held as a
result of the earlier exchange
- Sharing Ratio = 19.6%
- Investment Percentage = 24.01% (26.95-40% of
(26.95-19.6))
Note that the value at time of exchange or time of disposition is irrelevant.
These calculations are purely percentage-based.
EXHIBIT 10.9
MANAGEMENT AGREEMENT
--------------------
THIS MANAGEMENT AGREEMENT (this "Agreement") is made as of this 17th day
of June, 1997 by and among RCN Operating Services, Inc., a New Jersey
corporation ("RCN Operating"), BecoCom, Inc., a Massachusetts corporation
("BecoCom"), and RCN-BecoCom, LLC, a Massachusetts limited liability company
(the "Company").
WHEREAS, RCN Telecom Services of Massachusetts, Inc., a Massachusetts
corporation ("RCN-Sub"), and BecoCom have entered into that certain Amended
and Restated Operating Agreement of the Company of even date herewith (the
"Operating Agreement"), setting forth the terms and conditions that will
govern the operation of the Company; and
WHEREAS, Boston Edison Company, a Massachusetts corporation, and C-Tec
Corporation, a Delaware corporation, have each executed instruments of
adherence with respect to certain provisions hereof; and
WHEREAS, the Company desires to retain RCN Operating to perform certain
management services for the Company, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Retention. The Company hereby retains RCN Operating, and RCN
Operating hereby agrees, to perform management services for the Company, upon
the terms and subject to the conditions set forth in this Agreement. RCN
Operating shall, at all times, use its best efforts in performing its
obligations under this Agreement.
2. Term. (a) The term of this Agreement (the "Term") shall commence
on the date hereof and unless extended or sooner terminated in accordance with
this Section 2 or Section 11 hereof, continue until December 31, 2001.
(b) The Term shall automatically be extended for successive
three year periods unless, no later than 90 days prior to the end of the
initial five-year Term or any three-year extension thereof, BecoCom, on behalf
of the Company, gives written notice of its objection (the "Objection Notice")
to RCN Operating's continued service as manager (the "Manager"). Such
Objection Notice shall include a proposal for a new manager of the Company's
business (the "New Manager") and a description of the terms and conditions
under which such New Manager would be retained.
(c) Upon RCN Operating's receipt of the Objection Notice, RCN
Operating shall have 30 days to either (i) accept the New Manager proposed by
BecoCom, (ii) propose its own New Manager by written notice to BecoCom, which
shall include a description of the terms and conditions under which such New
Manager would be retained, or (iii) insist on remaining as Manager. If RCN
Operating elects to take either of the actions set forth in clauses (ii) or
(iii) above, RCN Operating and BecoCom shall have 30 days to resolve the
dispute. If RCN Operating and BecoCom cannot resolve the dispute within such
30 days, the party which, together with its respective Affiliates (as defined
in the Operating Agreement), has the lower Investment Percentage (as defined
in the Operating Agreement) (the "Minority Member") shall have the right to
sell to the party with the higher Investment Percentage (the "Majority
Member"), and the Majority Member shall have the obligation to purchase, the
Minority Member's membership interest ("Interest") in the Company at a price
to be determined as follows (provided that RCN Operating and its Affiliates
shall not have such right to sell if they become a Minority Member because of
a failure to satisfy an obligation to make capital contributions in accordance
with the Operating Agreement):
(i) Selection of Appraisers. Each of RCN-Sub and BecoCom
shall designate by written notice to the Company and
each other a firm of recognized national standing
familiar with appraisal techniques applicable to
assets of the type being evaluated to serve as an
appraiser (an "Appraiser") pursuant to this Section 2
(the firms designated by RCN-Sub and BecoCom being
referred to herein as "RCN-Sub Appraiser" and the
"BecoCom Appraiser," respectively) within five
business days after the failure to reach agreement in
accordance with the terms of this paragraph (c). In
the event that either Appraiser is not designated
within the foregoing time period, the other Appraiser
will serve as the only Appraiser, and its appraisal
will be binding on both RCN-Sub and BecoCom for
purposes of this paragraph (c).
(ii) Evaluation Procedures. Each Appraiser shall be
directed to determine the fair market value (the "Fair
Market Value") of the Minority Member's Interest.
Each Appraiser will also be directed to deliver a
certificate (an "Appraiser's Certificate") setting
forth such Appraiser's valuation of the Minority
Member's Interest to both RCN-Sub and BecoCom on or
before the 30th day after their respective designation
(the "Certificate Date"), upon the conclusion of its
evaluation, and each Appraiser's Certificate once
delivered may not be retracted or modified in any
respect. Each Appraiser will keep confidential all
information disclosed by the Company in the course of
conducting its evaluation, and, to that end, will
execute such customary documentation as the Company
may reasonably request with respect to such
confidentiality obligation. Each of RCN-Sub and
BecoCom will cooperate in causing the Company to
provide each Appraiser with such information within
the Company's possession that may be reasonably
requested in writing by the Appraiser for purposes of
its evaluation hereunder. Each of RCN-Sub and BecoCom
shall have full access to each Appraiser's work
papers. Each Appraiser will be directed to comply
with the provisions of this Section 2, and to that end
each party will provide to its respective Appraiser
a complete and correct copy of this Section 2 (and the
definitions of capitalized terms used in this Section
2 that are defined elsewhere in this Agreement).
(iii) Fair Market Value Determination. The Fair Market
Value of the Minority Member's Interest shall be
determined on the basis of the Appraisers'
Certificates in accordance with the provisions of this
subparagraph (iii), provided, that there shall be no
"controlling interest premium" if the Majority
Member's Interest has a Sharing Ratio of less than 66
2/3% nor any "minority interest discount" if the
Minority Member's Interest has a Sharing Ratio of
greater than 33 1/3%. The higher of the values set
forth on the Appraisers' Certificates is hereinafter
referred to as the "Higher Value," and the lower of
such values is hereinafter referred to as the "Lower
Value." If the Higher Value is not more than 110% of
the Lower Value, the Fair Market Value of the Minority
Member's Interest will be the arithmetic average of the
Higher Value and the Lower Value. If the Higher Value
is more than 110% of the Lower Value, a third
appraiser shall be selected in accordance with the
provisions of subparagraph (iv) below, and the Fair
Market Value of the Minority Member's Interest will be
determined in accordance with the provisions of
subparagraph (v) below.
(iv) Selection of and Procedures for Third Appraiser. If
the Higher Value is more than 110% of the Lower Value,
within seven days thereafter the RCN-Sub Appraiser and
the BecoCom Appraiser shall agree upon and jointly
designate a third Appraiser (the "Third Appraiser").
If the RCN-Sub Appraiser and the BecoCom Appraiser
cannot agree upon a Third Appraiser within seven days,
the Third Appraiser shall be chosen by the American
Arbitration Association in Boston, Massachusetts. The
RCN-Sub Appraiser and BecoCom Appraiser shall direct
the Third Appraiser to determine the Fair Market Value
of the Minority Member's Interest (the "Third Value")
in accordance with the provisions of subparagraph (ii)
above, and to deliver to both RCN-Sub and BecoCom an
Appraiser's Certificate on or before the 30th day
after the designation of such Appraiser hereunder. The
Third Appraiser will be directed to comply with the
provisions of this Section 2, and to that end of the
parties will provide to the Third Appraiser a complete
and correct copy of this Section 2 (and the
definitions of capitalized terms used in this Section
2 that are defined elsewhere in this Agreement).
(v) Alternative Determination of Fair Market Value. Upon
the delivery of the Appraiser's Certificate of the
Third Appraiser, the Fair Market Value of the Minority
Member's Interest will be determined as provided in
this subparagraph (v). The Fair Market Value of the
Minority Member's Interest will be (w) the Lower
Value, if the Third Value is less than the Lower
Value, (x) the Higher Value, if the Third Value is
greater than the Higher Value, or (y) the arithmetic
average of the Third Value and either the Higher Value
or the Lower Value (whichever is closer to the Third
Value) if the Third Value falls within the range
between (and including) the Lower Value and the Higher
Value.
(vi) Costs. Each of RCN-Sub and BecoCom will bear the cost
of the Appraiser designated by it or on its behalf.
If the Higher Value is not more than 115% of the Lower
Value, or if the Higher Value and the Lower Value are
equally close to the Third Value, each of RCN-Sub and
BecoCom shall bear 50% of the cost of the Third
Appraiser, if any; otherwise, the party whose
Appraiser's determination of Fair Market Value of the
Minority Member's Interest is further away from the
Third Value shall bear the entire costs of the Third
Appraiser. Each of RCN-Sub and BecoCom agree to pay
when due the fees and expenses of the Appraisers in
accordance with the foregoing provisions.
(vii) Conclusive Determination. To the fullest extent
provided by law, the determination of the Fair Market
Value of the Minority Member's Interest made pursuant
to this Section 2 shall be final and binding on the
Company, RCN-Sub and BecoCom, and such determination
shall not be appealable to or reviewable by any court
or arbitrator.
(d) RCN Operating shall continue to manage the Company, on the
terms set forth herein, until such time as BecoCom, on behalf of the Company,
furnishes an Objection Notice to RCN Operating, pursuant to this Section 2,
and any dispute in connection therewith is resolved.
(e) In the event that RCN-Sub and its Affiliates which own an
Interest in the Company sell, assign, transfer or otherwise dispose of such
Interest (a "Sale") other than to a Wholly-Owned Affiliate (as defined in the
Operating Agreement) prior to the expiration of the Term, the Term shall
terminate upon the effective date of such Sale (the "Effective Date"), unless
BecoCom elects, on behalf of the Company, to extend the Term, in which case
the Term shall continue for an additional two years after the Effective Date.
3. Services.
(a) Scope of Services. Subject to the terms and conditions of
this Agreement and the Operating Agreement including, without limitation,
Sections 7.1, 7.8 and 7.10 thereof, RCN Operating shall, on a timely and
efficient basis, manage, and shall have sole power to manage, all aspects of
the Company's day to day operations consistent with the provisions of the
Operating Agreement. RCN Operating shall have the power and authority to do
those things necessary or, in RCN Operating's judgment, appropriate to
conduct, operate and manage the business of the Company, including, but not
limited to, the power and authority to:
(i) direct, endorse and deposit all checks and other
funds, collect revenues, and take such other actions
(including the establishment of the Company bank
accounts with signatories designated by RCN Operating)
regarding the collection and handling of checks and
other funds owed, owned or held by or on behalf of the
Company;
(ii) produce checks and pay all obligations of the Company
(by check or otherwise), including without limitation,
normal operating expenses, extraordinary expenses,
required interest and principal payments on debt, and
obligations owed to RCN Operating hereunder;
(iii) negotiate or renegotiate and execute business
contracts for the conduct of the Company's business
operations and construction and maintenance activities
connected therewith except for this Agreement and the
other Basic Agreements (as defined in the Operating
Agreement);
(iv) subject to the last sentence of this Subsection 3(a),
resolve contractual and other disputes which may arise
in the ordinary course of the Company's business,
except for any dispute relating to the Basic
Agreements;
(v) retain attorneys, engineers, consultants and other
professionals;
(vi) establish and maintain books and records to enable
financial statements to be prepared, as and when
required, in accordance with generally accepted
accounting principles;
(vii) under the direction of the Tax Matters Partner (as
defined in the Operating Agreement) prepare, or cause
to be prepared, and file all periodical and other
required reports of governmental and regulatory
agencies, including tax returns, and perform all
related administrative functions;
(viii) perform all aspects of managing the daily operation
of the Company's business, including, without
limitation, engaging, instructing and supervising all
personnel necessary in the judgment of RCN Operating,
and establishing and maintaining all records relative
to the operation thereof;
(ix) select and price all services provided or to be
provided to customers of the Company;
(x) oversee all advertising, marketing and sales and
public relations programs, engage and appoint
advertising, marketing and public relations agencies
and consultants;
(xi) execute all instruments of any kind or character
which, in RCN Operating's discretion, shall be deemed
necessary or appropriate in connection with the
conduct, operation and management of the Company's
business, including the procurement of insurance of
such types and in such amounts as RCN Operating shall
deem appropriate;
(xii) maintain continuing contact with federal, state and
local governmental officials regarding any rights and
licenses of the Company which require periodic review
and renegotiation; and
(xiii) perform any and all other acts as may reasonably be
necessary or appropriate to carry out the duties and
responsibilities of RCN Operating contemplated
hereunder, whether or not specifically enumerated
herein.
Notwithstanding anything to the contrary in this Subsection 3(a), RCN
Operating's powers and authority shall not extend to any company action which,
pursuant to applicable law or the Operating Agreement, requires the approval
or authorization of the Company's Members (as defined in the Operating
Agreement), including, without limitation, any "Fundamental Business Actions"
delineated in Section 7.8 of the Operating Agreement.
(b) Access. RCN Operating and BecoCom shall have full and
unrestricted access to all books and records of the Company and its
subsidiaries, if any, including without limitation:
(i) All contracts, agreements, governmental and regulatory
filings;
(ii) All accounting documentation including financial
statements, books and records, audit reports and other
documents;
(iii) All tax returns, both federal and state, and related
schedules;
(iv) All debt agreements or instruments, including pledge
and security agreements and related documents;
(v) All customer lists, billing records and histories,
accounts receivable records and other reports used in
connection with the Company's business;
(vi) All minute books;
(vii) All personnel records;
(viii) All files relative to both pending and threatened
litigation proceedings, including management's
assessment of liability;
(ix) All franchise documents and other governmental
authorizations relative to the Company's business;
(x) A complete list of all real property owned or leased
and a detailed schedule of fixed assets; and
(xi) Any other contracts, documents, statements, returns,
lists, books, files or documentation deemed necessary
by RCN Operating in order to fulfill its obligations
under this Agreement.
(c) RCN Operating Personnel. RCN Operating, at its option, may
furnish the services of any RCN Operating personnel or Affiliates as RCN
Operating may from time to time deem necessary or appropriate to perform its
obligations hereunder and such personnel or Affiliates shall have the duties
assigned to them by RCN Operating.
(d) Employees of RCN Operating; No Benefits. The parties
acknowledge and agree that: (i) by furnishing the services of RCN Operating
personnel to the Company, RCN Operating is functioning as an independent
contractor to the Company; (ii) the personnel provided by RCN Operating shall
remain employees of RCN Operating, and RCN Operating retains the right
(subject to the terms hereof) to direct and control the performance of all RCN
Operating employees; (iii) RCN Operating is solely responsible for the payment
of salary, employee benefits and all other compensation due to RCN Operating
personnel rendering services to the Company, and for all applicable federal,
state and local tax withholding with respect to compensation and benefits
payable to them under this Agreement or otherwise; and (iv) the compensation
to RCN Operating set forth in Section 4 shall be exclusive and RCN Operating
personnel shall not participate in or be eligible to participate in any
compensation or benefit plan or perquisite of the Company.
(e) Notwithstanding anything to the contrary, if BecoCom
believes that it is capable of providing to the Company certain support and
administrative services in a more efficient and economical manner than RCN
Operating or any third party provider chosen by RCN Operating, then RCN
Operating and BecoCom shall consider in good faith the use of BecoCom or its
Affiliates as a provider of such services.
(f) Any contract between RCN Operating and any of its Affiliates
for the provision of services to the Company shall be on terms no less
favorable to the Company than could be obtained from an unaffiliated third
party.
4. Fees. Fees, including incentive compensation, for RCN Operating's
services hereunder shall be determined as part of the annual budgeting process
for the Company.
(a) From the date hereof until December 31, 1998, RCN Operating
shall be reimbursed by the Company only for all of its reasonable direct and
indirect costs allocable in good faith to the Company in connection with its
provision of management services hereunder provided, however, that RCN
Operating and its Affiliates shall use their best efforts to minimize such
indirect allocable costs; the Company and BecoCom shall have reasonable access
to the books and records of RCN Operating to verify such costs.
(b) Not later than October 1, 1998, RCN Operating and the
Company will enter into discussions in order to reach an agreement on
performance-based incentive compensation to be effective starting January 1,
1999 through the end of the Term and to be paid to RCN Operating as earned in
addition to the reimbursement of RCN Operating's reasonable direct and
indirect costs. Such performance-based incentive compensation shall be based
on such factors as number of subscribers, operating cash flow, and other or
different factors as the parties shall agree.
The amounts payable pursuant to this Section 4 shall constitute the exclusive
compensation payable to RCN Operating for its services provided under this
Agreement and for the services provided by the RCN Operating personnel
hereunder, and no other compensation or consideration shall be payable to RCN
Operating or any other individual provided by RCN Operating in connection with
the services provided hereunder, except as otherwise expressly provided in
this Agreement.
5. Expense Reimbursement. To the extent not otherwise reimbursed
pursuant to Section 4 hereof, RCN Operating shall be entitled to be reimbursed
by the Company from time to time (but not more frequently than monthly) for
reasonable out-of-pocket business expenses incurred by its employees and
others working on its behalf, including expenses in connection with bona fide
business travel on behalf of the Company, upon presentation from time to time
of an itemized written account of such expenses.
6. Representations and Warranties. Each of the parties hereto
represents and warrants to the other that, as of the date hereof:
(a) it is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is formed;
(b) it has the power and authority to execute, deliver and
perform its obligations under this Agreement; and such execution, delivery,
performance and consummation have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by it
and constitutes a valid and legally binding obligation of it, enforceable
against it in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization, or
other laws affecting creditors' rights generally or by the availability of
equitable remedies;
(c) the execution, delivery and performance by it of this
Agreement (i) do not contravene any provision of its organizational documents;
(ii) do not violate or conflict with any law, regulation or contractual
restriction to which it is subject; and (iii) shall not result in the creation
of, or violate or conflict with, any lien, mortgage, pledge, security interest
or any other encumbrance upon or with respect to any of its properties;
(d) no consent, order, approval or authorization or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by it of this
Agreement and the consummation of the transactions contemplated hereby; and
(e) there is no action, suit, proceeding or investigation
pending, or, to its knowledge, threatened, against or affecting it or its
properties, assets or business, in any court or before or by any governmental
department, board, agency or instrumentality, or any arbitrator, that
materially affects or impairs its ability to enter into this Agreement, or to
consummate the transactions contemplated hereby.
7. Representation and Warranty of RCN Operating. RCN Operating
represents and warrants to the Company that it has the requisite knowledge,
experience and resources to fulfill its obligations under this Agreement.
8. Covenants of the Company. The Company hereby covenants that it
will, and will cause its officers, managers, agents and representatives to,
cooperate fully with RCN Operating in its performance of its obligations under
this Agreement and to otherwise act at all times in a manner consistent with
this Agreement.
9. Indemnification.
(a) Subject to paragraph (c) below, the Company shall indemnify
RCN Operating and all of its Affiliates and their respective officers,
directors, shareholders, employees, representatives, agents or consultants
performing services for or on behalf of the Company (collectively, the
"Indemnified Parties") who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or on behalf of RCN Operating or BecoCom) caused by, relating to, based
upon or arising out of such Indemnified Party's acceptance of or the
performance or non-performance of obligations under this Agreement against
expenses (including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or it in connection
with such action, suit or proceeding if he or it acted in good faith and in a
manner he or it reasonably believed to be in or not opposed to the best
interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or its conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Indemnified
Party did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful, provided, however, that such indemnification
shall not be applicable to any action, suit or proceeding in which it is
finally adjudicated that any damages awarded in, or liability incurred as a
result of the facts and circumstances underlying, such action, suit or
proceeding were directly and primarily caused by the gross negligence of the
Indemnified Party.
