As filed with the Securities and Exchange Commission on November 26, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RCN CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 4812 22-3498533
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
105 Carnegie Center
Princeton, NJ 08540-6215
(609)-734-3700
(Address and telephone number of Registrant's principal executive offices)
Bruce Godfrey
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540-6215
(609)-734-3700
(Name, address and telephone number of agent for service)
Copies to:
Keith L. Kearney
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of to be Price Offering Registration
Securities to be Registered Registered Per Note(1) Price(1)(2) Fee
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<S> <C> <C> <C> <C>
10% Senior Notes due 2007, Series B.......... $225,000,000 100% $225,000,000 $ 68,181.82
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11 1/8% Senior Discount Notes due 2007,
Series B.................................... $601,045,000 58% $350,000,524 $ 106,060.76
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to Rule 457(o).
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
==============================================================================
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 26, 1997
PROSPECTUS
, 1997
Offer to Exchange
10% Senior Notes due 2007, Series B
for Any and All Outstanding
10% Senior Notes due 2007, Series A
and
11 1/8% Senior Discount Notes due 2007, Series B
for Any and All Outstanding
11 1/8% Senior Discount Notes due 2007, Series A
of
RCN Corporation
The Exchange Offer will expire at 5:00 P.M.,
New York City time, on , 1997, unless extended
RCN Corporation ("RCN" or the "Company") hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), (i) to exchange $1,000 principal amount of 10% Senior Notes due 2007,
Series B (the "New Senior Notes") of the Company for each $1,000 principal
amount of the issued and outstanding 10% Senior Notes due 2007, Series A (the
"Old Senior Notes" and, together with the New Senior Notes, the "Senior
Notes") of the Company and (ii) to exchange $1,000 principal amount of 11 1/8%
Senior Discount Notes due 2007, Series B (the "New Discount Notes") of the
Company for each $1,000 principal amount of the issued and outstanding 11 1/8%
Senior Discount Notes due 2007, Series A (the "Old Discount Notes" and,
together with the New Discount Notes, the "Senior Discount Notes") of the
Company. As of the date of this Prospectus there were outstanding
$225,000,000 principal amount of Old Notes and $601,045,000 principal amount
at maturity of the Old Discount Notes. The terms of the New Senior Notes and
the New Discount Notes (together the "New Notes") are identical in all
material respects to the Old Senior Notes and the Old Discount Notes (together
the "Old Notes"), respectively, except that the offer of the New Notes will
have been registered under the Securities Act and, therefore, the New Notes
will not be subject to certain transfer restrictions, registration rights and
related liquidated damage provisions applicable to the Old Notes.
The Senior Discount Notes were issued at a substantial discount
from their principal amount at maturity and the purchase discount on the
Senior Discount Notes accretes from October 17, 1997 until October 15, 2002.
Cash interest will be payable semi-annually on April 15 and October 15 of each
year, commencing April 15, 1998. See "Description of the New Notes." No
interest will have accrued on the Old Discount Notes on the date of exchange
for the New Discount Notes and therefore no interest will be paid thereon.
The New Notes are being offered hereunder in order to satisfy
certain obligations of the Company under the Registration Rights Agreement,
dated October 17, 1997, among the Company and the other signatories thereto
(the "Registration Rights Agreement"). Based upon interpretations contained
in letters issued to third parties by the staff of the Securities and Exchange
Commission (the "Commission"), the Company believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by each holder thereof (other than a
broker-dealer, as set forth below, and any such holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act of
1933, as amended (the "Securities Act")) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes. Each holder
wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal that such conditions have been met. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan
of Distribution."
The Company will not receive any proceeds from the Exchange
Offer. The Company will pay all the expenses incident to the Exchange Offer.
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. In the event the Company terminates the
Exchange Offer and does not accept for exchange any Old Notes, the Company
will promptly return all previously tendered Old Notes to the holders thereof.
See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market
for the Notes. The Company does not currently intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance than an active public market for
the New Notes will develop.
The Company's Common Stock is traded on the Nasdaq Stock Market
("NASDAQ") under the symbol "RCNC."
See "Risk Factors" beginning on page 14 for a discussion of
certain risk factors that should be considered by holders prior to tendering
their Old Notes in the Exchange Offer.
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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 PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to but nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
of any such state.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. SUCH FORWARD LOOKING STATEMENTS INCLUDE, 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 OPTIC 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. NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS COVERED BY THE
FORWARD- LOOKING STATEMENTS WILL BE ACHIEVED. SUCH STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND
OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON
PAGE 14 OF THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY
CONSIDER SUCH FACTORS.
[THIS PAGE INTENTIONALLY LEFT BLANK]
SUMMARY
The following is a brief summary of the matters covered by this
Prospectus 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, "RCN" or "the Company" means
RCN Corporation and its subsidiaries and those joint ventures in which the
Company has or proposes to have a 50% or greater interest.
The Company
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. The region, one of the most densely populated in
the United States, represents approximately 4% of the geography of the U.S.,
but accounts for over 26% of the telecommunications market based upon the
number of telephone access lines. The Company believes that of the estimated
22 million homes in the Boston to Washington, D.C. corridor, approximately 7
to 9 million homes are located in high-density urban and suburban residential
areas that will support development of an advanced fiber optic network on an
attractive economic basis. RCN believes that its capability to deliver
multiple services (telephone, video programming and Internet access) to any
given customer on its networks will provide it with competitive advantages
over other competitors. RCN's strategy is to become the leading single- source
provider of voice, video and data services to residential customers in each of
its markets by offering individual or bundled service options, superior
customer service and competitive prices.
RCN's initial advanced fiber optic networks have been
established in New York City and, through a joint venture with the Boston
Edison Company ("BECO"), in Boston and surrounding communities. RCN recently
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 the Washington, D.C.
area. RCN also benefits from a strategic relationship with MFS Communications
Company, Inc. (now a subsidiary of WorldCom, Inc.) ("MFS/WorldCom") in New
York City and Boston and from its interconnection and resale agreements with
incumbent telephone service providers including Bell Atlantic. RCN believes
that these joint ventures and relationships provide it with a number of
important advantages including access to rights of way and use of existing
fiber optic facilities, the ability to enter its target markets quickly and
efficiently and a reduction in the up-front capital investment required to
develop its networks. In addition, the Company's joint venture partners
provide access to additional assets, equity capital and established customer
bases. The Company also benefits from its relationship with its majority
shareholder, 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.
As of September 30, 1997, the Company had approximately 247,300
connections which were delivered through a variety of owned and leased
facilities including hybrid fiber/coaxial cable systems, a wireless video
system and advanced fiber optic networks. RCN had pro forma revenues and
EBITDA (as defined below) of $110.1 million and $23.5 million, respectively,
for the year ended December 31, 1996 and $91.9 million and $(9.3) million,
respectively, for the nine months ended September 30, 1997. The Company is
deploying advanced fiber optic networks specifically designed to provide high
speed, high capacity telecommunications services for all new network
facilities. RCN also intends to upgrade certain of its hybrid fiber/coaxial
cable systems to enable them to provide the same range of voice, video and
data services, including bundled service options. See "Business--The Delivery
Platforms." Since it formally commenced operation of its advanced fiber optic
networks in New York City and Boston in September 1996, RCN has built or
acquired, through its joint venture with BECO and long term lease
arrangements, approximately 300 route miles of fiber optic cable and added
approximately 7,100 customer connections to its advanced fiber optic networks.
In addition, during the same period the Company added approximately 19,600
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 September 30, 1997, RCN had (i) approximately 59,600 connections
attributable to customers in the New York City and Boston markets, of which
approximately 46,100 were wireless video service and other connections and
approximately 11,000 were resold telephone connections, and (ii) approximately
183,100 connections attributable to its hybrid fiber/coaxial cable systems in
the states of New York (outside New York City), New Jersey and Pennsylvania,
all within 75 miles of New York City. Because it delivers multiple services,
RCN reports the total number of its various service connections (for local
telephone, video programming and Internet access) rather than the number of
customers. See "Business--RCN Services--Connections."
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. In addition, the Company's management team and board of
directors benefit from experience gained in connection with the management of
C-TEC Corporation ("C-TEC" (now Commonwealth Telephone Enterprises Inc.)),
which prior to September 30, 1997 owned and operated RCN. See "Description of
the Distribution and Related Agreements--Background." C-TEC 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.
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 in 1996 were approximately $210 billion (comprised
of $183 billion in telecommunications revenues and $27 billion in cable
television revenues). Approximately 50% of such revenue is estimated to be
attributable to residential users. RCN believes that density is a critical
factor in the effective economic deployment of its networks, and that the
Boston to Washington, D.C. corridor is a particularly attractive market for
developing advanced fiber optic facilities due to population density,
favorable demographics and the aging infrastructure of the incumbent service
providers' network facilities in this region. The Company applies a
subscriber-driven investment strategy focusing on subscriber density,
proximity to the Company's advanced fiber optic networks and network
development costs, in order to determine if the number of potential
connections in a target area will permit network development on an attractive
economic basis.
Business Strategy
The Company believes that 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, the need for more advanced, higher capacity
networks to meet growing consumer demands for new communications products and
services and the superior technology of the Company's networks. In order to
achieve its goal of becoming the leading provider of telecommunications, video
and data services to residential customers in its target markets, RCN is
pursuing the following key strategies:
o Developing Advanced Fiber Optic Networks. RCN's advanced
fiber optic networks are specifically designed to provide a single
source for high speed, high capacity voice, video programming and data
services. RCN believes that its high capacity advanced fiber optic
networks provide RCN with certain competitive advantages such as
increased capacity (including the ability to offer bundled voice, video
and data services) and generally superior signal quality and network
reliability relative to the typical networks of the incumbent service
providers. By using advanced fiber optic networks capable of delivering
multiple services, RCN is able to address a larger number of potential
subscriber connections in its target markets than incumbent service
providers which typically provide only single or limited services.
o Focusing on Residential Customers in High Density Markets.
RCN seeks to be the first operator of an advanced fiber optic network
providing voice, video and data services to residential customers in each
of its target markets. 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 and in striving to connect residential
customers directly to its advanced fiber optic networks. RCN also
believes that residential customers will be attracted to lower prices,
broader service offerings, enhanced levels of customer care and consumer
choice. Although the Company's primary focus is on residential
customers, RCN also serves certain commercial accounts which are located
on or in close proximity to its networks.
o Implementing Subscriber-Driven Investment Strategy. RCN
attempts to efficiently deploy its capital by tying facility development
to the procurement of customer connections. In order to promote its
presence in its markets and to develop a subscriber base for its
advanced fiber optic networks, the Company may provide telephone
services to customers located near its advanced fiber networks by first
reselling services, and then by establishing leased facilities (such as
unbundled local loops), in advance of constructing or extending its
networks. RCN also provides wireless video services to approximately
38,900 customers in New York City with a view to extending the advanced
fiber optic network to service many of these existing customers.
o Utilizing Strategic Alliances and Existing Facilities to
Speed and Reduce Cost of Entry. By utilizing strategic alliances, RCN
is able to enter the market quickly and efficiently and to reduce the
up-front capital investment required to develop its networks. Through
alliances with companies such as BECO, PCI and MFS/WorldCom, which
provide or are expected to provide RCN with extensive fiber optic
networks or other assets, and by utilizing certain components of its own
existing cable television infrastructure, RCN has been able to expedite
and reduce the cost of market entry and business development and has
created the opportunity to leverage existing customer relationships.
o Offering 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,
individually or on a bundled basis, which is not yet generally available
from any incumbent telephone, cable or other service provider. In
addition, services provided over RCN's advanced fiber optic networks are
generally priced at competitive rates as compared to the incumbent
service providers.
o Providing 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.
Key Strategic Relationships
RCN has agreements in place with MFS/WorldCom which provide the
Company with the right to use portions of MFS/WorldCom's fiber networks in
Boston and New York City and under which MFS/WorldCom has agreed to install
segments of RCN's network. The Company is also developing alliances with
utility companies in its target markets, including an existing joint venture
with BECO in Boston and a proposed joint venture with PCI, a subsidiary of
PEPCO, in the Washington, D.C. metropolitan area. The BECO joint venture
provides RCN with access to and use of certain existing BECO facilities and
assets, including 126 fiber miles of BECO's existing fiber backbone, and the
ability to use BECO's real estate, poles, easements and other interests for
the construction and operation of the network. The venture is 51% owned by RCN
and is managed by RCN; RCN and BECO have committed to provide additional
equity capital contributions to the joint venture on a 51% and 49% basis,
respectively. The proposed joint venture with PCI is expected to provide RCN
with access to and use of certain existing facilities in the Washington, D.C.
market pursuant to a Fiber Use Agreement and other agreements to be negotiated
between the parties on commercially reasonable terms. The parties contemplate
that the venture will be owned 50% by RCN and 50% by PCI, and that the parties
will commit to make equity capital contributions to the joint venture on a 50%
and 50% basis; the venture is expected to be managed by a committee on which
RCN and PCI will have equal representation. Utilities have a number of
attributes which make them particularly attractive as partners for the
Company, including (i) contiguous and broad geographic coverage with extensive
conduits and rights-of-way, (ii) significant access to capital, (iii) a
reputation for reliability and customer service and (iv) existing customer
relationships (BECO and PEPCO served approximately 600,000 and 700,000
customers, respectively, as of December 31, 1996). Through these joint
ventures, RCN's joint venture partners have provided or will provide access to
extensive fiber optic facilities, as well as commitments to make significant
equity capital contributions throughout the term of the respective joint
venture agreements. The Company anticipates that its joint venture partners
will each contribute approximately $150 million in capital contributions to
the joint ventures in the period from September 30, 1997 through mid-1999 in
order to fund capital expenditures at the joint venture company level.
Network Development and Financing Plan
In developing its advanced fiber optic networks, the Company
undertakes a subscriber-driven capital expenditure strategy whereby it (i)
closely monitors development of its subscriber base in order to tailor network
development in each target market, and (ii) seeks to establish a customer base
in advance of or concurrently with its network deployment. As part of this
development plan, RCN pre-markets its services by offering resale telephone
(and, in New York City, wireless video) services in areas targeted for
expansion of advanced fiber optic network facilities. Depending upon factors
such as subscriber density, proximity to the advanced fiber optic network and
development costs and the degree of success achieved in its initial markets,
the Company will determine whether extending its advanced fiber optic network
to additional high density target markets can be achieved on an attractive
economic basis.
The Company expects that it will require a substantial amount
of capital to fund the network development and operations in the Boston to
Washington, D.C. corridor, including funding the development of its advanced
fiber optic networks, upgrading its hybrid fiber/coaxial plant and funding
operating losses and debt service requirements. The Company currently
estimates that its capital requirements for the period from September 30, 1997
through mid-1999 will be approximately $380 million, which includes capital
expenditures (including connection costs which will only be incurred as the
Company obtains revenue-generating customer connections) of approximately $40
million in the last quarter of 1997, approximately $190 million in 1998 and
approximately $150 million through mid-1999. These capital expenditures will
be used principally to fund the buildout of the Company's fiber optic network
in high density areas in the Boston, New York and Washington, D.C. markets and
to upgrade its hybrid fiber/coaxial cable systems. In addition to its own
capital requirements, the Company's joint venture partners are each expected
to contribute approximately $150 million in capital to the joint ventures
through mid-1999 in connection with development of the Boston and Washington,
D.C. markets (assuming completion of the joint venture with PCI). There can be
no assurance that RCN will enter into its proposed joint venture with PCI. In
the event that the joint venture is not established, RCN would be required to
secure rights of way and network facilities, which could include substantial
costs of construction of a fiber backbone, in order to establish a network in
the Washington, D.C. area. Immediately following the placement of the Old
Senior Notes and the Old Discount Notes on October 17, 1997 (the "Notes
Offering"), the Company had approximately $677 million of cash and cash
equivalents, and approximately $61 million of restricted cash to be used to
fund the Escrow Account (as defined in "Description of the New Notes -- Escrow
Account.") Such amounts are expected to provide sufficient liquidity to meet
the Company's capital requirements through 1999.
After 1999, the Company will continue to require additional
capital for planned increases in network coverage and other capital
expenditures, working capital, debt service requirements and anticipated
further operating losses. Sources of funding for the Company's further
financing requirements may include vendor financing, public offerings or
private placements of equity and/or debt securities, and bank loans. There can
be no assurance that the joint venture with PCI will be consummated or that
additional financing will be available to the Company or, if available, that
it can be obtained on a timely basis and on acceptable terms. See "Risk
Factors--Further Capital Requirements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Recent Developments
Prior to September 30, 1997, the Company was operated as a
wholly-owned subsidiary of C-TEC. On February 12, 1997, the C-TEC Board of
Directors approved a plan to restructure C-TEC, and, among other things,
create a separate company consisting of the businesses and operations that now
comprise RCN (the "RCN Businesses") and the associated assets and liabilities
of such businesses and operations, and to distribute to its shareholders all
of its interest in the RCN Businesses (the "Distribution") and all of its
interests in Cable Michigan, Inc. ("Cable Michigan"), a Pennsylvania
corporation that operates cable television systems in the State of Michigan
(the "Cable Michigan Distribution"). On September 30, 1997 (the "Distribution
Date"), each holder of record 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") received (i) one share of RCN Common
Stock for every one share of C-TEC Common Equity held as of September 19, 1997
(the "Record Date") and one share of Cable Michigan Common Stock for every
four shares of C-TEC Common Equity held as of the Record Date. Following the
Distribution and the Cable Michigan Distribution, C-TEC changed its name to
Commonwealth Telephone Enterprises Inc. ("Commonwealth Telephone"). The
Company, Commonwealth Telephone and Cable Michigan have entered into certain
agreements providing for the Distribution and the Cable Michigan Distribution,
and governing various ongoing relationships between the three companies,
including a distribution agreement and a tax sharing agreement. See
"Description of the Distribution and Related Agreements."
The following chart depicts the Company's principal
subsidiaries and joint ventures following the Distribution:
[CHART]
The Company's principal executive offices are located at 105
Carnegie Center, Princeton, New Jersey, and its telephone number is (609) 734-
3700.
The Exchange Offer
Securities Offered.................. Up to $225,000,000 principal amount at
maturity of 10% Senior Exchange Notes
due 2007 and up to $605,045,000
principal amount at maturity of 11 1/8%
Senior Discount Exchange Notes due
2007. The terms of the New Notes and
the Old Notes are identical in all
material respects, except that the
offer of the New Notes will have been
registered under the Securities Act and,
therefore, the New Notes will not be
subject to certain transfer
restrictions, registration rights and
related liquidated damage provisions
applicable to the Old Notes.
The Exchange Offer.................. The Company is offering, upon the terms
and subject to the conditions of the
Exchange Offer, (i) to exchange $1,000
principal amount of New Senior Notes
for each $1,000 principal amount of Old
Senior Notes and (ii) to exchange
$1,000 principal amount of New Discount
Notes for each $1,000 principal amount
of Old Discount Notes. See "The
Exchange Offer" for a description of
the procedures for tendering Old Notes.
The Exchange Offer is intended to
satisfy obligations of the Company
under the Registration Rights
Agreement, dated October 17, 1997,
between the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated,
Salomon Brothers Inc and NationsBanc
Montgomery Securities Inc.
(collectively, the "Initial
Purchasers").
Tenders, Expiration Date.............. Withdrawal The Exchange Offer will
expire at 5:00 p.m., New York City
time, on , 1997, or such
later date and time to which it is
extended. The tender of Old Notes
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any Old Notes not
accepted for exchange for any reason
will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Federal Income Tax Consequences....... The exchange of Old Notes for
New Notes pursuant to the Exchange
Offer will not result in any income,
gain or loss to the holders or the
Company for federal income tax
purposes. See "Certain U.S. Federal
Income Tax Considerations."
Use of Proceeds..................... There will be no proceeds to the
Company from the issuance of the New
Notes pursuant to the Exchange Offer.
Exchange Agent...................... The Chase Manhattan Bank is serving as
Exchange Agent in connection with the
Exchange Offer.
Consequences of Exchanging Old Notes
Pursuant to the Exchange Offer
Based upon interpretations contained in letters issued to third
parties by the staff of the Commission, the Company believes that,
generally, any holder of Old Notes (other than a broker-dealer, as set
forth below, and any holder who is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) who exchanges its Old Notes
for New Notes pursuant to the Exchange Offer may offer such New Notes for
resale, resell such New Notes, or otherwise transfer such New Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such New Notes are acquired in the ordinary course
of the holder's business and such holder has no arrangement or
understanding with any person to participate in a distribution of such New
Notes. Each holder wishing to accept the Exchange Offer must represent to
the Company in the Letter of Transmittal that such conditions have been
met. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of
Distribution." To comply with the securities laws of certain jurisdictions,
it may be necessary to qualify for sale or register the New Notes prior to
offering or selling such New Notes. The Company does not currently intend
to take any action to register or qualify the New Notes for resale in any
such jurisdictions. If a holder of Old Notes does not exchange such Old
Notes for New Notes pursuant to the Exchange Offer, such Old Notes will
continue to be subject to the restrictions on transfer contained in the
legend thereon. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of participating, in a
distribution of New Notes could not rely on the position of the staff of
the Commission enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988) or similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liability under the Securities
Act for which the holder is not indemnified by the Company. See "The
Exchange Offer--Consequences of Failure to Exchange."
Description of the New Notes
The terms of (i) the New Senior Notes and the Old Senior Notes
and (ii) the New Discount Notes and the Old Discount Notes are identical in
all material respects, except that the offer of the New Notes will have been
registered under the Securities Act and, therefore, the New Notes will not be
subject to certain transfer restrictions, registration rights and related
liquidated damage provisions applicable to the Old Notes.
Securities Offered.................. $225,000,000 aggregate principal amount
of 10% Senior Exchange Notes due 2007.
$601,045,000 aggregate principal amount
at maturity of 11 1/8% Senior Discount
Exchange Notes due 2007. The Senior
Discount Exchange Notes will be issued
at a discount to their aggregate
principal amount at maturity. The yield
to maturity of the Senior Discount
Notes will be 11 1/8% (computed on a
semi-annual bond equivalent basis),
calculated from October 17, 1997. See
"Certain U.S. Federal Income Tax
Considerations."
Maturity Date....................... October 15, 2007.
Ranking............................. The Senior Notes will be senior
obligations of RCN secured to the
limited extent set forth under
"Description of the New
Notes--Disbursement of Funds; Escrow
Account." The Senior Discount Notes
will be senior unsecured obligations of
RCN.
The Old Notes and the New Notes (the
"Notes") will rank senior in right of
payment to all subordinated
indebtedness of RCN and will rank pari
passu in right of payment with all
existing and future indebtedness of RCN
that is not by its terms subordinated
in right and priority to the Notes. In
addition, claims of holders of the Notes
will be structurally subordinated to
claims of holders of indebtedness of
RCN's subsidiaries. As of September 30,
1997, the aggregate amount of
indebtedness to which holders of Notes
would have been structurally
subordinated was approximately $110
million. RCN's subsidiaries are
expected to incur substantial additional
indebtedness.
Interest:
The Senior Notes................. Cash interest on the Senior Notes will
accrue at a rate of 10% per annum and
will be payable semi-annually in
arrears on April 15 and October 15 of
each year, commencing April 15, 1998.
The Senior Discount Notes........ Cash interest will not accrue on the
Senior Discount Notes prior to October
15, 2002. Thereafter, cash interest on
the Senior Discount Notes will accrue
at a rate of 11 1/8% per annum and will
be payable semi-annually in arrears on
each April 15 and October 15 of each
year, commencing April 15, 2003.
Escrow Proceeds..................... RCN has deposited with the Escrow Agent
an amount of cash and U.S. Government
Securities (approximately $60 million),
that, together with the proceeds from
the investment thereof, will be
sufficient to pay when due the first
six interest payments on the Senior
Notes, with any balance to be retained
by RCN. The Senior Notes will be
collateralized, pending disbursement
pursuant to the Escrow and Security
Agreement, by pledge of the Escrow
Account. See "Description of the New
Notes--Disbursement of Funds; Escrow
Account."
Original Issue Discount............. For federal income tax purposes, the
Senior Discount Notes will be treated
as having been issued with "original
issue discount" equal to the difference
between the issue price of the Senior
Discount Notes and the sum of all cash
payments (whether denominated as
principal or interest) to be made
thereon. Each holder of a Senior
Discount Note must include as gross
income for federal income tax purposes
a portion of such original issue
discount for each day during each
taxable year in which a Senior Discount
Note is held even though no cash
interest payments will be received
prior to April 15, 2003. See "Certain
U.S. Federal Income Tax Considerations."
Optional Redemption................. The Notes will be redeemable at the
option of RCN, in whole or in part, at
any time on or after October 15, 2002
at the redemption prices set forth under
"Description of the New
Notes--Redemption," plus accrued and
unpaid interest, if any, thereon to the
date of redemption. In addition, prior
to October 15, 2000, RCN may use the
net proceeds of one or more Public
Equity Offerings of RCN yielding gross
cash proceeds of at least $30 million
to redeem up to an aggregate of 35% of
the principal amount of Senior Notes
originally issued and/or up to an
aggregate of 35% of the principal
amount at maturity of the Senior
Discount Notes originally issued (in
each case, on a pro rata basis) at a
redemption price equal to 110% of the
Senior Notes so redeemed, plus accrued
or unpaid interest, if any, thereon to
the redemption date and 111.25% of the
Accreted Value at the redemption date
of the Senior Discount Notes so
redeemed.
Change of Control................... In the event of a Change of Control,
RCN will be required to make an offer
to purchase all outstanding Notes at a
purchase price equal to (i) 101% of the
principal amount thereof, in the case
of the Senior Notes or (ii) 101% of the
Accreted Value thereof, in the case of
the Senior Discount Notes, plus, in
each case, accrued and unpaid interest,
if any, thereon to the date of
purchase. See "Description of the New
Notes--Certain Covenants--Change of
Control" for a discussion of such
covenant.
Asset Sale Offer.................... In addition, RCN will, subject to
certain conditions, be obligated to
make an offer to purchase Notes with
the Net Cash Proceeds of certain Asset
Sales at a price of 100% of the
principal amount thereof, in the case
of the Senior Notes, or 100% of the
Accreted Value thereof, in the case of
the Senior Discount Notes, plus, in
each case, accrued and unpaid interest,
if any, to the date of purchase. See
"Description of the New Notes--Certain
Covenants-- Disposition of Proceeds of
Asset Sales."
Certain Covenants................... The indentures under which the Notes
will be issued (each an "Indenture")
will contain certain covenants,
including (i) limitations on additional
indebtedness, (ii) limitations on
restricted payments, (iii) limitations
on liens securing certain indebtedness,
(iv) limitations on certain guarantees,
(v) limitations on dividend and other
payment restrictions affecting
Restricted Subsidiaries or Restricted
Affiliates (as defined), (vi)
limitations on transactions with
affiliates, (vii) limitations on
issuances and sales of Preferred Stock
by Restricted Subsidiaries and
Restricted Affiliates (as defined),
(viii) limitations on the disposition
of proceeds of asset sales and (ix)
limitations on designations of
Unrestricted Subsidiaries (as defined)
and Restricted Affiliates. In addition,
the Indenture will limit the ability of
RCN to consolidate, merge or sell all
or substantially all of its assets.
These covenants are subject to
important exceptions and
qualifications. See "Description of the
New Notes--Certain Covenants."
Absence of a Public Market for
the Notes............................. The Notes are new securities for
which there is currently no established
trading market. Although the Initial
Purchasers have informed RCN that they
currently intend to make a market in
the Notes, they are not obligated to
do so and any such market making may be
discontinued at any time without
notice. Accordingly, there can be no
assurance as to the development or
liquidity of any market for the Notes.
RCN does not intend to apply for
listing of the Notes on any securities
exchange or for quotation through the
Nasdaq Stock Market.
Use of Proceeds..................... There will be no proceeds to the
Company from the issuance of the New
Notes.
Risk Factors
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under "Risk Factors," beginning on page 14, for a discussion
of certain risks involved with an investment in the New Notes before accepting
the Exchange Offer.
Summary Historical Consolidated Financial Data
Prior to September 30, 1997, the Company operated 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 Prospectus. 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") and the
Company's unaudited pro forma consolidated financial statements included
elsewhere in this Prospectus. The selected historical consolidated financial
data for the nine month periods ended September 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 Prospectus. In the opinion of the Company's management,
these nine 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," "Unaudited Pro Forma Consolidated Financial
Statements" and the Financial Statements.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------------------- ---------------------
(dollars in thousands)
1992 1993 1994 1995(2) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales................................. $44,030 $49,504 $59,500 $91,997 $104,910 $75,763 $91,854
Costs and expenses, excluding
depreciation and amortization........ 25,725 30,821 49,747 75,003 79,107 54,599 91,183
Nonrecurring charges(1)............... -- -- -- -- -- -- 10,000
Depreciation and amortization......... 9,984 9,922 9,803 22,336 38,881 27,037 39,135
-------- -------- -------- -------- -------- -------- --------
Operating (loss) income............... 8,321 8,761 (50) (5,342) (13,078) (5,873) (48,464)
Interest income....................... 19,047 17,882 21,547 29,001 25,602 19,750 13,442
Interest expense...................... (19,679) (17,127) (16,669) (16,517) (16,046) (12,553) (10,460)
Other income (expense), net........... 6,015 1,195 1,343 (304) (546) (473) 229
(Benefit) provision for income taxes.. 5,203 167 2,340 1,119 979 (68) (11,907)
Equity in loss of unconsolidated
entities(4).......................... -- -- -- (3,461) (2,282) (1,692) (2,650)
Minority interest in (income) loss of
consolidated entities(3)............. (43) (85) (95) (144) 1,340 211 3,931
Cumulative effect of changes in
accounting principles(5)............. -- 1,628 (83) -- -- -- --
Extraordinary charge--debt
prepayment penalty, net of tax(7)... -- -- -- -- -- -- (3,210)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .................... $8,458 $12,087 $3,653 $2,114 $(5,989) $(562) $(35,275)
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at end of period):
Total assets.......................... $289,833 $291,634 $568,586(6) $649,610 $628,085 $627,166 $598,679
Long-term debt........................ 191,070 181,500 154,000 135,250 131,250 87,500 110,000
Shareholders' equity.................. 56,083 74,329 372,847(6) 394,069 390,765 381,724 373,760
(footnotes on following page)
(footnotes from previous page)
- -----------------
<FN>
(1) Nonrecurring charges of $10,000 represent costs incurred with respect to
the termination of a marketing services agreement related to the Company's
wireless video services.
(2) Certain of the Company's businesses were acquired by C-TEC and transferred
to the Company in connection with the Distribution. In May 1995, a
subsidiary of C-TEC acquired Twin County Trans Video, Inc. ("Twin County")
and accordingly Twin County is fully consolidated in the Company's
financial statements since the date of acquisition. (See Note 4 to the
Consolidated Financial Statements of the Company).
(3) In 1997, the minority interest in (income) loss of consolidated entities
consists of minority losses of the RCN-BECOCOM joint venture of $3,138,
minority losses of Freedom New York, L.L.C. ("Freedom") through March 1997
of $966 and minority income earned by a cable television partnership of
$(173). The minority interest in (income) loss of consolidated entities
primarily consists of the approximately 20% minority interest in the loss
of Freedom in 1996. Prior to 1996 the minority interest represents
minority income earned by a cable television partnership.