(b) Subject to paragraph (c) below, the Company shall indemnify
any Indemnified Party who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or on behalf
of RCN Operating or BecoCom to procure a judgment in its favor by reason of
such Indemnified Party's acceptance of or the performance or non-performance
of obligations under this Agreement against expenses (including reasonable
attorneys' fees) actually and reasonably incurred by him or it in connection
with the defense or settlement of such action or suit if he or it acted in
good faith and in a manner he or it reasonably believed to be in or not
opposed to the best interests of the Company; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable unless and only to the extent that the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
(c) Any indemnification under this Section 9 (unless ordered by
a court) shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the Indemnified Party is proper
in the circumstances because he has met the applicable standard of conduct set
forth in paragraph (a) above. Such determination shall be made by independent
legal counsel in a written opinion. To the extent, however, that an
Indemnified Party has been successful on the merits or otherwise in defense of
any action, suit or proceeding described above, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
reasonable attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
(d) For purposes of any determination under this Section 9, a
person shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, to have had no
reasonable cause to believe his conduct was unlawful, if his action is based
on the records or books of account of the Company or another enterprise, or on
information supplied to him by the officers of the Company or another
enterprise in the course of their duties, or on the advice of legal counsel
for the Company or another enterprise or on information or records given or
reports made to the Company or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Company or another enterprise. The term "another enterprise" as
used in this paragraph (d) shall mean any entity which such person is or was
serving at the request of the Company.
(e) Notwithstanding the foregoing, any Indemnified Party may
apply to any court of competent jurisdiction in the Commonwealth of
Massachusetts for indemnification to the extent otherwise permissible under
paragraph (a) above by reason of the fact that he has met the applicable
standard of conduct. If successful, in whole or in part, the Indemnified Party
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
(f) Expenses incurred by an Indemnified Party in defending or
investigating a threatened or pending action, suit or proceeding shall be paid
by the Company in advance of the final disposition thereof upon receipt of an
undertaking to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the Company as authorized in this Section
9.
(g) The indemnification and advancement of expenses in this
Section 9 shall not be deemed exclusive of any other rights which may apply,
it being the policy of the Company that indemnification of the persons
specified in paragraph (a) above shall be made to the fullest extent permitted
by law. The provisions of this Section 9 shall not preclude the
indemnification of any person who is not specified herein but whom the Company
has the power or obligation to indemnify under the Act, or otherwise.
(h) The indemnification and advancement of expenses provided by
this Section 9 shall, unless otherwise provided when authorized or ratified,
inure to the benefit of the heirs, executors and administrators of an
Indemnified Party.
10. Confidentiality. Each of the parties hereto will hold, and will
use its reasonable, good faith efforts to cause its respective shareholders,
partners, members, directors, officers, employees, accountants, counsel,
consultants, agents and financial or other advisors (collectively "Agents") to
hold, in confidence, all information (whether oral or written), including this
Agreement and the documents contemplated herein, concerning the transactions
contemplated by this Agreement furnished to such party by or on behalf of any
other party in connection with such transactions, unless legally compelled (by
deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process, or by order of a court or tribunal of
competent jurisdiction, or in order to comply with applicable rules or
requirements of any stock exchange, government department or agency or other
regulatory authority, or by requirements of any securities law or regulation
or other legal requirement) to disclose any such information or documents, and
except to the extent that such information or documents can be shown to have
been (a) previously known on a nonconfidential basis by such party, (b) in the
public domain through no fault of such party or (c) acquired by such party on
a nonconfidential basis from sources not known by such party to be bound by
any obligation of confidentiality in relation thereto. Notwithstanding the
foregoing provisions of this Section 10, each party may disclose such
information to its Agents in connection with the transactions contemplated by
this Agreement so long as such Agents are informed by such party of the
confidential nature of such information and are directed by such party to
treat such information confidentially and to certain governmental agencies in
connection with the procurement of the governmental authorizations
contemplated by this Agreement. The obligation of each party to hold any such
information in confidence shall be satisfied if such party exercises the same
care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is
terminated, each party will, and will use its reasonable, good faith efforts
to cause its respective Agents and lenders to destroy or deliver to the other
party, upon request, all documents and other materials, and all copies
thereof, obtained by such party or on its behalf from the other party hereto
in connection with this Agreement that are subject to such confidence.
11. Termination.
(a) Either party may terminate this Agreement in the event of a
Default (as hereinafter defined) by the other (unless such default is caused
by the party seeking to terminate this Agreement), provided that the
non-defaulting party so advises the defaulting party in writing of the event
of Default and the defaulting party has not cured, nor commenced the diligent
pursuit of the cure of, the Default within 60 days after written notice
thereof is received. Except as otherwise provided by this Agreement, such
termination shall be effective upon the expiration of the 60 day period
immediately following receipt of notice of Default by the defaulting party.
(b) Termination regardless of cause or nature shall be without
prejudice to any other rights or remedies of the parties and shall be without
liability for any loss or damage occasioned thereby. Termination of this
Agreement for any cause shall not release either party hereto from any
liability which at the time of termination has already accrued to the other
party hereto or which thereafter may accrue in respect of any act or omission
prior to termination, or from any obligation which is expressly stated herein
to survive termination.
(c) The term "Default" is defined to include: (i) the initiation
of bankruptcy or receivership proceedings with respect to a party (which are
not dismissed within 60 days), execution of a general assignment for the
benefit of creditors or any other transfer or assignment of a similar nature
or otherwise seeking relief under any applicable bankruptcy reorganization,
moratorium or similar debtor relief laws (it being understood that the
execution of any third-party financing agreements shall not constitute a
Default hereunder) or (ii) a material breach of any of the other terms or
conditions hereof.
12. General.
(a) Amendment. No modification or amendment of, or waiver
under, this Agreement shall be valid unless in writing and signed by each of
the parties hereto.
(b) Binding Agreement; Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement may be assigned by RCN Operating to
any of its Affiliates so long as RCN Operating remains bound by for the
obligations hereunder. This Agreement may not be assigned by the Company.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to conflicts-of-laws principles.
(d) Severability. If any term, provision, covenant or
restriction herein is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated thereby.
(e) Notices. All notices, requests and other communications
hereunder shall be deemed to have been duly delivered, given or made to or
upon any party hereto if in writing and delivered by hand against receipt, or
by certified or registered mail, postage prepaid, return receipt requested, or
to a courier who guarantees next business day delivery or sent by telecopy
(with confirmation), to such party at its address set forth below or to such
other address as such party may at any time, or from time to time, direct by
notice given in accordance with this Section 12(e).
If to RCN Operating:
c/o RCN Telecom Services, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
If to BecoCom:
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant General Counsel
with a copy to:
Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
If to the Company:
RCN-BecoCom, LLC
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
The date of delivery of any such notice, request or other communication shall
be the earlier of (i) the date of actual receipt, (ii) three business days
after such notice, request or other communication is sent if sent by certified
or registered mail, (iii) if sent by courier who guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
(f) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof and
supersedes all prior discussions and understandings.
(g) Specific Performance. The parties agree that irreparable
damage will result if this Agreement is not performed in accordance with its
terms, and the parties agree that any damages available at law for a breach of
this Agreement would not be an adequate remedy. Therefore, the provisions
hereof and the obligations of the parties hereunder shall be enforceable in a
court of equity, or other tribunal with jurisdiction, by a decree of specific
performance, and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies and all other remedies provided for in
this Agreement shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies that a party may have under this Agreement, at
law or in equity.
(h) Interpretation. In the event of any dispute concerning the
construction or interpretation of this Agreement or any ambiguity hereof,
there shall be no presumption that this Agreement or any provision hereof be
construed against the party who drafted this Agreement.
(i) Enforcement. In the event of any material breach of this
Agreement by RCN Operating, BecoCom shall have the authority, acting as agent
for the Company, to enforce this Agreement against RCN Operating.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
RCN OPERATING SERVICES, INC.
By
-----------------------------------
Name:
Title:
RCN-BECOCOM, LLC
By
-----------------------------------
Name:
Title:
BECOCOM, INC.
By
-----------------------------------
Name:
Title:
EXHIBIT 10.10
CONSTRUCTION AND INDEFEASIBLE RIGHT OF USE AGREEMENT
----------------------------------------------------
THIS CONSTRUCTION AND INDEFEASIBLE RIGHT OF USE AGREEMENT (the
"Agreement") is made as of this 17th day of June, 1997 (the "Effective Date"),
by and between BecoCom, Inc., a Massachusetts corporation ("BecoCom"), and
RCN-BecoCom, LLC, a Massachusetts limited liability company ("Carrier").
WHEREAS, RCN Telecom Services, Inc. ("RCN") and Boston Energy Technology
Group, Inc., a Massachusetts corporation ("BETG"), have entered into that
certain Joint Venture Agreement (the "JV Agreement") dated as of December 23,
1996, as amended, setting forth the terms and conditions upon which RCN,
through one of its affiliates, and BETG, acting through BecoCom, its indirect
wholly-owned subsidiary, have organized Carrier to: (i) create, own and
operate a telecommunications network, and (ii) provide voice, video, data,
other communications services, and the communications support component of
energy-related customer services offered by Boston Edison Company, a
Massachusetts company and the direct parent of BETG ("BECO"), to residential
and commercial customers in the Relevant Market (as defined below)
(collectively, the "Services");
WHEREAS, BECO and C-Tec Corporation, a Delaware corporation ("C-Tec"),
have each executed instruments of adherence with respect to certain provisions
hereof; and
WHEREAS, BecoCom currently operates the BecoCom System (as hereinafter
defined);
WHEREAS, BECO has licensed to BecoCom the right to use the portions of
the Rights of Way and the Equipment Sites (each as hereinafter defined)
necessary to BecoCom to perform its obligations hereunder;
WHEREAS, BecoCom is engaged in the business of communications network
planning, design, procurement, construction and testing and desires to provide
certain services to Carrier in connection with the planning, design,
procurement, construction and testing of the Network (as defined below) as
directed by Carrier and upon the terms and conditions of this Agreement;
WHEREAS, Carrier and BecoCom desire to enter into this Agreement to set
forth the terms and conditions under which (i) BecoCom will perform, from time
to time, certain Work (as hereinafter defined) as is necessary or as requested
by Carrier to engineer, procure and construct the Network, and (ii) Carrier
will have the right to use the BecoCom System, for use in the Business (as
hereinafter defined), all upon the terms and subject to the conditions of this
Agreement;
WHEREAS, the parties hereto acknowledge that providing the use of the
BecoCom System as hereinafter provided is vital to the Business in the
Relevant Market; and
WHEREAS, the parties hereto also acknowledge that the primary purpose of
the Existing BecoCom Facilities and the BecoCom Rights-of-Way (as such terms
are defined below) is to serve the electric transmission and distribution
business of BECO and its Affiliates;
NOW, THEREFORE, for and in consideration of the foregoing, the covenants
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions.
(a) The following terms shall have the following meanings:
"Acceptance Test Plan" means the product acceptance test plan
recommended by the manufacturer of such products, and shall incorporate
the specifications of such manufacturer.
"Affiliate" means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with, that first
person.
"Affiliate Right-of-Way Owners" means Right-of-Way Owners which are
Affiliates of BecoCom.
"Basic Agreements" means (i) this Agreement, the JV Agreement and
the Operating Agreement; (ii) the Exchange Agreement, dated as of the
date herewith, between BecoCom and C-Tec; (iii) the Joint Investment and
Non-Competition Agreement, dated as of the date herewith, among RCN
Telecom Services of Massachusetts, Inc., BecoCom and the Carrier; (iv)
the Management Agreement, dated as of the date herewith, among RCN
Operating Services, Inc., BecoCom and the Carrier; and (v) the Initial
LLC Agreement (as defined in the JV Agreement).
"BECO Dedicated Fibers" means such number of Fibers not to exceed
twelve (12) desired by BECO and its Affiliates for use by such parties
in the electric transmission and distribution business, which fibers are
(a) identified in Exhibit A hereto, (b) specified in any Scope of Work
or (c) constructed by Carrier at the request and expense of BecoCom.
"BECO License" means the document pursuant to which BECO and its
Affiliates have made available to BecoCom such BecoCom Facilities,
Rights of Way and Equipment Sites as shall be necessary for BecoCom to
satisfy its obligations under this Agreement.
"BecoCom Facilities" means (a) the Existing BecoCom Facilities,
and (b) all (i) Interim Constructed Facilities, and (ii) New BecoCom
Constructed Facilities, which are Power Space Facilities.
"BecoCom Rights-of-Way" means Rights of Way which BecoCom has
acquired the right to use through the BECO License.
"BecoCom System" means the BecoCom Rights of Way and the BecoCom
Facilities.
"Business" means the provision by Carrier of Services in the
Relevant Market, and all ancillary activities reasonably necessary for
the provision of same, provided such Services and ancillary activities
do not violate any law, rule or regulation.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee
which would, in accordance with generally accepted accounting
principles, be required to be classified and accounted for as a capital
lease on a balance sheet of such Person.
"Carrier Facilities" means all (a) Interim Constructed Facilities,
(b) New BecoCom Constructed Facilities, and (c) New Carrier Constructed
Facilities, which are Non-Power Space Facilities.
"Construction Materials" has the meaning set forth in Section
3(b)(iii) hereof.
"Control" means the power to direct or cause the direction of the
management or policies of an entity, whether through the ownership of
voting securities, by agreement or otherwise.
"DPU" means the Commonwealth of Massachusetts Department of Public
Utilities, or any successor thereto.
"Entity" means any corporation, limited liability company, general
partnership, limited partnership, venture, trust, business trust, estate
or other entity.
"Equipment Sites" means ground space, floor space, vault space,
wall space or rooftop space, whether now owned or hereafter acquired,
in, on, upon or within (a) electric distribution substations owned by
BECO which are enclosed within an existing building or structure; (b)
electric distribution stations owned by BECO which are not enclosed
within a building or structure; (c) service centers or field stations
(excluding generating facilities) operated by BECO, which are located on
land owned by BECO, or leased from a third party; (d) parcels of land
comprising the above-ground electric transmission line rights of way; or
(e) vacant land owned by BECO.
"Existing BecoCom Facilities" means any Facilities (other than
Interim Constructed Facilities) in place or existing as of the date
hereof as set forth in Exhibit A-1, including any upgrades,
improvements, or additions thereto, which BecoCom has the right to use
pursuant to the BECO License.
"Facilities" means all installed Fiber (excluding the BECO
Dedicated Fibers), coaxial cable, twisted pair wires, connection cable,
splice closures, splice cases, associated suspension hardware and other
pole or power attachments, electronics, equipment and other items of
personal property, used or usable in the Carrier's conduct of the
Business.
"FCC" means the Federal Communications Commission, or any successor
thereto.
"FERC" means the Federal Energy Regulatory Commission, or any
successor thereto.
"Fiber" means fiber optic cable, including optical ground wire,
all dielectric cable, and all dielectric self supporting cable.
"Force Majeure" shall mean the following: acts of God; orders of
any kind of the government of the United States of America or of the
Commonwealth of Massachusetts or of any of their departments, agencies,
political subdivisions, or officials, or any civil or military
authority; civil insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; hurricanes; or any cause beyond the reasonable
control of the party whose duty or obligation has not been met.
"Interim Constructed Facilities" means all Facilities (both
completed and in progress) constructed by BECO (or BecoCom as assignee
of BECO) prior to the date hereof pursuant to the Interim Construction
Agreement, which Facilities (both completed and in progress) are set
forth on Exhibit A-2.
"Interim Construction Agreement" means that certain Interim
Construction Agreement, dated February 6, 1997, between BECO and RCN of
Massachusetts, Inc.
"Liens" means, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on,
or any interest or title of any vendor, lessor, lender or other secured
party to or of such person under any conditional sale or other title
retention agreement or Capital Lease with respect to, any property or
asset owned or held by such Person, or the signing or filing of a
financing statement which names such Person as debtor, or the signing of
any security agreement authorizing any other party as the secured party
thereunder to file any financing statement.
"Network" means the BecoCom Facilities and the Carrier Facilities.
"New BecoCom Constructed Facilities" means all New Facilities
constructed by BecoCom.
"New Carrier Constructed Facilities" means all New Facilities
constructed by Carrier.
"New Facilities" means all Facilities constructed after the date
hereof.
"Non-Power Space Facilities" means all Facilities located or to be
located outside the Power Space.
"Operating Agreement" means the Amended and Restated Operating
Agreement of Carrier of even date herewith as it may be amended from
time to time.
"Person" means a corporation, an association, a business, an
individual, a government or political subdivision thereof or a
governmental agency.
"Plans" means all engineering drawings or construction plans
relating to a Project.
"Power Space" means space within the Rights-of-Way normally and
primarily utilized for the transmission and distribution of electric
power, which space is (a) in the case of above-ground Rights-of-Way
located on distribution poles, space from the top of such poles to the
communications space, including the neutral space, (b) in the case of
above-ground Rights-of-Way located on transmission towers, all space
located thereon except as designated by BecoCom, and (c) in the case of
below-ground Rights of Way, all space located therein.
"Power Space Facilities" means all Facilities located or to be
located within the Power Space.
"Project" shall mean the engineering, construction, testing or
buildout, or any combination thereof, of any New Facilities.
"Relevant Market" means those certain cities and towns as set
forth on Exhibit B attached hereto.
"Request for Proposal" has the meaning set forth in Section 3(b)
below.
"Right-of-Way Owner" means the party or parties with whom BecoCom
or its Affiliates shall have contracted for the Rights-of-Way.
"Rights-of-Way" means, whether now owned or hereafter acquired,
all (a) electric distribution system poles located in public ways and
owned by BECO or owned jointly by BECO and NYNEX Corporation ("NYNEX");
(b) electric distribution system conduits, manholes and vaults located
in public ways and owned by BECO; (c) electric transmission system poles
and towers located on transmission line rights of way, which consist of
strips of land of varying width, which BECO owns in fee, or in which
BECO holds permanent easements, and in some cases licenses or other
lesser interests; and (d) electric transmission system conduits,
manholes and vaults owned by BECO and located primarily in public ways,
and in some cases on private or public property pursuant to easements or
licenses. This includes, but is not limited to, those areas upon,
above, along, across, under and over those public or private properties,
streets, roads, lanes, courts, ways, alleys, boulevards, water crossings
and other places necessary for the provision of BECO's business.
"Scope of Work" has the meaning set forth in Section 3(c) below.
"Specifications" means the manufacturer's specifications.
"Subcontractor" means any contractor engaged by BecoCom or
Carrier, as the case may be, to perform such party's obligations under
any Scope of Work.
"System Records" means the map which identifies locations of
Equipment Sites at substations or other locations in the Network, along
with surveys, mechanical and structural plans, and other records or
documents necessary or desirable for the purpose of operating or
maintaining the Facilities.
"Term" has the meaning set forth in Section 9 hereof.
"Work" means the work necessary to implement any Project pursuant
to this Agreement.
(b) Words importing the singular also include the plural and,
vice-versa, where the context so requires.
(c) All terms used herein which are defined in any one of the
attached Exhibits shall have the meaning ascribed to them in such exhibit
unless provided to the contrary herein.