(4) Equity in loss of unconsolidated entities primarily consists of the
Company's proportionate share of income (losses) and amortization of
excess cost over net assets of Megacable, S.A. de C.V. ("Megacable").
The Company purchased its 40% equity interest in Megacable in January
1995 and accounts for its investment by the equity method of
accounting.
(5) The cumulative effect of changes in accounting principles reflects the
adoption of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" in 1993 and the accounting for benefits
under Statement of Financial Accounting Standards No. 112--"Employers'
Accounting for Postemployment Benefits" in 1994.
(6) During 1994, C-TEC transferred to the Company an equity contribution of
$298,759 primarily representing net proceeds from a C-TEC common stock
rights offering.
(7) Extraordinary charge represents the fee, net of taxes, paid in connection
with the early prepayment of Senior Secured Notes of C-TEC Cable
Systems, Inc. The higher priced Senior Secured Notes were prepaid in
connection with the Company's acquisition of a new $125,000 credit
agreement comprised of a five year revolving credit facility in the
amount of $25,000 and a $100,000 term credit facility which is to be
repaid over six years in quarterly installments from September 30, 1997
through June 30, 2005.
</TABLE>
Summary Pro Forma Financial Data
The following unaudited summary pro forma financial data
include adjustments to the historical statements of operations of the Company
for the nine months ended September 30, 1997 and the year ended December 31,
1996 as if the Distribution, borrowings of $110 million under the Credit
Agreement and the issuance of the Notes had occurred on the first day of the
respective periods. 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 unaudited pro forma
financial data for the respective periods 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, borrowings of $110
million under the Credit Agreement and the issuance of the Notes had 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>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Statement of Operations Data:
Sales..................................................................... $110,116 $91,854
Costs and expenses, excluding depreciation and amortization............... 86,570 91,183
Nonrecurring charges...................................................... -- 10,000
Depreciation and amortization............................................. 49,525 40,385
--------- --------
Operating (loss).......................................................... (25,979) (49,714)
Interest income........................................................... 10,480 4,756
Interest expense.......................................................... (72,555) (53,232)
Other (expense) income, net............................................... (546) 229
--------- --------
(Loss) before income taxes................................................ (88,600) (97,961)
(Benefit) for income taxes................................................ (27,655) (30,354)
Income (loss) before equity in unconsolidated entities and minority
interest................................................................. (60,945) (67,607)
Equity in loss of unconsolidated entities................................. (2,282) (2,650)
--------- --------
(Loss) before extraordinary charge and minority interest in loss of
consolidated entities..................................................... $(63,227) $(70,257)
========= ========
Other Data:
EBITDA before nonrecurring charges (1) ................................... $23,546 $ 671
Capital expenditures...................................................... 40,369 43,890
Connections............................................................... 221,969 247,256
Employees................................................................. 822 966
(1) 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.
</TABLE>
RISK FACTORS
In addition to the other information contained in this
Prospectus, holders of Old Notes should carefully review the following factors
before accepting the Exchange Offer.
This Prospectus 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 optic 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 Prospectus.
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
The Company has only recently begun operating a voice, video
and data services business and this business has only a limited operating
history upon which investors may base an evaluation of its performance. In
connection with entering this business, the Company has incurred operating and
net losses and negative cash flows to build its networks and pursue its
business plans and expects to continue to do so for the foreseeable future as
its expands its network and customer base. The extent to which it continues
to experience negative cash flow in the future will be affected by a variety
of factors, including the pace of its entry into new markets, the time and
expense required for building out its planned network, its success in
marketing its services, the intensity of the competition experienced by the
Company and the availability of additional capital to pursue its business
plans. The Company had operating losses after depreciation and
amortization and non recurring charges of $48,464,000 for the nine months
ended September 30, 1997 and $13,078,000 and $5,342,000 for the years ended
December 31, 1996 and 1995. There can be no assurance that the Company
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."
Further Capital Requirements
The Company expects that it will require a substantial amount
of capital to fund the development and operations of business in the Boston to
Washington, D.C. corridor, including to fund its advanced fiber optic
networks, the upgrade of hybrid fiber/coaxial plant, the funding of operating
losses and debt service requirements. The Company currently estimates that
its capital requirements for the period from September 30, 1997 through
mid-1999 will be approximately $380 million (excluding approximately $150
million expected to be funded by capital contributions from joint venture
parties for the Boston and Washington, D.C. markets), which includes capital
expenditures (including connection costs which will only be incurred as the
Company obtains revenue generating customer connections) of approximately $40
million in the last quarter of 1997, approximately $190 million in 1998 and
approximately $150 million through mid-1999. These capital expenditures will
be used principally to fund the buildout of the Company's fiber optic network
in high density areas in the Boston, New York and Washington, D.C. markets and
represent only the Company's proportionate share of the funding requirements
of the Boston joint venture and the planned Washington, D.C. joint venture.
There can be no assurance that RCN will enter into its proposed joint venture
with PCI; in the event that the joint venture is not established, RCN would be
required to secure rights of way and network facilities, which could include
substantial costs of construction of a fiber backbone, in order to establish a
network in the Washington, D.C. area. The Company is or is expected to be
obligated to fund its portion of any capital contributions required by the
joint ventures' annual budget. See "--Dependence on Strategic Relationships;
Terms of Joint Venture Arrangements." The Company expects that its joint
venture partners will contribute approximately $150 million in capital to the
joint ventures in the period from September 30, 1997 through mid-1999 in order
to fund capital expenditures at the joint venture company level. Failure by
its joint venture partner(s) to make anticipated capital contributions could
have a material adverse effect on the Company.
The Company believes that, following the consummation of the
Notes Offering, it has sufficient liquidity to meet its capital requirements
through 1999. The actual timing and amount of capital required for the
rollout of the Company's network and to fund operating losses may vary
materially from the Company's estimates and additional funds will be required
in the event of significant departures from the current business plan,
unforeseen delays, cost overruns, engineering design changes and other
technological risks or to meet other unanticipated expenses. After 1999, the
Company will continue to require additional capital for planned increases in
network coverage and other capital expenditures, working capital, debt service
requirements and anticipated further operating losses. Sources of funding for
the Company's further financing requirements may include vendor financing,
public offerings or private placements of equity and/or debt securities, and
bank loans. There can be no assurance that additional financing will be
available to the Company or, if available, that it can be obtained on a timely
basis and on acceptable terms. Failure to obtain such financing could result
in the delay or curtailment of the Company's development and expansion plans
and expenditures. Any of these events could impair the Company's ability to
meet its debt service requirements and could have a material adverse effect on
its business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Substantial Indebtedness; Effect of Financial Leverage
The Company has indebtedness that is substantial in relation to
its shareholders' equity and cash flow. As of September 30, 1997, after
giving effect to the Notes Offering and borrowing under the Credit Agreement,
the Company had an aggregate of approximately $685 million of indebtedness
outstanding, representing 65% of total capitalization, and the ability to
borrow up to an additional $15 million under the Credit Agreement. As a result
of the substantial indebtedness of the Company following the Notes Offering,
the Company's fixed charges are expected to exceed its earnings for the
foreseeable future and there can be no assurance that the Company's operating
cash flow will be sufficient to pay interest on the Senior Notes following
termination of the Escrow Agreement and the Senior Discount Notes following
October 15, 2002. In addition, the Company will require, and the Indenture
will permit the Company to incur, substantial additional indebtedness,
particularly in connection with the buildout of the Company's networks and the
introduction of its telecommunications services to new markets. The leveraged
nature of the Company could limit its ability to effect future financings or
may otherwise restrict the Company's business activities.
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 as compared with less leveraged competitors; and (v) render the
Company more vulnerable in the event of a downturn in its business.
Holding Company Structure; Structural Subordination
RCN is a holding company with limited assets that conducts
substantially all of its operations through subsidiaries and joint ventures.
The Notes will be solely obligations of RCN and no other entity has any
obligation, contingent or otherwise, to make payments in respect of the Notes.
Accordingly, RCN will be dependent on dividends and other distributions from
its subsidiaries and joint ventures to generate the funds necessary to meet
its obligations, including the payment of principal and interest on the Notes.
The ability of the Company's subsidiaries and joint ventures to pay dividends
to RCN will be subject to, among other things, the terms of any debt
instruments and applicable law. In addition, the terms of the Company's joint
ventures require the mutual consent of the Company and its joint venture
partner to distribute or advance funds to the Company. Claims of holders of
the Notes will be effectively subordinated to the indebtedness and other
liabilities and commitments of RCN's subsidiaries and joint ventures and the
interest of RCN in its joint ventures will be limited to the extent of its
direct or indirect equity interest in such entities. Consequently, in the
event of an insolvency, liquidation, reorganization, dissolution or other
winding up of the Company's subsidiaries and joint ventures, the ability of
RCN's creditors, including holders of the Notes, will be subject to the prior
claims of those entities' creditors, including trade creditors, and any prior
or equal claim of any joint venture partner. Any distributions in respect of
RCN's equity interests in non-wholly owned subsidiaries or in joint ventures
may be expected to be made on a pro rata basis to all equity holders. The
Company expects that a majority of its cash flow in the advanced fiber optic
network business will ultimately derive from its joint venture investments.
The Indenture will permit substantial indebtedness to be incurred by
subsidiaries and joint ventures of RCN and does not, except under limited
circumstances, require a guarantee by subsidiaries of RCN. In addition, the
Indenture will permit the Company's subsidiaries and joint ventures to become
parties to debt instruments that limit such entities' ability to pay dividends
or make distributions to RCN.
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; Terms of Joint Venture Arrangements
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. There can be no assurance that RCN
will enter into its proposed joint venture with PCI; in the event that the
joint venture is not established, RCN would be required to secure rights of
way and network facilities, which could include substantial costs of
construction of a fiber backbone, in order to establish a network in the
Washington, D. C. area. See "Business -- Strategic Relationships." 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 from time to time
and 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.
The agreements governing the Company's joint venture with BECO
contain, and the definitive agreements for the proposed joint venture with PCI
are expected to contain, material provisions for the management, governance
and ownership of the Greater Boston and Washington, D. C. businesses,
respectively. The Boston Joint Venture Agreement (as defined under
"Business--Strategic Relationships") provides, among other things, that (1)
certain fundamental business actions, such as material capital expenditures,
debt incurrences and distributions to the Company and BECO, require the joint
approval of RCN and BECO; (2) neither RCN nor BECO may transfer their
interests in the joint venture for a period of three years without the other's
consent and, thereafter, may only do so while observing certain rights of
first offer and tag-along rights; (3) upon a change of control (as defined) of
RCN Telecom Services of Massachusetts ("RCN Massachusetts") or BECOCOM, Inc.
("BECOCOM"), the other party has the right to acquire all of the equity
interest in the joint venture for fair market value; (4) following certain
deadlock events (defined generally as an inability of RCN and BECO to agree
upon certain fundamental business actions requiring mutual consent), either
RCN or BECO may offer to buy the other's interest in the joint venture or sell
its own interest in the joint venture, which gives the offeree the right to
elect to buy or sell its interest; and (5) in the event of a default by the
Company in meeting a capital call, BECO may dilute the Company's interest in
the joint venture. The joint venture agreement with PCI is expected to have
customary provisions with respect to corporate governance and transfer of
interests in the joint venture, which may be broader in scope and more
restrictive from the perspective of holders of Notes. Accordingly, certain
matters beyond the control of the Company, such as a change of control of RCN
or an inability to agree on certain material proposed actions, could result in
it being forced to sell its interest in the relevant joint venture or buy out
the interest of the other joint venturer. There can be no assurance that these
provisions will not have a material adverse effect upon the Company's
liquidity or future prospects or that, if necessary, the Company will be able
to raise the necessary funds to acquire the balance of the interests in the
joint venture on a timely basis and thereby maintain its interest in the
venture in question. See "Business--Strategic Relationships." In addition,
although certain covenants contained in the Indenture are applicable to the
joint venture companies, the Company's joint venture partners are not parties
to the Indenture and accordingly are not bound to comply with its terms. A
disagreement with its joint venture partners over fundamental business
actions, including actions related to compliance with the Indenture, could
give rise to a deadlock event.
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 competitive local exchange carriers ("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 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. 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"),
offers 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.
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 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 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. RCN has entered into competitive interconnection agreements using the
federal guidelines established in the FCC's interconnection order, which
agreements remain in effect notwithstanding these court proceedings. Portions
of the FCC's order providing for number not withstanding portability remain in
effect within the 100 largest Metropolitan Statistical Areas ("MSAs"), and are
slated for implementation beginning in March 1998. The Eighth Circuit found
constitutional challenges to certain practices implementing cost provisions of
the Telecommunications Act that were ordered by certain state PUCs to be
premature; vacated significant portions of the FCC's nationwide pricing rules;
and confined the use of combined unbundled network elements to instances where
the requesting carrier itself would do the combining. The Solicited General,
on behalf of the FCC, and other parties have appealed the Eighth Circuit's
decision to the U.S. Supreme Court. Certain Bell Operating Companies have also
raised constitutional challenges to restrictions in the 1996 Act preventing
BOCs from entering the long distance market in their home region. The Company
cannot predict either the outcome of these of future challenges to the 1966
Act, any related appeal of regulation or court decision, or the eventual effect
on its business or the industry in general.
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. As discussed below, RCN
is currently providing OVS service in the City of Boston, and has entered into
or is negotiating OVS agreements to allow it to provide OVS services in the
City of New York and in a number of communities surrounding Boston.
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. 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 has entered into similar OVS
agreements or is in the process of negotiating agreements with certain other
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 is 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, the incumbent cable
television provider in certain communities in the Boston area, has made a
similar filing at the FCC with respect to its request for capacity on the
Boston OVS network. RCN will continue to oppose these requests made to the
FCC, but to the extent that the FCC were to grant any such request(s), 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 the challenge to
their former (pre-OVS) operations which was brought before the New York
Public Service Commission by one of the incumbent cable television
companies in New York City 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. While the Company
expects to receive authorizations to transmit over these microwave paths on a
timely basis, there can be no assurance that RCN will be able to offer wireless
video services pursuant to its own FCC licenses or that the FCC's
investigation will be resolved favorably. The failure to obtain such license
or resolve such proceedings would materially adversely affect the Company's
wireless video operations.
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 in order to convert its wireless video subscribers to an
advanced fiber optic network.
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." On September 8, 1997, the Company was notified by
the FCC that it has ruled that certain of the Company's upper levels of
service for its New Jersey systems are regulated levels of service and that
the Company's rates for such levels of service have exceeded the allowable
rates under the FCC rate regulation rules which have been effective since
September 1993. The Company had treated these levels of service as
unregulated. The Company intends to contest this decision. The Company does
not believe that the ultimate resolution of this matter will have a material
impact on its results of operations or financial condition. With the passage
of the 1996 Act 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 on its ability to obtain and renew its franchise agreements from
local government authorities on generally acceptable terms. RCN currently
has 92 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.
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.
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 is implementing an Employee
Stock Ownership Plan ("ESOP") and will make available competitive employee
benefit programs providing benefits substantially comparable to benefits
provided immediately prior to the Distribution. There can be no assurance that
the Company will retain or, as necessary, attract qualified management
personnel.
Conflicts of Interest
As a result of the Distribution, there exist relationships that
may lead to conflicts of interest. Kiewit Telecom Holdings, Inc. ("Kiewit
Telecom") effectively controls the Company, Commonwealth Telephone and Cable
Michigan. In addition, the majority of the Company's named executive officers
are also directors and/or executive officers of Commonwealth Telephone or
Cable Michigan. See "Management." In particular, David C. McCourt, Chairman
and Chief Executive Officer of the Company, has served as a director and
Chairman and Chief Executive Officer of Cable Michigan since the Distribution
and will remain as a director and Chairman and Chief Executive Officer of
Commonwealth Telephone. Mr. McCourt expects to devote approximately 70% of his
time to managing the affairs of the Company. In addition, Michael J. Mahoney,
who has been President and Chief Operating Officer, as well as a director, of
the Company since the Distribution, is also a director of Commonwealth
Telephone. 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 Commonwealth
Telephone. 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 Distribution, Commonwealth Telephone 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 Commonwealth Telephone to provide such services
to the Company, Cable Michigan and Commonwealth Telephone. Based on this
allocation arrangement, the fee for such services to the Company would have
been approximately $753,000 for 1996. See "Description of the Distribution
and Related Agreements--Transitional Services and Arrangements." The
aforementioned arrangements are not the result of arm's length negotiation
between unrelated parties as the Company and Commonwealth Telephone 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
Commonwealth Telephone and Cable Michigan, which will be negotiated at arm's
length.
Absence of Public Market for the Notes
The New Notes are being offered to holders of the Old Notes.
The Notes are new securities for which there currently is no established
trading market. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the Notes, they are not obligated to
do so, and any such market-making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Notes. The Company does not intend to apply
for listing of the Notes, on any securities exchange or for quotation through
the Nasdaq Stock Market. If a trading market develops for the New Notes,
future trading prices of such securities will depend on many factors,
including prevailing interest rates, the Company's results of operations and
financial condition and the market for similar securities.
USE OF PROCEEDS
There will be no proceeds to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. In consideration for issuing
the New Notes in exchange for the Old Notes as described in this Prospectus,
the Company will receive Old Notes in like principal amount. The Old Notes
surrendered in exchange for the New Notes will be retired and canceled.
Accordingly, the issuance of the New Notes will not result in any change in
the indebtedness of the Company. The net proceeds to the Company from the
sale of the Old Notes was approximately $555 million after deducting of the
Initial Purchasers' discount and estimated expenses payable by the Company.
Approximately $60 million of the net proceeds from the sale of the Old Notes
is held in an escrow account, in cash and in U.S. Government Securities, for
the benefit of holders of the Senior Notes. The balance of the net proceeds
will be used for expenditures relating to the expansion of existing networks
and services and the development and operation of new advanced fiber optic
networks and the funding of operating losses and working capital.
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of September 30, 1997, (i) on an unaudited historical basis and
(ii) on an unaudited as adjusted basis, giving effect to the consummation of
the Notes Offering. The Capitalization table below should be read in
conjunction with the unaudited historical Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus, "Management's
Discussion and Analysis of Financial Condition and Results of Operations " and
"Unaudited Pro Forma Consolidated Financial Statements." The unaudited
capitalization presented below is provided for informational purposes only and
is not necessarily indicative of the Company's future capitalization or
financial condition.
<TABLE>
<CAPTION>
September 30, 1997
----------------------------
Historical As Adjusted
---------- -----------
(dollars in thousands)
<S> <C> <C>
Cash, temporary cash investments and short-term investments......... $183,337 $677,337
======== ========
Cash restricted for debt service.................................... -- $61,000
======== ========
Long-term debt(1)................................................... $110,000 $110,000
Senior Notes........................................................ -- 225,000
Senior Discount Notes............................................... -- 350,000(2)
-------- --------
Total debt.......................................................... 110,000 685,000
-------- --------
Shareholders' equity................................................ 373,760 373,760
-------- --------
Total capitalization............................................... $483,760 $1,058,760
======== ==========
(1) As of July 1, 1997, three of RCN's direct and indirect subsidiaries
entered into a credit agreement providing for an aggregate of $125,000 in
availability, comprised of a $25,000 revolving credit facility and a
$100,000 eight year term credit facility. As of September 30, 1997,
$110,000 has been borrowed thereunder. See "Description of the Credit
Agreement."
(2) The Senior Discount Notes are recorded at their initial issue price and
original issue discount will be recorded as a liability as it accrues in
the future.
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Prior to September 30, 1997, the Company was 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 nine months ended September 30,
1997 and as adjusted for the Distribution, the issuance of the Notes and the
related transactions and events described in the notes thereto as if the
Distribution and such transactions and events had been consummated on the
first day of the respective periods. The following Unaudited Pro Forma
Consolidated Balance Sheet sets forth the historical balance sheet of he
Company as of September 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
September 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 Prospectus
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>
Adjustments Pro Forma Adjustments Adjustments
for for for Liberty/ Acquisition for Issuance
Historical Distribution Distribution Freedom Adjustments of Notes Pro Forma
---------- ------------ ------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales...................... $104,910 $104,910 $5,206 (1) $110,116
Cost and expenses,
excluding depreciation
and amortization......... 79,107 79,107 7,463 (1) 86,570
Depreciation and
amortization............. 38,881 38,881 5,644 (2) $ 5,000 (3) 49,525
-------- -------- -------- ------ ------- -------- --------
Operating (loss)........... (13,078) (13,078) (7,901) (5,000) (25,979)
Interest income............ 25,602 $(15,127)(4) 10,475 5 (5) 10,480
Interest expense........... (16,046) (7,461)(6) (8,380) (737)(5) $(63,438)(7) (72,555)
15,127 (8)
Other (expense), net....... (546) (546) (546)
-------- -------- -------- ------ ------- -------- --------
(Loss) before income taxes. (4,068) (7,461) (11,529) (8,633) (5,000) (63,438) (88,600)
(Benefit) provision for
income taxes............. 979 (2,611)(9) (1,632) (2,420)(10) (1,400)(10) (22,203)(7) (27,655)
-------- -------- -------- ------ ------- -------- --------
(Loss) before minority
interest and equity in
unconsolidated entities.. (5,047) (4,850) (9,897) (6,213) (3,600) (41,235) (60,945)
Equity in (loss) of
unconsolidated entities.. (2,282) (2,282) (2,282)
-------- -------- -------- ------ ------- -------- --------
(Loss) before
extraordinary item and
minority interest in loss
of consolidated entities. $ (7,329) $ (4,850) $(12,179) $(6,213) $(3,600) $ (41,235) $(63,227)
======== ======== ======== ======= ======= ========= ========
Unaudited pro forma
(loss) before
extraordinary item and
minority interest per
common share............. $ (0.44) $ (2.30)
Weighted average number
of common shares
outstanding.............. 27,484,628(11) 27,484,628(11)
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
RCN Corporation
Unaudited Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 1997
($ in thousands, except per share amounts and number of shares)
<TABLE>
<CAPTION>
Adjustments Pro Forma Adjustments
for for Acquisition for Issuance
Historical Distribution Distribution Adjustments of Notes Pro Forma
---------- ------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Sales.......................... $91,854 $91,854 $91,854
Cost and expenses, excluding
depreciation and
amortization.................. 91,183 91,183 91,183
Nonrecurring charges........... 10,000 10,000 10,000
Depreciation and amortization.. 39,135 39,135 1,250(3) 40,385
-------- ------- -------- ------- -------- --------
Operating (loss)............... (48,464) (48,464) (1,250) (49,714)
Interest income................ 13,442 (8,686)(4) 4,756 4,756
Interest expense............... (10,460) (5,654)(6) (5,654) $(47,578)(7) (53,232)
10,460 (8)
Other (expense) income, net.... 229 229 229
-------- ------- -------- ------- -------- --------
(Loss) before income taxes..... (45,253) (3,880) (49,133) (1,250) (47,578) (97,961)
(Benefit) for income taxes..... (11,907) (1,358)(9) (13,265) (437)(10) (16,652)(7) (30,354)
-------- ------- -------- ------- -------- --------
(Loss) before equity in
unconsolidated entities and
minority interest............. (33,346) (2,522) (35,868) (813) (30,926) (67,607)
Equity in loss of
unconsolidated entities....... (2,650) (2,650) (2,650)
-------- ------- -------- ------- -------- --------
Income (loss) before
extraordinary charge and
minority interest in loss of
consolidated entities......... $(35,996) $(2,522) $(38,518) $ (813) $(30,926) $(70,257)
======== ======= ======== ======= ======== ========
Unaudited pro forma (loss) per
common share.................. $ (1.31) $ (1.40) $ (2.56)
Weighted average number of
common shares outstanding..... 27,481,298 27,481,298(11) 27,481,298
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
RCN Corporation
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 1997
($ in thousands)
<TABLE>
<CAPTION>
Adjustments
for Issuance of
Historical Notes Pro Forma
---------- --------------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments.................. $183,337 $494,000(12) $677,337
Accounts receivable from related parties............. 19,985 19,985
Accounts receivable, net of reserve for doubtful
accounts of $1,741................................. 20,665 20,665
Material and supply inventory, at average cost....... 2,428 2,428
Prepayments and other................................ 15,796 15,796
Cash restricted for debt service..................... -- 22,500(12) 22,500
Deferred income taxes................................ 4,857 4,857
-------- -------- ----------
Total current assets.................................. 247,068 516,500 763,568
-------- -------- ----------
Property, Plant and Equipment
Hybrid fiber/coaxial plant........................... 173,013 173,013
Other property, plant and equipment.................. 100,947 100,947
-------- -------- ----------
Total property, plant and equipment................... 273,960 -- 273,960
Accumulated depreciation............................. 101,544 101,544
-------- -------- ----------
Net property, plant and equipment.................... 172,416 172,416
-------- -------- ----------
Investments........................................... 71,752 71,752
Cash restricted for debt service...................... -- 38,500(12) 38,500
Intangible assets, net................................ 103,027 103,027
Deferred charges and other assets..................... 4,416 20,000(12) 24,416
-------- -------- ----------
Total Assets.......................................... $598,679 $575,000 $1,173,679
======== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
RCN Corporation
Unaudited Pro Forma Consolidated Balance Sheet (Continued)
September 30, 1997
($ in thousands)
<TABLE>
<CAPTION>
Adjustments
for Issuance of
Historical Notes Pro Forma
---------- --------------- ---------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable to related parties.............. $ 12,766 $ 12,766
Accounts payable................................. 22,395 22,395
Advance billings and customer deposits........... 7,982 7,982
Accrued interest................................. 845 845
Accrued contract settlements..................... 3,158 3,158
Accrued cable programming expense................ 2,231 2,231
Accrued expenses................................. 23,064 23,064
-------- -------- ----------
Total current liabilities........................ 72,441 -- 72,441
-------- -------- ----------
Long-Term debt.................................... 110,000 575,000(12) 685,000
Deferred income taxes............................. 24,992 24,992
Other deferred credits............................ 2,570 2,570
Minority interest................................. 14,916 14,916
Commitments and contingencies.....................
Common shareholders' equity....................... 373,760 373,760
-------- -------- ----------
Total liabilities and shareholders' equity........ $598,679 $575,000 $1,173,679
======== ======== ==========
</TABLE>
RCN Corporation
Notes to Unaudited Pro Forma
Consolidated Financial Statements
(dollars in thousands)
The Unaudited Pro Forma Consolidated Statements of Operations
and of RCN assume that the Company was an autonomous entity rather than a
wholly owned subsidiary of C-TEC 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 reflect revenues of $1,330 and expenses of $2,598 of Liberty
Cable Television, Inc. ("Liberty") and affiliates for the period January
1996 to March 1996 and revenues of $3,876 and expenses of $4,865 of
Freedom New York, L.L.C. ("Freedom") for the period March 1996 to
August 1996 to present information as if the acquisition of Freedom had
occurred at the beginning of 1996. See Note 4 to the Consolidated
Financial Statements.
(2) 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.
(3) 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.
(4) Adjustment to eliminate interest income of $8,686 for the nine months
ended September 30, 1997 and $15,127 for the year ended December 31, 1996,
net of income taxes of $(3,040) for the nine months ended September 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 was
repaid and the remaining balance was treated as capital contributions
from the Company to the borrower.
(5) Adjustment to reflect interest expense and income of Liberty Cable and
Freedom as if the acquisition of Freedom occurred at the beginning of
1996.
(6) Adjustment to reflect interest expense and amortization of debt issuance
costs of $5,654 for the nine months ended September 30, 1997 and $7,461
for the year ended December 31, 1996, net of income taxes of $(1,979)
for the nine months ended September 30, 1997 and $(2,611) for the year
ended December 31, 1996, on new third party debt of $110,000, which was
incurred.
(7) Adjustment to reflect interest expense and amortization of debt issuance
costs related to the issuance of the Notes aggregating $47,578 for the
nine months ended September 30, 1997 and $63,438 for the year ended
December 31, 1996, net of income taxes of $16,652 for the nine months
ended September 30, 1997 and $22,203 for the year ended December 31,
1996.
(8) Adjustment to eliminate interest expense and amortization of debt issuance
costs of $10,460 for the nine months ended September 30, 1997 and
$15,127 for the year ended December 31, 1996 and related income taxes
of $3,661 for the nine months ended September 30, 1997 and $5,294 for
the year ended December 31, 1996 on existing outstanding third party
debt was repaid and on outstanding intercompany notes payable owed by
the Company which were treated as capital contributions to the Company
from the borrower.
(9) Income tax effects for the distribution adjustments are summarized as
follows:
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
December 31, September 30,
1996 1997
------------ -------------
Benefit (provision)
<S> <C> <C>
Elimination of interest expense and amortization of debt issuance on existing
outstanding third party debt (see Note 8).......................................... $ 5,294 $ 3,661
Incurrence of interest expense and amortization of debt issuance costs on new
third party debt (see Note 6)...................................................... (2,611) (1,979)
Elimination of interest income on outstanding intercompany notes (see Note 4)....... (5,294) (3,040)
------- -------
Total............................................................................ $(2,611) $(1,358)
======= =======
</TABLE>
(10) Adjustment to income taxes for the acquisition are summarized as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended ended
December 31, September 30,
1996 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 2)................................. (663) 0
Additional depreciation and amortization of acquisition in 1997 of 19.9% minority
interest in March 1997 (see Note 3)................................................... (1,400) (437)
------- -------
Total................................................................................. $(3,820) $ (437)
======= =======
</TABLE>
(11) The weighted average number of common shares outstanding is based on the
weighted average number of shares of C-TEC Common Stock outstanding, for
each applicable period, which approximates the actual number of Company
shares outstanding as of September 30, 1997.
(12) Adjustment to reflect the issuance in October 1997 of $225,000 10% Senior
Notes due 2007 and $350,000 11 1/8% Senior Discount Notes due 2007,
net of issuance costs of approximately $20,000 and escrow collateral
of approximately $61,000, of which $22,500 has been classified as
current in accordance with the terms of the Escrow and Security
Agreement. The debt issuance costs are included in "deferred charges
and other assets" and are amortized over the term of the Notes.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Prior to September 30, 1997, the Company and the RCN Businesses
were 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 Prospectus. 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 Prospectus. The
selected historical consolidated financial data for the nine month periods
ended September 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 Prospectus. In the
opinion of the Company's management, these nine 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," "Unaudited Pro
Forma Consolidated Financial Statements" and the Financial Statements.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales................................. $44,030 $49,504 $59,500 $91,997 $104,910 $ 75,763 $ 91,854
Costs and expenses, excluding
depreciation and amortization........ 25,725 30,821 49,747 75,003 79,107 54,599 91,183
Nonrecurring charges(1)............... -- -- -- -- -- -- 10,000
Depreciation and amortization......... 9,984 9,922 9,803 22,336 38,881 27,037 39,135
-------- -------- -------- -------- -------- -------- --------
Operating (loss)...................... 8,321 8,761 (50) (5,342) (13,078) (5,873) (48,464)
Interest income....................... 19,047 17,882 21,547 29,001 25,602 19,750 13,442
Interest expense...................... (19,679) (17,127) (16,669) (16,517) (16,046) (12,553) (10,460)
Other income (expense), net........... 6,015 1,195 1,343 (304) (546) (473) 229
(Benefit) provision for income taxes.. 5,203 167 2,340 1,119 979 (68) (11,907)
Equity in loss of unconsolidated
entities............................. -- -- -- (3,461) (2,282) (1,692) (2,650)
Minority interest in (income) loss of
consolidated entities................ (43) (85) (95) (144) 1,340 211 3,931
Extraordinary charge--debt
prepayment penalty, net of tax....... -- -- -- -- -- -- (3,210)
Cumulative effect of changes in
accounting principles............... -- 1,628 (83) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income..................... $ 8,458 $ 12,087 $ 3,653 $ 2,114 $ (5,989) $ (562) $(35,275)
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(2). 5.54x 10.11x 1.36x 1.41x 0.75x N/A --
Balance Sheet Data (at end of period):
Total assets.......................... $289,833 $291,634 $568,586 $649,610 $628,085 $627,166 $598,679
Long-term debt........................ 191,070 181,500 154,000 135,250 131,250 87,500 110,000
Shareholders' equity.................. 56,083 74,329 372,847 394,069 390,765 381,724 373,760
</TABLE>
(1) Nonrecurring charges of $10,000 represent costs incurred with respect to
the termination of a marketing services agreement related to the Company's
wireless video services.
(2) The deficiency of earnings to fixed charges is based on income from
continuing operations and has been computed on a total enterprise basis.
Earnings represent income before income taxes, and fixed charges. Fixed
charges consist of interest expense and debt amortization costs. For the
nine months ended September 30, 1997, the Company's earnings were
insufficient to cover fixed charges by $45.3 million.
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 Prospectus.
General
The Company is developing 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 individually or
in bundled service packages primarily to residential customers in high-density
areas and also seeks to serve certain commercial accounts on or near its
networks. The Company has recently commenced providing service through
advanced fiber optic network facilities in New York City and Boston. 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"). The Company has historically managed its business along these
lines and the discussion which follows addresses those lines accordingly.
Although the Company has not derived material revenue from its
advanced fiber optic networks through 1996, such revenues are expected to
become an increasingly significant component of the Company's revenues in the
future. Financial results related to advanced fiber optic networks are
currently included in the "Advanced Fiber, Wireless Video and Other Operating"
segment data. 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.
The negative operating cash flow from the Company's advanced
fiber optic network business has resulted primarily from expenditures
associated with the development of the Company's operational infrastructure and
marketing expenses. The Company expects it will continue to experience
negative operating cash flow while it continues to invest in its networks and
until such time as revenue growth is sufficient to fund operating expenses.
The Company expects to achieve positive operating margins over time by (i)
increasing the number of customers it serves, (ii) increasing the number of
connections per customer by cross marketing its services and promoting bundled
service options and therefore increasing the revenue per customer, (iii)
lowering the costs associated with new subscriber additions and (iv) reducing
the cost of providing services by capturing economies of scale. The Company
expects its operating revenues will increase in 1998 though internal growth of
its current advanced fiber optic networks; however, the Company also expects
negative operating cash flow will increase for some period of time as the
Company initiates network development in Washington, D.C. and expands its
current networks. When the Company makes its initial investment in a new
market, the operating losses typically increase as the network and sales force
are expanded to facilitate growth. The Company's ability to generate positive
cash flow in the future will depend on the extent of capital expenditures in
current and additional markets, the ability of the joint ventures to generate
revenues and cash flow, competition in the Company's markets and any potential
adverse regulatory developments. The Company will be dependent on various
financing sources to fund its growth as well as continued losses from
operations. There can be no assurance that such funding will be available, or
available on terms acceptable to the Company. See "--Liquidity and Capital
Resources."
RCN Corporation is a holding company with limited assets that
conducts substantially all of its operations through subsidiaries and joint
ventures. Accordingly, RCN will be dependent on dividends and other
distributions from its subsidiaries and joint ventures to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Notes. The ability of RCN Corporation's subsidiaries and joint
ventures to pay dividends to RCN will be subject to, among other things, the
terms of any debt instruments and applicable law. In addition, the terms of
the Company's joint ventures require the mutual consent of the Company and its
joint venture partner to distribute or advance funds to the Company. The
Indentures allow subsidiaries and joint ventures to incur indebtedness for
network buildout costs, which indebtedness may contain limitations on the
subsidiaries' and joint ventures' ability to pay dividends and distributions
to RCN Corporation.
Prior to September 30, 1997, the Company was operated as part
of C-TEC Corporation. On September 30, 1997, C-TEC distributed 100 percent of
the outstanding shares of common stock of its wholly owned subsidiaries, RCN
Corporation ("RCN") and Cable Michigan, Inc. ("Cable Michigan") to holders of
record of C-TEC's Common Stock and C-TEC's Class B Common Stock as of the
close of business on September 19, 1997 (the "Distribution") in accordance
with the terms of a Distribution Agreement dated September 5, 1997 among C-TEC,
RCN and Cable Michigan. RCN consists primarily of C-TEC's high growth,
bundled residential voice, video and Internet access operations in the Boston
to Washington, D.C. corridor, its existing New York, New Jersey and
Pennsylvania cable television operations, a portion of its long distance
operations and its international investment in Megacable, S.A. de C.V. Cable
Michigan, Inc., consists of C-TEC's Michigan Cable operations, including its
62% ownership in Mercom, Inc. C-TEC, RCN and Cable Michigan have entered into
certain agreements providing for the Distribution, and governing various
ongoing relationships between the three companies, including a distribution
agreement and a tax-sharing agreement. 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.
Certain of the Company's businesses were acquired by C-TEC and
transferred to the Company in connection with the Distribution. On August
30, 1996, a subsidiary of C-TEC acquired an 80.1% interest in Freedom New
York, L.L.C. ("Freedom") and all related rights and liabilities from Kiewit
Telecom Holdings, Inc. Freedom held the wireless cable television business of
Liberty Cable Television, Inc. The Company acquired the remaining minority
interest in Freedom in March 1997. The acquisition was accounted for as a
purchase and is reflected in the Company's consolidated financial statements
since September 1996. 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"). 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. Goodwill relating to this
acquisition 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., the second largest cable television provider in
Mexico. The Company accounts for its investment by the equity method of
accounting and is amortizing the original excess cost over the underlying
equity in the net assets on a straight-line basis over 15 years.
Results of Operations
Selected segment data was as follows for the years ended
December 31, 1996, 1995 and 1994 and for the three and nine months ended
September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three months ended Nine Months ended
Year ended December 31, September 30, September 30,
--------------------------------- ---------------------- ---------------------
1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.....................
Hybrid Fiber/Coaxial...... $ 45,937 $ 66,404 $ 84,096 $ 21,087 $ 22,625 $ 62,524 $ 68,497
Advanced Fiber, Wireless
Video and Other
Operating................ 13,514 25,528 20,768 5,633 8,523 13,193 23,352
Corporate................. 49 65 46 26 -- 46 5
-------- -------- -------- -------- -------- -------- --------
Total..................... $ 59,500 $ 91,997 $104,910 $ 26,746 $ 31,148 $ 75,763 $ 91,854
======== ======== ======== ======== ======== ======== ========
</TABLE>
Operating Income Before Depreciation and Amortization and Nonrecurring Charge:
<TABLE>
<CAPTION>
Three Months Ended Nine Months ended
Year ended December September 30, September 30,
--------------------------------- ---------------------- ---------------------
1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Hybrid Fiber/Coaxial.... $ 22,279 $ 28,458 $ 40,094 $ 9,497 $ 9,944 $ 28,582 $ 31,211
Advanced Fiber,
Wireless Video and
Other Operating....... (11,542) (8,416) (11,711) (1,434) (12,550) (5,604) (25,171)
Corporate............... (984) (3,048) (2,580) 1,125 (1,726) (1,814) (5,369)
-------- -------- -------- -------- -------- -------- --------
Total................... $ 9,753 $ 16,994 $ 25,803 $ 9,188 $ (4,332) $ 21,164 $ 671
======== ======== ======== ======== ======== ======== ========
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
For the nine months ended September 30, 1997, operating income
before depreciation and amortization and non recurring charge was $671 as
compared to $21,164 for the nine months ended September 30, 1996. Sales
increased 21.2% to $91,854 for the nine months ended September 30, 1997 from
$75,763 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
nine months ended September 30, 1997, sales were $91,854, an increase of
$16,091 due to higher Hybrid Fiber/Coaxial sales of $5,973 and higher Advanced
Fiber, Wireless Video and Other Operating sales of $10,159. The increase in
Hybrid Fiber/Coaxial sales principally results from higher basic service
revenue resulting from approximately 4,700 additional average monthly
subscribers over the same period in 1996, the effects of a rate increase in
the first quarter of 1997 and cash incentives related to the launch of certain
new channels. Advanced Fiber, Wireless Video and Other Operating sales
increased primarily due to the acquisition of Freedom in August 1996 (the
"Freedom Acquisition"), which resulted in higher basic and premium video
revenue. Additionally, higher voice revenue of approximately $1,200 resulted
from higher voice and resold voice connections. The increase in Advanced
Fiber, Wireless Video and Other Operating Sales also includes increases of
approximately $1,000 related to 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 1.1% in the nine months ended September 30, 1997. In the nine
months ended September 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 and
Non Recurring Charges. Cost and expenses, excluding depreciation and
amortization and nonrecurring charges, 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 nine months ended September 30, 1997, costs
and expenses, excluding depreciation, amortization, and nonrecurring charges,
were $91,183, an increase of $36,584 or 67% 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 $30,000, 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
personnel and related costs, origination and programming costs, and
advertising expenses. Expansion of the long distance business contributed
approximately $3,900 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 $3,300 primarily due to higher basic
programming costs resulting from higher rates, additional channels and
subscriber increases. The remaining increase in costs and expenses, excluding
depreciation and amortization, is primarily due to costs associated with the
spin-off of the Company from C-TEC.
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 $12,098 or 44.7%
to $39,135 for the nine months ended September 30, 1997 as compared to $27,037
for the comparable period in 1996. The increase is principally 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 nine months ended September
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 costs incurred with respect to the termination of a marketing
services agreement held by Freedom.
Interest Income. For the nine months ended September 30, 1997,
interest income was $13,442, a decrease of $6,308 or 31.9% primarily due to
lower average cash balances and lower average notes receivable and related
parties. Average cash balances decreased principally as a result of the
Freedom Acquisition in August 1996 (as well as the acquisition in March 1997
of the remaining 19.9% ownership interest in Freedom) and capital expenditures.
Interest Expense. For the nine months ended September 30,
1997, interest expense was $10,460, a decrease of $2,093 or 16.7% primarily
due to the required principal payment of $18,750 on 9.65% Senior Secured Notes
in December 1996. Additionally, the Company paid $940 to Kiewit Telecom
Holdings in connection with the Company's August 1996 acquisition of Kiewit
Telecom Holdings' 80.1% interest in Freedom. This portion of the consideration
represents an amount to compensate Kiewit Telecom Holdings for forgone
interest on the amount which it had invested in Freedom.
Income Tax. Benefit for income taxes increased $11,839
primarily due to the increase of $42,591 in operating loss.
Minority Interest. Minority interest in the loss of
consolidated entities increased $3,720, primarily as a result of the minority
share of the losses of the BECO joint venture (Note 10), which began
operations in June 1997. Additionally, the minority share of the losses of
Freedom from January 1 through March 21, at which time the Company acquired
the remaining 19.9% ownership interest, was $966.
Three Months Ended September 30, 1997 Compared to Three Months
Ended September 30, 1996
For the three months ended September 30, 1997, operating income
before depreciation and amortization and nonrecurring charge was ($4,332) as
compared to $9,188 for the three months ended September 30, 1996. Sales
increased 16.5% to $31,148 for the three months ended September 30, 1997 from
$26,746 for the same period in 1996.
Sales. For the three months ended September 30, 1997, sales
were $31,148, an increase of $4,402 due to higher Hybrid Fiber/Coaxial sales
of $1,538 and higher Advanced Fiber, Wireless Video and Other Operating sales
of $2,890. The increase in Hybrid Fiber/Coaxial sales principally results
from higher basic service revenue resulting from approximately 4,700
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 Freedom in August 1996 (the "Freedom Acquisition"), which
resulted in higher basic and premium video revenue. Additionally, higher voice
revenue of approximately $900 resulted from higher voice and resold voice
connections.
Costs and Expenses, Excluding Depreciation and Amortization and
Nonrecurring Charges. For the three months ended September 30, 1997, costs
and expenses, excluding depreciation, amortization, and nonrecurring charges,
were $35,480, an increase of $18,376 or 102.1% 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 $14,000 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 $1,100 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
$1,100 primarily due to higher basic programming costs resulting from higher
rates, additional channels and subscriber increases. The remaining increase in
costs and expenses, excluding depreciation and amortization, is primarily due
to costs associated with the spin-off of the Company from C-TEC.
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 $4,473 or 48.6%
to $13,680 for the three months ended September 30, 1997 as compared to $9,207
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 nine months ended September
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.
Interest Income. For the three months ended September 30,
1997, interest income was $3,681, a decrease of $2,478, or 40.2%, primarily
due to lower average cash balances and lower average notes receivable - related
parties. Average cash balances decreased principally as a result of the
Freedom Acquisition in August 1996 (as well as the acquisition in March 1997
of the remaining 19.9% ownership interest in Freedom) and capital expenditures.
Interest Expense. For the three months ended September 30,
1997 interest expense was $3,331, a decrease of $1,464 or 30.5% primarily due
to the required principal payment of $18,750 on 9.65% Senior Secured Notes in
December 1996. Additionally, the Company paid $940 to Kiewit Telecom Holdings
in connection with the Company's August 1996 acquisition of Kiewit Telecom
Holdings' 80.1% interest in Freedom. This portion of the consideration
represents an amount to compensate Kiewit Telecom Holdings for forgone
interest on the amount which it had invested in Freedom.
Income Tax. Benefit for income taxes increased $4,375
primarily due to the increase of $17,993 in operating loss.
Minority Interest. Minority interest in the loss of
consolidated entities increased $2,242 primarily as a result of the minority
share of the losses of the BECO joint venture (Note 10), which began
operations in June 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 Consolidated 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 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 utilized 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 an increase in 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 approximately 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 Income (Expense), 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
the 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 substantial amount
of capital to fund the network development and operations in the Boston to
Washington, D.C. corridor, including funding the development of its advanced
fiber optic networks, upgrading its Hybrid Fiber/Coaxial plant, funding
operating losses and debt service requirements. The Company currently
estimates that its capital requirements for the period from September 30, 1997
through mid-1999 will be approximately $380 million, which includes capital
expenditures (including connection costs which will only be incurred as the
Company obtains revenue-generating customer connections) of approximately $40
million in the last quarter of 1997, approximately $190 million in 1998 and
approximately $150 million through mid-1999. These capital expenditures will
be used principally to fund the buildout of the Company's fiber optic network
in high density areas in the Boston, New York and Washington, D.C. markets and
to upgrade its hybrid fiber/coaxial cable systems. To build out these areas on
an efficient basis, the Company undertakes a subscriber-driven capital
expenditure strategy whereby it (i) closely monitors development of its
subscriber base in order to tailor network development in each target market,
and (ii) seeks to establish a customer base in advance of or concurrently with
its network deployment. For example, the Company offers resale telephone
services on an interim basis to customers located near its advanced fiber
optic networks. Depending upon factors such as subscriber density, proximity
to the advanced fiber optic network and development costs and the degree of
success achieved in its initial markets, the Company will determine whether
extending its advanced fiber optic network to additional high density target
markets can be achieved on an attractive economic basis. In addition to its
own capital requirements, the Company's joint venture partners are each
expected to contribute approximately $150 million in capital to the joint
ventures in connection with development of the Boston and Washington, D.C.
markets through mid-1999. There can be no assurance that RCN will enter into
its proposed joint venture with PCI; in the event that the joint venture is
not established, RCN would be required to secure rights of way and network
facilities, which could include substantial costs of construction of a fiber
backbone, in order to establish a network in the Washington, D.C. area.
In October 1997, the Company announced that it had raised
$575,000 in proceeds from a high-yield private offering of two tranches of
debt securities. The offering was comprised of $225,000 10% Senior Notes and
$350,000 11 1/8% Senior Discount Notes, both due in 2007. The proceeds include
$60 million of restricted cash to be used to fund the Escrow Account to pay
interest on the Senior Notes for three years. Such amounts, along with cash on
hand of approximately $183,000 at September 30, 1997, are expected to provide
sufficient liquidity to meet the Company's capital requirements through 1999.
After 1999, the Company will continue to require additional capital for
planned increases in network coverage and other capital expenditures, working
capital, debt service requirements, and anticipated further operating losses.
The actual timing and amount of capital required to roll out the Company's
network and to fund operating losses may vary materially from the Company's
estimates and additional funds will be required in the event of significant
departures from the current business plan, unforeseen delays, cost overruns,
engineering design changes and other technological risks or other
unanticipated expenses. Due to its subscriber driven investment strategy,
should the Company encounter a successful rollout in its initial markets, the
Company may accelerate the expansion and extend the reach of its network.
Conversely, should the Company be less successful than anticipated, the
operating losses associated with the installed network may be higher than
anticipated. The Company presently intends to judge the success of its
initial rollout in deciding whether to undertake additional capital
expenditures to rollout the network to additional areas. Since the Company
anticipates that, if it is successful, it will continue to extend its network
coverage into additional areas within the Boston-Washington, D.C. corridor, it
expects to continue to experience losses and negative cash flow on an
aggregate basis for an extended period of time.
The Company's current joint venture agreements reduce the
amount of expenditures required by RCN to develop the network due both to
access to the joint venture partners' existing facilities and to the
anticipated joint venture partners' equity contributions. However, the joint
venture arrangements will also reduce the potential cash flows to be realized
from operation of the networks in the markets in which the joint ventures
operate and restrict the Company's access to cash flow generated by the joint
ventures (which will be paid in the form of dividends). The Company may enter
into additional joint ventures in the future as the Company begins to develop
new markets.
Sources of funding for the Company's further financing
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, and bank loans. There can be no
assurance that additional financing will be available to the Company or, if
available, that it can be obtained on a timely basis and on acceptable terms.
Failure to obtain such financing could result in the delay or curtailment of
the Company's development and expansion plans and expenditures. Any of these
events could impair the Company's ability to meet its debt service
requirements and could have a material adverse effect on its business. See
"Risk Factors--Further Capital Requirements."
RCN Cable Systems, Inc. and certain of its subsidiaries have in
place secured credit facilities comprised of a five- year revolving credit
facility in the amount of $25 million (the "Revolving Credit Facility") and an
eight-year term credit facility in the amount of $100 million (the "Term
Credit Facility"), both of which facilities are governed by a single credit
agreement dated as of July 1, 1997. As of September 30, 1997, $100 million of
the Term Credit Facility was outstanding. 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. As of
September 30, 1997, $10 million principal was outstanding under the Revolving
Credit Facility. Revolving loans may be repaid and reborrowed from time to
time. See "Description of the Credit Agreement."
For the nine months ended September 30, 1997, the Company's net
cash provided by operating activities was $7,019, comprised primarily of a net
loss of $35,275 adjusted by non-cash depreciation and amortization of $39,135,
other non-cash items totaling $(641) and working capital changes of $78. Net
cash used in investing activities of $28,087 consisted primarily of additions
to property, plant and equipment of $43,890 and acquisitions of $30,490
(primarily acquisition of the minority interest of Freedom) partially offset
by sales and maturities of short-term investments of $46,935. Net cash
provided by financing activities of $146,493 consisted of transfers to C-TEC
of $20,185 partially offset by a change in affiliate notes of $143,627.
For the year ended December 31, 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.
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. As used herein, the term "Expiration Date"
means 5:00 p.m., New York City time, on , 1997;
provided, however, that if the Company, in its sole discretion, has extended
the period of time for which the Exchange Offer is open, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $225,000,000 aggregate
principal amount of the Old Senior Notes was outstanding and $601,045,000
aggregate principal amount at maturity of the Old Discount Notes was
outstanding. This Prospectus, together with the Letter of Transmittal, is
first being sent on or about the date set forth on the cover page to all
holders of Old Notes at the addresses set forth in the security register with
respect to Old Notes maintained by the Trustee. The Company's obligations to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from
time to time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance of any Old Notes, by giving oral or written
notice of such extension to the Exchange Agent and notice of such extension to
the holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the
conditions of the Exchange Offer specified below under "Certain Conditions to
the Exchange Offer." The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the Old
Notes as promptly as practicable, such notice in the case of any extension to
be issued by means of a press release or other public announcement no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Indenture in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the applicable requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Commission thereunder.
Procedures for Tendering Old Notes
The tender to the Company of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Chase Manhattan Bank (the "Exchange Agent") at one of the addresses set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition,
(i) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the Expiration
Date, (ii) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal or (iii) the holder must comply
with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT
IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old Notes
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the Old Notes who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Old Notes not properly tendered or to not accept
any particular Old Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Old Notes for exchange must
be cured within such reasonable period of time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons
other than the registered holder or holders of Old Notes, such Old Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company of
its authority to so act must be submitted.
By tendering, each holder will represent to the Company that,
among other things, (i) the New Notes acquired pursuant to the Exchange Offer
are being acquired in the ordinary course of business of the person receiving
such New Notes, whether or not such person is the holder, (ii) neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes, (iii) if the
holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, (iv) neither the holder
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company. If the exchange offeree is a broker-dealer holding Old Notes
acquired for its own account as a result of market-making activities or other
trading activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of New Notes received in exchange for
such Old Notes.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will accept, promptly after the Expiration Date,
all Old Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "Certain Conditions to the Exchange Offer"
below. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if certificates representing Old Notes are submitted for
a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the Exchange Offer.
Interest on the New Notes
Interest on the Senior Notes (including the New Senior Notes)
will accrue at the rate of 10% per annum and will be payable semi-annually in
arrears on each April 15 and October 15, commencing on April 15, 1998.
The Senior Discount Notes (including the New Discount Notes)
were issued at a substantial discount from their principal amount. Commencing
October 15, 2002, cash interest on the Notes will accrue at the rate of 11
1/8% per annum and will be payable in cash semi-annually on each April 15 and
October 15, commencing on April 15, 2003. Prior to April 15, 2003, there will
be no periodic payment of interest. No interest will have accrued on the Old
Discount Notes on the date of the exchange for the New Discount Notes and
therefore no interest will be paid thereon to the holders.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account
with respect to the Old Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer promptly after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Notes by causing the
Book-Entry Transfer Facility to transfer such Notes into the Exchange Agent's
account in accordance with the Book-Entry Transfer Facility's Automated Tender
Offer Program ("ATOP") procedures for transfer. However, the exchange for the
Notes so tendered will only be made after timely confirmation of such
book-entry transfer of Notes into the Exchange Agent's account, and timely
receipt by the Exchange Agent of an Agent's Message (as such term is defined
in the next sentence) and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from a participant tendering
Notes that are the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender such
Old Notes and the Old Notes are not immediately available, or time will not
permit such holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is being made thereby
and guaranteeing that within five New York Stock Exchange ("NYSE") trading
days after the date of execution of the Notice of Guaranteed Delivery, the
certificates of all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from
that of the withdrawing holder. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer described above,
any note of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any
Old Notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, the
Company shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the acceptance of such Old Notes for exchange or the
exchange of the New Notes for such Old Notes, such acceptance or issuance
would violate applicable law or any interpretation of the staff of the
Commission.
The foregoing condition is for the sole benefit of the Company
and may be asserted by the Company regardless of the circumstances giving rise
to such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old
Notes tendered, and no New Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "TIA").
Exchange Agent
The Chase Manhattan Bank has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
Deliver To:
The Chase Manhattan Bank, Exchange Agent
By Mail or By Hand:
55 Water Street
Room 234
North Building
New York, New York 10041
Attention: Carlos Esteves
By Facsimile:
(212) 638-7375
(212) 344-9367
Confirm by Telephone:
Carlos Esteves: (212) 638-0828
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
Fees and Expenses
The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
officers and regular employees of the Company and its affiliates. No
additional compensation will be paid to any such officers and employees who
engage in soliciting tenders. The Company will not make any payment to
brokers, dealers, or others soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.
The estimated cash expenses to be incurred in connection with
the Exchange Offer will be paid by the Company and are estimated in the
aggregate to be $250,000.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
holders who instruct the Company to register New Notes in the name of, or
request that Old Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for
New Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in letters
issued to third parties by the staff of the Commission, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by each holder thereof (other than a
broker-dealer, as set forth below, and any such holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. If any holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
in exchange for Old Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
does not currently intend to take any action to register or qualify the New
Notes for resale in any such jurisdictions.
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. The region, one of the most densely populated in
the United States, represents approximately 4% of the geography of the U.S.,
but accounts for over 26% of the telecommunications market based upon the
number of telephone access lines. The Company believes that of the estimated
22 million homes in the Boston to Washington, D.C. corridor, approximately 7
to 9 million homes are located in high-density urban and suburban residential
areas that will support development of an advanced fiber optic network on an
attractive economic basis. RCN believes that its capability to deliver
multiple services (telephone, video programming and Internet access) to any
given customer on its networks will provide it with competitive advantages
over other competitors. RCN's strategy is to become the leading single-source
provider of voice, video and data services to residential customers in each of
its markets by offering individual or bundled service options, superior
customer service and competitive prices.
RCN's initial advanced fiber optic networks have been
established in New York City and, through a joint venture with BECO, in Boston
and surrounding communities. RCN recently entered into a letter of intent with
PCI, a subsidiary of PEPCO, to form a joint venture to develop an advanced
fiber network in the Washington, D.C. area. RCN also benefits from a strategic
relationship with MFS/WorldCom in New York City and Boston and from its
interconnection and resale agreements with incumbent telephone service
providers including Bell Atlantic. RCN believes that these joint ventures
and relationships provide it with a number of important advantages
including access to rights of way and use of existing fiber optic
facilities, the ability to enter its target markets quickly and efficiently
and a reduction in the up- front capital investment required to develop its
networks. In addition, the Company's joint venture partners provide access
to additional assets, equity capital and established customer bases. The
Company also benefits from its relationship with its majority shareholder,
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.
As of September 30, 1997, the Company had approximately 247,300
connections which were delivered through a variety of owned and leased
facilities including hybrid fiber/coaxial cable systems, a wireless video
system and advanced fiber optic networks. RCN had pro forma revenues and
EBITDA of $110.1 million and $23.5 million, respectively, for the year ended
December 31, 1996 and $91.9 million and $(9.3) million, respectively, for the
nine months ended September 30, 1997. The Company is deploying advanced fiber
optic networks specifically designed to provide high speed, high capacity
telecommunications services for all new network facilities. RCN also intends
to upgrade certain of its hybrid fiber/coaxial cable systems to enable them to
provide the same range of voice, video and data services, including bundled
service options. See "--The Delivery Platforms." Since it formally commenced
operation of its advanced fiber optic networks in New York City and Boston in
September 1996, RCN has built or acquired, through its joint venture with BECO
and long term lease arrangements, approximately 300 route miles of fiber optic
cable and added approximately 7,100 customer connections to its advanced fiber
optic networks. In addition, during the same period the Company added
approximately 19,600 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 September 30, 1997, RCN had (i)
approximately 59,600 connections attributable to customers in the New York
City and Boston markets, of which approximately 46,100 were wireless video
service and other connections and approximately 11,000 were resold telephone
connections, and (ii) approximately 183,100 connections attributable to its
hybrid fiber/coaxial cable systems in the states of New York (outside New York
City), New Jersey and Pennsylvania, all within 75 miles of New York City.
Because it delivers multiple services, RCN reports the total number of its
various service connections (for local telephone, video programming and
Internet access) rather than the number of customers. See "Business--RCN
Services--Connections."
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. In addition, the Company's management team and board of
directors benefit from experience gained in connection with the management of
C-TEC (now Commonwealth Telephone), which prior to September 30, 1997 owned
and operated RCN. See "Description of the Distribution and Related Agreements
- --Background." C-TEC 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.
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 in 1996 were approximately $210 billion (comprised
of $183 billion in telecommunications revenues and $27 billion in cable
television revenues). Approximately 50% of such revenue is estimated to be
attributable to residential users. RCN believes that density is a critical
factor in the effective economic deployment of its networks, and that the
Boston to Washington, D.C. corridor is a particularly attractive market for
developing advanced fiber optic facilities due to population density,
favorable demographics and the aging infrastructure of the incumbent service
providers' network facilities in this region. The Company applies a
subscriber- driven investment strategy focusing on subscriber density,
proximity to the Company's advanced fiber optic networks and network
development costs, in order to determine if the number of potential
connections in a target area will permit network development on an attractive
economic basis.
Business Strategy
The Company believes that 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, the need for more advanced, higher capacity
networks to meet growing consumer demands for new communications products and
services and the superior technology of the Company's networks. In order to
achieve its goal of becoming the leading provider of telecommunications, video
and data services to residential customers in its target markets, RCN is
pursuing the following key strategies:
o Developing Advanced Fiber Optic Networks. RCN's advanced
fiber optic networks are specifically designed to provide
a single source for high speed, high capacity voice, video
programming and data services. RCN believes that its high
capacity advanced fiber optic networks provide RCN with
certain competitive advantages such as increased capacity
(including the ability to offer bundled voice, video and
data services) and generally superior signal quality and
network reliability relative to the typical networks of
the incumbent service providers. By using advanced fiber
optic networks capable of delivering multiple services,
RCN is able to address a larger number of potential
subscriber connections in its target markets than
incumbent service providers which typically provide only
single or limited services.
o Focusing on Residential Customers in High Density Markets.
RCN seeks to be the first operator of an advanced fiber
optic network providing voice, video and data services to
residential customers in each of its target markets. 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 and in striving to connect
residential customers directly to its advanced fiber optic
networks. RCN also believes that residential customers
will be attracted to lower prices, broader service
offerings, enhanced levels of customer care and consumer
choice. Although the Company's primary focus is on
residential customers, RCN also serves certain commercial
accounts which are located on or in close proximity to its
networks.
o Implementing Subscriber-Driven Investment Strategy. RCN
attempts to efficiently deploy its capital by tying
facility development to the procurement of customer
connections. In order to promote its presence in its
markets and to develop a subscriber base for its advanced
fiber optic networks, the Company may provide telephone
services to customers located near its advanced fiber
networks by first reselling services, and then by
establishing leased facilities (such as unbundled local
loops), in advance of constructing or extending its
networks. RCN also provides wireless video services to
approximately 38,900 customers in New York City with a
view to extending the advanced fiber optic network to
service many of these existing customers.
o Utilizing Strategic Alliances and Existing Facilities to
Speed and Reduce Cost of Entry. By utilizing strategic
alliances, RCN is able to enter the market quickly and
efficiently and to reduce the up- front capital investment
required to develop its networks. Through alliances with
companies such as BECO, PCI and MFS/WorldCom, which
provide or are expected to provide RCN with extensive
fiber optic networks or other assets, and by utilizing
certain components of its own existing cable television
infrastructure, RCN has been able to expedite and reduce
the cost of market entry and business development and has
created the opportunity to leverage existing customer
relationships.
o Offering 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, individually or on a
bundled basis, which is not yet generally available from
any incumbent telephone, cable or other service provider.