2. Interim Constructed Facilities. BecoCom and Carrier hereby agree
and confirm that (a) all Interim Constructed Facilities shall be deemed
incorporated into this Agreement for all purposes hereof, (b) from and after
the date of this Agreement, the rights and obligations of the parties with
respect to the Interim Constructed Facilities shall be as provided herein, and
(c) the Interim Construction Agreement shall be deemed terminated effective as
of the date of this Agreement. To the extent any Interim Constructed
Facilities have not been paid for, such payment shall be an obligation of the
Company to BecoCom.
3. Construction of New Facilities. BecoCom and Carrier agree to the
following provisions with respect to the construction and installation of New
Facilities for the purpose of expanding the Network:
(a) Power Space and Non-Power Space Facilities. BecoCom shall
have the sole and exclusive right and obligation to construct (either directly
or through a Subcontractor) on a timely and efficient basis, at the request of
Carrier, all New Facilities which are Power Space Facilities, upon the terms
and conditions set forth in this Section 3. At Carrier's election, BecoCom
shall have the right and obligation on a timely and efficient basis, or
Carrier shall have the right, to construct (either directly or through a
Subcontractor) any New Facilities which are Non-Power Space Facilities, upon
the terms and conditions set forth in this Section 3 to the extent this
Section 3 is specifically applicable to New Carrier Constructed Facilities.
All New Facilities constructed by BecoCom pursuant to this Section 3 are "New
BecoCom Constructed Facilities" for all purposes of this Agreement, and all
New Facilities constructed by Carrier pursuant to this Section 3 are "New
Carrier Constructed Facilities" for all purposes of this Agreement.
(b) Request for Proposal. At any time Carrier desires BecoCom to
perform Work on any Project hereunder, Carrier shall deliver to BecoCom a
notice (a "Request for Proposal") which includes the following:
(i) a description of the routes to be constructed;
(ii) specification of the amount and type of New Facilities
to be installed;
(iii) a description of any materials, construction
equipment, tools, consumables, temporary services and
facilities, transportation, storage and all other
facilities and services (collectively, "Construction
Materials") required for the satisfactory construction
of the New Facilities and performance of the Work and
which Carrier intends to procure and supply;
(iv) a description of all engineering responsibilities to
be undertaken by BecoCom;
(v) any other Plans for the Project, including a plan for
splicing; and
(vi) any other material information as may be necessary or
appropriate for the construction of such New
Facilities.
BecoCom shall, upon request of Carrier, promptly provide to Carrier any
information regarding the BecoCom System as may be necessary or appropriate
for preparing the Request for Proposal.
(c) Scope of Work. Promptly upon receipt of the Request for
Proposal, and in any event not later than three business days thereafter,
BecoCom shall commence discussions with Carrier for the purpose of permitting
it to determine the Work required to complete the Project, and to determine
the cost for the completion of such Project. As part of such process, Carrier
and BecoCom may agree on modifications to the Request for Proposal. As soon
as practicable, and in any event not more than 10 days after receipt of the
Request for Proposal, BecoCom shall deliver to Carrier a proposal for the
Project, which shall include (i) all of the terms of the Request for Proposal,
as may be modified pursuant to discussions between Carrier and BecoCom or
otherwise modified as deemed necessary by BecoCom; (ii) the cost for the
completion of the Project (including the calculation thereof); (iii) the route
details for the Project; and (iv) a schedule for all Work to be performed on
the Project. Promptly following receipt of such proposal, and in any event
not more than three business days thereafter, Carrier shall either reject such
proposal, accept such proposal or accept such proposal as may be modified with
the consent of BecoCom (such accepted proposal being referred to as a "Scope
of Work"). If Carrier shall reject BecoCom's proposal, and the Project
relates in whole or in part to any Power Space Facilities, then BecoCom and
Carrier shall immediately thereafter negotiate in good faith to agree upon a
Scope of Work with respect thereto; it being agreed, however, that such
portion of the Project which relates to the construction of Power Space
Facilities may not commence until such Scope of Work is so agreed upon. With
respect to any portion of a Project proposed by BecoCom which relates to the
construction of Non-Power Space Facilities and which has been rejected by
Carrier, BecoCom and Carrier shall immediately thereafter negotiate in good
faith to agree upon a Scope of Work with respect thereto; it being agreed,
however, that if no such agreement is reached within 21 days after the Request
for Proposal, then Carrier shall have the right to perform (either by itself
or through the use of Subcontractors) such portion of the Project which
relates to the construction of such Non-Power Space Facilities.
(d) Construction. BecoCom shall complete, or shall cause the
completion by Subcontractors of, all Projects and all Work relating thereto
set forth and in accordance with any Scope of Work.
(i) BecoCom shall provide all supervision, labor and
Construction Materials required for the satisfactory performance of such
Work, except as provided in the Scope of Work.
(ii) BecoCom, or its Affiliates or agents, shall use its or
their best efforts to secure all necessary agreements from Right-of-Way
Owners (other than Affiliate Right-of-Way Owners), including the
Commonwealth of Massachusetts, its counties or municipalities, any other
governmental entity and any quasi-governmental entity, for use of any
poles, conduits or other rights-of-way (unless specified otherwise in
any Scope of Work), and Carrier shall reimburse BecoCom for reasonable
and supportable expenses incurred in securing such agreements.
(iii) The New BecoCom Constructed Facilities and all
components thereof shall, when installed, (A) be structurally sound, in
good operating condition and repair, (B) not be in need of maintenance
or repairs except for conditions that will not have a material impact on
Carrier's ability to conduct the Business and (C) meet all
specifications provided in the Scope of Work.
(iv) The System Records delivered to Carrier upon
completion of the New BecoCom Constructed Facilities shall be true,
complete and correct copies. Carrier and BecoCom shall agree on a
mutually compatible computer software system on which such System
Records shall be recorded and delivered to Carrier.
(v) Upon completion of any New BecoCom Constructed
Facilities, all electric facilities required by law or by the normal use
and operation of such New BecoCom Constructed Facilities shall be
installed to the property lines of the properties owned by BecoCom or
its Affiliates in fee simple, shall be connected pursuant to valid
permits, and shall be adequate to service such New BecoCom Constructed
Facilities and to permit full compliance with all requirements of law and
normal usage of such New BecoCom Constructed Facilities. BecoCom shall
cooperate with Carrier in obtaining any telephone facilities required by
the normal use and operation of such New BecoCom Constructed Facilities.
(vi) Construction Materials provided by BecoCom for use in
the construction or installation of the New BecoCom Constructed
Facilities shall be without physical or mechanical defects. BecoCom
shall not be responsible for physical or mechanical defects in
Construction Materials provided by Carrier for such construction or
installation; provided, however, that nothing in this paragraph (vi)
shall relieve BecoCom of its obligation to build New BecoCom Constructed
Facilities to meet the Specifications and the Scope of Work.
(e) Inspection. Carrier and its representatives or agents, and
others as may be required by applicable laws, ordinances and regulations,
shall have the right at all reasonable times to inspect the Work relating to
any New BecoCom Constructed Facilities and all Construction Materials provided
by BecoCom for said Work. BecoCom shall provide or cause to be provided
access and sufficient, safe and proper facilities for such inspections.
Except as set forth in the second sentence of Section 3(d)(vi) above,
Carrier's failure to inspect Construction Materials provided by BecoCom or the
Work relating to any New BecoCom Constructed Facilities shall not relieve
BecoCom or any of its Subcontractors and suppliers of their responsibilities
for any such Construction Materials or Work which prove to be defective or
omitted, nor be deemed to be a waiver of Carrier's rights subsequently to
reject any such Work which proves to be defective. Carrier shall have the
right to reject any or all parts of such Work that do not meet all
specifications in any Scope of Work and commonly accepted industry standards;
such standards shall include, but shall not be limited to, compliance with
state and local construction and permitting requirements. The method used in
making such determination must be based on commonly accepted industry standards
for measuring quality of the same or similar work. Such rejected Work shall
be promptly corrected or replaced, but in any event commencing within three
business days, by BecoCom at BecoCom's expense (except for Work rejected due
to failure to meet the specifications of any Scope of Work due to physical or
mechanical defects in Construction Materials provided by Carrier, which shall
then bear such expense) so that such Work complies with requirements of this
Agreement.
(f) Acceptance and Testing of the New BecoCom Constructed
Facilities.
(i) Prior to accepting any New BecoCom Constructed
Facilities, Carrier shall have the right to conduct its own test in
accordance with the Test Acceptance Plan to verify that such New BecoCom
Constructed Facilities are operating in accordance with the
Specifications and the Scope of Work relating thereto. Carrier shall
provide BecoCom with five business days' notice prior to beginning such
test procedures. BecoCom shall have the right to have a person or
persons present to observe such test procedures.
(ii) Within 14 days after the conclusion of such test
procedures, Carrier shall provide BecoCom with a copy of the Carrier
test results (the "Carrier Test Results"). If the Carrier Test Results
are within the parameters of the Specifications and the Scope of Work
relating to such New BecoCom Constructed Facilities, Carrier shall
provide BecoCom with a written notice accepting such New BecoCom
Constructed Facilities. If such test procedures are not completed
within 60 days after such New BecoCom Constructed Facilities are
installed and capable of being tested, Carrier shall be deemed to have
accepted such New BecoCom Constructed Facilities.
(iii) In the event the Carrier Test Results are not within
the parameters of the Specifications and the Scope of Work relating to
such New BecoCom Constructed Facilities, Carrier may notify BecoCom in
writing that the Carrier Test Results are unacceptable with respect to
all or any portion of such New BecoCom Constructed Facilities. BecoCom
shall take such action, consistent with industry standards, as shall be
necessary with respect to such portion of such New BecoCom Constructed
Facilities as do not operate within the parameters of the Specifications
and the Scope of Work relating thereto, to bring the operating standards
of such portion of such New BecoCom Constructed Facilities within the
parameters of the Specifications and the Scope of Work relating thereto,
at its sole cost and expense. Following such action, Carrier shall
retest such New BecoCom Constructed Facilities to ensure compliance with
the Specifications and the Scope of Work relating thereto.
(iv) Notwithstanding anything to the contrary in Section
3(f)(iii) above, Carrier's use of any New BecoCom Constructed Facilities
to carry revenue-bearing traffic shall constitute acceptance of such New
BecoCom Constructed Facilities; provided that, notwithstanding the
foregoing, Carrier shall have the right to notify BecoCom, prior to
carrying any revenue-bearing traffic over such New BecoCom Constructed
Facilities, that it is provisionally or conditionally accepting such New
BecoCom Constructed Facilities, or any part thereof, and specifying the
reasons for such provisional or conditional acceptance, which reasons
must be reasonably related to such New BecoCom Constructed Facilities'
not being within the parameters of the Specifications and the Scope of
Work relating thereto as determined by such test procedures. In such
event, the parties may determine a mutually acceptable method and
deadline for resolving Carrier's objections to unconditional acceptance
of such New BecoCom Constructed Facilities and BecoCom shall thereupon
take such action at its sole cost and expense. Notwithstanding the
foregoing, if BecoCom does not resolve Carrier's objections to such
unconditional acceptance as expeditiously as commercially practicable
under the circumstances, Carrier may bring the operating standards of
such portion of such New BecoCom Constructed Facilities within the
parameters of the Specifications and the Scope of Work relating thereto,
at BecoCom's sole cost and expense. In the event that Carrier takes
such action necessary to bring such New BecoCom Constructed Facilities
within such parameters, BecoCom shall, or shall cause its Affiliates to,
provide any accompanying personnel required in order to comply with any
law, rule or regulation pertaining to the access to such New BecoCom
Constructed Facilities or the supervision of the actions to be taken to
resolve Carrier's objections. Until Carrier's objections to
unconditional acceptance have been resolved by BecoCom to Carrier's
satisfaction, the use of such New BecoCom Constructed Facilities, or any
part thereof, by Carrier shall not constitute acceptance of such New
BecoCom Constructed Facilities.
(g) Liens.
(i) BecoCom shall at all times (A) promptly pay for all
services, Construction Materials, and labor used or furnished by BecoCom
(except if provided by Carrier pursuant to Section 3(b)(iii) hereof) in
the performance of the Work under this Agreement in order to keep the
BecoCom Facilities and the New BecoCom Constructed Facilities which are
Non-Power Space Facilities, the premises of the Affiliate Right-of-Way
Owners and all property or rights belonging to Carrier or Affiliate
Right-of-Way Owners, free and clear of any and all Liens and (B) keep the
premises of Right-of-Way Owners who are not Affiliates of BecoCom free
and clear of any and all Liens arising as a result of any activities of
BecoCom. If BecoCom fails to release and discharge any such Lien
against the BecoCom Facilities and premises of Right-of-Way Owners
within 30 days after receipt of written notice from Carrier to remove
such Lien, Carrier may, at its option, discharge or release the Lien or
otherwise deal with the Lien claimant, and BecoCom shall pay Carrier any
costs and expenses incurred by Carrier, including reasonable attorneys'
fees, or alternatively Carrier may, at its choosing, deduct such costs
and fees from amounts due to BecoCom hereunder.
(ii) Carrier acknowledges that the primary source of
revenue of BecoCom is the payments that Carrier is or becomes obligated
to pay BecoCom pursuant to this Agreement and the other Basic
Agreements. Therefore, the obligations of BecoCom under the provisions
of this Section 3(g) may be enforced by Carrier only so long as Carrier
is in material compliance with its obligations to pay BecoCom pursuant
to this Agreement and the other Basic Agreements.
(h) Duration of Construction Obligation. Notwithstanding
anything to the contrary in Section 9 hereof, BecoCom shall be obligated to
fulfill its obligations under this Section 3 for 10 years from the date of
this Agreement. No later than one year prior to the end of such 10 year
period, Carrier and BecoCom shall commence good-faith negotiations to reach a
new agreement concerning the construction of the Network for an additional 10
year term.
4. Ownership of Facilities. BecoCom and Carrier agree that the
various types of Facilities provided for under this Agreement shall be owned
as follows:
(a) BecoCom Facilities. All BecoCom Facilities (including any
Construction Materials supplied by Carrier for inclusion therein) shall
be owned by BecoCom or BECO, as the case may be; provided that all
Interim Constructed Facilities and New Facilities which are Power Space
Facilities shall be owned by BecoCom.
(b) Carrier Facilities. All Carrier Facilities shall be owned
by Carrier.
5. Indefeasible Right-of-Use of the BecoCom System.
(a) Rights of Access and Use.
(i) Upon the terms and conditions set forth in this
Section 5, BecoCom hereby grants to Carrier the exclusive, indefeasible
and non-cancellable right of access to and use of the BecoCom Facilities
for the conduct of the Business during the Term (as defined in Section 9
hereof);
(ii) Upon the terms and conditions set forth in this
Section 5, BecoCom hereby grants to Carrier, with respect solely to the
provision of Services, the exclusive, indefeasible and non-cancellable
right of access to and use of the BecoCom Rights-of-Way, subject to the
provisions of Sections 3(a), 5(c)(ii) and 6 hereof.
(iii) Carrier may not resell, lease, license, transfer or
otherwise provide the right to use dark Fibers included in the BecoCom
Facilities without BecoCom's consent, which shall not be unreasonably
withheld or delayed; and
(iv) BecoCom may not resell, lease, license, transfer or
otherwise provide the right to use dark Fibers included in the BecoCom
Facilities, without providing Carrier an opportunity to purchase or
lease such dark Fibers on the same terms offered, in writing, by a party
who is not an Affiliate of BecoCom.
The rights granted to Carrier under this Section 5(a) (herein called the
"Indefeasible Rights") include the right of access to and use of the BecoCom
System as if Carrier were the holder of such rights of access to and use of
the BecoCom System as BecoCom holds, including the right to solely use the
BecoCom System in the conduct of the Business.
(b) Equipment Sites. BecoCom will, or will cause its Affiliates
to, provide sufficient space to Carrier to accommodate New Facilities at
Equipment Sites in accordance with any Project; provided, however, that in no
event shall BecoCom or its Affiliates be required to reconfigure, in any way,
its electric transmission or distribution equipment. BecoCom hereby grants to
Carrier reasonable access to the Equipment Sites for such purpose. BecoCom
will provide (i) heating at Equipment Sites at the incremental cost thereof,
(ii) to the extent practicable, air conditioning at Equipment Sites at the
incremental cost thereof and (iii) 24 hours per day, 7 days per week access to
the Equipment Sites. Other than with respect to the Contributed Assets (as
defined in the Operating Agreement), compensation shall be paid by Carrier to
BecoCom for the use of Equipment Sites which are distribution facilities or
transmission Right-of-Way sites on a case-by-case basis at a price to be
agreed upon by the parties; no payment shall be required for the use of 150
square feet of space in Equipment Sites which are transmission stations.
(c) Exclusivity; Right of First Refusal; Etc.
(i) During the Term, BecoCom shall not grant any right of
access to or use of the BecoCom Facilities to any Entity. BecoCom shall
not sell, assign, mortgage, encumber or pledge or otherwise dispose of
(by operation of law or otherwise) any portion of the BecoCom
Facilities, and shall not permit any of the foregoing to occur.
(ii) Except as may be required (A) by applicable law or
regulatory authority, (B) pursuant to those existing agreements
described on Exhibit E hereto, (C) in connection with BECO's leasing or
licensing of locations on Rights-of-Way or Equipment Sites for use by
third parties in providing wireless telecommunications services, or (D)
in connection with the use by abutters for purposes other than providing
telecommunications services (including video) and which do not adversely
affect Carrier's use thereof, during the Term BecoCom and its Affiliates
shall not grant, with respect solely to the provision of Services, any
right of access to or use of any other part of the BecoCom System to any
Entity (other than BECO or its Affiliates) without 30 days prior written
notice to Carrier, which notice shall include the material terms and
conditions under which such right to access or use is to be granted.
Subject to all requirements of applicable law or regulatory authority,
Carrier shall have 10 days from the date such notice is given to inform
BecoCom of its intention to acquire such right of access or use. Such
acquisition shall include terms and conditions substantially similar to
the terms and conditions contained in the notice.
(iii) In the event that BECO or any of its Affiliates seeks
to sell, assign or otherwise dispose of all or any portion of the
BecoCom System in place on the date hereof (which sale, assignment or
disposition shall, in any event, be subject to the rights and
obligations in this Agreement), BecoCom shall give Carrier written
notice of the material terms of the proposed sale, assignment or other
disposition, including the price and terms of payment. Carrier shall
then have 30 days, commencing with the date on which it received such
written notice, to purchase such portion of the BecoCom System upon
comparable terms and conditions, and BecoCom shall cause BECO and its
Affiliates to effect such sale to Carrier.
(d) Continued Use Beyond Term. Not later than one year prior to
the end of the Term, Carrier and BecoCom shall commence good faith
negotiations with a goal of providing to Carrier continued access to the
BecoCom System after expiration of the Term; such negotiations shall take into
account Carrier's contribution to the cost of constructing and maintaining the
New BecoCom Constructed Facilities including, without limitation, payments
under this Agreement.
6. Maintenance of the Network.
(a) BecoCom shall repair, maintain, reinforce and otherwise
preserve on a timely and efficient basis (to Carrier's reasonable satisfaction
consistent with the Plans and Specifications) (i) the BecoCom Facilities,
which shall be BecoCom's exclusive right, and (ii), if agreed to by Carrier
and BecoCom, any Carrier Facilities, all in accordance with accepted industry
standards and Plans or, if applicable, with any plan mutually agreed upon by
the parties, and with all applicable federal, state and municipal laws,
orders, rules and regulations.