In addition, services provided over RCN's advanced fiber
optic networks are generally priced at competitive rates
as compared to the incumbent service providers.
o Providing 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.
Industry Overview--Market 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
reentering 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.
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
-----------------------------------------------
12/31/96 3/31/97 6/30/97 9/30/97
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Connections(1)
Advanced Fiber Optic Networks
Voice............................................ -- -- 370 1,909
Video............................................ -- -- 1,060 4,870
Internet......................................... -- -- 81 326
------- ------- ------- -------
Subtotal....................................... -- -- 1,511 7,105
Resold Voice..................................... 1,875 2,315 4,672 10,953
Wireless Video & Other (2)....................... 40,162 43,616 46,668 46,053
Total RCN Telecom.............................. 42,037 45,931 52,851 64,111
------- ------- ------- -------
Hybrid Fiber/Coaxial Cable Operations(3)......... 179,932 180,169 181,790 183,145
------- ------- ------- -------
Total connections................................ 221,969 226,100 234,641 247,256
======= ======= ======= =======
</TABLE>
- ---------------
(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) Includes approximately 38,900 wireless connections. 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 September 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.
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 September 30, 1997, RCN had approximately 1,900 telephone service
connections on its advanced fiber optic networks and approximately 11,000
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 September 30, 1997 RCN Commercial had approximately
13,600 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, 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 September 30, 1997, RCN had approximately 4,900
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 38,900 connections attributable to the wireless video system and
approximately 183,100 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.
DirecTV allows RCN to deliver an additional 175 channels of programming
including exclusive sports programming.
Internet Access and Data Transmission. RCN's StarPass 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
City. Through a construction cooperation agreement with MFS/WorldCom under
which MFS/WorldCom has agreed to install segments of RCN's network, 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, through its affiliates, has entered
into Fiber Agreements (the "Fiber Agreements"), each dated May 8, 1997, with
MFS/WorldCom, which owns or has 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 has reimbursed 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
December 31, 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. The Telephone Service Agreements expire on January 1,
2000.
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 Massachusetts 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,
through RCN Massachusetts, owns 51% of the equity interest in RCN-BECOCOM and
BECO, through a subsidiary, owns the remaining 49% interest.
The closing of the transactions contemplated by the Boston
Joint Venture Agreement occurred on June 17, 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. The annual budget will be prepared by RCN and is
subject to review by each member of RCN-BECOCOM. 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. In the event a deadlock arises relating
to a merger, reorganization, issuances of equity, liquidation or bankruptcy,
amendments to the organizational documents or an expansion of operations of
RCN-BECOCOM beyond those contemplated by the Operating Agreement, the
disputing party will either sell its interest or purchase the other party's
interest in the joint venture. In the event of a deadlock relating to other
fundamental business actions or relating to the annual budget, the matter will
be submitted to arbitration. Neither RCN nor BECO may transfer its interest in
RCN-BECOCOM until June 17, 2000 without the other's written consent. After
such date, each party has the right to purchase the interest proposed to be
sold by the other party. If a party proposes to sell more than 33% of its
interest, the other party has "tag-along" rights to sell a proportionate share
of its interest. In the event a member's interest becomes less than 25%, the
other members have the option to purchase such interest at fair market value.
Upon a change in control of either RCN Massachusetts or BECOCOM, 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 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 in whole or in part 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. In the event BECO is unable to convert any
portion of its interest as a result of such limitations, BECO has the right to
require RCN to purchase such portion. 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. The negotiation period has been extended twice, each time by 30
days. 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 a Fiber Use Agreement and other agreements 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 Letter of Intent, 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 transfer provisions and
deadlock resolution 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. In the
event they are not completed, the Company would be required to secure rights
of way and network facilities, which could include substantial costs of
construction of a fiber backbone, in order to establish a network in the
Washington, D.C. area.
The Delivery Platforms
Overview of Advanced Fiber Optic 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 in New York City. 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 in
New York City) and two General Instrument video headends that are installed
and in service in both Boston and New York City. As of September 30, 1997,
RCN has connected 400 buildings (339 in NYC and 61 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 OpticNetworks". 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. In this
regard, 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. This 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
a minimum of 750 MHZ, which is capable of supporting a minimum of 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 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 584 route miles of fiber optic cable,
including separate high capacity fiber optic rings with a minimum 84 fibers
in Pennsylvania (covering approximately 69 route miles) designed and
constructed as competitive telephony networks. The New York system includes
211 route miles of fiber optic cable serving 98 nodes from one head-end.
Approximately 70% of the New York system is two-way active 750 MHZ plant with
84 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 2,641 miles
of coaxial cable and over 160 route miles of fiber with 43 nodes from one
headend, operating at 550 MHZ with 83 active channels. All of the Company's
hybrid fiber/coaxial cable systems are 100% one-way addressable.
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 Pennsylvania.
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 December 31, As of
-------------------------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Homes Passed................ 115,394 118,216 119,761 282,836 283,940 289,517
Basic Subscribers........... 83,068 87,660 92,140 176,131 179,932 182,922
Basic Penetration........... 72.0% 74.2% 76.9% 62.3%(1) 63.4% 63.2%
Average Monthly Revenue per
Subscriber For Last Month
of the Period............. $ 41.48 $ 40.98 $ 37.67 $ 36.73 (1) $ 39.99 $ 41.73
</TABLE>
- ---------------
(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.
The service areas 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 28,564 and 75,234 connections at September 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
September 30, 1997, RCN had 11,000 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."
DirecTV
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 September 30, 1997, RCN has
obtained 601 access agreements covering over 114,300 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 September 30, 1997, RCN
Commercial had approximately 11,000 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, and one MMDS cable system, 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 September 30, 1997 these systems passed
approximately 636,000 homes and served approximately 185,000 subscribers.
Megacable had revenues of $23.2 million for the year ended December 31, 1996
and $22.3 million for the nine months ended September 30, 1997. Recent
financial results for Megacable expressed on a U.S. GAAP basis and subscriber
data are summarized below:
<TABLE>
<CAPTION>
As of or for As of or for
the Year Ended the Nine Months
December 31, Ended September 30,
-------------------- --------------------
1995 1996 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. GAAP
Revenue.................... $20,841 $23,244 $17,202 $22,281
Net Income................. 5,802 10,221 7,546 6,827
RCN Equity in Earnings of
Megacable(1).... (3,061) (2,190) (1,692) (2,477)
Accumulated Cash........... 25,886 29,617 31,398 28,053
Total Assets............... 62,035 67,826 70,704 76,217
Total Liabilities.......... 9,372 6,575 9,696 8,055
Net Worth.................. 52,664 61,251 61,008 68,162
Other Data
EBITDA(2).................. 8,154 10,183 7,912 9,547
EBITDA Margin (2).......... 39% 44% 46% 43%
Subscribers................ 177,317 178,664 162,970 184,972
</TABLE>
- ---------------
(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.
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, Monterrey and Guadalajara. MCM intends to use this network to
provide local voice and high speed data service in these cities, principally
to commercial customers in Mexico 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 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. 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 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 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. RCN has entered into competitive
interconnection agreements using the federal guidelines established in the
FCC's interconnection order, which agreements remain in effect these court
proceedings. Portions of the FCC's order providing for number not withstanding
portability remain in effect within the 100 largest Metropolitan Statistical
Areas ("MSAs"), and are slated for implementation beginning in March 1998. The
Eighth Circuit found constitutional challenges to certain practices
implementing cost provisions of the Telecommunications Act that were ordered by
certain state PUCs to be premature; vacated significant portions of the FCC's
nationwide pricing rules; and confined the use of combined unbundled network
elements to instances where the requesting carrier itself would do the
combining. The Solicited General, on behalf of the FCC, and other parties have
appealed the Eighth Circuit's decision to the U.S. Supreme Court. Certain Bell
Operating Companies have also raised constitutional challenges to restrictions
in the 1996 Act preventing BOCs from entering the long distance market in their
home region. The Company cannot predict either the outcome of these of future
challenges to the 1966 Act, any related appeal of regulation or court decision,
or the eventual effect on its business or the industry in general.
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. As discussed below, RCN is
currently providing OVS service in the City of Boston, and is negotiating OVS
agreements to allow it to provide OVS services in the City of New York and in
a number of communities surrounding Boston.
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 has entered into similar OVS
agreements or is in the process of negotiating agreements with certain other
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 is 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, the incumbent cable television provider in certain communities in the
Boston area, has made a similar filing at the FCC with respect to its request
for capacity on the Boston OVS network. RCN will continue to oppose these
requests, but to the extent that the FCC were to grant any such request(s),
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 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 of Appeals
uphold the FCC, it is likely that MFS/WorldCom and RCN will need to resolve
the challenge to their former (pre-OVS) operations which was brought
before the New York Public Service Commission by one of the incumbent cable
television companies in New York City 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. While the Company expects to receive authorizations to transmit over
these microwave paths on a timely basis, there can be no assurance that RCN
will be able to offer wireless video services pursuant to its own FCC licenses
or that the FCC's investigation will be resolved favorably. The failure to
obtain such license or resolve such proceedings would materially adversely
affect the Company's wireless video operations.
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.
On September 8, 1997, the Company was notified by the FCC that
it has ruled that certain of the Company's upper levels of service for its New
Jersey systems are regulated levels of service and that the Company's rates for
such levels of service have exceeded the allowable rates under the FCC rate
regulation rules which have been effective since September 1993. The Company
had treated these levels of service as unregulated. The Company intends to
contest this decision. The Company does not believe that the ultimate
resolution of this matter will have a material impact on its results of
operations or financial condition.
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 September 30, 1997, the Company had 966 full-time
employees including general office and administrative personnel. The Company
considers relations with its employees to be good.
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 "--The Delivery Platforms."
Legal Proceedings
On October 14, 1997, Time Warner Cable, a division of Time
Warner Entertainment Company, L.P., ("Time Warner") filed a complaint against
Boston Edison Company, RCN-BECOCOM and others alleging negligence and breach
of contract arising from actions that threaten the public safety and the
welfare of plaintiff's workforce in part because Boston Edison Company's
installation of the RCN-BECOCOM network in Somerville, MA may fail to comply
with electrical code standards. While the complaint seeks injunctive relief
and does not specify monetary damages, Time Warner has already asked the court
to defer ruling on its motion for an injunction. The Company believes this
lawsuit is without merit, has numerous meriterious defenses and is contesting
this action vigorously.
On September 30, 1997, the Yee Family Trusts, as holders of
Commonwealth Telephone's Preferred Stock Series A and Preferred Stock Series
B, filed an action against the Company, Commonwealth Telephone and Cable
Michigan, Inc. in the Superior Court of New Jersey, Chancery Division. The
complaint alleges that C-TEC's restructuring constituted a fraudulent
conveyance and alleges breaches of contract and fiduciary duties in connection
with the restructuring. The plaintiffs are seeking to set aside the alleged
fraudulent conveyance and unspecified monetary damages. The Company believes
this lawsuit is without merit and intends to contest this action vigorously.
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 Board is divided into three classes of directors
and consists of 12 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 September 30, 1997, 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
November 3, 1997 concerning the directors and executive officers of RCN:
<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........ 42 Director (Class II), Executive Vice President
and Chief Financial Officer
Mark Haverkate.......... 42 Executive Vice President, Business Development
Michael A. Adams........ 40 President, Technology and Network Development
Group, and Executive Vice President
James Q. Crowe.......... 48 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.. 53 Director (Class I)
Richard R. Jaros........ 45 Director (Class II)
Eugene Roth............. 62 Director (Class III)
Stuart E. 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 has served as a
director and Chairman and Chief Executive Officer of Cable Michigan since
September 30, 1997. In addition, he is a director and Chairman and Chief
Executive Officer of Commonwealth Telephone, 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 is also a
director of Commonwealth Telephone, a position was held since May 1995. Mr.
Mahoney was President and Chief Operating Officer of C-TEC from February 1994
to September 1997, 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 has been the Executive Vice President and
Chief Financial Officer and a director of the Company since September 30,
1997. Mr. Godfrey has also been a director of Cable Michigan as well as its
Secretary since such date. In addition, he is the Executive Vice President,
Chief Financial Officer, Secretary and a director of Commonwealth Telephone.
Mr. Godfrey has been a director of Commonwealth Telephone since November 1996
and has been Executive Vice President and Chief Financial Officer of
Commonwealth Telephone 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.
Mark Haverkate has been the Executive Vice President, Business
Development of the Company since September 30, 1997. Mr. Haverkate has also
been President and Chief Operating Officer and a director of Cable Michigan
since such date. He was the President of RCN Development from June 1997 to
September 1997 and Executive Vice President of Business Development at C-TEC
from May 1997 to September 1997. 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.
Michael A. Adams has been the President, Technology and Network
Development Group of the Company and Executive Vice President of the Company
since September 30, 1997. Mr. Adams has held the corresponding position at
C-TEC from November 1996 to September 1997. 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.
James Q. Crowe has been a director of the Company since
September 30, 1997. Since August 1, 1997, Mr. Crowe has been the President
and Chief Executive Officer of Kiewit Diversified Group, Inc. ("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. Mr. Crowe is
also a director of Commonwealth Telephone, a position he has held since 1993.
Mr. Crowe has served as Chairman of the Board of Directors of MFS/WorldCom
since 1988 and Chief Executive Officer of MFS/WorldCom since November 1991 and
was President of MFS/WorldCom 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, CalEnergy Company, Inc., ("CECI"), a geothermal energy
producer and Qwest Communications International, Inc., a communications
company.
Thomas May has been a director of the Company since September
30, 1997. 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. has been a director of the Company since
September 30, 1997. Mr. Scott is also a director of Commonwealth Telephone, 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.
Mr. Scott was a director of WorldCom, Inc. from December 1996 to July 1997.
Michael B. Yanney has been a director of the Company since
September 30, 1997. 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. Mr. Yanney was a director of WorldCom, Inc. from December 1996
to July 1997 and C-TEC from August 1996 to September 1997.
Alfred Fasola has been a director of the Company since
September 30, 1997. 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 has been a director of the Company since
September 30, 1997. 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 has been a director of the Company since
September 30, 1997. Mr. Jaros is a member of the Board of Directors of
WorldCom, CalEnergy Company and Commonwealth Telephone. 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 has been a director of the Company since September
30, 1997. Mr. Roth is also a director of Commonwealth Telephone, a position
he has held since 1989. 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 has been a director of the Company since
September 30, 1997. Mr. Graham is also a director of Commonwealth Telephone,
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 Securities All Other
--------------------- Stock Awards Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) Options(2) $(3)
- --------------------------- ---- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt..................................... 1996 $491,154 $700,000 $238,333 -- $ 5,478
Chairman and Chief Executive Officer 1995 397,885 700,000 220,000 250,000 5,612
1994 375,000 500,000 -- 250,000 387
Michael J. Mahoney................................... 1996 $235,027 $175,000 $67,017 -- $ 5,478
President and Chief Operating Officer 1995 222,462 100,000 65,000 -- 5,952
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 Financial Officer 1995 183,731 150,000 67,000 -- 4,790
1994 128,154 53,500 -- 70,000 165
Mark Haverkate....................................... 1996 $158,231 $135,000 $51,667 -- $ 3,641
Executive Vice President, Business Development 1995 137,952 100,000 48,000 35,000 5,058
1994 113,676 24,795 -- 25,000 4,507
Michael A. Adams..................................... 1996 $138,673 $155,000 $36,950 -- $ 3,853
President, Technology and Network Development 1995 122,885 46,000 34,200 20,000 3,991
1994 97,861 35,000 -- 35,000 192
</TABLE>
- ---------------
(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 were credited with an aggregate
equivalent value of restricted shares of common stock of Commonwealth
Telephone, the Company and Cable Michigan. 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 Company shares is accelerated upon a change in
control of the Company. Dividends, if any, are paid on restricted shares.
Such restricted stock holdings vest as follows, subject to continued
employment:
<TABLE>
<S> <C>
December 1998................................... 11,945
On or before December 1999...................... 13,998
</TABLE>
(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 was adjusted as noted below so that each such
Executive Officer and other holder currently holds 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 were adjusted to take into
account the Distribution and to ensure that the aggregate intrinsic value
of the resulting Commonwealth Telephone, RCN and Cable Michigan options
immediately after the Distribution was 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; $3,490--401(k) Company match.
Option Grants, Stock Related Plans. No C-TEC stock options
were granted, during the fiscal year ending December 31, 1996, to the Chief
Executive Officer or any other Named Executive Officer. In addition to the
adjusted options referred to above, the Company anticipates that, in
connection with the Distribution, the Company will adopt one or more
compensation plans relating to Company Common Stock and that additional
stock options relating to Company Common Stock may be granted in the future
to certain executive officers and other key employees. See "--RCN Stock
Plans."
The following table sets forth the fiscal year-end value of
unexercised options covering C-TEC Common Stock held by each Named Executive
Officer.
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values(1)
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options at December Value of Unexercised In-the-Money
31, 1996(2)(3) Options at December 31, 1996(2)(4)
--------------------------------- ----------------------------------
Exercisable(#) Unexercisable(#) Exercisable($) 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
</TABLE>
- ---------------
(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) Pursuant to the adjustment of C-TEC options in connection with the
Distribution, the Named Executive Officers were granted an equal number of
exercisable and non-exercisable options covering RCN Common Stock as the
Named Executive Officers owned in C-TEC prior to the Distribution.
(4) The fair market value of C-TEC Common Stock at December 31, 1996 was
$24.25 per share.
Effect of Distribution 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 was
adjusted so that each such executive officer and other holder currently
holds options to purchase shares of Commonwealth Telephone Common Stock,
RCN Common Stock and Cable Michigan Common Stock, respectively. The number
of shares subject to, and the exercise price of, such options were adjusted
to take into account the Distribution and to ensure that the aggregate
intrinsic value of the resulting RCN, Cable Michigan and Commonwealth
Telephone options immediately after the Distribution was 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 were adjusted so that following
the Distribution, each such participant was credited with an aggregate
equivalent value of restricted shares of common stock of Commonwealth
Telephone, the Company and Cable Michigan. 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. Pursuant to the RCN
Corporation 1997 Stock Plan for Non-Employee Directors, the retainer will be
paid in shares of RCN Common Stock and each non-employee director will receive
an annual grant of a non-qualified option covering 2,000 shares of RCN Common
Stock.
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. The Company expects to establish a Compensation Committee, all the
members of which will be non-employee directors.
RCN Stock Plans
In connection with the Distribution, the Company Board adopted
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 5,000,000 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 1,000,000 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 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 the Distribution, RCN established 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"). Eligible active employees 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 of
Company Common Stock outstanding immediately after the Distribution as
increased by the number of shares issuable to BECO pursuant to the Exchange
Agreement (collectively, "Outstanding Company Common Stock") with a market
value at such time 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
Set forth in the table below is information as of November 3,
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
RCN Common Stock beneficially owned by (i) each person or entity known by the
Company to own more than five percent of the outstanding RCN 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.
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>
RCN COMMON STOCK
---------------------------------
Number of Shares Percent of
Beneficially Outstanding
Name of Beneficial Owner Owned(1) Shares(1)
- ------------------------- ---------------- -----------
<S> <C> <C>
Directors And Named Executive Officers
James Q. Crowe.......................... 416 *
Richard R. Jaros........................ 380 *
Thomas May.............................. 0 0
Walter Scott, Jr........................ 416 *
Michael B. Yanney....................... 1,244 *
Michael A. Adams........................ 9,914(2) *
Bruce C. Godfrey........................ 21,523(2) *
Mark Haverkate.......................... 32,460(2) *
David C. McCourt....................... 57,225(2)(3) *
Michael J. Mahoney...................... 25,085 *
Thomas P. O'Neill, III.................. 0 0
Alfred Fasola........................... 0 0
Eugene Roth............................. 6,804 *
Stuart E. Graham........................ 5,087 *
All Directors and Executive Officers
as a Group (14 persons)(2)(3)........... 160,554 *
5% Stockholders
Kiewit Telecom Holdings, Inc.(4)........ 13,320,485 48.5%
</TABLE>
_______________
* Less than 1% of outstanding shares.
(1) Includes shares of Company Common Stock acquired in respect of Matching
Shares but excludes RCN Share Units.
(2) Under the ESPP, participating executive officers who forgo current
compensation are credited with "Share Units", the value of which is based
on the value of a share of Company 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 Commonwealth Telephone, 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:
<TABLE>
<CAPTION>
Share Unit Acquired Total Purchased and
Under the ESPP in Total Shares Acquired and
Shares Purchased Lieu of Current Purchased and Restricted Matching Restricted Matching
Outright Compensation Acquired Shares Shares
---------------- -------------------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Michael A. Adams... 894 4,510 5,404 4,510 9,914
Bruce C. Godfrey... 7,567 6,978 14,545 6,978 21,523
David C. McCourt... 18,805 19,210 38,015 19,210 57,225
Michael J. Mahoney. 11,483 6,801 18,284 6,801 25,085
Mark Haverkate..... 23,504 4,478 27,982 4,478 32,460
</TABLE>
- ---------------
(3) Includes 225 shares of Company Common Stock which are owned by Mr.
McCourt's wife. Mr. McCourt disclaims beneficial ownership of such
shares.
(4) KDG owns 90% of the common stock and all of the preferred stock of Kiewit
Telecom. David C. McCourt, Chairman and Chief Executive Officer of
Commonwealth Telephone and RCN, owns the remaining 10% of the common stock
of Kiewit Telecom. KDG is a wholly owned subsidiary of PKS. The address
for Kiewit Telecom, KDG and PKS is 1000 Kiewit Plaza, Omaha, Nebraska
68131.
Peter Kiewit Sons' Inc.
Set forth below is certain information regarding the beneficial
ownership of equity securities of PKS as of November 3, 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 Class Percent of Class Number of Class Percent of Class
Name of Beneficial Owner C Shares C Shares D Shares D Shares
- ----------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
James Q. Crowe..................... -- -- 1,134,369 4.3%
Richard R. Jaros.................... 29,344 * 121,128 *
Thomas May.......................... -- -- -- --
Walter Scott, Jr.................... 250,000 2.5% 3,393,374 12.7%
Michael B. Yanney................... -- -- 10,000 *
Michael A. Adams.................... -- -- -- --
Bruce C. Godfrey.................... -- -- -- --
Mark Haverkate...................... -- -- -- --
David C. McCourt.................... -- -- 11,500 *
Michael J. Mahoney.................. -- -- -- --
Thomas P. O'Neill, III.............. -- -- -- --
Alfred Fasola....................... -- -- -- --
Eugene Roth......................... -- -- -- --
Stuart E. Graham.................... -- -- -- --
All Directors and Executive
Officers as a Group (14 persons).. 279,344 2.8% 4,670,371 17.5%
</TABLE>
- ---------------
* Less than 1% of the outstanding of the class.
DESCRIPTION OF THE DISTRIBUTION AND RELATED AGREEMENTS
This section of the Prospectus describes certain agreements
among the Company, Commonwealth Telephone and Cable Michigan that will
govern certain of the on-going relationships among such entities, 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 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 were filed as exhibits to the Company's Information Statement on Form
10 ("Form 10"), and are incorporated herein by reference.
The Distribution Documents were entered into in connection with
the Distribution and are, therefore, not the result of arm's length
negotiation between unrelated parties as the Company, Commonwealth Telephone
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. Any additional or modified agreements, arrangements and
transactions entered into between the Company and either or both of
Commonwealth Telephone and Cable Michigan will be negotiated at arm's length.
Background
On February 12, 1997, the Board of Directors of C-TEC (now
Commonwealth Telephone) approved a plan to restructure C-TEC (the
"Restructuring"). Under the Restructuring, C-TEC would be separated into three
different, publicly traded companies engaged, respectively, in the following
businesses:
(i) the business of the Company;
(ii) a cable television business in the State of Michigan, which
will be owned by Cable Michigan and will include C-TEC's 61.92% interest in
Mercom, Inc.; and
(iii) C-TEC's Pennsylvania telephone and engineering business, which
will be owned by Commonwealth Telephone 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 related to the
Commonwealth Telephone Company and Pennsylvania CLEC operations. Following
the Distribution, C-TEC's name was changed to Commonwealth Telephone
Enterprises, Inc.
The C-TEC Board of Directors determined that the Restructuring
and the subsequent Distribution would, among other things, (i) facilitate
possible future equity or equity-linked offerings by the Company; (ii)
facilitate possible future acquisitions and joint venture investments by the
Company; (iii) facilitate the ability of the Company to grow in both size and
profitability; (iv) allow the management of the Company to focus attention and
financial resources on its business; and (v) allow for the establishment of an
employee stock ownership plan for the employees of the Company with stock that
correlates more closely to the Company's business, as well as permit the
Company to offer other employee incentives that are more directly linked to
the performance of its business.
On September 30, 1997 (the "Distribution Date"), C-TEC effected
the Distribution 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. As a result of the Distribution, 100%
of the outstanding shares of Company Common Stock were distributed to holders
of C-TEC Common Equity.
Terms of Distribution Agreement
Commonwealth Telephone, Cable Michigan and the Company entered
into a Distribution Agreement (the "Distribution Agreement") prior to the
Distribution, among other things, to define certain aspects (other than those
with respect to taxes, which shall be governed by the Tax Sharing Agreement)
of the relationship among Commonwealth Telephone, Cable Michigan and the
Company after the Distribution 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 Commonwealth Telephone, Cable
Michigan and the Company.
Indemnification
The Company, Cable Michigan and Commonwealth Telephone have
agreed to indemnify one another against certain liabilities. The Company has
agreed to indemnify Commonwealth Telephone and its subsidiaries at the time
of the Distribution (collectively, the "Commonwealth Telephone Group") and the
respective directors, officers, employees and affiliates of each person in the
Commonwealth Telephone Group (collectively, the "Commonwealth Telephone
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 Commonwealth Telephone 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 Commonwealth Telephone Indemnitees, arising out of the provision by the
Commonwealth Telephone 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 Commonwealth Telephone 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 Commonwealth Telephone (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
Commonwealth Telephone Indemnitees from and against any and all Losses
incurred or suffered by any of the Company Indemnitees or the Commonwealth
Telephone 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 Commonwealth Telephone Indemnitees,
arising out of the provision by the Commonwealth Telephone 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
Commonwealth Telephone 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 Commonwealth Telephone (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).
Commonwealth Telephone 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 Commonwealth Telephone Group to pay, perform or otherwise
discharge any of the Commonwealth Telephone Liabilities (as defined below),
(ii) arising out of the breach by any member of the Commonwealth Telephone
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 Commonwealth Telephone Group except to the extent that such Losses result
from the gross negligence or willful misconduct of a Company Indemnitee.
"Commonwealth Telephone Liabilities" refers to (i) all liabilities of the
Commonwealth Telephone Group under the Distribution Agreement or any of the
other Distribution Documents, (ii) all other liabilities of the Company, Cable
Michigan or Commonwealth Telephone (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
Commonwealth Telephone Group prior to the effective time of the Distribution
(the liabilities in clauses (i) and (ii) collectively, the "True Commonwealth
Telephone 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
Commonwealth Telephone or their respective subsidiaries which (i) (a) arises
from the conduct of the corporate overhead function with respect to
Commonwealth Telephone 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
Commonwealth Telephone Liability, a True Cable Michigan Liability or a True
Company Liability.
The Company, Cable Michigan and Commonwealth Telephone 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's Form 10, the Company's offering memorandum in
connection with the Notes Offering and Cable Michigan's Informational
Statement on Form 10 and Cable Michigan Offering Memorandum. 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
Commonwealth Telephone agreed generally to assume employee benefits-related
liabilities with respect to its current and, in some cases, former employees.
Transitional Services and Arrangements
The Company has agreed to provide or cause to be provided to
the Commonwealth Telephone 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 Commonwealth Telephone Group and 1.75% of any
additional revenue. Based on the Commonwealth Telephone Group's revenue for
1996, the fee for that year would have been approximately $6,326,000.
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 approximately $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 this
allocation arrangement, the charge to Cable Michigan for such customer and
billing services would have been approximately $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) above will
be reimbursed to RCN by Cable Michigan, and no additional fee will be charged
with respect thereto.
Commonwealth Telephone 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 Commonwealth Telephone 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 $753,000 and $248,000,
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 commenced 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.
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
Commonwealth Telephone Group were settled prior to the Distribution by payment
in full by the party or parties owing any such obligation; provided however,
that certain de minimus accounts payable and accounts receivable may be
settled within 30 days after the Distribution. The Distribution Agreement
provides that all arrangements and agreements between the parties terminated
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
As a result of the Distribution, there exist relationships that
may lead to conflicts of interest. Each of the Company, Commonwealth
Telephone and Cable Michigan are effectively controlled by Kiewit Telecom. In
addition, the majority of the Company's named executive officers are also
directors and/or executive officers of Commonwealth Telephone or Cable
Michigan. See "Management." In particular, David C. McCourt, Chairman and
Chief Executive Officer of the Company, has served as a director and Chairman
and Chief Executive Officer of Cable Michigan since the Distribution and as a
director and Chairman and Chief Executive Officer of C-TEC/Commonwealth
Telephone since October 1993. Mr. McCourt expects to devote approximately 70%
of his time to managing the affairs of the Company. In addition, Michael J.
Mahoney, who has been President and Chief Operating Officer, as well as a
director, of the Company since the Distribution is also a director of
Commonwealth Telephone. 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 Commonwealth Telephone. 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 Commonwealth Telephone (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 Commonwealth Telephone Group will be borne solely
by such Group. Adjustments to all other tax liabilities will be borne 50% by
Commonwealth Telephone, 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.
DESCRIPTION OF THE CREDIT AGREEMENT
This section of the Prospectus 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 was an exhibit to the Company's Form
10 filed with the Commission 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"), and its subsidiaries RCN
of New Jersey, Inc. (formerly ComVideo Systems, Inc.) ("ComVideo") and RCN of
Southwest New York (formerly 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 Credit Facility 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):
<TABLE>
<S> <C>
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
</TABLE>
The Borrowers have the option to repay the Term Credit Facility
in whole or in part at any time, without penalty, subject to customary
"breakage"charges. Any amount of the Term Credit Facility 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
Credit Facility. Any excess amounts of such net cash proceeds not applied to
repay Revolving Credit Facility are applied to reduce the scheduled
installments of the Term Credit Facility 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 RCN Telecom Services of Pennsylvania,
Inc. (formerly C-TEC Cable Systems of Pennsylvania, Inc.), RCN Telecom
Services, Inc. and RCN International Holdings, 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, 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.