(b) Prior to completion of construction of any BecoCom
Facilities, BecoCom and Carrier shall agree on a plan for regular maintenance
and repair thereof, in sufficient detail to meet Carrier's operational needs.
BecoCom will deliver to Carrier any amendments to any such plan throughout the
Term, and such amendments shall be subject to approval by Carrier, which
approval shall not be unreasonably withheld or delayed. Carrier, in
conjunction with BecoCom, will implement procedures for reviewing and
approving or rejecting, within reasonable time periods, submissions to Carrier
for maintenance and repair.
(c) Prior to completion of construction of any Carrier
Facilities, BecoCom and Carrier shall negotiate to agree on a plan for regular
maintenance and repair thereof, in sufficient detail to meet Carrier's
operational needs. If BecoCom and Carrier are unable to agree on any such
plan, Carrier shall have the right to perform such regular maintenance and
repair itself, or to procure such regular maintenance and repair from any
other Person. If BecoCom and Carrier are able to agree on any such plan,
BecoCom will deliver to Carrier any amendments to any such plan throughout the
Term, and such amendments shall be subject to approval by Carrier, which
approval shall not be unreasonably withheld or delayed.
7. Relocation.
(a) Voluntary Relocation.
(i) If BecoCom, for its own business purposes other than an
involuntary relocation, elects to relocate any Facilities, then BecoCom
shall pay all costs relating to such relocation, including all costs
reasonably incurred by Carrier to connect or reconnect any such
Facilities. BecoCom shall use its best efforts (including coordination
with Carrier) to minimize all relocations and, in the event of a
voluntary relocation, shall ensure Carrier is able to provide the same
level and quality of Services throughout and after such voluntary
relocation.
(ii) BecoCom shall provide Carrier notice of any voluntary
relocation no later than 30 days prior to its commencement of such
voluntary relocation. Such notice to Carrier shall provide a
description of the relocation plan.
(b) Involuntary Relocation.
(i) If BecoCom is required to relocate any Facilities as a
result of requirements under a right-of-way agreement, a mandate from
any governmental authority having jurisdiction, or condemnation, BecoCom
shall make a reasonable good faith effort to identify an alternative
site for replacement of such Facilities that, once constructed, will
enable the Carrier to provide the same level and quality of Services.
BecoCom shall, as the circumstances warrant, seek to recover on behalf of
Carrier and/or cooperate with Carrier's efforts to recover from the
governmental authority or other entity requiring such relocation, on
behalf of Carrier, any available reimbursement of any expenses incurred
by Carrier as a result of such involuntary relocation. BecoCom shall
use its best efforts to ensure Carrier is able to provide the same level
and quality of Services throughout and after such involuntary relocation.
(ii) BecoCom shall provide Carrier notice of any
requirement of such involuntary relocation not later than 10 days after
its receipt of notice of the requirement to make such involuntary
relocation, and in any event not later than 10 days prior to the date
such relocation will commence. Such notice to Carrier shall provide a
description of the agreement, mandate or condemnation requiring such
relocation and BecoCom's relocation plan (including the anticipated cost
thereof). Carrier may, at its option and expense, provide an
alternative relocation plan with respect to such Facilities which are
Carrier Facilities.
8. Governmental Authorizations.
(a) Each party shall be responsible for and shall undertake, in
good faith, all actions which may be necessary for it to take in furtherance
of the intended use of the Network by Carrier hereunder, and each party shall
be responsible to undertake, in good faith, to procure and to maintain in full
force and effect all regulatory and other consents, authorizations, or
approvals that are necessary for it to perform its obligations under this
Agreement including, but not limited to, the issuance of all necessary
consents, authorizations or approvals of the DPU, the FCC and the FERC. Each
party shall have the right to review and participate in the preparation of all
filings and other documentation in support of such consents, authorizations
and approvals.
(b) BecoCom shall obtain all licenses, permits, easements,
approvals and rights of way required from all governmental authorities
necessary for completion of the New BecoCom Constructed Facilities and to
ensure Carrier's vehicular and pedestrian ingress to and egress from such
Facilities where required for maintenance and repair thereof. Carrier shall
reimburse BecoCom for all reasonable and supportable construction, permit and
traffic control fees and other items expressly set forth in any Scope of Work
relating to New BecoCom Constructed Facilities.
9. Term.
This Agreement shall commence on the date first written above, and shall
expire on December 31, 2060 (the "Term").
10. Compensation. Carrier shall pay to BecoCom the following
compensation with respect to the Facilities:
(a) Existing BecoCom Facilities. The Indefeasible Rights with
respect to the Existing BecoCom Facilities have been contributed by BecoCom to
Carrier, as a "BecoCom Contributed Asset" under the Operating Agreement,
contemporaneously with the execution and delivery of this Agreement.
Notwithstanding such contribution, Carrier shall pay to BecoCom, for the use
of the Existing BecoCom Facilities, the charges set forth on Exhibit C-1
hereto.
(b) New BecoCom Constructed Facilities. Carrier shall pay to
BecoCom (i) the charges set forth on Exhibit C-1 hereto for the use of the New
BecoCom Constructed Facilities in the Power Space and (ii) the charges set
forth on Exhibit D hereto for BecoCom's construction of the New BecoCom
Constructed Facilities. With respect to each Project as to which BecoCom
constructs New BecoCom Constructed Facilities, payment of such compensation
shall commence upon acceptance by Carrier or deemed acceptance (pursuant to
Section 3(d) above) of such New BecoCom Constructed Facilities constructed
pursuant to such Project. Not later than October 1, 1998, Carrier and BecoCom
will enter into discussions in order to reach an agreement on
performance-based incentive compensation to be effective starting January 1,
1999 through the end of the Term and to be paid to BecoCom as earned in
addition to the amounts set forth in Exhibit D. Such performance-based
incentive compensation shall be based on such factors as the parties shall
agree.
(c) Maintenance of Power Space Facilities and Carrier
Facilities. Carrier shall pay to BecoCom with respect to the Power Space
Facilities and any Carrier Facilities which BecoCom maintains pursuant to
Section 6 hereof (i) the charges set forth on Exhibit C-2 hereto, and (ii)
reasonable charges for general and administrative costs incurred by BecoCom
with respect to such maintenance. BecoCom and its Affiliates shall use their
best efforts to minimize the amounts provided for in clauses (i) and (ii)
above.
(d) Involuntary Relocations. Carrier shall reimburse BecoCom
for the cost of any involuntary relocation of Facilities contemplated by
Section 7(b) above, unless Carrier elects, pursuant to Section 7(b)(ii) above,
to undertake such relocation using contractors other than BecoCom (in which
case Carrier shall reimburse BecoCom for any costs reasonably incurred due to
its need to address safety concerns and to protect BECO's electric
transmission and distribution business). To the extent that any such
involuntary relocation also involves relocation of electric distribution or
transmission facilities and Carrier does not elect to undertake such
relocation using contractors other than BecoCom, Carrier shall only be
required to reimburse BecoCom for those costs of relocation that are
incremental to the costs otherwise required for the relocation of such
electric distribution or transmission facilities.
(e) Engineering Costs. Carrier shall reimburse BecoCom for all
reasonable and supportable engineering costs incurred in the preparation of
Scopes of Work, and for all other engineering costs incurred pursuant to
Scopes of Work, at competitive rates.
11. Indemnification; Limitation on Liability.
(a) Indemnification by Carrier. Carrier shall indemnify, defend
and hold harmless BecoCom, its Affiliates, and all officers, directors,
employees, shareholders, partners, members and agents of BecoCom and its
Affiliates, from and against any and all claims, demands, liabilities
(including reasonable attorneys' fees), and judgments, fines, settlements and
other amounts ("Damages") arising from any and all civil, criminal,
administrative or investigative proceedings ("Claims") relating to or arising
out of:
(i) Any failure of Carrier to materially observe or
perform any term or provision of this Agreement;
(ii) Any failure of any representation or warranty made by
Carrier herein to be true in any material respect as of the date made or
deemed made;
(iii) Any Claim of any third party resulting solely from and
to the extent caused by the gross negligence or willful misconduct of
Carrier or any of its agents or employees;
(iv) The construction, installation, maintenance or
operation of any Carrier Facilities by Carrier, or the conduct or
management of the Business, except to the extent such Damages are caused
or contributed to by BecoCom or its Affiliates; and
(v) Any Claim by any customer of Carrier relating to the
provision by Carrier of Services to such customer over the Network.
(b) Indemnification by BecoCom. BecoCom shall indemnify, defend
and hold harmless Carrier, its Affiliates, and all officers, directors,
employees, stockholders, partners, members and agents of Carrier and its
Affiliates from and against any and all Damages arising from any and all
Claims relating to or arising out of:
(i) Any failure of BecoCom to materially observe or
perform any term or provision of this Agreement;
(ii) Any failure of any representation or warranty made by
BecoCom herein to be true in any material respect as of the date made or
deemed made;
(iii) Any Claim of any third party resulting from the gross
negligence or willful misconduct of BecoCom or any of its agents or
employees;
(iv) The construction, installation, maintenance or
operation of (A) any BecoCom Facilities and (B) any Carrier Facilities
which BecoCom has constructed or maintained, or the conduct or actions
of BecoCom with regard to the Business, except to the extent such
Damages are caused or contributed to by Carrier or its Affiliates;
(v) Any Claim by any customer of BecoCom relating to the
provision by BecoCom of any services to such customer over the Network;
and
(vi) Any failure of BecoCom or its Subcontractors to be in
substantial compliance with all Environmental Laws (as defined below)
applicable to the Carrier Facilities constructed by BecoCom, which
compliance includes, but is not limited to, the possession by BecoCom or
BECO, as the case may be, of all permits and other governmental
authorizations required under the Resource Conservation and Recovery
Act, the Comprehensive Environmental Resources Compensation and
Liability Act, wetlands laws, the Clean Water Act, the regulations
issued pursuant thereto by the Environmental Protection Agency and/or
superlien statutes, if any, in the Commonwealth of Massachusetts
("Environmental Laws"), and compliance with the terms and conditions
thereof.
12. Insurance.
(a) Liability Insurance - BecoCom. BecoCom shall maintain (i)
such insurance or (ii) a self-insurance plan as will fully protect both
Carrier and BecoCom from any and all claims by employees of BecoCom under the
workers' compensation act or employees' liability laws, including any
employers' disability insurance laws, and from any and all other claims of
whatsoever kind or nature for any and all damage to personal property or for
personal injury, including death to anyone whomsoever that may arise from
operations in connection with the performance of its duties under this
Agreement. BecoCom shall provide Carrier with certificates evidencing the
required coverage.
(b) Liability Insurance - Carrier. Carrier shall maintain (1)
such insurance or (ii) a self-insurance plan as will fully protect both
Carrier and BecoCom from any and all claims by employees of Carrier under the
workers' compensation act or employees' liability laws, including any
employers' disability insurance laws, and from any and all other claims of
whatsoever kind or nature for any and all damage to personal property or for
personal injury, including death to anyone whomsoever that may arise from
operations in connection with the performance of its duties under this
Agreement. Carrier shall provide BecoCom with certificates evidencing the
required coverage.
(c) Property Insurance - BecoCom Facilities. BecoCom currently
maintains and will continue to maintain throughout the Term (1) insurance with
a reputable insurance company covering loss or damage to any part of the
BecoCom Facilities by fire and standard extended coverage perils in amounts in
no event less than 90% of the full replacement value of such BecoCom
Facilities, and (2) such comprehensive general liability insurance covering
personal injury or property damage occurring in or about such BecoCom
Facilities in commercially reasonable amounts; or (B) a plan of self-insurance
sufficient to provide the coverage set forth in clause (A) above. In the
event of any covered loss to any BecoCom Facilities, BecoCom shall, at the
option of Carrier, use the insurance proceeds therefrom to repair or replace
the Facilities, or to reimburse Carrier for payments made by it for the
construction, operation and maintenance of such Facilities.
(d) Property Insurance - Carrier Facilities. Carrier shall
maintain, with a reputable insurance company throughout the Term (A) (1)
insurance covering loss or damage to any part of the Carrier Facilities by
fire and standard extended coverage perils in amounts in no event less than
90% of the full replacement value of such Carrier Facilities, and (2)
comprehensive general liability insurance covering personal injury or property
damage occurring in or about the Carrier Facilities in commercially reasonable
amounts; or (B) a plan of self-insurance sufficient to provide the coverage
set forth in clause (A) above.
13. Representations and Warranties.
(a) General Representations and Warranties. Each party hereby
represents and warrants to the other that:
(i) It is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and is duly
qualified to conduct business in all jurisdictions where such
qualification is required.
(ii) It has the power and authority (corporate or
otherwise) to execute, deliver and perform its obligations under this
Agreement. Such execution, delivery and performance have been duly
authorized by all necessary action on its part and do not and will not
contravene its organizational documents or conflict with, result in a
breach of, or entitle any party (with due notice or lapse of time or
both) to terminate, accelerate or call a default with respect to, any
agreement or instrument to which it is a party or by which it is bound.
The execution, delivery and performance by it of this Agreement will not
result in any violation by it of any law, rule or regulation applicable
to it. It is not a party to, nor subject to or bound by, any judgment,
injunction or decree of any court or other governmental entity which may
restrict or interfere with the performance of this Agreement by it.
This Agreement is its valid and binding obligation, enforceable against
it in accordance with the terms of this Agreement, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance
and injunctive relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
(iii) No consent, waiver, order, approval, authorization or
order of, or registration, qualification or filing with, any court or
other governmental entity is required for the execution, delivery and
performance by such party of this Agreement and the consummation by such
party of the transactions contemplated hereby. No consent or waiver of
any party to any contract to which such party is a party or by which it
is bound is required for the execution, delivery and performance by such
party of this Agreement.
(iv) There is no action, suit, grievance, arbitration or
proceeding pending or, to the knowledge of such party, threatened
against or affecting such party at law or in equity, before any federal,
state, municipal or other governmental court, department, commission,
board, arbitrator, bureau, agency or instrumentality which prohibits or
impairs its ability to execute and deliver this Agreement or to
consummate any of the transactions contemplated hereby. Such party has
not received written notice of any such pending or threatened
investigation, inquiry or review by any governmental entity.
(b) Representations and Warranties of BecoCom Regarding the
Facilities. BecoCom represents and warrants to Carrier that:
(i) The Existing BecoCom Facilities and the Interim
Constructed Facilities installed by BecoCom and its Affiliates prior to
the date hereof have been installed in accordance with the System
Records and the Specifications. All such Facilities are fusion spliced
with no unnecessary mid-span splicing, and satisfy the Acceptance Test
Plan.
(ii) BecoCom has the indefeasible right to use the Existing
BecoCom Facilities, sufficient to permit BecoCom to perform its
obligations to Carrier under this Agreement, and such ownership or
indefeasible right of BecoCom are free and clear of any and all Liens,
except for (A) Liens on account of real or personal property taxes not
yet due and payable; and (B) Liens which will not materially impair the
use of the Existing BecoCom Facilities by Carrier for the conduct of the
Business, and which are otherwise not material.
(iii) The Interim Constructed Facilities installed by
BecoCom or its Affiliates prior to the date hereof are free and clear of
any and all Liens arising from any action or omission by BecoCom, except
for (A) Liens on account of real or personal property taxes not yet due
and payable; and (B) Liens which will not materially impair the use of
such Interim Constructed Facilities by Carrier for the conduct of the
Business, and which are not otherwise material.
(iv) The Existing BecoCom Facilities, the Interim
Constructed Facilities installed by BecoCom or its Affiliates prior to
the date hereof and all components thereof are structurally sound, are
in good operating condition and repair and none of the Existing BecoCom
Facilities, such Interim Constructed Facilities or any component
thereof, is in need of maintenance or repairs except for conditions that
do not and will not have a material impact on Carrier's ability to
conduct its Business.
(v) The System Records and all records relating to the
Existing BecoCom Facilities and Interim Constructed Facilities installed
by BecoCom or its Affiliates prior to the date hereof and all other
contracts or documents delivered to Carrier pursuant to this Agreement
or in connection with the execution hereof are true, complete and
correct copies.
(vi) Carrier has been named as a third party beneficiary of
the BECO License, with power to enforce BecoCom's rights thereunder upon
a breach of the obligations of either BecoCom or BECO. BecoCom has
delivered to Carrier a true and complete copy of the BECO License, and
will not permit the BECO License to be amended without the prior written
consent of Carrier, which consent shall not be unreasonably withheld.
(c) Representations and Warranties of BecoCom Regarding the
Rights-of-Way. BecoCom represents and warrants to Carrier that:
(i) With respect to those portions of the Rights-of-Way
that are distribution system poles located within public ways, BECO
holds, jointly with NYNEX, licenses permitting the location of such
poles within the public ways. Such licenses are obtained from municipal
or state authorities who, in granting the same, are acting as agents of
the state, pursuant to statutes creating a right to such licenses on the
part of public utilities. These licenses are unlimited in time, but the
rights obtained are not vested, and are subject to the action of the
legislature. The use of such poles is subject to the terms of the Joint
Ownership Agreement dated October 28, 1979, between BECO and New England
Telephone and Telegraph Company, and the corresponding Intercompany
Operating Procedures, last revised effective February 1, 1995, in both
cases as amended from time to time, and Carrier shall be required to
execute a separate Aerial License Agreement with NYNEX and BECO for the
use of the communications space on such poles. Subject to the
foregoing, (A) such licenses and the BECO License are sufficient to
permit BecoCom to perform its obligations to Carrier under this
Agreement in all material respects, except for any limitations which may
be imposed by any new and adverse interpretation of current law,
contracts or granting instruments and (B) neither BecoCom nor any of its
Affiliates has any reason to believe or anticipates that the licenses
for use of such portions of the Rights-of-Way shall, during the Term,
expire, be revoked or be modified in such a way as to make such licenses
not sufficient to permit BecoCom to perform its obligations to Carrier
under this Agreement in all material respects.
(ii) With respect to those portions of the Rights-of-Way
that are distribution or transmission system conduits, manholes and
vaults located within public ways, BECO holds licenses permitting the
location of such conduits, manholes and vaults within the public ways.
Such licenses are obtained from municipal or state authorities who, in
granting the same, are acting as agents of the state, pursuant to
statutes creating a right to such licenses on the part of public
utilities. These licenses are unlimited in time, but the rights
obtained are not vested, and are subject to the action of the
legislature. Within the City of Boston, the use of such facilities for
telecommunications purposes is subject to the policies adopted from time
to time by the Public Improvements Commission of the City of Boston.
Subject to the foregoing, (A) such licenses and policies and the BECO
License are sufficient to permit BecoCom to perform its obligations to
Carrier under this Agreement in all material respects, except for any
limitations which may be imposed by any new and adverse interpretation
of current law, contracts or granting instruments and (B) neither
BecoCom nor any of its Affiliates has any reason to believe or
anticipates that such licenses or policies for use of such portions of
the Rights-of-Way shall, during the Term, expire, be revoked or be
modified in such a way as to make such licenses not sufficient to permit
BecoCom to perform its obligations to Carrier under this Agreement in
all material respects.
(iii) With respect to those portions of the Rights-of-Way
that are electric transmission system poles and towers located on
transmission line rights of way, or conduits, manholes and vaults
located on private property, BECO generally either owns in fee or holds
permanent easements in the land on which such structures are located.
In some cases, BECO holds licenses or lesser interests, where such
rights of way cross public ways, tidewaters or water courses, railroad
rights of way, state highways, public domain lands, or lands owned by
state or federal agencies or authorities. In some cases, BECO's rights
were obtained by the exercise of eminent domain powers, with the
permission of the Massachusetts Department of Public Utilities. In all
cases where BECO holds less than a fee simple interest, the
Rights-of-Way are subject to the terms, conditions, reservations,
restrictions and other limitations imposed by the grantor and contained
in the granting instrument, generally recorded in the public land
records, and in some cases the paramount authority of the grantor which
is a state or federal agency or authority. In all cases, subject to the
foregoing, (A) the rights held by BecoCom in such portions of the
Rights-of-Way are sufficient to permit BecoCom to perform its
obligations to Carrier under this Agreement in all material respects,
except for any limitations which may be imposed by any new and adverse
interpretation of current law, contracts or granting instruments and (B)
neither BecoCom nor any of its Affiliates has any reason to believe or
anticipates that such rights for use of such portions of the
Rights-of-Way shall, during the Term, expire, be revoked or be modified
in such a way as to make such rights not sufficient to permit BecoCom to
perform its obligations to Carrier under this Agreement in all material
respects.
(iv) There are no condemnation, environmental, zoning or
other land-use regulation proceedings, either instituted or, to
BecoCom's knowledge, planned to be instituted, or contractual
obligations or third party actions or claims, nor are there are special
assessment proceedings pending or, to BecoCom's knowledge, threatened,
which would affect, in any material respect, the use and operation of
the BecoCom Rights-of-Way for the Business.
(v) BecoCom has received the BECO License, which license
pertains to the Rights-of-Way.
(d) Representations and Warranties of BecoCom Regarding the
Equipment Sites. BecoCom represents and warrants to Carrier that, as of the
time individual Equipment Sites are identified for purposes of performing the
Scope of Work for any Project:
(i) With respect to those Equipment Sites that are electric
distribution substations owned by BECO, or service centers or field
stations which are located on land owned by BECO, or parcels of land
comprising the above-ground electric transmission line rights of way
owned by BECO in fee, or vacant land owned by BECO in fee, BECO is the
sole legal and equitable owner of record and in fact of good and
marketable fee simple title, with no imperfections or irregularities
therein which materially impair the use of such property for the
purposes for which it is held, and subject only to (A) Liens on account
of real and personal property taxes and assessments not yet due and
payable (including any lien in favor of the Commonwealth of
Massachusetts pursuant to Chapter 21E of the General Laws for costs, if
any, incurred by the Commonwealth to clean up hazardous materials), or
which are being contested in good faith, (B) public and private
easements, (C) leases and licenses to third parties for occupancy
purposes, all of which, with respect to (A), (B) and (C) above,
individually or in the aggregate do not and will not materially impair
the use of such property by Carrier in the conduct of its Business, and
(D) zoning and building laws or other restrictions. Subject to the
foregoing, the rights held by BecoCom with respect to such Equipment
Sites are sufficient to permit BecoCom to perform its obligations to
Carrier under this Agreement in all material respects.
(ii) With respect to those Equipment Sites that are service
centers or field stations which are located on land leased by BECO from
third parties, all such leases are valid and subsisting and in full
force and effect in accordance with their terms, and BECO holds a valid
leasehold interest in such Equipment Sites, subject only to the terms
and conditions of the specific leases applicable to such Equipment
Sites. Subject to the foregoing, the rights held by BecoCom with
respect to such Equipment Sites are sufficient to permit BecoCom to
perform its obligations to Carrier under this Agreement in all material
respects, subject to any landlord consents.
(iii) The System Records are true, complete and correct
copies.
(iv) The Equipment Sites and all components thereof are
structurally sound, are in good operating condition and repair, and are
adequate for the uses to which they will be put, and none of the
Equipment Sites is in need of maintenance or repairs except for
conditions that do not have a material adverse impact on Carrier's
ability to conduct the Business. Subject to the foregoing, the
Equipment Sites have no physical condition that would have a material
impact on Carrier's ability to conduct the Business.
(v) There are no condemnation, environmental, zoning or
other land-use regulation proceedings, either instituted or, to
BecoCom's knowledge, planned to be instituted, or contractual obligation
or third party actions or claims, nor are there any special assessment
proceedings pending or, to BecoCom's knowledge, threatened, which would
affect in any material respect the use of the Equipment Sites for the
Business.
(vi) BecoCom has received the BECO License, which license
pertains to the Equipment Sites.
14. Covenant of BecoCom with respect to Rights-of-Way and Equipment
Sites.
BecoCom hereby represents, warrants and covenants with Carrier
that, at the time that specific Rights-of-Way and Equipment Sites are
identified in any Scope of Work, BecoCom shall hold, pursuant to the BECO
License and any consents required from landlords, subject to such
qualifications set forth in Sections 13(c) and (d) hereof, sufficient rights
in the Rights-of-Way and Equipment Sites described in such Scope of Work,
necessary to implement such Scope of Work and to permit Carrier to utilize the
portion of the BecoCom Facilities installed within such Rights-of-Way and
Equipment Sites for the Business, and further subject only to
(a) Liens on account of taxes not yet due and payable;
(b) minor imperfections in title or other rights, occupancy
leases or licenses, encroachments and similar matters, none of which
individually or in the aggregate will materially impair the ability of
BecoCom to implement such Scope of Work or the ability of Carrier to
conduct the Business;
(c) zoning laws, ordinances or regulations;
(d) environmental laws, ordinances or regulations, none of which
individually or in the aggregate will materially impair the ability of
BecoCom to implement the such Scope of Work or the ability of Carrier to
conduct the Business; and
(e) such matters as are specifically identified in such Scope of
Work as required consents, licenses, permits, approvals, grants,
modifications or other actions necessary to allow the use of particular
Rights-of-Way or Equipment Sites for the Business, none of which will be
material relative to (i) BecoCom's ability to implement such Scope of
Work, or (ii) Carrier's ability to conduct the Business.
15. Right to Cure.
(a) In the event that Carrier shall fail to observe or perform
any of its obligations under this Agreement, BecoCom may (but shall not be
obligated to), at any time after delivery of written notice from BecoCom to
Carrier of such failure (but not later than 30 days after delivery of such
notice), undertake such actions (except such actions as are prohibited by law)
as may be related to curing such default on behalf of Carrier, whereupon
Carrier shall reimburse BecoCom for the full costs reasonably expended
therefor by BecoCom, but Carrier shall not be relieved of any obligation,
liability, duty or undertaking whatsoever relating thereto. Carrier hereby
agrees to reasonably cooperate with BecoCom to facilitate BecoCom's
undertaking (including allowing BecoCom's access as may be necessary to effect
such undertaking).
(b) In the event that BecoCom shall fail to observe or perform
any of its obligations under this Agreement, Carrier may (but shall not be
obligated to), at any time after delivery of written notice from Carrier to
BecoCom of such failure (but not later than 30 days after delivery of such
notice), undertake such actions (except such actions as are prohibited by law)
as may be related to curing such failure on behalf of BecoCom, whereupon
BecoCom shall reimburse Carrier for the full costs reasonably expended therefor
by Carrier, but BecoCom shall not be relieved of any obligation, liability,
duty or undertaking whatsoever relating hereto. BecoCom hereby agrees to
reasonably cooperate with Carrier to facilitate Carrier's undertaking
(including allowing Carrier's access as may be necessary to effect such
undertaking, subject to limitations on such access reasonably imposed,
consistent with past practice, for reasons of safety or the protection of
BECO's electric transmission and distribution business).
16. Arbitration.
(a) In the event of any dispute between the parties hereto as to
a matter referred to herein or as to the interpretation of any part of this
Agreement, including but not limited to this Section 16 or as to the
determination of any rights or obligations or entitlements arising from or
related to this Agreement or as to the calculation of any amounts payable
under this Agreement, the parties shall refer the matter to their respective
chief executive officers for resolution.
(b) Should the chief executive officers of the respective
parties fail to resolve the dispute within 20 days from such referral, the
parties agree that such dispute will not be referred to any court but will be
referred to binding arbitration, and the provisions of this Section 16 shall
apply.
(c) The arbitration shall be governed by the AAA Commercial
Arbitration Rules or, in the case of Section 2 hereof, the AAA Construction
Industry Arbitration Rules (in each case, the "Rules") as modified by this
Section 16 and by the United States Arbitration Act, 9 U.S.C. Section 1 et
seq. (the "Arbitration Act"). Any conflict between the Rules and the
Arbitration Act shall be decided in favor of the Rules. The party wishing
to submit such matter to arbitration shall give written notice (the
"Arbitration Notice") to the other party (the "Respondent") of its
intention to arbitrate. The place of the arbitration shall be Boston,
Massachusetts. The arbitration shall be conducted, and the final
resolution of the dispute (the "Award") shall be rendered by one arbitrator
(the "Arbitrator") to be mutually selected by the parties. If the parties
cannot agree to a mutually acceptable Arbitrator within seven days of
Respondent's receipt of the Arbitration Notice, the Arbitrator shall be
selected in accordance with rule 13 of the Rules.
(d) All hearings shall be held within 30 days following the
appointment of the Arbitrator. At a time designated by the Arbitrator, each
party shall simultaneously submit to the Arbitrator and exchange with each
other its final proposed Award, and in rendering the final Award, the
Arbitrator shall be limited to choosing the Award proposed by either of the
parties without modification. The Arbitrator shall issue the final Award no
later than 15 days from the completion of the hearings. The Award of the
Arbitrator shall be final and binding. Judgment on any Award may be entered
in any court having jurisdiction thereof.
(e) To the extent that the parties pursue a judicial remedy in
aid of arbitration, each party consents and submits to the non-exclusive
jurisdiction of and venue in the federal courts located in Boston,
Massachusetts (or, in case such a federal court does not have jurisdiction,
the state courts located in Boston, Massachusetts). Each party consents to
service of the notice of arbitration, and any other paper in the arbitration,
by registered mail or personal delivery at its address specified in Section
17(b) hereof. Nothing in this subsection (e) shall limit the jurisdiction of
other courts for purposes of enforcement of a final arbitral Award.
(f) The fact that any party has invoked the provisions of this
Section 16 shall be considered to be confidential information under Section
17(d) of this Agreement and shall not relieve either party of any obligations
it may otherwise have to continue performance in accordance with the
provisions of this Agreement.
(g) This agreement to arbitrate a dispute in accordance with
this Section 16 and any Award made hereunder shall be binding upon the
successors and assigns and any trustee or receiver of each of the parties
hereto.
17. Miscellaneous.
(a) Assignment. This Agreement and the rights and obligations
of the parties hereto may not be assigned by any of the parties hereto without
the prior written consent of the other party which may be withheld by such
party in its sole discretion. This Section 17(a) shall not be interpreted to
prohibit the use of Subcontractors by either party to fulfill its
construction, maintenance or repair obligations hereunder. Notwithstanding the
foregoing, either party may assign its rights and obligations under this
Agreement to any of its Affiliates, provided that the assigning party will
continue to be responsible for its liabilities and obligations hereunder.
(b) Notices. All notices, requests and other communications
hereunder (herein collectively a "notice" or "notices") shall be deemed to
have been duly delivered, given or made to or upon any party hereto if in
writing and delivered by hand against receipt, or by certified or registered
mail, postage pre-paid, return receipt requested, or to a courier who
guarantees next business day delivery or sent by telecopy (with confirmation)
to such party at its address set forth below or to such other address as such
party may at any time, or from time to time, direct by notice given in
accordance with this Section 17(b).
If to Carrier: RCN-BecoCom, LLC
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael A. Adams and
Raymond B. Ostroski, Esq.
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
If to BecoCom: BecoCom, Inc.
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant
General Counsel
with a copy to: Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
The date of delivery of any such notice, request or other communication shall
be the earlier of (i) the date of actual receipt or (ii) three business days
after such notice, request or other communication is sent by certified or
registered mail, (iii) if sent by courier who guarantees next business day
delivery, the business day next following the day of such notice, request or
other communication is actually delivered to the courier or (iv) the day
actually telecopied (with confirmation received).
(c) Governing Law. The rights and obligations of the parties
hereto shall be construed and interpreted in accordance with the substantive
law of the Commonwealth of Massachusetts without giving effect to its
principles for choice of law.
(d) Confidentiality. Design criteria, Plans and other
information obtained by BecoCom from Carrier and working drawings and
specifications prepared by BecoCom shall be held in confidence by BecoCom, and
shall not be used by BecoCom for any purposes other than for the performance
of the Work, the operation of BECO's electric transmission and distribution
business or as authorized in writing by Carrier to BecoCom or its Affiliates.
Documents prepared by or on behalf of either party with respect to the New
Facilities shall be or, upon preparation, become the joint property of Carrier
and BecoCom. Each of Carrier and BecoCom shall keep confidential, and shall
not disseminate to any third party (other than their respective Affiliates) or
use for any other purpose (except with the written authorization of the other
party), all information relating to the System Records, and any information
received from the other party that is confidential or proprietary unless
legally compelled (by deposition, inquiry, request for documents, subpoena,
civil investigative demand or similar process, or by order of a court,
regulatory authority or tribunal of competent jurisdiction, or in order to
comply with applicable rules or requirements of any stock exchange, government
department or agency or other regulatory authority, or by requirements of any
securities law or regulation or other legal requirement). Each party shall
promptly notify the other of any such requirement or dissemination prior to
such event.
(e) No Partnership. Nothing contained in this Agreement shall be
construed to create a partnership or other relationship that may invoke
fiduciary obligations between the parties hereto.
(f) Compliance With Laws. At all times during the term of this
Agreement, the parties shall comply in all material respects with all laws,
rules, regulations, and codes of all governmental authorities having
jurisdiction over each of their respective businesses which are now
applicable, or may be applicable hereafter, including without limitation, all
special laws, policies, ordinances, or regulations now in force, as amended or
hereafter enacted. Nothing herein shall be deemed a waiver of the parties'
right to challenge the validity of any such law, rule or regulation.
(g) Time is of the Essence. Time is of the essence in the
performance of the obligations set forth herein by the parties. Each party
acknowledges and agrees that providing the use of the Network, as set forth
herein, is vital to the Business in the Relevant Market. Therefore, subject
to the provisions of paragraph (h) below, and taking into account the
requirements regarding safety and reliability of the electric transmission and
distribution system of BecoCom and its Affiliates, any consent, authorization
or approval that must be obtained by a party, or any construction, maintenance
or other obligation shall be given or performed within the time specified, or
if no time for performance is specified, shall be given or performed promptly,
with no unreasonable delay or condition. Any extension of the time requested
by either of the parties hereto to meet any of the obligations of the parties
pursuant to this Agreement shall not be unreasonably withheld by the other
party, provided that such extension will not have a material adverse effect on
the Business. No party shall be deemed in violation of this paragraph (g) to
the extent that such failure to comply is caused by a default of the other
party.
(h) Force Majeure. If by reason of Force Majeure either party
is unable in whole or in part to carry out its obligations hereunder (other
than the payment of money), said party shall not be deemed in violation or
default during the continuance of such inability.
(i) Fees and Expenses. Except as otherwise provided herein,
each of BecoCom and Carrier shall pay all fees and expenses incurred by, or on
behalf of, such party in connection with, or in anticipation of, this
Agreement and the consummation of the transactions contemplated hereby.
(j) Specific Performance. Each party hereby acknowledges and
agrees that there would be no adequate remedy at law for the other party's
breach, threatened breach or default of its covenants, agreements or
undertakings in this Agreement. As a result, and in addition to and without
prejudice to or waiver in whole or in part of each party's other remedies
under this Agreement and at law and in equity, each party shall have the right
to equitable relief and to specifically enforce its rights and the other
party's obligations as set forth in this Agreement and the breach or
threatened breach of such obligations may be enjoined by each without bond,
and accordingly each party consents and submits to the nonexclusive
jurisdiction of and venue in the federal courts located in Boston,
Massachusetts (or in case such a federal court does not have jurisdiction, the
state courts located in Boston, Massachusetts) in aid of arbitration pursuant
to Section 16 hereof.
(k) Condemnation. In the event and to the extent of any
condemnation or other taking by eminent domain of all or any part of the
BecoCom Facilities (other than existing Equipment Sites), or any property or
rights relating thereto, then the proceeds thereof shall by apportioned fairly
between BecoCom and Carrier as their interests may warrant.
(l) Captions. The captions to sections throughout this
Agreement are intended solely to facilitate reading and reference to the
sections and provisions of this Agreement. Such captions shall not affect the
meaning or interpretation of this Agreement.
(m) Entire Agreement. This Agreement sets forth the entire
agreement of the parties, and takes precedence over all prior understandings,
with respect to the subject matter herein. This Agreement may not be amended
except by a writing signed by the parties.
(n) Binding Effect. Subject to the provisions of Section 17(a)
of this Agreement, this Agreement is binding on and inures to the benefit of
the parties hereto and their respective heirs, legal representatives,
successors, and assigns.
(o) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the other provisions hereof. If
any provision of this Agreement is held to be invalid, such provision shall
not be severed from this Agreement; instead, the scope of the rights and
duties created thereby shall be reduced by the smallest extent necessary to
conform such provision to the applicable law, preserving to the greatest
extent the intent of the parties to create such rights and duties as set out
herein. If necessary to preserve the intent of the parties hereto, the
parties shall negotiate in good faith to amend this Agreement, adopting a
substitute provision for the one deemed invalid or unenforceable that is
legally binding and enforceable.
(p) Further Assurances. In connection with this Agreement and
the transactions contemplated hereby, each party shall execute, deliver and
file or record any additional documents and instruments and perform any
additional acts that may be necessary or appropriate to evidence or safeguard
the rights herein granted and to effectuate and perform the provisions of this
Agreement and such transactions and the intention of the parties hereto. Each
party agrees to reimburse the other party for its actual out of pocket
expenses incurred in connection therewith.
(q) Waiver of Subrogation. Carrier and BecoCom shall each cause
all policies of fire, extended coverage, and other physical damage insurance
covering the Network to contain a clause or endorsement denying the insurer
any rights of subrogation against the other party provided, that no additional
premium is payable as a result of such request unless the party requesting
such waiver agrees to pay such additional premium. Notwithstanding any
provisions of this Agreement to the contrary, Carrier and BecoCom respectively
waive all claims and rights to recover against the other for injury or loss
due to hazards covered by insurance, so long as waiver does not invalidate
such insurance.
(r) Changes in Law. If and to the extent that, during the Term,
any laws or regulations shall change which govern any transaction contemplated
herein or either party's business operations so as to make either unlawful,
then Carrier and BecoCom hereby agree to effect such modifications to this
Agreement as shall be reasonably necessary for the Agreement to accommodate
any such legal or regulatory changes.
(s) Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(t) Interpretation. In the event of any dispute concerning the
construction or interpretation of this Agreement or any ambiguity hereof,
there shall be no presumption that this Agreement or any provision hereof be
construed against the party who drafted this Agreement.
(u) Independent Contractor. Nothing in this Agreement shall be
construed or interpreted to make either party, any Subcontractor, or the
employees or agents of either party, to be the agent, representative or
employee of the other party or the Right-of-Way Owners. Each party shall at
all times be an independent contractor and shall have sole responsibility for
and control over the details and means for performance of its obligations
hereunder, so long as such party is in compliance with the terms of this
Agreement.