DESCRIPTION OF THE NEW NOTES
The New Senior Notes will be issued under an Indenture (the
"Senior Note Indenture") dated as of October 17, 1997 between RCN Corporation
("RCN") and The Chase Manhattan Bank, as trustee (in such capacity, the
"Senior Note Trustee"). The New Discount Notes will be issued under an
Indenture (the "Senior Discount Note Indenture"; together with the Senior Note
Indenture, the "Indentures") dated as of October 17, 1997 between RCN and The
Chase Manhattan Bank, as trustee (in such capacity, the "Senior Discount Note
Trustee"; together with the Senior Note Trustee, the "Trustees"). The
Indentures have been filed as exhibits to the Registration Statement of which
this Prospectus constitutes a part. Upon the issuance of the New Notes, the
applicable Indenture will be subject to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The following summary of certain
provisions of the Indentures 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 Indentures, including the definitions of certain terms therein and those
terms made a part of the Indentures by reference to the Trust Indenture Act of
1939, as in effect on the date of such Indenture, and to the Trust Indenture
Act, in the case of the New Notes. Whenever particular provisions or
definitions of the Indentures, the Notes or the terms defined therein are
referred to herein, such provisions or definitions are incorporated herein by
reference. The definitions of certain capitalized terms used in the following
summary are set forth below under "-- Certain Definitions."
General
The terms of the New Notes are identical in all material
respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except
that, if the Exchange Offer is required to be consummated under the
Registration Rights Agreement and the Company fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, then the interest rate on the Old
Notes will increase, with respect to the each 90-day period until the
consummation of the Exchange Offer in an amount equal to 0.25% per annum of
the principal amount of the Notes, subject to a maximum amount of 1.00% of
the principal amount of the Notes.
The Notes will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. See
"Book-Entry; Delivery and Form." The New Senior Notes will be collateralized
by a first priority security interest in the Escrow Account described under
"--Disbursement of Funds; Escrow Account." Principal of, premium, if any, and
interest on the Notes are payable, and the Notes are exchangeable and
transferable, at the office or agency of RCN in the City of New York
maintained for such purposes (which initially will be the corporate trust
office of the applicable Trustee). See "Book-Entry; Delivery and Form." No
service charge will be made for any registration of transfer, exchange or
redemption of the Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
Any Notes that remain outstanding after the completion of an
Exchange Offer, together with the New Notes issued in connection with such
Exchange Offer, will be treated as a single class of securities under the
relevant Indenture.
Maturity, Interest and Principal
Senior Notes
The Senior Notes will be general senior obligations of RCN,
limited to $225,000,000 aggregate principal amount, and will mature on October
15, 2007. The Senior Notes will be secured to the limited extent set forth
under "--Disbursement of Funds; Escrow Account" below. See "--Ranking."
Interest on the Senior Notes will be payable in cash at a rate of 10% per
annum semi-annually in arrears on each April 15 and October 15, commencing
April 15, 1998, to the holders of record of Senior Notes at the close of
business on April 1 and October 1 immediately preceding such interest payment
date. Interest will accrue from the most recent interest payment date to
which interest has been paid or duly provided for or, if no interest has been
paid or duly provided for, from October 17, 1997, the date on which the Old
Notes were originally issued ("Issue Date"). Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Interest on overdue
principal and, to the extent permitted by law, on overdue installments of
interest will accrue at the rate of interest borne by the Senior Notes.
Senior Discount Notes
The Senior Discount Notes will be general senior unsecured
obligations of RCN, limited to $601,045,000 aggregate principal amount at
maturity, and will mature on October 15, 2007. See "--Ranking." The Old
Discount Notes were issued at a discount to yield gross proceeds of
$350,000,524. See "Certain U.S. Federal Income Tax Considerations." The
Senior Discount Notes will not bear cash interest prior to October 15, 2002.
Commencing on April 15, 2003, interest on the Senior Discount Notes will be
payable, in cash at a rate of 11 1/8 % per annum, semi-annually in arrears on
each April 15 and October 15 to the holders of record of Senior Discount Notes
at the close of business on the April 1 and October 1 immediately preceding
such interest payment date. Interest will accrue from the most recent
interest payment date to which interest has been paid or duly provided for or,
if no interest has been paid or duly provided for, from October 15, 2002.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Interest on overdue principal and, to the extent permitted by law,
on overdue installments of interest will accrue at the rate of interest borne
by the Senior Discount Notes. The yield to maturity of the Senior Discount
Notes, determined on a semi-annual bond equivalent basis, will be 11 1/8 per
annum.
Redemption
Optional Redemption by RCN
Optional Redemption of Senior Notes. The Senior Notes will be
redeemable, in whole or in part, at any time on or after October 15, 2002 at
the option of RCN, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning October 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- ----------
<S> <C>
2002.................................... 105.000%
2003.................................... 103.333%
2004.................................... 101.667%
2005 and thereafter..................... 100.000%
</TABLE>
Optional Redemption of Senior Discount Notes. The Senior
Discount Notes will be redeemable, in whole or in part, at any time on or
after October 15, 2002 at the option of RCN, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below, plus accrued and unpaid
interest to the redemption date, if redeemed during the 12-month period
beginning October 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- ----------
<S> <C>
2002.................................... 105.562%
2003.................................... 103.708%
2004.................................... 101.854%
2005 and thereafter..................... 100.000%
</TABLE>
Redemption Following Public Equity Offerings. Notwithstanding
the foregoing, on or prior to October 15, 2000, RCN may, at its option, use
the net proceeds of one or more Public Equity Offerings (as defined below)
yielding gross cash proceeds of not less than $30 million to redeem up to an
aggregate of 35% of the principal amount of Senior Notes originally issued
and/or 35% of the aggregate principal amount at maturity of Senior Discount
Notes originally issued, in each case on a pro rata basis (or as nearly pro
rata as practicable), at a redemption price of 110% of the principal amount of
Senior Notes, plus accrued and unpaid interest, if any, to the redemption date
or 111.125% of the Accreted Value of Senior Discount Notes; provided that not
less than 65% of the originally issued aggregate principal amount of Senior
Notes or 65% of the originally issued aggregate principal amount at maturity
of Senior Discount Notes, as the case may be, would remain outstanding
immediately after such redemption. To effect the foregoing redemption, RCN
must mail a notice of redemption not later than 60 days after the consummation
of the Public Equity Offering that resulted in the requisite gross proceeds.
As used above, "Public Equity Offering" means an underwritten
public offering of Common Stock of RCN effected on a primary basis and
registered with the Commission under the Securities Act.
Selection; Effect of Redemption Notice. Notice of an optional
redemption must be given no less than 30 nor more than 60 days prior to the
applicable redemption date. In the case of a partial redemption of an issue of
Notes, selection of the Notes for redemption will be made by lot, pro rata or
by such other method as the applicable Trustee in its sole discretion deems
fair and appropriate or in such manner as complies with the requirements of
the principal securities exchange, if any, on which the applicable Notes being
redeemed are listed and DTC; provided that any redemption following one or
more Public Equity Offerings will be made on a pro rata or on as nearly a pro
rata basis as practicable (subject to the procedures of DTC). Upon giving of
a redemption notice, interest on Notes called for redemption will cease to
accrue from and after the date fixed for redemption (unless RCN defaults in
providing the funds for such redemption) and, upon redemption on such
redemption date, such Notes will cease to be outstanding.
Mandatory Redemption
Sinking Fund. RCN will not be required to make any mandatory
sinking fund payments in respect of the Senior Notes or the Senior Discount
Notes.
Offers to Purchase upon Change of Control and Certain Asset
Sales. Following the occurrence of a Change of Control, RCN will be required
to make an offer to purchase all outstanding Notes at a price of 101% of the
principal amount thereof, in the case of the Senior Notes, or 101% of the
Accreted Value thereof, in the case of the Senior Discount Notes, plus, in
each case, accrued and unpaid interest, if any, to the date of purchase, and
purchase all Notes validly tendered pursuant thereto. In addition, RCN may be
obligated to make an offer to purchase Notes with a portion of the Net Cash
Proceeds of certain Asset Sales at a price of 100% of the principal amount
thereof, in the case of the Senior Notes, or 100% of the Accreted Value
thereof, in the case of the Senior Discount Notes, plus, in each case, accrued
and unpaid interest, if any, to the date of purchase. See "--Certain
Covenants Change of Control" and "Certain Covenants Disposition of Proceeds of
Asset Sales," respectively.
Disbursement of Funds; Escrow Account
The Senior Notes will be collateralized, pending disbursement
pursuant to the Escrow and Security Agreement dated as of October 17, 1997,
among RCN, the Senior Note Trustee and The Chase Manhattan Bank, as Escrow
Agent (the "Escrow Agreement"), by a pledge of the Escrow Account (as defined
in the Escrow Agreement), which contains approximately $60 million of the net
proceeds from the sale of the Old Senior Notes (the "Escrow Collateral"),
representing funds that, together with the proceeds from the investment
thereof, will be sufficient to pay interest on the Senior Notes for six
scheduled interest payments.
RCN entered into the Escrow Agreement providing for the grant by RCN to
the Senior Note Trustee, for the benefit of the holders, of security interests
in the Escrow Collateral. All such security interests will collateralize the
payment and performance when due of all obligations of RCN under the Senior
Note Indenture and the Senior Notes, as provided in the Escrow Agreement. The
lien created by the Escrow Agreement will be first priority security interests
in the Escrow Collateral. The ability of holders to realize upon any such
funds or securities may be subject to certain bankruptcy law limitations in
the event of the bankruptcy of RCN.
Pursuant to the Escrow Agreement, funds may be disbursed from
the Escrow Account only to pay interest on the Senior Notes (except that, if a
portion of the Senior Notes has been retired by RCN, funds representing the
lesser of (i) the excess of the amount in the Escrow Account over the amount
sufficient to pay interest through and including October 15, 2000 on the
Senior Notes not so retired and (ii) the interest payments which have not
previously been made on such retired Senior Notes for each interest payment
date through and including the interest payment date to occur on October 15,
2000 shall be paid to RCN if no Default then exists under the Senior Note
Indenture).
Pending such disbursements, all funds contained in the Escrow
Account will be invested in U.S. Government Securities. Interest earned on
the U.S. Government Securities will be placed in the Escrow Account. Upon the
acceleration of the maturity of the Senior Notes, the Escrow Agreement will
provide for the foreclosure by the Senior Note Trustee upon the net proceeds
of the Escrow Account. Under the terms of the Senior Note Indenture, the
proceeds of the Escrow Account shall be applied, first, to amounts owing to
the Senior Note Trustee in respect of fees and expenses of the Senior Note
Trustee and, second, to all obligations under the Senior Notes and the Senior
Note Indenture. Under the Escrow Agreement, assuming that RCN makes the first
six scheduled interest payments on the Senior Notes in a timely manner with
funds or U.S. Government Securities held in the Escrow Account, all of the
funds and U.S. Government Securities will be released from the Escrow Account.
Ranking
The indebtedness of RCN evidenced by the Notes will rank senior
in right of payment to all subordinated indebtedness of RCN and pari passu in
right of payment with all other existing and future unsubordinated
indebtedness of RCN. RCN is a holding company with limited assets and no
business operations of its own. RCN operates its business through its
subsidiaries. Any right of RCN and its creditors, including holders of the
Notes, to participate in the assets of any of RCN's subsidiaries upon any
liquidation or administration of any such subsidiary will be subject to the
prior claims of the subsidiary's creditors, including trade creditors. For a
discussion of certain adverse consequences of RCN being a holding company and
of the terms of potential future indebtedness of RCN and its subsidiaries, see
"Risk Factors--Holding Company Structure; Structural Subordination."
Certain Covenants
Set forth below are certain covenants that are contained in
each Indenture, unless otherwise noted.
Limitation on Additional Indebtedness. Each Indenture provides
that RCN will not, and will not permit any Restricted Subsidiary or Restricted
Affiliate to, directly or indirectly, create, incur, assume, issue, guarantee
or in any manner become directly or indirectly liable for or with respect to,
contingently or otherwise, the payment of (collectively, to "incur") any
Indebtedness (including any Acquired Indebtedness), except for Permitted
Indebtedness; provided that (A) (i) RCN will be permitted to incur
Indebtedness (including Acquired Indebtedness and Buildout Indebtedness) and
(ii) a Restricted Subsidiary or Restricted Affiliate will be permitted to incur
Acquired Indebtedness or Buildout Indebtedness, if, in either case, after
giving pro forma effect to such incurrence (including the application of the
net proceeds therefrom), either (X) the ratio of Total Consolidated
Indebtedness to Consolidated Pro Forma Operating Cash Flow would not be
greater than or equal to 5.5:1.0 if such Indebtedness is incurred prior to
October 15, 2000 or 5.0:1.0 if such Indebtedness is incurred on or after
October 15, 2000 or (Y) the ratio of Total Consolidated Indebtedness to Total
Invested Equity Capital would not exceed 2.0:1.0 and (B) on or after October
15, 2002, a Restricted Affiliate will be permitted to incur Acquired
Indebtedness or Buildout Indebtedness, if, after giving pro forma effect to
such incurrence (including the application of the net proceeds therefrom), the
ratio of Total Affiliate Indebtedness to Affiliate Pro Forma Operating Cash
Flow of such Restricted Affiliate would not be greater than or equal to
4.0:1.0.
Limitation on Restricted Payments. Each Indenture provides
that RCN will not, and will not permit any of the Restricted Subsidiaries or
Restricted Affiliates to, make, directly or indirectly, any Restricted Payment
unless:
(i) no Default shall have occurred and be continuing at the time
of or after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment,
RCN would be able to incur $1.00 of Indebtedness under clause (A)( x) of the
proviso of the covenant described under "Limitation on Additional
Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments declared or made on or after
the Issue Date and all Designation Amounts does not exceed an amount equal to
the sum of, without duplication, (a) 50% of cumulative Consolidated Net Income
accrued on a cumulative basis during the period beginning on October 1, 1997
and ending on the last day of the fiscal quarter of RCN immediately preceding
the date of such proposed Restricted Payment (or, if such cumulative
Consolidated Net Income for such period is a deficit, minus 100% of such
deficit) plus (b) the aggregate net cash proceeds received by RCN from the
issue or sale (other than to a Restricted Subsidiary or to a Restricted
Affiliate) of its Capital Stock (other than Disqualified Stock) on or after
the Issue Date (including, without duplication, upon the exercise of options,
warrants or rights) plus (c) the aggregate net proceeds received by RCN from
the issuance (other than to a Restricted Subsidiary or to a Restricted
Affiliate) on or after the Issue Date of its Capital Stock (other than
Disqualified Stock) upon the conversion of, or exchange for, Indebtedness of
RCN or a Restricted Subsidiary plus (d) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment (other than an
Investment made pursuant to clause (v), (vi) or (vii) of the following
paragraph) made after the Issue Date an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such
Investment plus (e) in the case of the Revocation of the Designation of a
Subsidiary as an Unrestricted Subsidiary, an amount equal to the consolidated
net Investment in such Subsidiary on the date of Revocation but not in an
amount exceeding the net amount of any Investments constituting Restricted
Payments made (or deemed made) in such Subsidiary after the Issue Date plus
(f) in the case of the JV Designation after the Issue Date of a New Joint
Venture as a Restricted Affiliate, an amount equal to the consolidated net
Investment in such New Joint Venture on the date of such JV Designation but
not in an amount exceeding the net amount of any Investments constituting
Restricted Payments made (or deemed made) in such New Joint Venture after the
Issue Date. For purposes of the preceding clauses (b) and (c) and without
duplication, the value of the aggregate net cash proceeds received by RCN upon
the issuance of Capital Stock either upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness or upon the exercise
of options, warrants or rights will be the net cash proceeds received upon the
issuance of such Indebtedness, options, warrants or rights plus the
incremental amount received by RCN upon the conversion, exchange or exercise
thereof.
For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
The provisions of this covenant shall not prohibit: (i) the
payment of any dividend or other distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would comply
with the provisions of the applicable Indenture; (ii) so long as no Default
shall have occurred and be continuing, the purchase, redemption, retirement or
other acquisition of any shares of Capital Stock of RCN (A) in exchange for
or conversion into or (B) out of the net cash proceeds of the substantially
concurrent issue and sale (other than to a Restricted Subsidiary or to a
Restricted Affiliate) of shares of Capital Stock of RCN (other than
Disqualified Stock); provided that any such net cash proceeds pursuant to the
immediately preceding subclause (B) are excluded from clause (iii)(b) of the
preceding paragraph; (iii) so long as no Default shall have occurred and be
continuing, the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness made by exchange for
(including any such exchange pursuant to the exercise of a conversion right or
privilege in which cash is paid in lieu of fractional shares or scrip), or out
of the net cash proceeds of, a substantially concurrent issue or sale (other
than to a Restricted Subsidiary or to a Restricted Affiliate) of (A) Capital
Stock (other than Disqualified Stock) of RCN; provided that any such net cash
proceeds, to the extent so used, are excluded from clause (iii)(b) of the
preceding paragraph, and/or (B) other Subordinated Indebtedness, having an
Average Life to Stated Maturity that is equal to or greater than the Average
Life to Stated Maturity of the Subordinated Indebtedness being purchased,
redeemed, defeased or otherwise acquired or retired; (iv) so long as no
Default shall have occurred and be continuing, any Investment constituting a
Restricted Payment made by RCN or any Restricted Subsidiary in any Restricted
Affiliate to fund the capital requirements for financing or supporting a
Permitted Business of such Restricted Affiliate; (v) so long as no Default
shall have occurred and be continuing, Investments constituting a Restricted
Payment made by RCN or any Restricted Subsidiary in any person (including any
Unrestricted Subsidiary or a Restricted Affiliate) in an amount not to exceed
$10 million in the aggregate at any time outstanding; (vi) so long as no
Default shall have occurred and be continuing, the making of a direct or
indirect Investment constituting a Restricted Payment out of the proceeds of
the issue or sale (other than to a Subsidiary or to a Restricted Affiliate) of
Capital Stock (other than Disqualified Stock) of RCN; provided that any such
net cash proceeds are excluded from clause (iii)(b) of the preceding
paragraph; or (vii) so long as no Default shall have occurred and be
continuing, any Investment constituting a Restricted Payment made in Megacable
S.A. de C.V. not to exceed $20 million in the aggregate at any time
outstanding. Restricted Payments of the type set forth in the preceding
clauses (v) and (vii) shall be included in making the determination of
available amounts under clause (iii) of the preceding paragraph to the extent
they are outstanding.
In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with
GAAP be subject to rescission or constitute a Default by reason of any
requisite subsequent restatement of such financial statements which would have
made such Restricted Payment prohibited at the time that it was made.
Limitation on Business. Each Indenture provides that RCN will
not, and will not permit any of the Restricted Subsidiaries or Restricted
Affiliates to, engage in a business which is not substantially a Permitted
Business.
Limitation on Liens Securing Certain Indebtedness. Each
Indenture provides that RCN will not, and will not permit any Restricted
Subsidiary or Restricted Affiliate to, create, incur, assume or suffer to
exist any Liens of any kind against or upon (i) any property or assets of RCN
or any Restricted Subsidiary or Restricted Affiliate, whether now owned or
hereafter acquired, or any proceeds therefrom, which secure either (x)
Subordinated Indebtedness unless the Notes issued thereunder are secured by a
Lien on such property, assets or proceeds that is senior in priority to the
Liens securing such Subordinated Indebtedness or (y) Senior Debt Securities
unless the Notes issued thereunder are equally and ratably secured with the
Liens securing such Senior Debt Securities or (ii) the Escrow Account other
than the Lien in favor of the Escrow Agent and the Senior Note Trustee.
Limitation on Certain Guarantees and Indebtedness of Restricted
Subsidiaries and Restricted Affiliates. Each Indenture provides that RCN will
not permit any Restricted Subsidiary or Restricted Affiliate directly or
indirectly, to assume, guarantee or in any other manner become liable, whether
as issuer, guarantor or co-obligor, with respect to (i) any Subordinated
Indebtedness or (ii) any Senior Debt Securities, unless, in each case, such
Restricted Subsidiary or Restricted Affiliate, as the case may be,
simultaneously executes and delivers a supplemental indenture providing for
the guarantee of payment of the Notes issued thereunder by such Restricted
Subsidiary or Restricted Affiliate, as the case may be, on a basis senior to
any such Subordinated Indebtedness or pari passu with any such Senior Debt
Securities, as the case may be. Each guarantee of the Notes created pursuant
to such provisions is referred to as a "Guarantee" and the issuer of each such
Guarantee, so long as the Guarantee remains outstanding, is referred to as a
"Guarantor."
Notwithstanding the foregoing, in the event of the
unconditional release of any Guarantor from its obligations in respect of the
Indebtedness which gave rise to the requirement that a Guarantee be given,
such Guarantor shall be released from all obligations under its Guarantee. In
addition, upon any sale or disposition (by merger or otherwise) of any
Guarantor by RCN or a Restricted Subsidiary to any person that is not an
Affiliate of RCN or any of the Restricted Subsidiaries which is otherwise in
compliance with the terms of the applicable Indenture and as a result of which
such Guarantor ceases to be a Restricted Subsidiary of RCN, such Guarantor
will be deemed to be automatically and unconditionally released from all
obligations under its Guarantee; provided that each such Guarantor is sold or
disposed of in accordance with the "Disposition of Proceeds of Asset Sales"
covenant.
Change of Control. Upon the occurrence of a Change of Control
(the date of such occurrence being the "Change of Control Date"), RCN shall
make an offer to purchase (the "Change of Control Offer"), on a business day
(the "Change of Control Payment Date") not later than 60 days following the
Change of Control Date, all Notes then outstanding at a purchase price equal
to 101% of the principal amount thereof, in the case of the Senior Notes, or
101% of the Accreted Value thereof, in the case of the Senior Discount Notes,
plus, in each case, accrued and unpaid interest, if any, to any Change of
Control Payment Date. Notice of a Change of Control Offer shall be given to
holders of Notes, not less than 25 days nor more than 45 days before the
Change of Control Payment Date. The Change of Control Offer is required to
remain open for at least 20 business days and until the close of business on
the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance
that RCN will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer. RCN shall not be required to make a Change of Control Offer following
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by RCN and purchases all Notes
validly tendered and not withdrawn under such Change of Control Offer.
If RCN is required to make a Change of Control Offer, RCN will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14( e) and Rule 14e-1 under the Exchange Act,
and any other applicable securities laws and regulations.
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries or Restricted Affiliates. Each Indenture provides
that RCN will not, and will not permit any Restricted Subsidiary or Restricted
Affiliate to, directly or indirectly, create or otherwise enter into or cause
to become effective any consensual encumbrance or consensual restriction of
any kind on the ability of any Restricted Subsidiary or Restricted Affiliate
to (a) pay dividends, in cash or otherwise, or make any other distributions on
its Capital Stock or any other interest or participation in, or measured by,
its profits to the extent owned by RCN or any Restricted Subsidiary or
Restricted Affiliate, (b) pay any Indebtedness owed to RCN or any Restricted
Subsidiary or Restricted Affiliate, (c) make any Investment in RCN or any
Restricted Subsidiary or Restricted Affiliate or (d) transfer any of its
properties or assets to RCN or to any Restricted Subsidiary or Restricted
Affiliate, except for (i) any encumbrance or restriction in existence on the
Issue Date, (ii) customary non-assignment provisions, (iii) any encumbrance or
restriction pertaining to an asset subject to a Lien to the extent set forth
in the security documentation governing such Lien, (iv) any encumbrance or
restriction applicable to a Restricted Subsidiary or Restricted Affiliate at
the time that it becomes a Restricted Subsidiary or Restricted Affiliate that
is not created in contemplation thereof, (v) any encumbrance or restriction
existing under any agreement that refinances or replaces an agreement
containing a restriction permitted by clause (iv) above; provided that the
terms and conditions of any such encumbrance or restriction are not materially
less favorable to the holders of Notes than those under or pursuant to the
agreement being replaced or the agreement evidencing the Indebtedness
refinanced, (vi) any encumbrance or restriction imposed upon a Restricted
Subsidiary or Restricted Affiliate pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary or Restricted Affiliate
or any Asset Sale to the extent limited to the Capital Stock or assets in
question, and (vii) any customary encumbrance or restriction applicable to a
Restricted Subsidiary or Restricted Affiliate that is contained in an
agreement or instrument governing or relating to Indebtedness contained in any
Permitted Credit Facility; provided that (subject to customary net worth,
leverage, invested capital and other financial covenants) the provisions of
such agreement permit the payment of interest and principal and mandatory
repurchases pursuant to the terms of the Indenture and the Notes and other
indebtedness that is solely an obligation of RCN; provided further that such
agreement may contain customary covenants regarding the merger of or sale of
all or any substantial part of the assets of RCN or any Restricted Subsidiary
or Restricted Affiliate, customary restrictions on transactions with
affiliates, and customary subordination provisions governing indebtedness owed
to RCN or any Restricted Subsidiary or Restricted Affiliate.
Disposition of Proceeds of Asset Sales. Each Indenture
provides that RCN will not, and will not permit any Restricted Subsidiary or
Restricted Affiliate to, make any Asset Sale unless (a) RCN or such Restricted
Subsidiary or Restricted Affiliate, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the Fair Market Value of the
shares or assets sold or otherwise disposed of and (b) at least 75% of such
consideration consists of cash or Cash Equivalents; provided that the amount
of any liabilities (other than Subordinated Indebtedness or Indebtedness of a
Restricted Subsidiary that would not constitute Restricted Subsidiary
Indebtedness) that are assumed by the transferee of any such assets pursuant
to an agreement that unconditionally releases RCN or such Restricted
Subsidiary or Restricted Affiliate, as the case may be, from further liability
shall be treated as cash for purposes of this covenant. RCN or the applicable
Restricted Subsidiary, as the case may be, may (i) apply the Net Cash Proceeds
from any such Asset Sale by RCN or a Restricted Subsidiary and the Net Cash
Proceeds of any Asset Sale by a Restricted Affiliate to the extent distributed
to RCN or a Restricted Subsidiary within 365 days of the receipt thereof to
repay an amount of Indebtedness (other than Subordinated Indebtedness) of RCN
in an amount not exceeding the Other Senior Debt Pro Rata Share and elect to
permanently reduce the amount of the commitments thereunder by the amount of
the Indebtedness so repaid, (ii) apply the Net Cash Proceeds from any such
Asset Sale by RCN or a Restricted Subsidiary and the Net Cash Proceeds of any
Asset Sale by a Restricted Affiliate to the extent distributed to RCN or a
Restricted Subsidiary to repay any Restricted Subsidiary Indebtedness and
elect to permanently reduce the commitments thereunder by the amount of the
Indebtedness so repaid or (iii) apply the Net Cash Proceeds from any Asset
Sale by RCN or a Restricted Subsidiary and the Net Cash Proceeds of any Asset
Sale by a Restricted Affiliate to the extent distributed to RCN or a
Restricted Subsidiary within 365 days thereof, to an investment in properties
and assets that will be used in a Permitted Business (or in Capital Stock and
other securities of any person that will become a Restricted Subsidiary or
Restricted Affiliate as a result of such investment to the extent such person
owns properties and assets that will be used in a Permitted Business) of RCN
or any Restricted Subsidiary ("Replacement Assets"). Notwithstanding anything
herein to the contrary, in the event of any Asset Sale of all or substantially
all of the properties or assets of any Restricted Affiliate Group, whether in
a single transaction or series of related transactions, the Restricted
Affiliate Group shall be required to distribute the Net Cash Proceeds
therefrom, after providing for all Indebtedness and other liabilities of such
Restricted Affiliate Group, to RCN or a Restricted Subsidiary and the Other
Partner on a pro rata basis in accordance with their respective equity
interests. Any Net Cash Proceeds from any Asset Sale that are neither used to
repay, and permanently reduce the commitments under, any Restricted Subsidiary
Indebtedness as set forth in clause (ii) of the preceding sentence or invested
in Replacement Assets within the 365-day period as set forth in clause (iii)
shall constitute "Excess Proceeds." Any Excess Proceeds not used as set forth
in clause (i) of the second preceding sentence shall constitute "Offer Excess
Proceeds" subject to disposition as provided below.
When the aggregate amount of Offer Excess Proceeds equals or
exceeds $10 million, RCN shall make an offer to purchase (an "Asset Sale
Offer"), from all holders of Notes issued under an Indenture, that aggregate
principal amount of Notes as can be purchased by application of such Offer
Excess Proceeds at a price in cash equal to 100% of the principal amount
thereof, in the case of the Senior Notes, or 100% of the outstanding Accreted
Value thereof, in the case of the Senior Discount Notes, plus, in each case,
accrued and unpaid interest, if any, to the purchase date. Each Asset Sale
Offer shall remain open for a period of 20 business days or such longer period
as may be required by law. To the extent that the aggregate purchase price
for the applicable issue of Notes tendered pursuant to an Asset Sale Offer is
less than the Offer Excess Proceeds, RCN or any Restricted Subsidiary may use
such deficiency for general corporate purposes. If the aggregate purchase
price for the applicable issue of Notes validly tendered and not withdrawn by
holders thereof exceeds the amount of Notes which can be purchased with the
Offer Excess Proceeds, Notes to be purchased will be selected on a pro rata
basis. Upon completion of such Asset Sale Offer, the amount of Offer Excess
Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, RCN,
the Restricted Subsidiaries and the Restricted Affiliates will be permitted to
consummate an Asset Sale without complying with such paragraphs to the extent
(i) at least 75% of the consideration of such Asset Sale constitutes
Replacement Assets, cash or Cash Equivalents (including obligations deemed to
be cash under this covenant) and (ii) such Asset Sale is for Fair Market
Value; provided that any consideration constituting (or deemed to constitute)
cash or Cash Equivalents received by RCN, any of the Restricted Subsidiaries
or any of the Restricted Affiliates in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.
If RCN is required to make an Asset Sale Offer, RCN will comply
with all applicable tender offer rules, including, to the extent applicable,
Section 14(e) and Rule 14e-1 under the Exchange Act, and any other applicable
securities laws and regulations.
Limitation on Issuances and Sales of Preferred Stock by
Restricted Subsidiaries and Restricted Affiliates. Each Indenture provides
that RCN (i) will not permit any Restricted Subsidiary to issue any Preferred
Stock (other than to RCN or a Restricted Subsidiary) and (ii) will not permit
any person (other than RCN or a Restricted Subsidiary) to own any Preferred
Stock of any Restricted Subsidiary. In addition, RCN (i) will not permit any
Restricted Affiliate to issue any Preferred Stock (other than (x) to RCN or a
Restricted Subsidiary or (y) to the holders of Common Stock in such Restricted
Affiliate on a pro rata basis based upon their ownership of Common Stock) or
(ii) will not permit any person not referred to in the preceding parenthetical
of clause (i) of this sentence to own any Preferred Stock of any Restricted
Affiliate.
Limitation on Transactions with Affiliates. Each Indenture
provides that RCN will not, and will not permit, cause or suffer any
Restricted Subsidiary to, conduct any business or enter into any transaction
(or series of related transactions which are similar or part of a common plan)
with or for the benefit of any of their respective Affiliates or any
beneficial holder of 10% or more of the Common Stock of RCN or any officer or
director of RCN (each, an "Affiliate Transaction"), unless the terms of the
Affiliate Transaction are set forth in writing, and are fair and reasonable to
RCN or such Restricted Subsidiary, as the case may be. Each Affiliate
Transaction involving aggregate payments or other Fair Market Value in excess
of $5 million shall be approved by a majority of the Board, such approval to
be evidenced by a Board Resolution stating that the Board has determined that
such transaction or transactions comply with the foregoing provisions. In
addition to the foregoing, each Affiliate Transaction involving aggregate
consideration of $10 million or more shall be approved by a majority of the
Disinterested Directors; provided that, in lieu of such approval by the
Disinterested Directors, RCN may obtain a written opinion from an Independent
Financial Advisor stating that the terms of such Affiliate Transaction to RCN
or the Restricted Subsidiary, as the case may be, are fair from a financial
point of view. In addition, each Indenture will provide that a Restricted
Affiliate will not enter into any transaction (or series of related
transactions which are similar or part of a common plan) with or for the
benefit of the Other Partner, unless the terms of such transaction or
transactions are in writing, and are fair and reasonable to such Restricted
Affiliate. For purposes of this covenant, any Affiliate Transaction approved
by a majority of the Disinterested Directors or as to which a written opinion
has been obtained from an Independent Financial Advisor, on the basis set
forth in the preceding sentence, shall be deemed to be on terms that are fair
and reasonable to RCN and the Restricted Subsidiaries, as the case may be, and
therefore shall be permitted under this covenant.
Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions with or among, or solely for
the benefit of, RCN and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) transactions among any of RCN or the Restricted Subsidiaries, on
the one hand, and any of the Restricted Affiliates, on the other hand,
provided that such transactions are in the ordinary course of business and are
related to or in furtherance of a Permitted Business, (iv) dividends paid by
RCN pursuant to and in compliance with the covenant "Limitation on Restricted
Payments," (v) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries bonuses, employment
agreements and arrangements, compensation or employee benefit arrangements or
legal fees and (vi) grants of customary registration rights with respect to
securities of RCN.
Reports. Each Indenture provides that, whether or not RCN has
a class of securities registered under the Exchange Act, RCN shall furnish
without cost to each holder of record of Notes issued thereunder (in sufficient
quantities for distribution to beneficial holders) and file with the
applicable Trustee and the Commission, (i) within the applicable time period
required under the Exchange Act, after the end of each fiscal year of RCN, the
information required by Form 10-K (or any successor form thereto) under the
Exchange Act with respect to such period, (ii) within the applicable time
period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of RCN, the information required by
Form 10-Q (or any successor form thereto) under the Exchange Act with respect
to such period and (iii) any current reports on Form 8-K (or any successor
forms) required to be filed under the Exchange Act.
Designations of Unrestricted Subsidiaries. Each Indenture
provides that RCN will not designate any Subsidiary of RCN (other than a newly
created Subsidiary in which no Investment has previously been made) as an
"Unrestricted Subsidiary "under an Indenture (a "Designation") unless:
(a) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation;
(b) except in the case of a Permitted Investment or an
Investment made pursuant to clause (iii) or (iv) of the second paragraph of
the covenant "Limitation on Restricted Payments," immediately after giving
effect to such Designation, RCN would be able to incur $1.00 of
Indebtedness under clause (A)( x) of the proviso of the covenant
"Limitation on Additional Indebtedness"; and
(c) RCN would not be prohibited under the Indenture from
making an Investment at the time of such Designation (assuming the
effectiveness of such Designation) in an amount (the "US Designation
Amount") equal to the Fair Market Value of the net Investment of RCN or any
other Restricted Subsidiary in such Subsidiary on such date.
In the event of any such Designation, RCN shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to the
covenant "Limitation on Restricted Payments" for all purposes of the applicable
Indenture in the US Designation Amount. Each Indenture further provides that
neither RCN nor any Restricted Subsidiary shall at any time (x) provide a
guarantee of, or similar credit support to, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness); provided that RCN may pledge Capital Stock or
Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis such that
the pledgee has no claim whatsoever against RCN other than to obtain such
pledged property, (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
other Indebtedness which provides that the holder thereof may (upon notice,
lapse of time or both) declare a default thereon (or cause the payment thereof
to be accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of an Unrestricted Subsidiary (including any corresponding right
to take enforcement action against such Unrestricted Subsidiary), except in
the case of clause (x) or (y) to the extent permitted under the covenants
"Limitation on Restricted Payments" and "Limitation on Transactions with
Affiliates."
Each Indenture further provides that RCN will not revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation")
unless:
(a) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
applicable Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions delivered to the applicable Trustee certifying compliance with the
foregoing provisions.
Designations of Restricted Affiliates. Each Indenture provides
that RCN will not designate any Joint Venture (other than a newly created
Joint Venture in which no Investment has previously been made) and each of its
Subsidiaries as a "Restricted Affiliate" under an Indenture (a "JV
Designation") unless:
(a) no Default shall have occurred and be continuing at the
time of and after giving effect to such JV Designation; and
(b) all Liens and Indebtedness of such Joint Venture
outstanding immediately following such JV Designation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
applicable Indenture.
Notwithstanding the foregoing, the BECO Joint Venture and the
PEPCO Joint Venture shall initially constitute Restricted Affiliates at the
Issue Date. RCN and the Restricted Subsidiaries shall at all times maintain a
Restricted Affiliate so that it qualifies as a Joint Venture under clauses (a)
and (b) of the definition thereof, unless either (1) RCN is able to, and does
in fact, make an effective JV Revocation under the provisions set forth below
at the time of such event or (2) the Restricted Affiliate ceases to qualify as
a Joint Venture by reason of an Asset Sale by RCN or a Restricted Subsidiary
of all of RCN's or such Restricted Subsidiary's interest in the Capital Stock
of such Restricted Affiliate to any person other than RCN or a Restricted
Subsidiary or any of their respective Affiliates, which, in the case of this
clause (2), shall be deemed an effective JV Revocation.
Each Indenture further provides that RCN will not revoke any JV
Designation of a Joint Venture as a Restricted Affiliate (a "JV Revocation")
unless:
(a) no Default shall have occurred and be continuing at the
time of or after giving effect to such JV Revocation;
(b) except in the case of a Permitted Investment or an
Investment made pursuant to clause (v) or (vi) of the second paragraph of
the covenant "Limitation on Restricted Payments "and except in the case in
which the Restricted Affiliate will become a Restricted Subsidiary,
immediately after giving effect to such JV Revocation, RCN would be able to
incur $1.00 of Indebtedness under the proviso of clause (A)(x) of the
covenant "Limitation on Additional Indebtedness"; and
(c) RCN would not be prohibited under the Indenture from
making an Investment at the time of such JV Revocation (assuming the
effectiveness of such JV Revocation) in an amount (the "JV Revocation
Amount") equal to the Fair Market Value of the net Investment of RCN or any
other Restricted Subsidiary in such Restricted Subsidiary on such date.
In the event of any such JV Revocation, except in the case in
which the Restricted Affiliate will become a Restricted Subsidiary, RCN shall
be deemed to have made an Investment constituting a Restricted Payment pursuant
to the covenant "Limitation on Restricted Payments" for all purposes of the
applicable Indenture in the JV Revocation Amount.
All JV Designations and JV Revocations must be evidenced by
Board Resolutions delivered to the applicable Trustee certifying compliance
with the foregoing provisions.
Consolidation, Merger, Sale of Assets, Etc.
Each Indenture provides that RCN will not (i) consolidate or
combine with or merge with or into or, directly or indirectly, sell, assign,
convey, lease, transfer or otherwise dispose of all or substantially all of
its properties and assets to any person or persons in a single transaction or
through a series of transactions, or (ii) permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if
it would result in the disposition of all or substantially all of the
properties or assets of RCN and the Restricted Subsidiaries on a consolidated
basis, unless, in the case of either (i) or (ii), (a) RCN shall be the
continuing person or, if RCN is not the continuing person, the resulting,
surviving or transferee person (the "surviving entity") shall be a company
organized and existing under the laws of the United States or any State or
territory thereof; (b) the surviving entity shall expressly assume all of the
obligations of RCN under the applicable Notes and the Indenture, and shall, if
required by law to effectuate such assumption, execute a supplemental
indenture to effect such assumption which supplemental indenture shall be
delivered to the applicable Trustee and shall be in form and substance
reasonably satisfactory to the applicable Trustee; (c) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), RCN or the surviving entity (assuming such surviving
entity's assumption of RCN obligations under the applicable Notes and
Indenture), as the case may be, would be able to incur $1.00 of Indebtedness
under clause (A)(x) of the proviso of the covenant "Limitation on Additional
Indebtedness"; (d) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Default shall
have occurred and be continuing; and (e) RCN or the surviving entity, as the
case may be, shall have delivered to the applicable Trustee an Officers'
Certificate stating that such transaction or series of transactions, and, if a
supplemental indenture, is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture complies with this covenant and that all conditions precedent in the
applicable Indenture relating to the transaction or series of transactions
have been satisfied.
Upon any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all
of the assets of RCN in accordance with the foregoing in which RCN or the
Restricted Subsidiary, as the case may be, is not the continuing corporation,
the successor corporation formed by such a consolidation or into which RCN or
such Restricted Subsidiary is merged or to which such transfer is made will
succeed to, and be substituted for, and may exercise every right and power of,
RCN or such Restricted Subsidiary, as the case may be, under the applicable
Indenture with the same effect as if such successor corporation had been named
as RCN or such Restricted Subsidiary therein; and thereafter, except in the
case of (i) any lease or (ii) any sale, assignment, conveyance, transfer,
lease or other disposition to a Restricted Subsidiary of RCN, RCN shall be
discharged from all obligations and covenants under the applicable Indenture
and the Notes issued thereunder.
Each Indenture provides that for all purposes of such Indenture
and the Notes issued thereunder (including the provision of this covenant and
the covenants "Limitation on Additional Indebtedness," "Limitation on
Restricted Payments and "Limitation on Liens"), Subsidiaries of any surviving
entity will, upon such transaction or series of related transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to
the covenant "Limitation on Designations of Unrestricted Subsidiaries" and all
Indebtedness, and all Liens on property or assets, of RCN and the Restricted
Subsidiaries in existence immediately prior to such transaction or series of
related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
Events of Default
The following are "Events of Default" under each Indenture:
(i) default in the payment of interest on the Notes issued
thereunder when it becomes due and payable and continuance of such default
for a period of 30 days or more (provided, in the case of the Senior Notes,
such 30 day grace period shall be inapplicable for the first six interest
payments due on the Senior Notes); or
(ii) default in the payment of the principal of, or premium,
if any, on the Notes when due; or
(iii) default in the performance, or breach, of any covenant
described under "Certain Covenants Change of Control," "Disposition of
Proceeds of Asset Sales" or "Consolidation, Merger, Sale of Assets, Etc.";
or
(iv) default in the performance, or breach, of any covenant in
the Indenture (other than defaults specified in clause (i), (ii) or (iii)
above) or, in the case of the Senior Notes, the Escrow Agreement, and
continuance of such default or breach for a period of 30 days or more after
written notice to RCN by the applicable Trustee or to RCN and the
applicable Trustee by the holders of at least 25% in aggregate principal
amount or Accreted Value, as applicable, of the outstanding Notes (in each
case, when such notice is deemed received in accordance with the applicable
Indenture); or
(v) failure to perform any term, covenant, condition or
provision of one or more classes or issues of Indebtedness in an aggregate
principal amount of $10 million or more under which RCN or a Material
Restricted Subsidiary is obligated, and either (a) such Indebtedness is
already due and payable in full or (b) such failure results in the
acceleration of the maturity of such Indebtedness; or
(vi) any holder of at least $10 million in aggregate principal
amount of Indebtedness of RCN or any Material Restricted Subsidiary shall
commence judicial proceedings or take any other action to foreclose upon,
or dispose of, assets of RCN or any Material Restricted Subsidiary having
an aggregate Fair Market Value, individually or in the aggregate, of $10
million or more or shall have exercised any right under applicable law or
applicable security documents to take ownership of any such assets in lieu
of foreclosure; provided that, in any such case, RCN or any Material
Restricted Subsidiary shall not have obtained, prior to any such
foreclosure or disposition of assets, a stay of all such actions that
remains in effect; or
(vii) one or more final non-appealable judgments, orders or
decrees for the payment of money of $10 million or more, either
individually or in the aggregate, shall be entered against RCN or any
Material Restricted Subsidiary or any of their respective properties and
shall not be discharged and there shall have been a period of 60 days or
more during which a stay of enforcement of such judgment or order, by
reason of pending appeal or otherwise, shall not be in effect; or
(viii) certain events of bankruptcy, insolvency, reorganization,
administration or similar proceedings with respect to RCN or any Material
Restricted Subsidiary shall have occurred; or
(ix) in the case of the Senior Note Indenture only, RCN shall
assert or acknowledge in writing that the Escrow Agreement is invalid or
unenforceable.
If an Event of Default (other than an Event of Default
specified in clause (viii) with respect to RCN) under an Indenture occurs and
is continuing, then the Trustee thereunder or the holders of at least 25% in
aggregate principal amount or Accreted Value, as applicable, of the
outstanding Notes issued thereunder may by written notice, and the Trustee
upon request of the holders of not less than 25% in principal amount or
Accreted Value, as applicable, of the outstanding Notes issued thereunder
shall, declare the Default Amount of the outstanding Notes issued thereunder
to be due and payable immediately, together with all accrued and unpaid
interest and premium, if any, thereon. Upon any such declaration, the Default
Amount shall become due and payable immediately. If an Event of Default under
an Indenture specified in clause (viii) with respect to RCN occurs and is
continuing, then the Default Amount will ipso facto become and be immediately
due and payable without any declaration or other act on the part of the
Trustee or any holder.
After a declaration of acceleration or any ipso facto
acceleration pursuant to clause (viii) under an Indenture, the holders of a
majority in aggregate principal amount or Accreted Value, as applicable, of
outstanding Notes issued thereunder may, by notice to the applicable Trustee,
rescind such declaration of acceleration and its consequences if all existing
Events of Default, other than nonpayment of the principal of, and accrued and
unpaid interest on, such Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount or Accreted Value, as applicable, of the outstanding Notes
issued under an Indenture also have the right to waive past defaults under
such Indenture, except a default in the payment of the principal of, or any
interest on, any outstanding Note, or in respect of a covenant or a provision
that cannot be modified or amended without the consent of all holders of the
Notes issued under such Indenture.
No holder of any of the Notes issued under an Indenture has any
right to institute any proceeding with respect to such Indenture or any remedy
thereunder, unless the holders of at least 25% in principal amount or Accreted
Value, as applicable, of the outstanding Notes issued under such Indenture
have made written request, and offered reasonable indemnity, to the applicable
Trustee to institute such proceeding as Trustee, such Trustee has failed to
institute such proceeding within 60 days after receipt of such notice and the
Trustee has not within such 60-day period received directions inconsistent
with such written request by holders of a majority in principal amount or
Accreted Value, as applicable, of the outstanding Notes of such issue. Such
limitations do not apply, however, to a suit instituted by a holder of a Note
for the enforcement of the payment of the principal of, premium, if any, or
any accrued and unpaid interest on, such Note on or after the respective due
dates expressed in such Note.
During the existence of an Event of Default under an Indenture,
the applicable Trustee is required to exercise such rights and powers vested
in it under such Indenture and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise under the circumstances in
the conduct of such person's own affairs. Subject to the provisions of such
Indenture relating to the duties of the Trustee, if an Event of Default shall
occur and be continuing, such Trustee is not under any obligation to exercise
any of its rights or powers under the applicable Indenture at the request or
direction of any of the holders unless such holders shall have offered to such
Trustee reasonable security or indemnity. Subject to certain provisions
concerning the rights of the Trustee, the holders of a majority in principal
amount or Accreted Value, as the case may be, of the outstanding Notes issued
under an Indenture have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee thereunder,
or exercising any trust, or power conferred on such Trustee.
Each Indenture provides that the Trustee thereunder will,
within 45 days after the occurrence of any Default, give to the holders of the
Notes issued thereunder notice of such Default known to it, unless such
Default shall have been cured or waived; provided that, except in the case of
a Default in payment of principal of or premium, if any, on any Note when due
or in the case of any Default in the payment of any interest on the Notes or
in the case of any Default arising from the occurrence of any Change of
Control, the Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the
interest of such holders.
RCN is required to furnish to each Trustee annually a statement
as to compliance with all conditions and covenants under the applicable
Indenture.
Satisfaction and Discharge of the Indenture; Defeasance
RCN may terminate its obligations under either Indenture, when
(1) either: (A) all Notes issued thereunder that have been theretofore
authenticated and delivered have been delivered to the applicable Trustee for
cancellation, or (B) all such Notes issued thereunder that have not
theretofore delivered to the applicable Trustee for cancellation will become
due and payable (a "Discharge") under irrevocable arrangements satisfactory to
the applicable Trustee for the giving of notice of redemption by such Trustee
in the name, and at the expense, of RCN, and RCN has irrevocably deposited or
caused to be deposited with such Trustee funds in an amount sufficient to pay
and discharge the entire indebtedness on such issue of Notes, not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if any,
on and interest to the date of deposit or maturity or date of redemption; (2)
RCN has paid or caused to be paid all other sums then due and payable under
the applicable Indenture by RCN; and (3) RCN has delivered to the applicable
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent under the applicable Indenture relating to the
satisfaction and discharge of such Indenture have been complied with.
RCN may elect, at its option, to have its obligations under an
Indenture discharged with respect to the outstanding Notes issued thereunder
("legal defeasance"). Such defeasance means that RCN will be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Notes under such Indenture, except for (1) the rights of holders of such Notes
to receive payments in respect of the principal of and any premium and
interest on such Notes then payments are due, (2) RCN's obligations with
respect to such Notes concerning issuing temporary Notes, registration of
transfer of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (3) the rights, powers, trusts, duties and immunities of the
Trustee thereunder, and (4) the defeasance provisions of such Indenture. In
addition, RCN may elect, at its option, to have its obligations released with
respect to certain covenants in an Indenture, including covenants relating to
Asset Sales and Changes of Control ("covenant defeasance"), and any omission to
comply with such obligation shall not constitute a Default or an Event of
Default with respect to the Notes under such Indenture. In the event covenant
defeasance occurs, certain events (not including non-payment, bankruptcy and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to such Notes.
In order to exercise either legal defeasance or covenant
defeasance with respect to outstanding Notes under an Indenture: (1) RCN must
irrevocably have deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to the benefits of the holders
of such Notes: (A) money in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than the due
date of any payment, money in an amount, or (C) a combination thereof, in each
case sufficient without reinvestment, in the opinion of an internationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee under such Indenture to pay and
discharge, and which shall be applied by such Trustee to pay and discharge,
the entire Indebtedness in respect of the principal of and premium, if any,
and interest on such Notes on the maturity thereof or (if RCN has made
irrevocable arrangements satisfactory to such Trustee for the giving of notice
of redemption by such Trustee in the name and at the expense of RCN) the
redemption date thereof, as the case may be, in accordance with the terms of
such Indenture and Notes; (2) in the case of legal defeasance under an
Indenture, RCN shall have delivered to the Trustee an opinion of counsel
stating that, under then applicable Federal income tax law, the holders of such
Notes will not recognize gain or loss for federal income tax purposes as a
result of the deposit, defeasance and discharge to be effected with respect to
such Notes and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would be the case if such deposit,
defeasance and discharge were not to occur; (3) in the case of covenant
defeasance under an Indenture, RCN shall have delivered to the Trustee
thereunder an opinion of counsel to the effect that the holders of such
outstanding Notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of the deposit and covenant defeasance to be effected with
respect to such Notes and will be subject to U.S. federal income tax on the
same amount, in the same manner and at the same times as would be the case if
such deposit and covenant defeasance were not to occur; (4) no Default with
respect to the outstanding Notes issued under such Indenture shall have
occurred and be continuing at the time of such deposit after giving effect
thereto or, in the case of legal defeasance, no Default relating to bankruptcy
or insolvency shall have occurred and be continuing at any time on or prior to
the 91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day); (5) such
legal defeasance or covenant defeasance shall not cause the applicable Trustee
to have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Notes issued thereunder were in default within the meaning of
such Act); (6) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which RCN is a party or by which it is bound; (7) such legal
defeasance or covenant defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; and (9) RCN
shall have delivered to the applicable Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent with respect to such
defeasance or covenant defeasance have been complied with.
Amendment and Waivers
From time to time, RCN, when authorized by resolutions of the
Board, and the Trustee, without the consent of the holders of Notes issued
under an Indenture, may amend, waive or supplement such Indenture and such
Notes for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, to provide for the assumption of
RCN's obligations to holders of such Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of such Notes, to add Guarantors with respect to such
Notes, to secure such Notes, to maintain the qualification of such Indenture
under the Trust Indenture Act or to make any change that does not adversely
affect the rights of any holder. Other amendments and modifications of an
Indenture or the Notes issued thereunder may be made by RCN and the applicable
Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount or Accreted Value, as applicable, of the
outstanding Notes; provided that no such modification or amendment may,
without the consent of the holder of each outstanding Note affected thereby,
(i) reduce the principal amount of, or extend the fixed maturity of the Notes,
or alter or waive the redemption provisions of the Notes (other than, subject
to clause (vii) below, provisions relating to repurchase of Notes upon the
occurrence of an Asset Sale or a Change of Control) or, in the case of the
Senior Discount Note Indenture, change the calculation of "Accreted Value",
(ii) change the currency in which any Notes or any premium or the accrued
interest thereon is payable, (iii) reduce the percentage in principal amount
or Accreted Value, as applicable, outstanding of Notes which must consent to
an amendment, supplement or waiver or consent to take any action under the
applicable Indenture or the applicable Notes, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to the
Notes, (v) waive a default in payment with respect to the Notes or any
Guarantee, (vi) reduce the rate or extend the time for payment of interest on
the Notes, (vii) following the occurrence of an Asset Sale or a Change of
Control, alter the obligation to purchase Notes as a result thereof in
accordance with the applicable Indenture or waive any default in the
performance thereof, (viii) adversely affect the ranking of the Notes, (ix)
permit the creation of any Lien (other than the Lien of the Pledgee) created
by the Escrow Agreement or terminate the Lien created by the Escrow Agreement
or (x) release any Guarantor from any of its obligations under its Guarantee or
the applicable Indenture, except in compliance with the terms of the
applicable Indenture.
Regarding the Trustees
The Chase Manhattan Bank will serve as Senior Note Trustee
under the Senior Note Indenture and as Pledgee under the Escrow Agreement.
The Chase Manhattan Bank will serve as Senior Discount Note Trustee under the
Senior Discount Note Indenture. Each Indenture provides that, except during
the continuance of an Event of Default, the Trustee thereunder will perform
only such duties as are specifically set forth in the Indenture. If an Event
of Default has occurred and is continuing, the Trustee thereunder will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act
incorporated by reference therein contain limitations on the rights of the
Trustees thereunder, should they become creditors of RCN, to obtain payment of
claims in certain cases or to realize on certain property received by them in
respect of any such claims, as security or otherwise. The Trustees are
permitted to engage in other transactions; provided that if they acquire any
conflicting interest (as defined) they must eliminate such conflict or resign.
Governing Law
The Indentures and the Escrow Agreement provide that the
Indentures and Notes and the Escrow Agreement are governed by and construed in
accordance with laws of the State of New York without giving effect to
principles of conflicts of law.
Certain Definitions
Set forth below is a summary of certain defined terms used in
each Indenture, unless otherwise noted, or the Escrow Agreement, as
applicable. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Accreted Value" means, for purposes of the Senior Discount
Note Indenture, as of any date (the "Specified Date") with respect to each
$1,000 principal amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date
below:
<TABLE>
<CAPTION>
Semi-Annual
Accrual Date
------------
<S> <C>
Issue Date............................ $582.32
April 15, 1998........................ $614.35
October 15, 1998...................... $648.52
April 15, 1999........................ $684.60
October 15, 1999...................... $722.68
April 15, 2000........................ $762.88
October 15, 2000...................... $805.31
April 15, 2001........................ $850.11
October 15, 2001...................... $897.40
April 15, 2002........................ $947.31
October 15, 2002...................... $1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the sum of (A) the Accreted Value for the Semi-Annual
Accrual Date immediately preceding the Specified Date and (B) an
amount equal to the product of (i) the Accreted Value for the
immediately following Semi-Annual Date less the Accreted Value for the
immediately preceding Semi-Annual Accrual Date and (ii) a fraction,
the numerator of which is the number of days actually elapsed from the
immediately preceding Semi-Annual Accrual Date to the Specified Date
and the denominator of which is 180 days; and
(iii) if the Specified Date is on or after October 15, 2002,
$1,000.
"Acquired Indebtedness" means Indebtedness of a person existing
at the time such person becomes a Restricted Subsidiary or Restricted
Affiliate or assumed in connection with an Asset Acquisition by such person
and not incurred in connection with, or in anticipation of, such person
becoming a Restricted Subsidiary or Restricted Affiliate or such Asset
Acquisition; provided that Indebtedness of such person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such person becomes a Restricted
Subsidiary or Restricted Affiliate or such Asset Acquisition shall not
constitute Acquired Indebtedness.
"Affiliate" of any specified person means any other person
which, directly or indirectly, controls, is controlled by or is under direct
or indirect common control with, such specified person. For the purposes of
this definition, "control" when used with respect to any person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "affiliated," "controlling" and "controlled" "have
meanings correlative to the foregoing.
"Affiliate Income Tax Expense" means, with respect to any
period and any Restricted Affiliate, the aggregate provision for United States
corporation, local, foreign and other income taxes of such Restricted
Affiliate and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Affiliate Interest Expense" means, with respect to any period
and any Restricted Affiliate, without duplication, the sum of (i) the interest
expense of such Restricted Affiliate and its Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net cost under
Interest Rate Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all accrued
interest, (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued during such period as
determined on a consolidated basis in accordance with GAAP and (iii) the amount
of dividends in respect of Disqualified Stock paid during such period.
"Affiliate Net Income" means, with respect to any period and
any Restricted Affiliate, the net income of such Restricted Affiliate and its
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, adjusted, to the extent included in calculating such net
income of such Restricted Affiliate and its Subsidiaries, by excluding,
without duplication, (i) all extraordinary, unusual or nonrecurring gains or
losses of such person (net of fees and expenses relating to the transaction
giving rise thereto) for such period, (ii) income of such Restricted Affiliate
and its Subsidiaries derived from or in respect of all unconsolidated
Investments, except to the extent of any dividends or distributions actually
received by such Restricted Affiliate or any of its Subsidiaries, (iii) net
income (or loss) of any other person combined with such Restricted Affiliate
or any of its Subsidiaries on a "pooling of interests "basis attributable to
any period prior to the date of combination, (iv) any gain or loss, net of
taxes, realized by such person upon the termination of any employee pension
benefit plan during such period, and (v) gains or losses in respect of any
Asset Sales (net of fees and expenses relating to the transaction giving rise
thereto) during such period.
"Affiliate Operating Cash Flow" means, with respect to any
period and any Restricted Affiliate, the Affiliate Net Income of such
Restricted Affiliate and its Subsidiaries on a consolidated basis for such
period increased, only to the extent deducted in arriving at Affiliate Net
Income for such period, by the sum of (i) the Affiliate Income Tax Expense
accrued according to GAAP for such period (other than taxes attributable to
extraordinary gains or losses and gains and losses from Asset Sales); (ii)
Affiliate Interest Expense for such period; (iii) depreciation of such
Restricted Affiliate for such period; (iv) amortization of such Restricted
Affiliate and its Subsidiaries for such period, including, without limitation,
amortization of capitalized debt issuance costs for such period, all determined
in accordance with GAAP; and (v) other non-cash charges decreasing Affiliate
Net Income.
"Affiliate Pro Forma Operating Cash Flow" means Affiliate
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of the applicable Restricted Affiliate are available. For
purposes of this definition, "Affiliate Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Restricted Affiliate
or any of its Subsidiaries incurring Acquired Indebtedness) occurring during
the period commencing on the first day of such four fiscal quarter period to
and including the date of the transaction giving rise to the need to calculate
"Affiliate Pro Forma Operating Cash Flow" as if such Asset Sale or Asset
Acquisition occurred on the first day of such period.
"Asset Acquisition" means (i) any capital contribution (by
means of transfers of cash or other property to others or payments for
property or services for the account or use of others, or otherwise) by RCN or
any Restricted Subsidiary or Restricted Affiliate to any other person, or any
acquisition or purchase of Capital Stock of any other person by RCN or any
Restricted Subsidiary or Restricted Affiliate, in either case pursuant to which
such person shall (a) become a Restricted Subsidiary or Restricted Affiliate
or (b) shall be merged with or into RCN or any Restricted Subsidiary or
Restricted Affiliate or (ii) any acquisition by RCN or any Restricted
Subsidiary or Restricted Affiliate of the assets of any person which
constitute substantially all of an operating unit or line of business of such
person or which is otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for
security purposes) or other disposition (that is not for security purposes) to
any person other than RCN or a Restricted Subsidiary, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Restricted
Subsidiary (other than customary stock option programs) or any Restricted
Affiliate, (ii) any assets of RCN or any Restricted Subsidiary or any
Restricted Affiliate which constitute substantially all of an operating unit
or line of business of RCN and the Restricted Subsidiaries and the Restricted
Affiliates or (iii) any other property or asset of RCN or any Restricted
Subsidiary or any Restricted Affiliates outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall
not include (i) any disposition of properties and assets of RCN and/or the
Restricted Subsidiaries that is governed under "--Consolidation, Merger, Sale
of Assets, Etc." above, (ii) sales of property or equipment that have become
worn out, obsolete or damaged or otherwise unsuitable for use in connection
with the business of RCN or any Restricted Subsidiary or Restricted Affiliate,
as the case may be, and (iii) for purposes of the covenant "Disposition of
Proceeds of Asset Sales," any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series
of related transactions occurring within one year, either (x) involving assets
with a Fair Market Value not in excess of $500,000 or (y) which constitutes
the incurrence of a Capitalized Lease Obligation.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments; provided that, in the case of any
Capitalized Lease Obligation, all calculations hereunder shall give effect to
any applicable options to renew in favor of RCN or any Restricted Subsidiary or
Restricted Affiliate.
"BECO Joint Venture" means RCN-BECOCOM, LLC, a Massachusetts
limited liability company formed under the terms of a Joint Venture Agreement
dated as of December 23, 1996 between RCN Telecom Services, Inc. and Boston
Energy Technology Group, Inc.
"Board" means the Board of Directors of RCN.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of RCN to have been duly adopted by
the Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Buildout Costs" means the cost of the construction, expansion,
development or acquisition (other than an Asset Acquisition of any person that
is not a Restricted Affiliate on the Issue Date) of properties or assets
(tangible or intangible) to be utilized, directly or indirectly, for the
design, development, construction, installation, integration, management or
provision of a Permitted Business.
"Buildout Indebtedness" means Indebtedness incurred by RCN
and/or any Restricted Subsidiary and/or any Restricted Affiliate to the extent
the proceeds thereof are used to finance or support Buildout Costs in respect
of a Permitted Business of RCN and/or any Restricted Subsidiary and/or
Restricted Affiliate.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of, such person's capital
stock, whether outstanding on the Issue Date or issued after the Issue Date,
and any and all rights (other than any evidence of Indebtedness), warrants or
options exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) any property (whether real, personal or mixed, immovable or movable) that
is required to be classified and accounted for as a capitalized lease
obligation under GAAP, and, for the purpose of the applicable Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof
at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness
(with, for purposes of the covenant "Disposition of Proceeds of Asset Sales"
only, a maturity of 365 days or less) issued or directly and fully guaranteed
or insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof or such Indebtedness constitutes a general obligation of such
country); (ii) deposits, certificates of deposit or acceptances (with, for
purposes of the covenant "Disposition of Proceeds of Asset Sales" only, a
maturity of 365 days or less) of any financial institution that is a member of
the Federal Reserve System, in each case having combined capital and surplus
and undivided profits (or any similar capital concept) of not less than $500.0
million and whose senior unsecured debt is rated at least "A-1" by S& P or
"P-1" by Moody's; (iii) commercial paper with a maturity of 365 days or less
issued by a corporation (other than an Affiliate of RCN) organized under the
laws of the United States or any State thereof and rated at least "A-1" by S&
P or "P-1" by Moody's; (iv) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States Government maturing
within 365 days from the date of acquisition; and (v) money market funds which
invest substantially all of their assets in securities described in the
preceding clauses (i) through (iv).