(v) No Other Business. BecoCom shall not engage in any
substantial business other than pursuant to this Agreement and the other Basic
Agreements.
(w) No Third Party Beneficiaries. Nothing in this Agreement
shall be construed to create any rights or obligations except between the
parties hereto, and no person or entity shall be or be deemed a third-party
beneficiary of this Agreement.
(x) BECO's Core Business. Notwithstanding anything to the
contrary set forth herein, nothing herein shall obligate BecoCom or its
Affiliates to take any action, or refrain from taking any action, which would,
in BecoCom's reasonable opinion, adversely affect the operation of BECO's
electric transmission and distribution business.
(y) Limitation on Damages. NOTWITHSTANDING ANYTHING TO THE
CONTRARY SET FORTH IN THIS AGREEMENT, NEITHER BECOCOM NOR CARRIER SHALL BE
LIABLE TO THE OTHER FOR OR IN RESPECT OF ANY CONSEQUENTIAL, INDIRECT OR
SPECIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES BASED UPON BUSINESS
INTERRUPTION OR LOSS OF EXPECTED OR ANTICIPATED BUSINESS PROFITS, WHICH MAY
ARISE OUT OF OR RESULT FROM ANY BREACH OF BECOCOM'S OR CARRIER'S OBLIGATIONS
UNDER THIS AGREEMENT; PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT
MITIGATE THE LIABILITY OF ANY PARTY WITH RESPECT TO SUCH PARTY'S GROSS
NEGLIGENCE AND/OR WILLFUL MISCONDUCT.
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
as an instrument under seal as of the date first set forth above.
BECOCOM, INC.
a Massachusetts corporation
By:
------------------------
Name:
----------------------
Title:
---------------------
RCN-BECOCOM, LLC,
a Massachusetts limited liability company
By:
------------------------
Name:
----------------------
Title:
---------------------
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of June, 1997, before me, a notary public in and for
said county and state, personally came ___________________________________,
__________________________________ of BecoCom, Inc., a Massachusetts
corporation, known to be the identical person who signed the foregoing
Agreement and acknowledged the execution thereof to be his voluntary act
and deed and the voluntary act and deed of said corporation.
WITNESS, my hand and notarial seal at 919 Third Avenue, New York, New
York 10022, in said county and state, the day and year last above written.
[SEAL]
-----------------------------------
NOTARY PUBLIC
My Commission Expires:
- ---------------------------------
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of June, 1997, before me, a notary public in and for
said county and state, personally came ___________________________________,
__________________________________ of RCN-BecoCom, LLC, a Massachusetts
limited liability company, known to be the identical person who signed the
foregoing Agreement and acknowledged the execution thereof to be his
voluntary act and deed and the voluntary act and deed of said company.
WITNESS, my hand and notarial seal at 919 Third Avenue, New York, New
York 10022 in said county and state, the day and year last above written.
[SEAL]
-----------------------------------
NOTARY PUBLIC
My Commission Expires:
- ---------------------------------
Exhibit A-1
-----------
EXISTING BECOCOM FACILITIES
The following is a description of the Existing BecoCom Facilities and
associated properties and rights-of-way. BecoCom will provide to the Company
the ability to use all of the Existing BecoCom Facilities except for any BECO
Dedicated Fibers. BecoCom is providing only those routes where fiber capacity
is available, or where there is commercial potential. The form of this
contribution will be an Indefeasible Right to Use. The Fibers being provided
to the Company include the upgrade to be constructed by BECO in 1997.
Summary by Construction Type
Type ROW miles Available
Fiber-miles
OPGW 84.5 3,654
OH Distrib. ADSS 3.0 36
UG ADSS 38.5 3,282
total 126.0 6,972
Summary by Geography
Type ROW miles Available
Fiber-miles
very dense urban 29.0 2,484
dense urban 9.5 798
suburban 84.5 3,654
distribution 3.0 36
total 126.0 6,972
The BecoCom Contributed Assets shall also consist of the right to locate
Carrier Facilities on 150 square feet of each of the following sites:
Prudential Center (subject to the termination or expiration of the lease at
such site); Station 150 (Edgar); Station 470 (Canton); Station 447 (West
Walpole); Station 446 (West Medway); Station 240 (Framingham); Station 148
(Needham); Station 496 (Hyde Park); Station 282 (Waltham); Station 320
(Lexington); Station 391 (Burlington); Station 250 (Mystic & Head House @
Ryan's Plygrd); Station 80 (Mass Ave.); Station 478 (Holbrook); Station 146
(Walpole); Station 65 (Medway); Station 274 (Sherborn); Station 433 (Speen
Street); Station 110 (Baker Street); Station 342 (Sudbury); Station 450
(Trapelo Road); Station 533 (Hartwell Ave.); Station 211 (Woburn); and Station
514 (Boston).
Exhibit A-2
-----------
INTERIM CONSTRUCTED FACILITIES
[To be provided]
Exhibit B
---------
RELEVANT MARKET
Areas Included in Relevant Market
- ---------------------------------
The following cities, towns or local municipalities (See Attached Map).
Acton Lexington Walpole
Arlington Lincoln Waltham
Ashland Maynard Watertown
Bedford Medfield Wayland
Bellingham Medway Weston
Boston Millis Westwood
Brookline Milton Winchester
Burlington Natick Woburn
Canton Needham
Carlisle Newton
Chelsea Norfolk
Dedham Sharon
Dover Sherborn
Framingham Somerville
Holliston Stoneham
Hopkinton Sudbury
Note: Boston shall be defined to include Allston, Brighton, Charleston,
Dorchester, East Boston, Hyde Park, Jamaica Plain, Mattapan, Roslindale,
South Boston and West Roxbury.
Note: The parties, by mutual agreement, may expand the Relevant Market to
include the municipalities of Cambridge, Belmont, Concord, Wellesley,
Norwood, Braintree, Quincy and Weymouth.
Exhibit C-1
-----------
PAYMENT FOR USE OF BECOCOM FACILITIES
Carrier shall pay to BecoCom, each quarter during the Term, the
following amounts:
1. A Right-of-Way (ROW) use fee calculated as follows:
a. Distribution Poles:
o $10.37 per attachment per year.
o rate subject to change per the then applicable Aerial
License Agreement.
b. Overhead Transmission ROWs:
o $0.58 per ROW foot per year through 12/31/98,
escalating at 2% per year thereafter.
o 10 year minimum term.
o no rate changes for duration of minimum term.
Thereafter, rates shall be recalculated with the same
methodology in which the initial rates were
calculated, subject to any applicable change in law or
regulation.
c. Underground Conduits:
o $0.86 per conduit foot per year through 12/31/98,
escalating at 2% per year thereafter.
o applicable to BECO conduits not constructed at the
request and expense of Carrier.
o 10 year minimum term.
o no rate changes for duration of minimum term.
Thereafter, rates shall be recalculated with the same
methodology in which the initial rates were
calculated, subject to any applicable change in law or
regulation.
2. The amount of all property taxes directly attributable to the
Facilities described in Sections 10(a) and 10(c).
3. Any other fees, charges, costs or expenses directly related to the
BecoCom Facilities.
4. Reasonable charges for general and administrative costs incurred
by BecoCom with respect to the BecoCom Facilities.
BecoCom and its Affiliates shall use their best efforts to
minimize the amounts provided for in clauses (3) and (4) above.
Exhibit C-2
-----------
PAYMENT FOR OPERATION AND MAINTENANCE
1. (a) For so long as BecoCom or one of its Affiliates is a member
of Carrier or a stockholder of Carrier or its Affiliates (or, if longer, 3
years after the Effective Date), Carrier shall pay to BecoCom the actual cost
of operating and maintaining the Facilities described in Section 10(c) (all of
which shall be documented and reasonably efficient and justified); and
(b) After the later of (A) the 3rd anniversary of the Effective
Date and (B) the date on which one of BecoCom or its Affiliates is no longer a
member of Carrier or a stockholder of Carrier or its Affiliates, Carrier shall
pay to BecoCom the actual cost of operating and maintaining the Facilities
described in Section 10(c) plus 25% of such actual cost.
2. The charge for operations and maintenance shall be proportionately
reduced to reflect the use thereof by parties other than Carrier (including
BecoCom and its Affiliates).
Exhibit D
---------
COMPENSATION FOR CONSTRUCTION OF
NEW BECOCOM CONSTRUCTED FACILITIES
For each Project, Carrier shall pay to BecoCom (a) a one-time, lump-sum
payment for Cost of Construction as follows:
Upon the initiation of Work on each Project, there shall be established
a Cost of Construction for such Project. The Cost of Construction shall equal
the actual cost of the Work as set forth in the Scope of Work, provided that
if, at any time any Project commences after July 1, 1998, Carrier has
committed to fewer than 10,000 miles to be subject to this Agreement
(including such Project and Existing BecoCom Facilities), the Cost of
Construction for such Project shall be multiplied by a factor determined as
follows:
Miles Subject to this Agreement Multiplier
------------------------------- ----------
8,500 to 10,000 1.25
6,500 to 8,499 1.50
4,500 to 6,499 2.00
2,500 to 4,499 2.50
500 to 2,499 3.00
below 500 4.00.
The Cost of Construction shall include any costs incurred beyond the Scope of
Work with the consent of Carrier. The amount determined pursuant to this
Exhibit D will be proportionately reduced if BecoCom or its Affiliates
construct, in connection with the Project, any Facilities for use by any party
other than Carrier.
Exhibit E
---------
EXISTING OBLIGATIONS
1. Agreement between BECO and Teleport Communications Group ("TCG"),
dated 11/29/95.
2. Agreement between BECO and TCG, dated 4/30/96.
3. Agreement between BECO and TCG, dated 8/21/96.
4. Agreement between BECO and TCG, dated 9/1/96.
5. Agreement between BECO and Metropolitan Fiber System, dated
11/30/93.
EXHIBIT 10.11
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT ("Agreement") is entered into as of the 17th
day of June, 1997, by and between BOSTON EDISON COMPANY, a Massachusetts
corporation ("Licensor") and BECOCOM, INC., a Massachusetts corporation
("Licensee").
Recitals:
---------
A. Licensor is the owner in fee of or holder of rights of access
to various parcels of real property ("Equipment Sites") and either owner or
holder of easements and other rights for transmission and distribution line
rights of way ("Rights of Way") in various parcels of real property and public
ways situated in cities and towns throughout eastern Massachusetts, which
Licensor utilizes in its business of producing and delivering electricity and
related services ("Licensor's Business"). Licensee is a party to that certain
"Construction and Indefeasible Right of Use Agreement" dated of even date
herewith ("IRU Agreement"), by and between Licensee and RCN-BecoCom, LLC, a
Massachusetts limited liability company ("Carrier"). Licensee desires to
license from Licensor the right to use (and to grant to Carrier under the IRU
Agreement the right to use) certain portions of one or more of such Equipment
Sites and Rights of Way for the purpose of constructing and maintaining thereon
certain telecommunications facilities ("Facilities") operated and utilized by
Carrier in its business of providing voice, video, data and other
telecommunications services ("Services") to its customers in the Relevant
Market, as defined in the IRU Agreement ("Business").
B. Licensor is the owner of certain fiber optic cable installed by
Licensor on the Rights of Way and Equipment Sites (the "Existing Facilities").
Licensee desires to obtain an indefeasible right to use the Existing
Facilities (excluding certain dedicated fibers reserved for Licensor's
exclusive use in the operation of Licensor's Business) for purposes of
granting similar rights with respect to such Existing Facilities to Carrier
for use in the Business, pursuant to the terms of the IRU Agreement.
C. Licensor has the capability of providing certain engineering,
design, construction and maintenance services in connection with the design,
installation and maintenance of Facilities and Licensee desires to obtain such
services from Licensor from time to time with respect to the Facilities to be
provided under the IRU Agreement.
D. Licensor is willing to provide such rights and services to
Licensee, upon and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
promises of the parties set forth herein, the parties hereby agree as follows:
All capitalized terms used herein and not otherwise defined shall
have the same meaning assigned to them in the IRU Agreement. Each individual
parcel of real property in which Licensor holds an interest shall be referred
to as the "Premises," and each location within the Premises which the Licensee
desires to license and use, subject to the license hereunder, shall be
referred to individually as an "Equipment Site" or "Site," and collectively as
"Equipment Sites" or "Sites."
1.0 MASTER LICENSE AGREEMENT
1.1 General Intent. It is the general intent of the parties that
the Licensor hereby grant to Licensee such rights and provide to Licensee such
services as may be required, or requested by Licensee from time to time, in
order to permit Licensee to perform its obligations to Carrier under the IRU
Agreement. Notwithstanding anything to the contrary set forth herein, nothing
herein shall obligate Licensor to take any action, or refrain from taking any
action, which would, in Licensor's reasonable opinion, adversely affect the
operation of Licensor's Business.
1.2 License of Existing Facilities. Licensor hereby grants to
Licensee an exclusive, indefeasible and non-cancelable right to use the
Existing Facilities for the conduct of the Business during the Term, with the
exception of up to twelve (12) strands of fiber optic filament reserved for
Licensor's exclusive use (the "Reserved Dedicated Fiber"). Included in the
license with respect to the Existing Facilities is the license to use, at no
additional charge, 150 square feet of space and egress to the distribution
system at each of approximately 24 access points along the route of the
Existing Facilities, as identified on Schedule 1.2 attached.
1.3 License of Rights of Way. Licensor hereby grants to Licensee,
solely with respect to the provision of the Services, an exclusive,
indefeasible and non-cancelable right of access to and use of the Rights of
Way, now owned or hereafter acquired, for the installation and maintenance of
the Facilities, subject to the exceptions relative to exclusivity stated in
Section 5(c)(ii) of the IRU Agreement.
1.4 License of Equipment Sites. Licensor hereby agrees to provide
sufficient space to Licensee to accommodate new Facilities at Equipment Sites,
now owned or hereafter acquired, to the extent required under, and subject to
the limitations set forth in, Section 5(b) of the IRU Agreement.
1.5 License to Construct in Power Space. Subject to the terms and
conditions of this Agreement, Licensor hereby grants to Licensee the exclusive
right to install, maintain and operate new Facilities (including any
Facilities necessary to complete Licensor's fiber optic network) in those
portions of the Rights of Way normally and primarily utilized for the
transmission and distribution of electric power, which space is (a) in the
case of above-ground Rights of Way located on distribution poles, space from
the top of such poles to the communications space, including the neutral
space; (b) in the case of above-ground Rights of Way located on transmission
towers, all space located thereon, except as designated by Licensor, and (c)
in the case of below-ground Rights of Way, all space located therein (the
"Power Space"). Nothing herein shall affect Licensor's continuing right to
use the Equipment Sites and Rights of Way for Licensor's Business.
2.0 EQUIPMENT SITE LICENSE
2.1 This Agreement contains the general terms and conditions
applicable to all Equipment Sites (other than Sites where Existing Facilities
are located) which may from time to time be licensed by Licensor to Licensee.
When the parties have identified a particular Equipment Site, and agreed on
any site-specific terms applicable to such individual Equipment Site, the
parties will execute a completed Site License Addendum ("SLA") in the form
attached as Schedule 2.1. Each executed SLA shall be an integral part of this
Agreement. In the event of a discrepancy or inconsistency between the terms
and conditions of any SLA and this Agreement, the terms and conditions of the
SLA shall control.
2.2 Subject to the terms and conditions contained in this Agreement
and the applicable SLA, Licensor licenses to Licensee that portion of the
Premises described as the Equipment Site on the SLA. The Premises of which
the Equipment Site is a part, and, if any, the structure owned by Licensor
located on the Equipment Site, will be described in the SLA. Each Equipment
Site will comprise the following components, to the extent applicable: (a)
ground area (expressed in terms of square feet) reasonably necessary for
placement and operation of the Facilities to be located thereon, and (b) space
on Licensor's structure, if any (expressed in terms of vertical feet and
degrees horizontally) on which all or a portion of the Facilities may be
mounted. The SLA will contain a description of the equipment comprising all
or a part of the Facilities to be located on the Equipment Site by mutual
agreement of the parties.
2.3 Licensee shall, at Licensee's sole cost and expense, comply
with all laws, orders, ordinances, regulations and directives of applicable
federal, state, county, and municipal authorities or regulatory agencies
having jurisdiction over the Facilities, the Equipment Site, or Business,
including, without limitation, the Federal Communications Commission ("FCC").
Licensor makes no representations or warranties concerning the ability of
Licensee to use the Equipment Site for the Business under applicable law, nor
about the physical suitability of the Equipment Site for the Business, or for
any other purposes.
2.4 Licensor agrees reasonably to cooperate with Licensee, at
Licensee's cost and expense, in executing such documents or applications as
may be required in order for Licensee to obtain such governmental licenses,
permits or approvals as may be necessary for the Business; provided, that
nothing herein shall be construed to require Licensor to act as surety,
guarantor or indemnitor on behalf of Licensee, or to assent to any
restrictions, conditions or limitations which would have an adverse impact on
Licensor's continued operations at the Premises.
2.5 Licensee shall install, operate and maintain the Facilities in
a manner that does not interfere with the Licensor's Business on the Equipment
Site.
2.6 Licensee shall not bring to, store, use, transport across,
release or dispose of any oil or hazardous materials or wastes on any Site,
except with the prior approval of Licensor, which approval shall not be
unreasonably withheld or delayed. Licensee's storage, use, transportation,
disposal and release of any hazardous materials shall comply with all
applicable laws, ordinances, and regulations governing such materials. In the
event of any spill, leak or other release or discharge to the environment,
Licensee shall, in addition to any other requirements imposed by relevant law
or regulation, follow the notification and other procedures established by the
Licensor and described on Schedule 2.6 attached hereto.
3.0 TERM
3.1 Term. This Agreement shall become effective on the date of
execution and delivery by both parties, and shall expire on December 31, 2060
(the "Term"). Each SLA shall become effective on the date of execution
thereof (the "Commencement Date") and shall remain in effect for the balance
of the Term.
3.2 Early Entry. Licensee may enter the Premises before the
Commencement Date, to the extent such entry is related to engineering surveys,
soil borings and inspections, or other reasonably necessary tests required
prior to construction and installation of the Facilities. All such
inspections and tests shall be at Licensee's sole risk, cost and expense, and
without damage or injury to Licensor's property, other than unavoidable soil
disturbance, which Licensee shall minimize, restoring the Premises as
reasonably as possible to the preexisting condition. Any such entry by
Licensee shall be with prior notice to Licensor. Licensor reserves the right
to require that a representative of Licensor be present during any such entry
on the Site.
3.3 Site "AS IS". Commencement of construction activities with
respect to a Facilities on an Equipment Site by Licensee shall be conclusive
evidence that Licensee (a) accepts such Site as suitable for the purposes for
which it is licensed, (b) accepts such Site and any structure on such Site and
every part and appurtenance thereof "AS IS," with all faults; and (c) waives
all claims against Licensor with respect to the condition of the Site, the
Premises, or any structure or other appurtenances and their suitability for
any purpose.
4.0 ADDITIONAL AGREEMENTS
4.1 Use of CAD-Image. Licensor hereby grants to Licensee the use
of Licensor's engineering records relative to the Rights of Way and Equipment
Sites, including the use of the CAD-Image GIS database and search engines, and
agrees to provide such additional records support services, all upon terms and
conditions as are described in the document entitled "Proposal to BecoCom,
Inc., Fibre Optic Information Management System," dated March 21, 1997, a copy
of which is attached hereto as Schedule 4.1, as the same may be modified by
mutual agreement of the parties from time to time.
4.2 Optional Additional Fiber. Licensee hereby grants to Licensor
the right, at its sole election, to acquire the right to use up to twelve (12)
strands of fiber optic filament of any newly constructed Facilities. Licensor
shall exercise its option by notice to Licensee, whereupon the parties shall
execute a separate agreement with respect to such optional additional fiber,
setting forth the terms and conditions, including compensation to be paid by
Licensor to Licensee therefor, which shall consist of a pro-rata share of the
actual costs of construction and maintenance of such newly constructed
Facilities. Such agreement, when executed, shall be filed with the
Massachusetts Department of Public Utilities ("MDPU"), pursuant to the
requirements of Massachusetts General Laws ("M.G.L."), c. 164, s. 85A, as
amended, and the compensation to be paid by Licensor to Licensee thereunder
shall be subject to review and determination by the MDPU, pursuant to M.G.L.
c. 164, s. 94B, as amended.
5.0 RIGHT OF FIRST REFUSAL
5.1 Right of First Refusal. Licensee hereby grants to Licensor the
right of first refusal to perform construction services for Licensee,
consisting of (a) engineering services, (b) fiber optic cable installation
services, (c) fiber optic cable repair and maintenance services, and (d) all
safety and supervision services, associated with the construction and
maintenance of the Facilities ("Construction Services"). The terms and
conditions for the performance of the engineering services shall be as set
forth in the document entitled "Service Level Agreement Between the
Engineering Services Group and BecoCom, Inc.," dated April 17, 1997, a copy of
which is attached hereto as Schedule 5.1, as the same may be modified by mutual
agreement of the parties from time to time. The terms and conditions for the
performance of Construction Services (other than engineering services) shall be
negotiated between the parties on a project-by-project basis. If Licensor
performs Construction Services, such performance shall be on a timely and
efficient basis.
6.0 LICENSE FEES
6.1 As consideration for the various licenses under this Agreement,
Licensee shall pay or provide Licensor the following:
6.1.1 [Intentionally Omitted]
6.1.2 In consideration of the license of the Rights of Way,
Licensee shall pay Licensor a Right of Way use fee and other charges and
expenses with respect to such Rights of Way, as described in Schedule 6.1
attached.
6.1.3 In consideration of the license of the Equipment Sites
(other than Sites where Existing Facilities are located), Licensee shall pay
Licensor a Site Use Fee agreed upon in each individual SLA with respect to
such Site.
6.1.4 In consideration of the exclusive right to construct
Facilities in the Power Space, Licensee shall (a) assume and perform all of
Licensor's obligations with respect to the provision of non-discriminatory
access to utility infrastructure, as mandated by the Telecommunications Act of
1996, by licensing the right to use the Facilities to those parties who pay
for the construction of the same, on non-discriminatory terms; and (b) pay to
Licensor a Right of Way use fee and other charges and expenses with respect to
such Rights of Way, as described in Schedule 6.1 attached.
6.2 Licensee agrees to pay the fees, charges and expenses described
in Schedule 6.1 (collectively, "Fees") quarterly, in arrears, without any
deduction, offset or counterclaim, at the address specified by Licensor, or at
such other address as Licensor may by notice from time to time specify.
6.3 Any Fees not paid within five (5) business days from the date
when due may, at Licensor's option, bear interest until paid at the lesser of
(a) one and one-half percent (1.5%) per month, or (b) the maximum rate allowed
under the law of the Commonwealth of Massachusetts.
6.4 Any Fees not paid within fifteen (15) days from the date when
due shall be subject to a late charge of $150. The late fee shall be due in
addition to the interest Licensor may assess under Section 6.3, but the
combination of the late fee and interest shall in no event exceed limits
imposed by state law.
7.0 CONSTRUCTION
7.1 Approval of Plans. Prior to commencing any work on the Site in
connection with the construction of Facilities (whether initial installation
or a subsequent material alteration), Licensee shall obtain Licensor's
approval of (a) Licensee's plans for all site and construction work,
including access and laydown, and any alterations, modifications or impacts on
any structure existing on the Site or the Premises, (b) the precise location
of the Facilities at the Site, (c) the precise location of any utility
connections to the Facilities at the Site and through the Premises. If
Licensee proposes to install any portion of the Facilities on an existing
structure, Licensor may require Licensee to submit a structural engineering
analysis, prepared by a registered professional engineer, for Licensor's
review and approval. Licensee may propose solutions to any structural
problems identified in its analysis, which solutions Licensee is willing to
implement at its cost; however, Licensor shall be under no obligation to
accept any such proposed solution. Licensor reserves the right to determine,
through its own analysis and operational requirements, that a particular
structure requires replacement or modification as a condition to use by
Licensee, in which case Licensee shall have the option of (a) paying for the
cost (in whole or in part, as may be agreed to by Licensor) of such
replacement or modification, or (b) selecting another Site. Nothing herein
shall require Licensor to make any modifications to its structures to
accommodate Licensee, where such modification would impose additional costs or
operational constraints on Licensee's operations. Licensor in its discretion
may require that a representative of Licensor be present during the
construction of the Facility, or that such representative make periodic
inspections of the progress of the construction work. Licensor shall not
unreasonably withhold or delay its consent to Licensee's plans; however,
depending on the Licensor's own operational needs at the particular Premises
and the Site, Licensor may impose reasonable requirements in order to ensure
electrical system reliability and to minimize or avoid potential adverse
effect on Licensor's Business, which Licensee acknowledges are a matter of
public health and safety. Any alterations or modifications to a structure
existing on the Site must be designed to Licensor's satisfaction by a licensed
engineer at Licensee's sole cost and expense. Licensor, in its discretion,
may require independent engineering review of Licensee's alterations or
modifications, and such independent review shall be at Licensee's cost.
7.2 All of Licensee's installation and alteration work shall be
performed at Licensee's sole cost and expense, in a good and workmanlike
manner by qualified workmen and in accordance with all applicable laws,
ordinances and regulations and any permits or licenses issued by any
governmental authority having jurisdiction. Licensee agrees to implement
reasonable measures requested by Licensor in order to ensure that any
contractors working for Licensee work in harmony with any Licensor
personnel or contractors at a particular Site.
7.3 Licensee shall keep the Premises and the Sites free from any
liens arising from any work performed, materials furnished, or obligations
incurred by or at the request of Licensee. If any lien is filed against the
Premises or the Sites as a result of any such matter, Licensee shall discharge
the lien or bond the lien off in a manner reasonably satisfactory to Licensor
within thirty (30) days after Licensee receives written notice from any party
that a lien has been filed. If Licensee fails to discharge or bond any lien
within such period, then, in addition to any other right or remedy, Licensor
may, at Licensor's election, take such action as Licensor deems appropriate
under the circumstances, and all reasonable attorneys' fees and other legal
expenses of Licensor incurred in obtaining the discharge of such lien,
together with all necessary disbursements in connection therewith, shall be
due and payable by Licensee to Licensor upon demand.
7.4 Licensee shall at all times maintain the Facilities in good,
clean, safe and operable condition and shall not permit the Facilities or the
Sites to deteriorate, become unsightly, unsafe or a nuisance. Licensee shall
not permit stockpiling of materials or accumulation of rubbish or debris on
any Site. Licensee's work shall not adversely affect the structural integrity
or maintenance of any structure on the Sites, nor the physical condition of
the Sites. Licensee shall take proper steps to ensure public safety at all
Sites where Licensee is conducting construction operations. Licensee shall
take reasonable steps to secure the Facilities (and the Site, if Licensor has
no ongoing presence at the Site) in order to avoid damage to the Premises and
the Sites from vandalism, and to prevent claims of attractive nuisance.
7.5 If at any time Licensor reasonably determines that the location
of the Facilities at any Site is disadvantageous to the Licensor in the
operation of Licensor's Business, Licensor shall have the right, by notice to
Licensee, to require Licensee to relocate such Facilities to another
comparable location within the Premises ("Alternate Site"); provided, that
Licensor shall reimburse Licensee for all reasonable costs and expenses of
such relocation. In the event of such relocation of the Facilities to an
Alternate Site, the parties shall execute a new SLA reflecting the Alternate
Site, as if the Alternate Site were the original SLA executed with respect to
such Facilities.
7.6 Licensor's obligations under this Article 7 shall be performed
on a timely and efficient basis.
8.0 UTILITIES
8.1 Licensee shall have the right, at Licensee's sole cost and
expense, to obtain electrical and telephone service from any utility company
that provides such service to the Premises. Licensee shall install, at its
cost, any necessary telecommunications isolation equipment required by the
provider of any utility service to the Facilities.
8.2 Licensee shall pay for all of Licensee's utility service costs
when due.
8.3 Licensee shall be solely responsible for providing any utility
services required during construction.
9.0 ACCESS
9.1 The parties recognize that access to any Site may vary
depending on the nature of the Premises and Licensor's operations thereon, as
well as any special landowner requirements in the case of a Site not owned by
Licensor in fee. Any special access restrictions or requirements imposed by
Licensor shall be specified in the SLA.
9.2 Unless otherwise provided above or in the SLA:
9.2.1 Access for construction, routine maintenance and repair
and other non-emergency visits shall be limited to normal business hours
(defined as Monday through Saturday, 7 AM to 7 PM, excluding holidays).
9.2.2 In the event of an emergency, Licensee is entitled to
access to any Site twenty-four (24) hours per day, seven (7) days per week.
9.2.3 Access to the Premises may be by foot or motor vehicle,
including trucks and equipment.
9.3 Licensee acknowledges that the foregoing access rights are
subject to any limitations or restrictions on access imposed upon Licensor
(and therefore upon Licensee) by the landowner under any underlying deed,
easement, lease or license document relating to a particular Site. Licensee
agrees to abide by such limitations or restrictions, provided that Licensee
has been notified by Licensor of such limitations and restrictions.
10.0 TAXES AND ASSESSMENTS
10.1 Licensor and Licensee shall each be responsible for a portion
of the real property taxes attributable to the Rights of Way and Equipment
Sites, as provided in Schedule 6.1.
10.2 Licensee shall be solely responsible for the payment of all
personal property taxes, assessments and other similar fees or charges
attributable to the Facilities, as well as any increase in real property
taxes, to the extent attributable to the Facilities.
11.0 INSURANCE
11.1 Licensee shall, during the term of this Agreement and at
Licensee's sole expense, obtain and maintain in force (and, to the extent
applicable, shall cause its agents and contractors to obtain and maintain
during the term of any contract), not less than the following insurance:
11.1.1. Property insurance, including coverage for fire,
extended coverage, vandalism and malicious mischief, upon the Facilities, to
the extent used in the Business, in an amount not less than ninety percent
(90%) of the full replacement cost of the Facilities;
11.1.2. Comprehensive Commercial General Liability and Motor
Vehicle Liability insurance, insuring operations hazard, independent contractor
hazard, contractual liability, and products and completed operations
liability, in limits not less than $5,000,000 combined single limit for each
occurrence for bodily injury, personal injury and property damage liability,
including coverage for liability assumed under the indemnification provisions
of this Agreement, and designating Licensor as an additional insured; and
11.1.3. Workers' Compensation and Employer's Liability
insurance as required by law.
11.2 All required insurance policies shall be taken out with
reputable national insurers that are licensed to do business in the
Commonwealth of Massachusetts and having a Best rating of not less than A-X.
Licensee shall deliver certificates of insurance to Licensor as soon as
practicable after the placing of the required insurance, but not later than
the Commencement Date of a particular SLA. All policies must contain an
undertaking by the insurer to notify Licensor in writing not less than fifteen
(15) days before any material change, reduction in coverage, cancellation, or
termination of the insurance.
11.3 Licensor and Licensee shall each year review the limits for the
insurance policies required by this Agreement. Policy limits will be adjusted
to proper and reasonable limits as circumstances warrant, but policy limits
will not be reduced below those stated above and no increases will be
effective unless Licensor and Licensee mutually agree.
11.4 Licensor shall, upon request, provide Licensee with
certificates of insurance indicating the types and amounts of coverages
maintained by Licensor on the Premises and the facilities of Licensor thereon.
11.5 The provision of insurance required in this Agreement shall not
be construed to limit or otherwise affect the liability of any party to the
other party.
11.6 Licensee shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought to the Premises, anything
that (a) is prohibited by any insurance policy carried by Licensor covering
any Site, any improvements thereon, or the Premises; or (b) will increase the
existing premiums for any such policy beyond that contemplated for the
addition of the Facilities. Licensor acknowledges and agrees that the
installation of the Facilities upon any Site in accordance with the terms and
conditions of this Agreement will be considered within the underwriting
requirements of any of Licensor's insurers and such premiums contemplate the
addition of the Facilities.
12.0 INDEMNIFICATION
12.1 Licensee shall indemnify, defend and save Licensor, its
officers, directors and employees, harmless for and from and against any and
all actions, charges, claims, damages, expenses, fines, penalties and
liabilities whatsoever arising from, or out of, or in connection with any of
the following:
12.1.1 The loss of life, personal injury, or damage to
property in, upon or at the Premises or the Sites caused by the act or
omission of Licensee, Licensee's employees or agents, contractors, or any
other person acting by or through, or with the knowledge or approval of
Licensee, except to the extent caused by the negligence or willful misconduct
of Licensor, Licensor's employees or agents, or any other person acting by or
through, or with the knowledge or approval of Licensor;
12.1.2 The violation of federal, state or local law,
regulation or ordinance applicable to the Sites, the Premises and Licensee's
use of, or presence on, the Premises by Licensee or Licensee's employees or
agents, contractors, or any other person acting by or through, or with the
knowledge or approval of Licensee;
12.1.3 The violation or breach by Licensee of any provision or
obligation of this Agreement or of any SLA; or
12.1.4 Any storage, use, spill, discharge or release to the
environment of any oil or hazardous materials or wastes, as those terms are
defined by applicable federal or state law from time to time, in or upon any
Site or the Premises by Licensee or Licensee's employees or agents,
contractors, or any other person acting by or through, or with the knowledge
or approval of Licensee.
12.2 Licensor shall indemnify, defend and save Licensee, its
officers, directors and employees, harmless for and from and against any and
all actions, charges, claims, damages, expenses, fines, penalties and
liabilities whatsoever arising from, or out of, or in connection with any of
the following:
12.2.1 The loss of life, personal injury, or damage to
property in, upon or at the Premises or the Sites caused by the act or
omission of Licensor, Licensor's employees or agents, contractors, or any
other person acting by or through, or with the knowledge or approval of
Licensor, except to the extent caused by the negligence or willful misconduct
of Licensee, Licensee's employees or agents, or any other person acting by or
through, or with the knowledge or approval of Licensee;
12.2.2 The violation of federal, state or local law,
regulation or ordinance applicable to the Sites, the Premises and Licensor's
use of, or presence on, the Premises by Licensor or Licensor's employees or
agents, contractors, or any other person acting by or through, or with the
knowledge or approval of Licensor;
12.2.3 The violation or breach by Licensor of any provision or
obligation of this Agreement or of any SLA; or
12.2.4 Any storage, use, spill, discharge or release to the
environment of any oil or hazardous materials or wastes, as those terms are
defined by applicable federal or state law from time to time, in or upon any
Site or the Premises by Licensor or Licensor's employees or agents,
contractors, or any other person acting by or through, or with the knowledge
or approval of Licensor.
12.3 Neither party shall be liable to the other for any
consequential or punitive damages, or losses in the nature of lost profits,
loss of use, or loss of opportunity.
12.4 The indemnity obligation includes reasonable attorneys' fees,
investigation costs, and all other reasonable costs and expenses incurred by
the indemnified party from the first notice that any claim or demand has been
made or may be made, and is not limited in any way by any limitation on the
amount or type of damages, compensation, or benefits payable under applicable
workers' compensation acts, disability benefit acts, or other employee benefit
acts.
12.5 The provisions of this Section shall survive the termination of
this Agreement or any SLA with respect to any cause of action arising before
such termination, or first cognizable after such termination.
13.0 ASSIGNMENT AND TRANSFER
13.1 Licensee, upon prior written notice to Licensor, shall have the
right, without the necessity of obtaining Licensor's consent, to assign or
transfer this Agreement, either in whole or in part, or any rights thereunder,
to (a) any Affiliate of Licensee; (b) any person or entity with whom Licensee
has an agreement for construction and use of newly-constructed Facilities; or
(c) any purchaser of substantially all of the assets of Licensee (collectively
"Permitted Transferees"). No such assignment to a Permitted Transferee shall
relieve Licensee from continuing primary liability and obligation to Licensor
under the terms of this Agreement and any SLA, and Licensor shall have no
obligation to look to such Permitted Transferee for the satisfaction of any
obligations of Licensee hereunder or under any SLA, but may at all times seek
recourse against Licensee. "Affiliate," for purposes of this Agreement, shall
mean any person or entity in which Licensee has an equity interest, or any
entity controlling, controlled by or under common control with any such person
or entity.
13.2 Licensee shall not assign, sublet, or otherwise transfer this
Agreement, any SLA, any Site or any Facilities, or any rights therein or
thereunder, to any party other than Permitted Transferees without in each case
obtaining Licensor's prior written consent, which consent Licensor may
withhold in its discretion, or condition upon payment to Licensor of
additional consideration.
14.0 TRANSFER BY LICENSOR
14.1 Licensor may not make any sale, lease, license or transfer of
any Site, unless such sale, lease, license or transfer is subject to the terms
and conditions of this Agreement and the applicable SLA. Licensee's rights
hereunder are not exclusive, and Licensor may grant to others rights in any
Site coextensive with those of Licensee, so long as such other person or
entity does not unreasonably interfere with the exercise by Licensee of the
rights granted to it under this Agreement and any SLA.
15.0 CASUALTY OR CONDEMNATION
15.1 If there is a casualty to any structure owned by Licensor upon
or within which Facilities are located, Licensor take all reasonable steps to
repair or restore the structure within sixty (60) days. Licensee may
immediately erect on an unused portion of a Site temporary Facilities,
including any supporting structure, while Licensor makes repairs to the
damaged structure. Upon completion of such repair or restoration, Licensee
shall be entitled to reinstall Licensee's Facilities on or within the Site.
15.2 In the event such repair or restoration will reasonably require
more than sixty (60) days to complete, Licensee shall be entitled to terminate
the applicable SLA, effective upon the expiration of thirty (30) days after
written notice to Licensor; provided, that, if after giving such notice,
Licensor is able to complete such repair or restoration within such additional
thirty (30) days, then the notice of termination shall be deemed withdrawn,
and the SLA shall continue.
15.3 If there is a condemnation of any Site, including without
limitation a transfer of such Site by consensual deed in lieu of condemnation,
then the SLA for such condemned Site will terminate upon transfer of title to
the condemning authority, without further liability to either party under this
Agreement. All awards on account of a Site shall be the property of Licensor,
and Licensee hereby assigns over any claim to such award to Licensor.
Licensee shall be entitled to pursue a separate condemnation award for the
Facility from the condemning authority.
16.0 NOTICE
16.1 Any notice or demand required or permitted to be given under
this Agreement or any SLA shall be in writing and shall be made by (a)
certified or registered U.S. mail, return receipt requested, (b) by
established overnight courier providing a receipt, or (c) by facsimile
providing a confirmation of receipt, if followed by hard copy by first class
U.S. mail, to the address set forth below:
To Licensor:
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Attention: Fred J. Greenberg, General Manager of
Fossil and Electric Delivery
To Licensee:
BecoCom, Inc.
36th Floor
800 Boylston Street
Boston, Massachusetts 02199
Attention: Richard S. Hahn, President
16.2 Any such notice shall be deemed received one (1) business day
following facsimile or deposit with an overnight courier, or five (5) business
days following deposit in the United States mails, addressed as required
above. Each party may from time to time designate any other address for this
purpose by written notice to the other party as provided herein.
17.0 GENERAL PROVISIONS
17.1 The parties agree that Carrier shall be a third-party
beneficiary of this Agreement, with the power to enforce Licensee's rights
hereunder upon a breach of the obligations of either Licensee or Licensor.
Licensee and Licensor shall not voluntarily amend this Agreement without
the prior written consent of Carrier, which consent shall not be
unreasonably withheld or delayed.
17.2 This Agreement and each SLA constitutes the entire agreement and
understanding between the parties, and supersedes all offers, negotiations and
other agreements concerning the subject matter contained in this Agreement.
There are no representations or understandings of any kind not set forth in
this Agreement. Any amendments to this Agreement or any SLA must be in
writing and executed by both parties.
17.3 If any provision of this Agreement or any SLA is invalid or
unenforceable with respect to any party, the remainder of this Agreement, the
applicable SLA or the application of such provision to persons other than
those as to whom it is held invalid or unenforceable, shall not be affected
and each provision of this Agreement or the applicable SLA shall be valid and
enforceable to the fullest extent permitted by law.
17.4 This Agreement and each SLA shall be binding on and inure to the
benefit of the respective parties and their respective successors and
permitted assigns.
17.5 The captions of this Agreement are inserted for convenience
only and shall not be construed as part of this Agreement or the applicable
SLA or in any way limiting the scope or intent of its provision.
17.6 No provision of this Agreement or a SLA shall be deemed to have
been waived by either party unless the waiver is in writing and signed by the
party against whom enforcement is attempted. No custom or practice which may
develop between the parties in the administration of the terms of this
Agreement or any SLA shall be construed to waive or lessen any party's right
to insist upon strict performance of the terms of this Agreement or any SLA.
The rights granted in this Agreement and under each SLA are cumulative of
every other right or remedy that the enforcing party may otherwise have at law
or in equity, or by statute and the exercise of one or more rights or remedies
will not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies.
17.7 This Agreement and each SLA is governed by the laws of the
Commonwealth of Massachusetts.
17.8 This Agreement and any SLA may be executed in one or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument, by and through their respective duly authorized
representatives, as of the date first above written.
BOSTON EDISON COMPANY BECOCOM, INC.
By: ______________________ By: ___________________________
Title: ___________________ Title: ________________________
SCHEDULE 1.2
ACCESS POINTS
Prudential Center (subject to the termination or expiration of the lease at
such site); Station 150 (Edgar); Station 470 (Canton); Station 447 (West
Walpole); Station 446 (West Medway); Station 240 (Framingham); Station 148
(Needham); Station 496 (Hyde Park); Station 282 (Waltham); Station 320
(Lexington); Station 391 (Burlington); Station 250 (Mystic & Head House @
Ryan's Plygrd); Station 80 (Mass Ave.); Station 478 (Holbrook); Station 146
(Walpole); Station 65 (Medway); Station 274 (Sherborn); Station 433 (Speen
Street); Station 110 (Baker Street); Station 342 (Sudbury); Station 450
(Trapelo Road); Station 533 (Hartwell Ave.); Station 211 (Woburn); and Station
514 (Boston).
SCHEDULE 2.1
SITE LICENSE ADDENDUM
This Site License Addendum is made to the License Agreement between Boston
Edison Company, as Licensor, and BecoCom, Inc., as Licensee, dated _____,
1997. Capitalized terms used in this SLA shall have the same meaning as such
terms in the License Agreement, unless otherwise indicated. In the event of
any conflict or inconsistency, the provisions of this Addendum shall control.
1. Site Identification Number:
2. Site Street Address, if any, or general location:
3. Site Legal Description: See Schedule 1 attached.
4. Description of Facilities: See Schedule 2 attached.
6. Plans and Specifications: See Schedule 3 attached.
7. Site Use Fee:
8. Licensor contact for emergencies:
9. Licensee contact for emergencies:
10. Special access and other provisions:
LICENSOR: BOSTON EDISON COMPANY
By: _______________________
Title: _____________________
LICENSEE: BECOCOM, INC.
By: ______________________
Title: ____________________
SCHEDULE 2.6
SPILL NOTIFICATION AND RESPONSE PROCEDURES
All Spills/Releases of oils and/or hazardous materials (hydraulic fluid,
gasoline, etc.) must be reported to the Boston Edison Company Systems
Dispatcher, telephone number 617-541-7888, as soon possible, but within 1
1/2 hours of spill discovery.
NOTIFICATION REQUIREMENTS:
*Your name, Company and association with Boston Edison Company
*Date of release
*Time first observed release
*Location of release
*Source and description of release
*Approximate quantity
*Type of material
*Clean-up crew
*Dispatcher will ask additional questions to complete the Spill Notification
Checklist and to determine if release is reportable to the
Massachusetts DEP
*IF SPILL CONDITION CHANGES, NOTIFY SYSTEMS DISPATCHER
INITIAL RESPONSE ACTIONS:
*Survey the area to determine extent of contamination
*Secure the area
*Stop the leak if possible
*Contain the leak (speedi-dri, sand, absorbent materials, etc)
*Report the release
SCHEDULE 4.1
CAD-IMAGE SERVICES AGREEMENT
SCHEDULE 5.1
ENGINEERING SERVICES AGREEMENT
SCHEDULE 6.1
RIGHT OF WAY USE FEES
Licensee shall pay to Licensor, each quarter during the Term, the following
amounts:
1. A Right-of-Way (ROW) use fee calculated as follows:
a. Distribution Poles:
o $10.37 per attachment per year.
o rate subject to change per the then applicable Aerial
o License Agreement.
b. Overhead Transmission ROWs:
o $0.58 per ROW foot per year through 12/31/98, escalating
at 2% per year thereafter.
o 10 year minimum term.
o no rate changes for duration of minimum term. Thereafter,
rates shall be recalculated with the same methodology in
which the initial rates were calculated, subject to any
applicable change in law or regulation.
c. Underground Conduits:
o $0.86 per conduit foot per year through 12/31/98,
escalating at 2% per year thereafter.
o applicable to Licensor conduits not constructed at the
request and expense of Carrier.
o 10 year minimum term.
o no rate changes for duration of minimum term. Thereafter,
rates shall be recalculated with the same methodology in
which the initial rates were calculated, subject to any
applicable change in law or regulation.
2. The amount of all property taxes directly attributable to the
Facilities.
3. Any other fees, charges, costs or expenses directly related to the
Facilities.
EXHIBIT 10.12
JOINT INVESTMENT AND NON-COMPETITION AGREEMENT
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THIS JOINT INVESTMENT AND NON-COMPETITION AGREEMENT (this "Agreement")
is made as of this 17th day of June, 1997 by and among RCN Telecom Services of
Massachusetts, Inc., a Massachusetts corporation ("RCN-Sub"), BecoCom, Inc.,
a Massachusetts corporation ("BecoCom"), and RCN-BecoCom, LLC, a Massachusetts
limited liability company (the "Company").
WHEREAS, RCN-Sub and BecoCom have entered into that certain Amended and
Restated Operating Agreement of the Company of even date herewith (the
"Operating Agreement"), setting forth the terms and conditions that will
govern the operation of the Company; and
WHEREAS, Boston Edison Company, a Massachusetts corporation ("BECO"), and
C-Tec Corporation, a Delaware corporation and indirect corporate parent of
RCN-Sub ("C-Tec"), have each executed instruments of adherence with respect to
certain provisions hereof; and
WHEREAS, RCN-Sub and BecoCom wish to establish the relationship to exist
between them with respect to any markets in New England (but outside the
Relevant Market) in which the Company develops a business which would (i)
create, own and operate a communications network and (ii) provide voice,
video, data, other communications services and the communications support
component of energy-related customer services (collectively, the "Services");
and
WHEREAS, RCN-Sub, BecoCom and the Company wish to establish the
exclusivity of the Company for the provision of Services in the Relevant
Market; and
WHEREAS, terms not defined herein shall have the meaning given to them
in the Operating Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Additional Markets Entered by RCN-Sub.
(a) If RCN-Sub or any Affiliate of RCN-Sub (each, an "RCN
Entity") provides, or proposes to provide, Services in any market in Maine,
New Hampshire, Vermont, Massachusetts (but outside the Relevant Market),
Rhode Island or Connecticut through an Entity in which an electric utility
company (an "Electric Utility Company") or any Affiliate of an Electric
Utility Company is a joint venturer or participant with an RCN Entity (the
"New Business"), the RCN Entity shall use its best efforts to offer BecoCom, or
to cause BecoCom to be offered, the opportunity to acquire an equity interest
in the New Business. Such offer shall be set forth in writing delivered by
the RCN Entity to BecoCom, describing the New Business, and the economic basis
on which the New Business will be developed. Within 30 days following receipt
of such offer, BecoCom may notify the RCN Entity of its election to acquire an
equity interest in the New Business, and specifying a percentage (but not
greater than 20%) that it wishes to acquire in the New Business. Failure to
deliver such notice shall be deemed an election not to acquire an interest in
the New Business.
(b) Upon the RCN Entity's receipt of BecoCom's notice as
aforesaid, the RCN Entity and BecoCom shall commence good faith negotiations
to establish the terms of BecoCom's investment in the particular New Business
on the same economic terms as those of the RCN Entity, taking into account
non-cash contributions by the RCN Entity, and BecoCom's investment shall be
conditioned on the execution of a definitive agreement setting forth such
terms, subject to the following:
(i) BecoCom will execute a voting agreement with the RCN
Entity in which BecoCom will agree to vote its equity interest in
the New Business on all operational or governance matters as
directed by the RCN Entity, except for any matter which materially
adversely affects BecoCom (it being agreed that a material adverse
effect on the New Business does not, of itself, constitute a
material adverse effect on BecoCom);
(ii) unless otherwise agreed, the New Business shall be
established through a legal entity separate from the Company and
shall operate independently from the Company, provided that the
RCN Entity and BecoCom and personnel of the RCN Entity and BecoCom
may provide services to both the Company and the New Business, so
long as the provision of such services does not impair the ability
of the RCN Entity or BecoCom and their respective personnel to
fulfill their obligations to the Company under the Operating
Agreement and the other Basic Agreements; and
(iii) BecoCom's opportunity to acquire an interest in the New
Business shall be subject to the Electric Utility Company involved
in the New Business not objecting to BecoCom's involvement in the
New Business provided, however, that the RCN Entity shall (A) act
in good faith and use its best efforts to overcome any such
objection, (B) consult with BecoCom with respect to strategy as to
how to overcome any such objection and (C) keep BecoCom advised as
to the progress of such negotiations.
(c) This Section 1 shall terminate upon (i) the latest to occur
of (A) 5 years from the date hereof or, (B) 2 years after the Investment
Percentage of RCN-Sub or any Affiliate of RCN-Sub in the Company becoming less
than 33 1/3% or (ii) the Investment Percentage of BecoCom or any Affiliate of
BecoCom in the Company becoming less than 33 1/3%.
2. Non-Competition and Non-Solicitation.
(a) Neither (i) BecoCom or any of its Affiliates nor (ii)
RCN-Sub or any of its Affiliates shall, without the prior written consent of
the other, directly or indirectly own, operate, manage, be employed by, be an
agent of, act as a consultant for, financially support, or have a proprietary
interest in, any enterprise or business which provides Services in the
Relevant Market, except for activities currently engaged in by BecoCom or its
Affiliates, as set forth in Schedule 2A hereto.
(b) Each of BecoCom and RCN-Sub shall cause their respective
Affiliates to comply with the provisions of this Section 2.
(c) The provisions of this Section 2 shall terminate (i) as to
RCN-Sub, two years after RCN-Sub no longer has any ownership interest in the
Company or its successors, and (ii) as to BecoCom, two years after BecoCom no
longer has any ownership interest in the Company or its successors.
3. Representations and Warranties. Each of the parties hereto
represents and warrants to the other that, as of the date hereof:
(a) it is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is formed;
(b) it has the power and authority to execute, deliver and
perform its obligations under this Agreement; and such execution, delivery,
performance and consummation have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by it
and constitutes a valid and legally binding obligation of it, enforceable
against it in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization, or
other laws affecting creditors' rights generally or by the availability of
equitable remedies;
(c) the execution, delivery and performance by it of this
Agreement (i) do not contravene any provision of its organizational documents;
(ii) do not violate or conflict with any law, regulation or contractual
restriction to which it is subject; and (iii) shall not result in the creation
of, or violate or conflict with, any lien, mortgage, pledge or security
interest or any other encumbrance upon or with respect to any of its
properties;
(d) no consent, order, approval or authorization or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by it of this
Agreement and the consummation of the transactions contemplated hereby; and
(e) there is no action, suit, proceeding or investigation
pending, or, to its knowledge, threatened, against or affecting it or its
properties, assets or business, in any court or before or by any governmental
department, board, agency or instrumentality, or any arbitrator, that
materially affects or impairs its ability to enter into this Agreement, or to
consummate the transactions contemplated hereby.
4. General.
(a) Adherence of RCN Corporation. Contemporaneously with the
consummation by C-Tec, of its intended tax-free corporate reorganization (the
"Spin-Off") under Section 355 of the Internal Revenue Code of 1986, as
amended, C-Tec shall cause RCN Corporation , a Delaware corporation and the
entity which shall become the indirect corporate parent of RCN-Sub by virtue
of the Spin-Off (or any entity which shall become such corporate parent), to
become a party to this Agreement pursuant to an instrument of adherence in
form and substance satisfactory to BecoCom.
(b) Amendment. No modification or amendment of, or waiver
under, this Agreement shall be valid unless in writing and signed by each of
the parties hereto.
(c) Binding Agreement; Assignment. This Agreement shall inure
to the benefit of and be binding upon each of the parties hereto and their
respective successors and assigns. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties except to
a Wholly Owned Affiliate of such party, provided, however, that each of the
parties hereto shall remain obligated to each other party under the terms and
conditions of this Agreement.
(d) Governing Law; Severability. This Agreement is governed by
and shall be construed in accordance with the laws of the Commonwealth of
Massachusetts, excluding any conflict-of-laws rule or principle that might
refer the governance or the construction of this Agreement to the laws of
another jurisdiction. If any provision of this Agreement or its application
to any Person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of such provision to other
Persons or circumstances is not affected and such provision shall be enforced
to the greatest extent permitted by law.
(e) Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if all signatories had signed the same
document. All counterparts shall be construed together and constitute the
same instrument.
(f) Notices. All notices, requests and other communications
hereunder shall be deemed to have been duly delivered, given or made to or
upon any party hereto if in writing and delivered by hand against receipt, or
by certified or registered mail, postage prepaid, return receipt requested, or
to a courier who guarantees next business day delivery or sent by telecopy
(with confirmation), to such party at its address set forth below or to such
other address as such party may at any time, or from time to time, direct by
notice given in accordance with this Section 4(f).
If to RCN-Sub:
c/o RCN Telecom Services, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
If to BecoCom:
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant General Counsel
with a copy to:
Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
If to the Company:
RCN-BecoCom, LLC
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
The date of delivery of any such notice, request or other communication shall
be the earlier of (i) the date of actual receipt, (ii) three business days
after such notice, request or other communication is sent if sent by certified
or registered mail, (iii) if sent by courier who guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
(g) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior contracts or agreements with respect to such matters,
whether oral or written.
(h) Specific Performance. The parties agree that irreparable
damage will result if this Agreement is not performed in accordance with its
terms, and the parties agree that any damages available at law for a breach of
this Agreement would not be an adequate remedy. Therefore, the provisions
hereof and the obligations of the parties hereunder shall be enforceable in a
court of equity, or other tribunal with jurisdiction, by a decree of specific
performance, and appropriate injunctive relief may be applied for and granted
in connection therewith without the requirement of the aggrieved party showing
the inadequacy of the available remedies at law. Such remedies and all other
remedies provided for in this Agreement shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies that a party may have
under this Agreement, at law or in equity.
(i) Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by
that Person of its obligations hereunder is not a consent or waiver to or of
any other breach or default in the performance by that Person of the same or
any other obligations of that Person hereunder. Failure on the part of a
Person to complain of any act of any Person or to declare any Person in
default hereunder, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable limitations period has expired.
(j) Interpretation. In any dispute concerning the construction
or interpretation of any provision of this Agreement or any ambiguity hereof,
there shall be no presumption that this Agreement or any provision hereof be
construed against the party who drafted this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
RCN TELECOM SERVICES OF MASSACHUSETTS, INC.
By
-----------------------------------
Name:
Title:
BECOCOM, INC.
By
-----------------------------------
Name:
Title:
RCN-BECOCOM, LLC
By
------------------------------------
Name:
Title:
SCHEDULE 2A
Activities Excluded from Scope of Non-Competition Provision
Existing agreement between BECO and Teleport Communications Group
("TCG"), dated 11/29/95, concerning certain point-to-point fiber capacity, but
not any expansions or renewals thereof.
Existing agreement between BECO and TCG, dated 4/30/96, concerning
certain point-to-point fiber capacity, but not any expansions or renewals
thereof.
Existing agreement between BECO and TCG, dated 8/21/96, concerning
certain point-to-point fiber capacity, but not any expansions or renewals
thereof.
Existing agreement between BECO and TCG, dated 9/1/96, concerning
certain point-to-point fiber capacity, but not any expansions or renewals
thereof.
Existing agreement between BECO and Metropolitan Fiber System, dated
11/30/93, concerning certain point-to-point fiber capacity, but not any
expansions or renewals thereof.
Nothing in this Agreement shall prevent BecoCom or its Affiliates (or
any successor thereto as owner of its electric transmission and distribution
facilities) from (i) acting solely as a builder , lessor or licensor of sites
for the location of wired or wireless communications facilities by third-party
telecommunications services providers on a non-discriminatory basis, in the
case of wired communications facilities to the extent required by law or
regulation, or (ii) acting solely as a builder, lessor or licensor of
facilities for the transmission of wired communications by third-party
telecommunications services providers on a non-discriminatory basis, to the
extent required by law or regulation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 41,478
<SECURITIES> 4003
<RECEIVABLES> 15,808
<ALLOWANCES> 1,809
<INVENTORY> 1,323
<CURRENT-ASSETS> 84,688
<PP&E> 240,453
<DEPRECIATION> 95,457
<TOTAL-ASSETS> 593,650
<CURRENT-LIABILITIES> 63,135
<BONDS> 131,250
0
0
<COMMON> 1
<OTHER-SE> 341,453
<TOTAL-LIABILITY-AND-EQUITY> 593,650
<SALES> 0
<TOTAL-REVENUES> 60,706
<CGS> 0
<TOTAL-COSTS> 79,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,297
<INTEREST-EXPENSE> 7,129
<INCOME-PRETAX> (27,220)
<INCOME-TAX> (7,143)
<INCOME-CONTINUING> (20,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,250)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
</TABLE>