"Change of Control" is defined to mean the occurrence of any of
the following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding the Kiewit Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership"of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Stock of RCN; or (b) RCN consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person
consolidates with, or merges with or into, RCN, in any such event pursuant to
a transaction in which the outstanding Voting Stock of RCN is converted into
or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of RCN is converted into or
exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation and/or (2) cash,
securities and other property in an amount which could be paid by RCN as a
Restricted Payment under the applicable Indenture and (ii) immediately after
such transaction no "person" or "group" (as such terms are used in Sections
13( d) and 14(d) of the Exchange Act), excluding the Kiewit Holders, is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation or its parent corporation, as applicable; or (c) during
any consecutive two-year period, individuals who at the beginning of such
period constituted the Board (together with any new directors whose election
by the Board or whose nomination for election by the stockholders of RCN was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
(other than by action of the Kiewit Holders) to constitute a majority of the
Board then in office.
"Common Stock" means, with respect to any person, any and all
shares, interest or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of such person's common stock
whether outstanding at the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Income Tax Expense" means, with respect to any
period, the aggregate provision for United States corporation, local, foreign
and other income taxes of RCN and the Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP and of each of
the Restricted Affiliates for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any
period, without duplication, the sum of (i) the interest expense of RCN and
the Restricted Subsidiaries and the Restricted Affiliates for such period as
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net cost under
Interest Rate Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all accrued
interest, (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued during such period as
determined on a consolidated basis in accordance with GAAP and (iii) the
amount of dividends in respect of Disqualified Stock paid during such period.
"Consolidated Net Income" means, with respect to any period,
the consolidated net income of RCN and the Restricted Subsidiaries for such
period in accordance with GAAP, adjusted, without duplication, (A) to include
the consolidated net income of the Restricted Affiliates only to the extent of
the equity interest of RCN and the Restricted Subsidiaries and (B) adjusted,
to the extent included in calculating such adjusted consolidated net income
of RCN and the Restricted Subsidiaries, by excluding, without duplication, (i)
all extraordinary, unusual or nonrecurring gains or losses of such person (net
of fees and expenses relating to the transaction giving rise thereto) for such
period, (ii) subject to clause (A) above, income of RCN and the Restricted
Subsidiaries and the Restricted Affiliates derived from or in respect of all
unconsolidated Investments, except to the extent of any dividends or
distributions actually received by RCN or any Restricted Subsidiary, (iii) the
portion of net income (or loss) of such person allocable to minority interests
in Restricted Subsidiaries and Restricted Affiliates for such period, (iv) net
income (or loss) of any other person combined with RCN or any Restricted
Subsidiary or Restricted Affiliate on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) any gain or
loss, net of taxes, realized by such person upon the termination of any
employee pension benefit plan during such period, (vi) gains or losses in
respect of any Asset Sales (net of fees and expenses relating to the
transaction giving rise thereto) during such period and (vii) except to the
extent permitted by clause (vii) of the covenant "Limitation on Dividends and
Other Payment Restrictions Affecting Restricted Subsidiaries," the net income
of any Restricted Subsidiary or Restricted Affiliate for such period to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary or Restricted Affiliate of that income is not at the
time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Restricted Subsidiary or
Restricted Affiliate or its stockholders.
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income for such period increased, only to the
extent (which, in the case of the Restricted Affiliates, means to the extent
of the equity interest of RCN and the Restricted Subsidiaries) deducted in
arriving at Consolidated Net Income for such period, by the sum of (i) the
Consolidated Income Tax Expense accrued according to GAAP for such period
(other than taxes attributable to extraordinary gains or losses and gains and
losses from Asset Sales); (ii) Consolidated Interest Expense for such period;
(iii) depreciation of RCN and the Restricted Subsidiaries and the Restricted
Affiliates for such period; (iv) amortization of RCN and the Restricted
Subsidiaries and the Restricted Affiliates for such period, including, without
limitation, amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with GAAP; and (v) other
non-cash charges decreasing Consolidated Net Income.
"Consolidated Pro Forma Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of RCN are available. For purposes of calculating
"Consolidated Operating Cash Flow" for any four fiscal quarters for purposes
of this definition, (i) any Subsidiary of RCN that is a Restricted Subsidiary
on the date of the transaction giving rise to the need to calculate
"Consolidated Pro Forma Operating Cash Flow (the "Transaction Date") (or would
become a Restricted Subsidiary in connection with the transaction that
requires determination of such amount) shall be deemed to have been a
Restricted Subsidiary at all times during such four fiscal quarters, (ii) any
Joint Venture that is a Restricted Affiliate on the Transaction Date (or would
become a Restricted Affiliate in connection with the transaction that requires
the determination of such amount) shall be deemed to have been a Restricted
Affiliate at all times during such four fiscal quarters, (iii) any Subsidiary
of RCN that is not a Restricted Subsidiary on the Transaction Date (or would
cease to be a Restricted Subsidiary in connection with the transaction that
requires the determination of such amount) shall be deemed not to have been a
Restricted Subsidiary at any time during such four fiscal quarters and (iv)
any Joint Venture that is not a Restricted Affiliate on the Transaction Date
(or would cease to be a Restricted Affiliate in connection with the
transaction that requires the determination of such amount) shall be deemed
not to have been a Restricted Affiliate at any time during such four fiscal
quarters. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of RCN's or one of the
Restricted Subsidiaries' or Restricted Affiliates' (including any person who
becomes a Restricted Subsidiary or Restricted Affiliate as a result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
period commencing on the first day of such four fiscal quarter period to and
including the Transaction Date, as if such Asset Sale or Asset Acquisition
occurred on the first day of such period.
"consolidation" means, (i) with respect to RCN, the
consolidation of the accounts of the Restricted Subsidiaries with those of
RCN, all in accordance with GAAP; provided that "consolidation" will not
include consolidation of the accounts of any Unrestricted Subsidiary or
Restricted Affiliate with the accounts of RCN and (ii) with respect to any
Restricted Affiliate, the consolidation of the accounts of the Subsidiaries of
such Restricted Affiliate with those of such Restricted Affiliate, all in
accordance with GAAP. The term "consolidated" has a correlative meaning to
the foregoing.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Default Amount" means, in the case of the Senior Notes, all
principal, premium, if any, and accrued and unpaid interest in respect of the
Senior Notes and, in the case of the Senior Discount Notes, the Accreted Value,
premium, if any, and accrued and unpaid interest, if any, in respect of the
Senior Discount Notes.
"Designation Amounts" means, at any date of determination, the
sum of all US Designation Amounts and all JV Revocation Amounts.
"Designation" has the meaning set forth under "--Certain
Covenants--Designations of Unrestricted Subsidiaries."
"Disinterested Director" means, with respect to any transaction
or series of related transactions, a member of the Board of Directors of RCN
other than a director who (i) has any material direct or indirect financial
interest in or with respect to such transaction or series of related
transactions or (ii) is an employee or officer of RCN or an Affiliate that is
itself a party to such transaction or series of transactions or an Affiliate
of a party to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any
Capital Stock which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or becomes mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes; provided such Capital Stock shall only constitute Disqualified
Stock to the extent it so matures or becomes so redeemable or exchangeable on
or prior to the final maturity date of the applicable Notes; provided,
further, that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the final maturity date
of the applicable Notes shall not constitute Disqualified Stock if the "asset
sale" or "change of control" provisions applicable to such Capital Stock are
no more favorable to the holders of such Capital Stock than the provisions
contained in "Disposition of Proceeds of Asset Sales" and "Change of Control"
covenants described above and such Capital Stock specifically provides that
such person will not repurchase or redeem any such stock pursuant to such
provision prior to RCN's repurchase of such Notes as are required to be
repurchased pursuant to the "Disposition of Proceeds of Asset Sales" and
"Change of Control" covenants described above and at all times subject to the
covenant "Limitation on Restricted Payments."
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Fair Market Value" means, with respect to any asset or
property, the price that could be negotiated in an arms-length free market
transaction, for cash, between a willing seller and a willing buyer, neither
of whom is under pressure or compulsion to complete the transaction. Any
Asset Sale pursuant to the terms of the deadlock event "buy-sell" arrangements
in Section 7.8 of the Amended and Restated Operating Agreement of RCN-BECOCOM,
LLC, as in effect on the Issue Date, or any comparable provisions of any
documentation for the PEPCO Joint Venture, shall be deemed to have been made
for Fair Market Value. Unless otherwise specified in the applicable
Indenture, Fair Market Value shall be determined by the Board acting in good
faith and shall be evidenced by a Board Resolution.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States and which are applicable
as of the date of determination and which are consistently applied for all
applicable periods.
"guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
"Indebtedness" means, with respect to any person, without
duplication, (i) any liability, contingent or otherwise, of such person (A)
for borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof) or (B) evidenced by
a note, debenture or similar instrument or letter of credit (including a
purchase money obligation) or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of property or (D) in respect of an Interest Rate Obligation or
currency agreement; or (ii) any liability of others of the kind described in
the preceding clause (i) which the person has guaranteed or which is otherwise
its legal liability; or (iii) any obligation secured by a Lien (other than
Liens on Capital Stock or Indebtedness of any Unrestricted Subsidiary) to
which the property or assets of such person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such person's legal liability (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured); (iv) all Disqualified Stock valued at the greater of
its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends; and (v) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability
of the kind described in any of the preceding clauses (i), (ii), (iii) or
(iv). In no event shall "Indebtedness" include trade payables and accrued
liabilities that are current liabilities incurred in the ordinary course of
business, excluding the current maturity of any obligation which would
otherwise constitute Indebtedness. For purposes of the covenants "Limitation
on Additional Indebtedness" and "Limitation on Restricted Payments" and the
definition of "Events of Default," in determining the principal amount of any
Indebtedness to be incurred by RCN or a Restricted Subsidiary or which is
outstanding at any date, the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof
shall be due upon any declaration of acceleration thereof shall be the
accreted value thereof at the date of determination. Indebtedness of any
person that becomes a Restricted Subsidiary shall be deemed incurred at the
time that such person becomes a Restricted Subsidiary.
"Independent Financial Advisor" means a United States
investment banking, consulting or accounting firm of national standing in the
United States (i) which does not, and whose directors, officers and employees
or Affiliates do not have, a material direct or indirect financial interest in
RCN or any of its Subsidiaries or Affiliates and (ii) which, in the judgment
of the Board, is otherwise independent and qualified to perform the task for
which it is to be engaged.
"Interest Rate Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount and shall include without limitation, interest
rate swaps, caps, floors, collars, forward interest rate agreements and similar
agreements.
"Investment" means, with respect to any person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by
means of transfers of property to others, payments for property or services
for the account or use of others, or otherwise), or any purchase or ownership
of any stocks, bonds, notes, debentures or other securities of, any other
person. Notwithstanding the foregoing, in no event shall any issuance of
Capital Stock (other than Disqualified Stock) of RCN in exchange for Capital
Stock, property or assets of another person constitute an Investment by RCN in
such other person.
"Issue Date" means the original date of issuance of the
applicable Notes.
"JV Designation" has the meaning set forth under "--Certain
Covenants--Designation of Restricted Affiliates."
"JV Designation Amount" has the meaning set forth under
"--Certain Covenants--Designation of Restricted Affiliates."
"JV Revocation" has the meaning set forth under "--Certain
Covenants--Designation of Restricted Affiliates."
"Joint Venture" means any person engaged in a Permitted
Business in which RCN or one of the Restricted Subsidiaries (the "RCN
Partner") owns not less than 50% of the Voting Stock and not less than 50% of
each class of Capital Stock and in respect of which (a) there are no more than
five other beneficial holders of Capital Stock and Voting Stock (the "Other
Partners"), (b) all of its Subsidiaries are wholly owned by such person and
(c) the RCN Partner and the Other Partners have entered into contractual
arrangements that require their joint consent to take actions in respect of
any of the following: (1) the payment or distribution of any dividends,
whether in cash or other property, by such person or any of its Subsidiaries
to the RCN Partner; (2) the making of any advance or loan of any cash or other
property by such person or any of its Subsidiaries to RCN or any of the
Restricted Subsidiaries; (3) the incurrence of any Indebtedness by such person
or any of its Subsidiaries; or (4) any other material operating or financial
decision with respect to the business of such person or any of its
Subsidiaries; provided that customary financial and other restrictive
covenants in any loan or advances made by the RCN Partner and the Other
Partners to such person or any of its Subsidiaries and not entered into with
the purpose of influencing the management of such person or any of its
Subsidiaries shall not, by itself, cause such person to not constitute a Joint
Venture.
"Kiewit Holders" means Peter Kiewit Sons' Inc., Kiewit
Diversified Group, Inc. and Kiewit Telecom Holdings, Inc. and any of their
respective controlled Affiliates.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Material Restricted Subsidiary" means any Restricted
Subsidiary of RCN, which, at any date of determination, is a "Significant
Subsidiary" (as that term is defined in Regulation S-X issued under the
Securities Act), but shall, in any event, include (x) any Guarantor or (y) any
Restricted Subsidiary of RCN which, at any date of determination, is an
obligor under any Indebtedness in an aggregate principal amount equal to or
exceeding $10 million.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash (including assumed liabilities and other
items deemed to be cash under the proviso to the first sentence of the
covenant "Disposition of Proceeds of Asset Sales") or Cash Equivalents
including payments in respect of deferred payment obligations when received in
the form of cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to RCN or any Restricted
Subsidiary or Restricted Affiliate) net of (i) brokerage commissions and other
fees and expenses (including fees and expenses of legal counsel, accountants,
consultants and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any person (other than RCN or any Restricted Subsidiary
or any Restricted Affiliate) owning a beneficial interest in or having a
Permitted Lien on the assets subject to the Asset Sale and (iv) appropriate
amounts to be provided by RCN or any Restricted Subsidiary or any Restricted
Affiliate, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by RCN or
any Restricted Subsidiary or any Restricted Affiliate, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
applicable Trustee.
"New Joint Venture" means any Joint Venture (excluding in any
event the BECO Joint Venture and the PEPCO Joint Venture) formed after the
Issue Date and in which no Investment has been made on or prior to the Issue
Date.
"Other Partners" has the meaning set forth in the definition of
"Joint Venture."
"Other Senior Debt Pro Rata Share" means under an Indenture the
amount of the applicable Excess Proceeds obtained by multiplying the amount of
such Excess Proceeds by a fraction, (i) the numerator of which is the
aggregate accreted value and/or principal amount, as the case may be, of all
Indebtedness (other than (x) the Notes issued thereunder and (y) Subordinated
Indebtedness) of RCN outstanding at the time of the applicable Asset Sale with
respect to which RCN is required to use Excess Proceeds to repay or make an
offer to purchase or repay and (ii) the denominator of which is the sum of (a)
the aggregate principal amount of all Notes issued thereunder that are
outstanding at the time of the offer to purchase or repay with respect to the
applicable Asset Sale and (b) the aggregate principal amount or the aggregate
accreted value, as the case may be, of all other Indebtedness (other than
Subordinated Indebtedness) of RCN outstanding at the time of the applicable
Asset Sale Offer with respect to which RCN is required to use the applicable
Excess Proceeds to offer to repay or make an offer to purchase or repay.
"PEPCO Joint Venture" means the joint venture to be formed
pursuant to the binding letter of intent dated August 1, 1997 between RCN
Telecom Services, Inc. and Potomac Capital Investment Corporation.
"Permitted Business" means any telecommunications business
(including, without limitation, the development and provision of voice, video
and data transmission products, services and systems), and any business
reasonably related to the foregoing.
"Permitted Credit Facility" means (i) any senior commercial
term loan and/or revolving credit facility (including any letter of credit
subfacility) entered into principally with commercial banks and/or other
financial institutions typically party to commercial loan agreements and (ii)
any senior credit facility entered into with any vendor or supplier (or any
financial institution acting on behalf of or for the purpose of directly
financing purchases from such vendor or supplier) to the extent the
Indebtedness thereunder is incurred for the purpose of financing the cost
(including the cost of design, development, construction, manufacture or
acquisition) of personal property or fixtures used, or to be used, in a
Permitted Business.
"Permitted Indebtedness" means the following Indebtedness (each
of which shall be given independent effect):
(a) Indebtedness under the Notes and the Indentures;
(b) Indebtedness of RCN and/or any Restricted Subsidiary
and/or any Restricted Affiliate outstanding on the Issue Date;
(c) (i) Indebtedness of any Restricted Subsidiary or
Restricted Affiliate owed to and held by RCN or a Restricted Subsidiary or
Restricted Affiliates and (ii) Indebtedness of RCN, not secured by any
Lien, owed to and held by any Restricted Subsidiary or Restricted
Affiliate; provided that an incurrence of Indebtedness shall be deemed to
have occurred upon (x) any sale or other disposition (excluding assignments
as security to financial institutions) of any Indebtedness of RCN or a
Restricted Subsidiary or Restricted Affiliate referred to in this clause
(c) to a person (other than RCN or a Restricted Subsidiary or Restricted
Affiliate) or (y) any sale or other disposition by RCN or any Restricted
Subsidiary of Capital Stock of a Restricted Subsidiary or Restricted
Affiliate, or Designation of an Unrestricted Subsidiary or JV Revocation of
a Restricted Affiliate, which holds Indebtedness of RCN or another
Restricted Subsidiary or Restricted Affiliate such that such Restricted
Subsidiary or Restricted Affiliate, in any such case, ceases to be a
Restricted Subsidiary or Restricted Affiliate, as the case may be;
(d) Interest Rate Obligations of RCN and/or any Restricted
Subsidiary and/or any Restricted Affiliate relating to Indebtedness of RCN
and/or such Restricted Subsidiary and/or such Restricted Affiliate, as the
case may be (which Indebtedness (x) bears interest at fluctuating interest
rates and (y) is otherwise permitted to be incurred under the "Limitation
on Additional Indebtedness" covenant), but only to the extent that the
notional principal amount of such Interest Rate Obligations does not exceed
the principal amount of the Indebtedness (and/or Indebtedness subject to
commitments) to which such Interest Rate Obligations relate;
(e) Indebtedness of RCN and/or any Restricted Subsidiary
and/or any Restricted Affiliate in respect of performance bonds of RCN or
any Restricted Subsidiary or Restricted Affiliate or surety bonds provided
by RCN or any Restricted Subsidiary or Restricted Affiliate incurred in the
ordinary course of business;
(f) Indebtedness of RCN and/or any Restricted Subsidiary
and/or any Restricted Affiliate to the extent it represents a replacement,
renewal, refinancing or extension (a "Refinancing") of outstanding
Indebtedness of RCN and/or of any Restricted Subsidiary and/or any
Restricted Affiliate incurred or outstanding pursuant to clause (a), (b),
(g) or (h) of this definition or the proviso of the covenant "Limitation on
Additional Indebtedness"; provided that (1) Indebtedness of RCN may not be
Refinanced to such extent under this clause (f) with Indebtedness of any
Restricted Subsidiary or Restricted Affiliate, (2) Indebtedness of a
Restricted Affiliate may not be Refinanced with Indebtedness of RCN or a
Restricted Subsidiary in an amount exceeding the RCN Share of such
Indebtedness and (3) any such Refinancing shall only be permitted under
this clause (f) to the extent that (x) it does not result in a lower
Average Life to Stated Maturity of such Indebtedness as compared with the
Indebtedness being Refinanced and (y) it does not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount to
be due and payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being Refinanced plus
the amount of accrued interest thereon and the amount of any reasonably
determined prepayment premium necessary to accomplish such Refinancing and
such reasonable fees and expenses incurred in connection therewith;
(g) Buildout Indebtedness (including under one or more
Permitted Credit Facilities); provided that no Indebtedness may be incurred
under this clause (g) on any date on or after October 15, 2002;
(h) Indebtedness of RCN and/or any Restricted Subsidiary
and/or any Restricted Affiliate incurred under one or more Permitted Credit
Facilities, and any Refinancings (whether an initial Refinancing or one or
more successive Refinancings) of the foregoing otherwise incurred in
compliance with clause (f), such that the aggregate principal amount of the
Indebtedness of RCN and the Restricted Subsidiaries and the RCN Share of
any Indebtedness of a Restricted Affiliate does not exceed $150 million at
any time outstanding; provided, however, such amount shall be increased to
$200 million if RCN shall designate as a Restricted Affiliate pursuant to
the covenant "Designations of Restricted Affiliates" a Joint Venture formed
to develop a Permitted Business in a Metropolitan Statistical Area which
contains greater than 400,000 households;
(i) Subordinated Indebtedness of any Restricted Affiliate
owed to and held by any of the Other Partners in such Restricted Affiliate
to the extent (x) such Indebtedness is incurred to fund the proportionate
share (based upon equity ownership) of RCN or any Restricted Subsidiary of
any mandatory capital call made by such Restricted Affiliate and in respect
of which RCN or such Restricted Subsidiary has defaulted and (y) such
Indebtedness is not secured by any Lien; and
(j) in addition to the items referred to in clauses (a)
through (j) above, Indebtedness of RCN and/or the Restricted Subsidiaries
having an aggregate principal amount not to exceed $10 million at any time
outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection
and lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Obligations incurred in compliance with the
covenant "Limitation on Additional Indebtedness"; and (d) Investments in RCN
or any Restricted Subsidiary or Investments made in any person as a result of
which such person becomes a Restricted Subsidiary.
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however
designated) of such person's preferred or preference stock whether now
outstanding, or issued after the Issue Date, and including, without
limitation, all classes and series of preferred or preference stock of such
person.
"RCN Share" means, with respect to the Indebtedness of any
Restricted Affiliate, an amount of such Indebtedness determined by reference
to the percentage common equity interest of RCN and the Restricted
Subsidiaries in such Restricted Affiliate.
"Refinancing" has the meaning set forth in clause (f) of the
definition of "Permitted Indebtedness."
"Restricted Affiliate" means any Joint Venture designated as
such pursuant to and in compliance with the covenant "Designation of
Restricted Affiliates," until an effective JV Revocation in respect thereof
has been made.
"Restricted Affiliate Group" means, collectively, any
Restricted Affiliate whose Capital Stock is owned directly by RCN or a
Restricted Subsidiary and all of its Subsidiaries.
"Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of RCN or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of RCN (other than dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock)
of RCN or in options, warrants or other rights to purchase Capital Stock
(other than Disqualified Stock) of RCN; (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of RCN (other than
any such Capital Stock owned by RCN or a Wholly Owned Restricted Subsidiary);
(iii) the purchase, redemption, defeasance or other acquisition or retirement
for value prior to any scheduled repayment, sinking fund or maturity of any
Subordinated Indebtedness (other than any Subordinated Indebtedness held by a
Wholly Owned Restricted Subsidiary); or (iv) the making by RCN or any
Restricted Subsidiary or any Restricted Affiliate of any Investment (other
than a Permitted Investment) in any person.
"Restricted Subsidiary" means any Subsidiary of RCN that has
not been designated by the Board, by a Board Resolution delivered to the
applicable Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant "Designations of Unrestricted Subsidiaries." Any
such designation may be revoked by a Board Resolution delivered to the
applicable Trustee, subject to the provisions of such covenant.
"Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness
of such Restricted Subsidiary and (ii) in respect of which RCN is not also
obligated (by means of a guarantee or otherwise) other than, in the case of
this clause (ii), Indebtedness under any Permitted Credit Facilities.
"Revocation" has the meaning set forth under "--Certain
Covenants--Designations of Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Corporation.
"Senior Debt Securities" means any unsubordinated debt
securities (including any guarantee of such securities) issued by RCN and/or
any Restricted Subsidiary and/or any Restricted Affiliate, whether in a public
offering or a private placement; it being understood that the term "Senior
Debt Securities" shall not include any Permitted Credit Facility or other
commercial bank borrowings or similar borrowings, recourse transfers of
financial assets, capital leases or other types of borrowings issued in a
manner not customarily viewed as a " securities offering."
"Subordinated Indebtedness" means any Indebtedness of RCN or
any Guarantor which is expressly subordinated in right of payment to any other
Indebtedness of RCN or such Guarantor; provided that, for purposes of the
covenants "Limitation on Liens Securing Certain Indebtedness" and "Limitation
on Certain Guarantees and Indebtedness of Restricted Subsidiaries and
Restricted Affiliates," "Subordinated Indebtedness" means any Indebtedness of
RCN or any Restricted Subsidiary or Restricted Affiliate that is expressly
subordinated in right of payment to any other Indebtedness of such person.
"Subsidiary" means, with respect to any person, (i) any
corporation of which the outstanding Capital Stock having at least a majority
of the votes entitled to be cast in the election of directors shall at the
time be owned, directly or indirectly, by such person, or (ii) any other
person of which at least a majority of voting interest is at the time,
directly or indirectly, owned by such person. In no event shall "Subsidiary"
include any Joint Venture.
"Total Affiliate Indebtedness" means, at any date of
determination, with respect to any Restricted Affiliate, the aggregate
consolidated amount of all Indebtedness of such Restricted Affiliate and its
Subsidiaries outstanding as of the date of determination.
"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the sum of (i) the aggregate amount of all
Indebtedness of RCN and the Restricted Subsidiaries and (ii) the sum of the
RCN Share of the Indebtedness of each of the Restricted Affiliates, in each
case outstanding as of the date of determination and determined on a
consolidated basis.
"Total Invested Equity Capital" means, at any time of
determination, the sum of, without duplication, (i) $216.6 million plus (ii)
the aggregate cash proceeds received by RCN from capital contributions in
respect of existing Capital Stock (other than Disqualified Stock) or the
issuance or sale of Capital Stock (other than Disqualified Stock but including
Capital Stock issued upon conversion of convertible Indebtedness or from the
exercise of options, warrants or rights to purchase Capital Stock (other than
Disqualified Stock)) on or subsequent to the Issue Date, other than to a
Restricted Subsidiary or to a Restricted Affiliate; plus (iii) the aggregate
cash proceeds received by RCN or any Restricted Subsidiary from the sale,
disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment (other than any Investments made pursuant to
clause (iv) of the second paragraph of the covenant "Limitation on Restricted
Payments") in an amount equal to the lesser of (a) the return of capital with
respect to such Investment and (b) the initial amount of such Investment, in
either case, less the cost of the disposition of such Investment, plus (iv) in
the case of the Revocation of the Designation of a Subsidiary as an
Unrestricted Subsidiary, an amount equal to the consolidated Net Investment in
such Subsidiary on the date of Revocation but not in an amount exceeding the
net amount of any Investments constituting Restricted Payments made (or deemed
made) in such Subsidiary after the Issue Date plus (v) in the case of the JV
Designation after the Issue Date of a New Joint Venture as a Restricted
Affiliate, an amount equal to the consolidated net Investment in such New
Joint Venture on the date of such JV Designation but not in an amount
exceeding the net amount of any Investments constituting Restricted Payments
made (or deemed made) in such New Joint Venture after the Issue Date minus
(vi) the aggregate amount of all Restricted Payments (other than Restricted
Payments referred to in clause (iv) or clause (iii)( B) of the second
paragraph of the covenant "Limitation on Restricted Payments") declared or
made on and after the Issue Date.
"Unrestricted Subsidiary" means any Subsidiary of RCN
designated as such pursuant to and in compliance with the covenant
"Designations of Unrestricted Subsidiaries." Any such designation may be
revoked by a Board Resolution delivered to the applicable Trustee, subject to
the provisions of such covenant.
"US Designation Amount" has the meaning set forth under
"--Certain Covenants--Designation of Unrestricted Subsidiaries."
"U.S. Government Securities" means securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged.
"Voting Stock" means, with respect to any person, the Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary in which all of the outstanding Capital Stock is owned by RCN or
another Wholly Owned Restricted Subsidiary. For the purposes of this
definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
The Old Notes were and the New Notes will be represented by one
or more permanent global note in definitive, fully registered book-entry form
(the "Global Securities") which will be registered in the name of a nominee of
the Depository Trust Company ("DTC") and deposited on behalf of purchasers of
the Notes represented thereby with a custodian for DTC for credit to the
respective accounts of the purchasers (or to such other accounts as they may
direct) at DTC.
The Global Securities. The Company expects that pursuant to
procedures established by DTC (a) upon issuance of the Global Securities, DTC
or its custodian will credit on its internal system portions of the Global
Securities which shall be comprised of the corresponding respective amounts of
the Global Securities to the respective accounts of persons who have accounts
with such depositary and (b) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC or its nominee (with respect to interests of Participants
(as defined below) and the records of Participants (with respect to interests
of persons other than Participants). Ownership of beneficial interests in the
Global Securities will be limited to persons who have accounts with DTC
("Participants") or persons who hold interests through Participants.
So long as DTC or its nominee is the registered owner or holder
of any of the Notes, DTC or such nominee will be considered the sole owner or
holder of such Notes represented by the Global Securities for all purposes
under the Indenture and under the Notes represented thereby. No beneficial
owner of an interest in the Global Securities will be able to transfer such
interest except in accordance with the applicable procedures of DTC in
addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest
(including Additional Interest) on the Notes represented by the Global
Securities will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any paying
agent under the Indenture will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Securities or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of
any payment of the principal of, premium, if any, and interest (including
Additional Interest) on the Notes represented by the Global Securities, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Securities as shown on the
records of DTC or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in the Global Securities held
through such Participants will be governed by standing instructions and
customary practice as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payment will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in
accordance with DTC rules and will be settled in immediately available funds.
If a holder requires physical delivery of a Certificated Security for any
reason, including to sell Notes to persons in states which require physical
delivery of such securities or to pledge such securities, such holder must
transfer its interest in the Global Securities in accordance with the normal
procedures of DTC and in accordance with the procedures set forth in the
Indenture.
DTC has advised the Company that DTC will take any action
permitted to be taken by a holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Securities are
credited and only in respect of the aggregate principal amount of as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Securities for Certificated Securities, which it will distribute to its
Participants and which will be legended as set forth under the heading "Notice
to Investors."
DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Although DTC is expected to follow the foregoing procedures in
order to facilitate transfers of interests in the Global Securities among
Participants of DTC, it is under no obligation to perform such procedures, and
such procedures may be discontinued at any time. Neither RCN nor either
Trustee will have any responsibility for the performance by DTC or its direct
or indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Securities. Interests in the Global Securities
will be exchanged for Certificated Securities if (i) DTC notifies the Company
that it is unwilling or unable to continue as depositary for the Global
Securities, or DTC ceases to be a "Clearing Agency" registered under the
Exchange Act, and a successor depositary is not appointed by the Company
within 90 days, or (ii) an Event of Default has occurred and is continuing
with respect to the Notes. Upon the occurrence of any of the events described
in the preceding sentence, the Company will cause the appropriate Certificated
Securities to be delivered.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States
federal income tax consequences of the exchange of New Notes for Old Notes and
the ownership and disposition of the Senior Discount Notes to U.S. Holders (as
defined below). This summary is based on the Internal Revenue Code of 1986,
as amended to the date hereof (the "Code"), administrative pronouncements,
judicial decisions and existing and proposed Treasury Regulations, changes to
any of which subsequent to the date of this Prospectus may affect the tax
consequences described herein, possibly with retroactive effect. This summary
discusses only New Notes held as capital assets within the meaning of Section
1221 of the Code. It does not discuss all of the tax consequences that may be
relevant to a holder in light of his particular circumstances or to holders
subject to special rules, such as persons who are not U.S. Holders, certain
financial institutions, insurance companies, dealers in securities and holders
who hold the New Notes as part of a straddle or a hedging or conversion
transaction. Persons considering the exchange of New Notes for Old Notes
should consult their tax advisors with regard to the application of the United
States federal income tax laws to their particular situations as well as any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner
of an Old Note who exchanges it for a New Note and that for United States
federal income tax purposes is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof,
or (iii) an estate the income of which is subject to United States federal
income taxation regardless of its source or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to
control all substantial decisions of the trust. The term also includes
certain former citizens or residents of the United States.
Tax Consequences of the Exchange of New Notes for Old Notes
There will be no federal income tax consequences to Holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer. For
federal income tax purposes, the New Notes will be considered a
continuation of the Old Notes and the exchange of Old Notes for New Notes
hereunder will not alter the federal income tax consequences, including the
accrual of original issue discount ("OID") on the Senior Discount Notes, as
described below, of owning the Notes to Holders. A U.S. Holder will have
the same adjusted basis and holding period in New Note as it had in the Old
Note immediately before the exchange.
Tax Consequences of Senior Discount Notes
The discussion below relating to the Senior Discount Notes is
equally applicable to the Old Discount Notes and the New Discount Notes.
Original Issue Discount
The excess of a Discount Note's "stated redemption price at
maturity" over its "issue price" will generally constitute OID for federal
income tax purposes. The stated redemption price at maturity of a Senior
Discount Note will equal the sum of all cash payments (whether denominated as
principal or interest) payable on the Senior Discount Notes. The issue price
of a Senior Discount Note is equal the first price to the public (not
including bond houses, brokers, or similar persons or organizations acting in
the capacity of underwriters, placement agents, or wholesalers) at which a
substantial amount of the Old Discount Notes are sold for money. Regardless
of their method of accounting, U.S. Holders of the Senior Discount Notes will
be required to include such OID in income for federal income tax purposes as
it accrues, in accordance with a constant yield method based on a compounding
of interest, before the receipt of cash payments attributable to such income.
Under this method, U.S. Holders of the Senior Discount Notes generally will
be required to include in income increasingly greater amounts of OID in
successive accrual periods. Payments of stated interest on a Senior Discount
Note will not be separately included in income, but rather will reduce a U.S.
Holder's basis in a Senior Discount Note, as described below under "Sale,
Exchange or Retirement of the Senior Discount Notes."
The Company does not intend to treat the possibility of an
optional redemption or repurchase of the Senior Discount Notes as giving rise
to any additional accrual of OID or recognition of ordinary income upon
redemption, sale or exchange of a Senior Discount Note. U.S. Holders may
wish to consider that United States Treasury Regulations regarding the
treatment of certain contingencies were recently issued and may wish to
consult their tax advisers in this regard.
Market Discount and Premium
If a U.S. Holder purchased a Senior Discount Note for an
amount that was less than its "adjusted issue price", the amount of the
difference would be treated as "market discount" for federal income tax
purposes, unless such difference was less than a specified de minimis
amount. The adjusted issue price of a Senior Discount Note is defined as
the sum of the issue price of the Senior Discount Note and the aggregate
amount of previously accrued OID, less any prior principal and interest
payments on the Senior Discount Note.
Under the market discount rules of the Code, a U.S. Holder
will be required to treat any prior payment on, or any gain on the sale,
exchange, retirement or other disposition of, a Senior Discount Note as
ordinary income to the extent of the market discount which has not
previously been included in income (pursuant to an election by the Holder
to include such market discount in income as it accrues) and is treated as
having accrued on such Senior Discount Note at the time of such payment or
disposition. If such Senior Discount Note is disposed of in a nontaxable
transaction (other than as provided in Code Sections 1276(c) and (d)),
accrued market discount will be includible as ordinary income to the U.S.
Holder as if such Holder had sold the Senior Discount Note at its then fair
market value. In addition, the U.S. Holder may be required to defer,
until the maturity of the Senior Discount Note or its earlier disposition
(including a nontaxable transaction other than as provided in Code Sections
1276(c) and (d)), the deduction of all or a portion of the interest expense
on any indebtedness incurred or maintained to purchase or carry such Senior
Discount Note.
A U.S. Holder who purchased a Senior Discount Note for an
amount that was greater than its adjusted issue price but less than its
stated redemption price at maturity would be considered to have purchased
such Senior Discount Note at an "acquisition premium". Under the
acquisition premium rules of the Code and the regulations thereunder,
unless such Holder makes the election described under "Election to Treat
all Interest as Original Issue Discount" below, the amount of OID which
such Holder must include in its gross income with respect to such Senior
Discount Note for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
Election to Treat All Interest as Original Issue Discount.
A U.S. Holder may elect to include in gross income all
interest that accrues on a Senior Discount Note using the constant-yield
method described above under the heading "Original Issue Discount", with
the modifications described below. For purposes of this election, interest
includes stated interest, OID, de minimis OID, market discount, de minimis
market discount and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium.
In applying the constant-yield method to a Senior Discount
Note with respect to which this election has been made, the issue price of
the Senior Discount Note will equal the electing U.S. Holder's adjusted
basis in the Senior Discount Note immediately after its acquisition and the
issue date of the Senior Discount Note will be the date of its acquisition
by the electing U.S. Holder. This election will generally apply only to
the Senior Discount Note with respect to which it is made and may not be
revoked without the consent of the Internal Revenue Service.
If the election to apply the constant-yield method to all
interest on a Senior Discount Note is made with respect to a Senior
Discount Note with market discount, the electing U.S. Holder will be
treated as having made the election discussed above under "Market Discount"
to include market discount in income currently over the life of all debt
instruments held or thereafter acquired by such U.S. Holder.
Sale, Exchange or Retirement of the Senior Discount Notes
Upon the sale, exchange or retirement of a Senior Discount
Note, a U.S. Holder will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement and
such U.S. Holder's adjusted tax basis in the Senior Discount Note. A U.S.
Holder's adjusted tax basis in a Senior Discount Note will generally equal the
cost of such Senior Discount Note to the Holder, increased by the amount of any
market discount and OID previously included in income by such U.S. Holder with
respect to such Senior Discount Note and reduced by any principal and interest
payments received by the U.S. Holder. Except as otherwise described under
"Market Discount and Premium" above, gain or loss realized on the sale,
exchange or retirement of a Senior Discount Note will be capital gain or loss.
Recently enacted legislation includes substantial changes to the federal
taxation of capital gains recognized by individuals, including a 20% maximum
tax rate for certain gains from the sale of capital assets held for more than
18 months. The deduction of capital losses is subject to certain limitations.
Prospective investors should consult their tax advisors regarding the
treatment of capital gains and losses.
Backup Withholding and Information Reporting
Certain noncorporate U.S. Holders may be subject to backup
withholding at a rate of 31% on payments of principal and OID on, and the
proceeds of a disposition of, a Senior Discount Note. Backup withholding will
apply only if the U.S. Holder (i) fails to furnish its Taxpayer Identification
Number ("TIN") which, in the case of an individual, would be his or her Social
Security Number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS
that it has failed to properly report payments of interest and dividends or
(iv) under certain circumstances, fails to certify, under penalty of perjury,
that it has furnished a correct TIN and has not been notified by the IRS that
it is subject to backup withholding. U.S. Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S.
Holder will be allowed as a credit against such U.S. Holder's United States
federal income tax liability and may entitle such U.S. Holder to a refund,
provided that the required information is furnished to the IRS.
The Company will furnish annually to the IRS and to record
holders of the Senior Discount Notes (other than with respect to certain
exempt holders) information relating to the stated interest and the OID
accruing during the calender year. Such information will be based on the
amount of OID that would have accrued to a U.S. Holder who acquired the
Senior Discount Note on original issue.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a
period of 90 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale. In addition, until _____________ 1998 (90
days after the date of this Prospectus), all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New
Notes by broker-dealers. New Notes received by broker-dealers for this own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 90 days after the Expiration Date the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal.
The Company has agreed in the Registration Rights Agreement to
indemnify each broker-dealer reselling New Notes pursuant to this Prospectus,
and their officers, directors and controlling persons, against certain
liabilities in connection with the offer and sale of the New Notes, including
liabilities under the Securities Act, or to contribute to payments that such
broker-dealers may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Notes offered hereby is being passed upon
for the Company by Davis Polk & Wardwell, New York, New York.
INDEPENDENT ACCOUNTANTS
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 Prospectus.
EXPERTS
The consolidated financial statements of RCN Corporation as
of December 31, 1996 and 1995, and for the years ended December 31, 1996,
1995, and 1994 appearing in this Prospectus and Registration Statement have
been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration
Statement on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act, with respect to the Notes
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Notes, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith is required to file reports and
other information with the Commission. The Registration Statement, as well as
such reports and other information filed by the Company with the Commission,
may be inspected without charge at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the Commission's regional offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained by mail from the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington D.C. 20549 at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. In addition, such
reports and other information concerning the Company may also be inspected at
the offices of the National Association of Securities Dealers Automated
Quotation ("NASDAQ") at 1735 K Street, N.W., Washington, D.C. 20006.
[THIS PAGE INTENTIONALLY LEFT BLANK]
INDEX TO FINANCIAL STATEMENTS
RCN Corporation
Report of Independent Accountants........................................ F-1
Consolidated Balance Sheets at December 31, 1996 and 1995................ F-2
Consolidated Statements of Operations for the three years ended December
31, 1996, 1995 and 1994................................................ F-3
Consolidated Statements of Cash Flows for the three years ended December
31, 1996, 1995 and 1994................................................ F-4
Consolidated Statements of Changes in Shareholder's Equity for the three
years ended December 31, 1996, 1995 and 1994........................... F-6
Notes to Consolidated Financial Statements............................... F-7
Condensed Consolidated Balance Sheet as of September 30, 1997
(unaudited)........................................................... F-25
Condensed Consolidated Statements of Operations for the Nine and Three
Months Ended September 30, 1997 and 1996 (unaudited).................. F-26
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)......................... F-27
Notes to Condensed Consolidated Financial Statements.................... F-28
Megacable, S. A. de C. V.
Report of Independent Accountants....................................... F-32
Consolidated Balance Sheets at December 31, 1996 and 1995............... F-33
Consolidated Income Statements for the years ended December 31, 1996
and 1995.............................................................. F-34
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995............................................ F-35
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995......................................................... F-36
Notes to Consolidated Financial Statements.............................. F-37
Liberty Cable Television, Inc. and Affiliates
Report of Independent Auditors.......................................... F-42
Combined Balance Sheets at December 31, 1994 and 1995................... F-43
Combined Statements of Operations for the years ended December 31, 1994
and 1995.............................................................. F-44
Combined Statements of Cash Flows for the years ended December 31, 1994
and 1995.............................................................. F-45
Combined Statements of Changes in Shareholders' Deficit for the years
ended December 31, 1994 and 1995...................................... F-46
Notes to Combined Financial Statements.................................. F-47
Freedom New York, LLC
Condensed Balance Sheet at September 30, 1996 (unaudited)............... F-52
Condensed Statement of Operations for the period March 6, 1996 to
September 30, 1996 and for the three months ended September 30, 1996
(unaudited)........................................................... F-53
Condensed Statements of Cash Flows for the period March 6, 1996 to
September 30, 1996 (unaudited)........................................ F-54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of RCN Corporation:
We have audited the consolidated balance sheets of RCN
Corporation and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, changes in shareholder's equity and
cash flows for each of the three years in the period ended December 31, 1996.
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 consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of RCN Corporation and Subsidiaries as of 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 post-employment benefits.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
June 30, 1997
RCN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments.............................. $ 37,998 $ 61,843
Short-term investments........................................... 120,487 46,831
Accounts receivable--affiliates.................................. 14,186 12,614
Accounts receivable, net of reserve for doubtful accounts
of $861 in 1996 and $606 in 1995............................... 11,206 10,413
Unbilled revenues................................................ 560 844
Material and supply inventory, at average cost................... 327 1,140
Prepayments and other............................................ 1,987 4,556
Deferred income taxes............................................ 4,513 4,371
-------- --------
Total current assets.............................................. 191,264 142,612
-------- --------
Notes receivable--affiliates...................................... 181,981 155,481
Property, plant and equipment
Hybrid fiber/coaxial plant....................................... 157,320 161,433
Other property, plant and equipment.............................. 16,053 58,924
-------- --------
Total property, plant and equipment............................... 173,373 220,357
Accumulated depreciation.......................................... 71,293 84,529
-------- --------
Net property, plant and equipment................................. 102,080 135,828
-------- --------
Investments....................................................... 77,113 76,547
Intangible Assets, Net............................................ 88,032 93,471
Deferred Charges and Other Assets................................. 9,140 24,146
-------- --------
Total Assets...................................................... $649,610 $628,085
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt............................. $ 25,750 $ --
Accounts payable--affiliates..................................... 6,234 4,880
Accounts payable................................................. 10,687 13,642
Advance billings and customer deposits........................... 6,143 6,859
Advanced taxes................................................... -- 1,950
Accrued interest................................................. 5,038 5,041
Accrued contract settlements..................................... 6,629 3,565
Accrued cable programming expense................................ 4,535 3,188
Accrued expenses................................................. 10,291 18,167
-------- --------
Total current liabilities......................................... 75,307 57,292
-------- --------
Long-Term Debt.................................................... 135,250 131,250
Notes Payable--affiliates......................................... 5,552 11,854
Deferred Income Taxes............................................. 36,072 28,245
Deferred Investment Tax Credits................................... 102 --
Other Deferred Credits............................................ 3,258 3,290
Minority Interest................................................. -- 5,389
Commitments and Contingencies.....................................
Common Shareholder's Equity....................................... 394,069 390,765
-------- --------
Total Liabilities and Shareholder's Equity........................ $649,610 $628,085
======== ========
</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,
----------------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Sales................................................... $ 59,500 $ 91,997 $104,910
Costs and Expenses, excluding
depreciation and amortization......................... 49,747 75,003 79,107
Depreciation and amortization........................... 9,803 22,336 38,881
-------- -------- --------
Operating (loss)........................................ (50) (5,342) (13,078)
Interest income......................................... 21,547 29,001 25,602
Interest expense........................................ (16,669) (16,517) (16,046)
Other (expense) income, net............................. 1,343 (304) (546)
-------- -------- --------
(Loss) Income Before Income Taxes....................... 6,171 6,838 (4,068)
Provision for income taxes.............................. 2,340 1,119 979
-------- -------- --------
(Loss) Income Before Minority Interest
and Equity in Unconsolidated Entities................. 3,831 5,719 (5,047)
Minority Interest in (income) loss of
consolidated entities................................. (95) (144) 1,340
Equity in (loss) of unconsolidated entities............. -- (3,461) (2,282)
-------- -------- --------
(Loss) Income Before Cumulative Effect of
Accounting Principle Changes.......................... 3,736 2,114 (5,989)
Cumulative effect on prior years of changes
in accounting principles for postemployment benefits.. (83) -- --
-------- -------- --------
Net (loss) Income....................................... $ 3,653 $ 2,114 $ (5,989)
======== ======== ========
Unaudited pro forma net income (loss) per common share.. $ (0.22)
</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,
-------------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income (loss)....................................... $ 3,653 $ 2,114 $ (5,989)
Gain on pension curtailment/settlement.................. -- -- (3,437)
Cumulative effect of accounting principle changes....... 83 -- --
Depreciation and amortization........................... 9,803 22,336 38,881
Deferred income taxes and investment tax credits, net... (205) 6,696 (6,477)
Provision for losses on accounts receivable............. 854 614 1,788
Equity in loss of unconsolidated entities............... -- 3,461 2,282
Minority interest....................................... 95 144 (1,340)
Net change in certain assets and liabilities,
net of acquisitions of businesses:
Accounts receivable and unbilled revenues............. (2,142) (5,550) (3,780)
Material and supply inventory......................... (3) 777 (814)
Accounts payable...................................... 1,567 3,983 2,954
Accrued expenses...................................... 9,317 2,783 4,283
Accounts receivable affiliates........................ (7,812) 11,860 1,572
Accounts payable affiliates........................... (519) (419) (5,448)
Other, net............................................ (4,102) 529 597
Other................................................... (4,301) (769) (1,241)
-------- -------- --------
Net cash provided by operating activities................ 6,288 48,559 23,831
-------- -------- --------
Cash Flows from Investing Activities
Additions to property, plant and equipment.............. (12,042) (29,854) (40,369)
Purchase of short-term investments...................... (127,245) (238,257) (75,091)
Sales and maturities of short-term investments.......... -- 245,112 149,086
Acquisitions, net of cash acquired...................... (1,298) (121,147) (30,090)
Purchase of loan receivable............................. -- -- (13,088)
Other................................................... 434 (2,057) 175
-------- -------- --------
Net cash used in investing activities.................... (140,151) (146,203) (9,377)
-------- -------- --------
Cash Flows from Financing activities.....................
Redemption of Long-term debt............................ (37,033) (28,741) (44,750)
Issuance of Long-term debt.............................. 13,033 19,300 19,000
Change in affiliate notes, net.......................... 5,159 (6,130) 32,802
Transfers from C-TEC.................................... 298,759 132,707 78,550
Transfers (to) C-TEC.................................... -- (148,339) (76,211)
-------- -------- --------
Net cash provided by (provided by) financing activities.. 279,918 (31,203) 9,391
-------- -------- --------
Net increase (decrease) in cash and temporary
cash investments...................................... 146,055 (128,847) 23,845
Cash and temporary cash investments at
beginning of year..................................... 20,790 166,845 37,998
-------- -------- --------
Cash and temporary cash investments at
end of year............................................ $166,845 $ 37,998 $ 61,843
======== ======== ========
</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,
-------------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest................................................. $16,780 $16,404 $16,046
Income Taxes............................................. 580 497 549
</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>
See accompanying notes to consolidated financial statements.
RCN CORPORATIONNOTES 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 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 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,
------------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Hybrid Fiber/Coaxial
Sales........................................................ $ 45,937 $ 66,404 $ 84,096
Operating income before depreciation and amortization........ 22,279 28,458 40,094
Depreciation and amortization................................ 8,583 20,723 33,131
Operating income............................................. 13,696 7,735 6,963
Identifiable assets.......................................... 214,413 359,401 335,285
Advanced Fiber, Wireless Video and Other Operating
Sales........................................................ $ 13,514 $ 25,528 $ 20,768
Operating income before depreciation and amortization........ (11,542) (8,416) (11,711)
Depreciation and amortization................................ 650 904 4,970
Operating (loss)............................................. (12,192) (9,320) (16,681)
Identifiable assets.......................................... 7,013 14,491 87,419
Corporate
Sales........................................................ $ 49 $ 65 $ 46
Operating income before depreciation and amortization........ (984) (3,048) (2,580)
Depreciation and amortization................................ 570 709 780
Operating (loss)............................................. (1,554) (3,757) (3,360)
Identifiable assets.......................................... 347,160 275,718 205,381
Consolidated
Sales........................................................ $ 59,500 $ 91,997 $104,910
Operating income before depreciation and amortization........ 9,753 16,994 25,803
Depreciation and amortization................................ 9,803 22,336 38,881
Operating (loss)............................................. (50) (5,342) (13,078)
Identifiable assets.......................................... 568,586 649,610 628,085
</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
from 2 to 10 years. Gain or loss is recognized on major retirements 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 a distribution ratio of one share of Company common equity for each share
of C-TEC common equity owned.
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.............................................. $107,576 $110,116
(Loss) from continuing operations before
extraordinary items and accounting changes....... $(14,181) $(10,484)
Net (loss)......................................... $(14,181) $(10,484)
Pro Forma Earnings Per Share:
(Loss) from continuing operations before
extraordinary items and accounting changes....... $ (0.52) $ (0.38)
Net loss........................................... $ (0.52) $ (0.38)
</TABLE>
5. SHORT-TERM INVESTMENTS
Short-term investments, stated at cost, include the following
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Federal Agency notes................ $7,911 $ --
Commercial Paper.................... 9,454 8,823
Corporate debt securities........... 103,122 38,008
-------- --------
Total.............................. $120,487 $ 46,831
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Hybrid fiber/coaxial plant............... $142,689 $182,296
Buildings and land....................... 2,491 2,645
Furniture, fixtures and vehicles......... 14,997 17,466
Other.................................... 13,196 17,950
Total property, plant and equipment...... 173,373 220,357
Less accumulated depreciation............ (71,293) (84,529)
-------- --------
Property, plant and equipment, net....... $102,080 $135,828
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Megacable, S.A. de C.V............ $ 77,113 $ 74,232
Partnership....................... -- 2,315
-------- --------
Total Investments................ $ 77,113 $ 76,547
======== ========
</TABLE>
Investments carried on the equity method consist of the
following at December 31:
<TABLE>
<CAPTION>
Percentage Owned
-----------------------
1995 1996
-------- --------
<S> <C> <C>
Megacable, S.A. de C.V......... 40.00% 40.00%
Partnership Interest........... -- 33.33%
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Assets.......................................... $ 63,150 $ 67,672
Liabilities..................................... $ 9,372 $ 6,455
Stockholders' Equity............................ $ 53,778 $ 61,217
Sales........................................... $ 20,841 $ 23,225
Costs and Expenses.............................. $ 15,078 $ 15,689
Foreign Currency Translation Gains (Losses)..... $ (2,329) $ 618
Net Income...................................... $ 5,802 $ 10,226
</TABLE>
8. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
Amortization period 1995 1996
------------------- -------- --------
<S> <C> <C> <C>
Franchises and subscriber lists. 2-10 years $ 73,966 $ 78,747
Noncompete agreements........... 5-8 years 14,380 11,209
Goodwill........................ 10 years 18,373 16,830
Building access rights.......... 4 years -- 14,894
Other intangibles............... 2-10 years 1,228 519
-------- --------
Total intangibles............... 107,947 122,199
Less accumulated amortization... (19,915) (28,728)
-------- --------
Intangible assets, net.......... $ 88,032 $ 93,471
======== ========
</TABLE>
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>
1995 1996
------ -------
<S> <C> <C>
Note and interest receivable--Mazon
Corporativo, S.A. de C.V................. $ -- $15,310
Debt issuance costs........................ 495 309
Prepaid pension costs...................... 3,569 2,967
Prepaid professional services.............. 3,113 3,439
Other...................................... 1,963 2,121
------ -------
Total..................................... $9,140 $24,146
====== =======
</TABLE>
10. DEBT
a. Long-Term Debt
Long-term debt outstanding at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Senior Credit Notes 9.65% due 1999....... $150,000 $131,250
Revolving Credit Agreement............... 7,000 --
Promissory Note--5% due 2003............. 4,000 --
-------- --------
Total................................... 161,000 131,250
Due within one year...................... (25,750) --
-------- --------
Total Long-Term Debt.................... $135,250 $131,250
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ending December 31 Aggregate Amounts
- ----------------------- -----------------
<S> <C>
1997........................... $43,750 (Expected to be refinanced)
1998........................... $43,750
1999........................... $43,750
</TABLE>
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 cancellable 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:
<TABLE>
<CAPTION>
1994 1995 1996
------ -------- -------
<S> <C> <C> <C>
Current:
Federal............................ $2,445 $(5,713) $ 5,730
State.............................. 485 375 1,102
------ ------- -------
Total Current...................... 2,930 (5,338) 6,832
------ ------- -------
Deferred:
Federal............................ (565) 7,016 (4,751)
State.............................. 165 (377) (1,000)
------ ------- -------
Total Deferred...................... (400) 6,639 (5,751)
------ ------- -------
Amortization of ITC................. (190) (182) (102)
------ ------- -------
Total provision for income taxes.... $2,340 $ 1,119 $ 979
====== ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net operating loss carryforwards......................................... $742 $2,130
Alternative minimum tax credits.......................................... 368 --
Employee benefit plans................................................... 961 882
Reserve for bad debt..................................................... 519 693
Start-up costs........................................................... 1,110 --
Investment in unconsolidated entity...................................... 2,399 4,771
Accruals for nonrecurring charges and contract settlements............... 3,125 2,299
Other, net............................................................... 1,507 2,107
-------- --------
Total deferred tax assets................................................ 10,731 12,882
-------- --------
Property, plant and equipment............................................ (15,555) (15,019)
Intangible asset......................................................... (23,256) (16,817)
All other................................................................ (1,457) (1,229)
-------- --------
Total deferred liabilities............................................... (40,268) (33,065)
-------- --------
Subtotal................................................................. (29,537) (20,183)
Valuation allowance...................................................... (2,022) (3,691)
-------- --------
Total deferred taxes..................................................... $(31,559) $(23,874)
======== ========
</TABLE>
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,
-----------------------------------------
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
(Loss) Income before provision for income taxes and
cumulative effect of change in accounting principle......... $6,076 $3,233 $(5,010)
====== ====== =======
Federal income tax benefit at statutory rate................ $2,127 $1,131 $(1,753)
State income taxes net of federal income tax benefit........ 422 (33) 66
Investment tax credits amortized............................ (190) (50) (102)
Amortization of goodwill.................................... 2 388 779
Estimated nondeductible expenses............................ 19 (93) 1,564
Adjustment to prior year accrual............................ 20 (161) 421
Other, net.................................................. (60) (63) 4
------ ------ -------
Total provision for income taxes............................ $2,340 $1,119 $ 979
====== ====== =======
</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 $566. The amount accrued in previous years was
sufficient to satisfy the above adjustment. No additional accrual during
1995 was required.
In 1996, estimated non-deductible expenses relate primarily to
charges in connection with the possible restructuring of the Company.
12. PENSIONS AND EMPLOYEE BENEFITS
The Company's financial statements reflect the costs
experienced for its employees and retirees while included in the C-TEC plans.
Through December 31, 1996, substantially all employees of the
Company are included in a trusteed noncontributory defined benefit pension
plan, maintained by C-TEC. Upon retirement, employees are provided a monthly
pension based on length of service and compensation. C-TEC funds pension costs
to the extent necessary to meet the minimum funding requirements of ERISA.
Substantially, all employees of C-TEC's Pennsylvania cable television
operations (formerly Twin County Trans Video, Inc.) were covered by an
underfunded plan which was merged into C-TEC's overfunded plan on February 28,
1996.
The information that follows relates to the entire C-TEC
noncontributory defined benefit plan. The components of C-TEC's pension cost
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Benefits earned during the year (service cost).$ 1,685 $ 1,656 $ 2,365
Interest cost on projected benefit obligation.. 2,734 3,083 3,412
Actual return on plan assets................... 5,635 (12,897) (3,880)
Other components--net.......................... (10,744) 8,482 (1,456)
-------- -------- -------
Net periodic pension cost (credit).............$ (690) $ $ 24 $ 441
======== ======== =======
</TABLE>
The following assumptions were used in the determination of
the consolidated projected benefit obligation and net periodic pension cost
(credit):
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate........................ 8.0% 7.0% 7.5%
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%
</TABLE>
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 C-TEC's balance sheet at December 31:
<TABLE>
<CAPTION>
1995 1996
------------------------------------- -------
Under-funded Plan Over-funded Plan
----------------- ----------------
<S> <C> <C> <C>
Plan assets at fair value...................................... $ 471 $60,108 $55,325
Actuarial present value of benefit obligations:
Accumulated benefit obligations:
Vested...................................................... 1,122 34,152 32,372
Nonvested................................................... 20 2,104 1,704
------- ------- -------
Total......................................................... 1,142 36,256 34,076
Effect of increases in compensation............................ 718 8,687 6,042
------- ------- -------
Plan assets in excess of (less than) projected benefit plan.... (1,389) 15,165 15,207
Unrecognized transition asset.................................. -- (4,432) (3,463)
Unrecognized prior service cost................................ -- 2,969 2,438
Unrecognized net gain.......................................... (146) (10,133) (11,215)
------- ------- -------
Prepaid (accrued) pension cost................................. $(1,535) $3,569 $ 2,967
======= ======= =======
</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
noncancellable leases, excluding annual pole rental commitments of
approximately $759 that are expected to continue indefinitely, are as
follows:
Aggregate
Year 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 noncancellable
contracts for network services. Future obligations under these agreements
are as follows:
Network
Year 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>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Corporate office costs allocated to affiliates....................... $ 8,498 $10,009 $12,362
Cable staff and customer service costs allocated to Cable Michigan... 3,528 2,952 3,577
Interest income on affiliate notes................................... 16,841 17,340 15,119
Interest expense on affiliate notes.................................. 96 279 354
Long-distance terminating access charges from C-TEC.................. 939 862 728
Royalty fees charged by C-TEC........................................ 435 533 859
Revenue from engineering services.................................... 8 2,169 296
Other affiliate revenues............................................. 20 6 --
Other affiliate expenses............................................. 1,238 2,090 1,980
</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>
1995 1996
------------------------ ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and temporary cash investments......... $ 37,998 $ 37,998 $ 61,843 $ 61,843
Short-term investments...................... $120,487 $120,487 $ 46,831 $ 46,831
Note and interest receivable................ $ -- $ -- $ 15,310 $ 15,310
Financial Liabilities:
Fixed rate long-term debt:
Senior Secured Notes...................... $150,000 $160,737 $131,250 $137,459
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......................... $ 2,658 $ 2,658 $ 3,060 $ 3,060
</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>
1995 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
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>
<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 $ 9,188 $ 4,639
Operating income............................ $(4,621) $(1,233) $ (19) $(7,205)
</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
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, 1997
-----------------
<S> <C>
Unaudited
ASSETS
Current Assets
Cash and temporary cash investments................................................. $183,337
Accounts receivable from related parties............................................ 19,985
Accounts receivable, net of reserve for doubtful accounts of
$1,741............................................................................ 20,665
Material and supply inventory, at average cost...................................... 2,428
Prepayments and other............................................................... 15,796
Deferred income taxes............................................................... 4,857
--------
Total current assets................................................................. 247,068
--------
Property, Plant and Equipment
Hybrid fiber/coaxial plant.......................................................... 173,013
Other property, plant and equipment................................................. 100,947
--------
Total property, plant and equipment.................................................. 273,960
Accumulated depreciation............................................................. 101,544
--------
Net property, plant and equipment.................................................... 172,416
--------
Investments.......................................................................... 71,752
Intangible Assets, Net............................................................... 103,027
Deferred Charges and Other Assets.................................................... 4,416
--------
Total Assets......................................................................... $598,679
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable to related parties................................................. $12,766
Accounts payable.................................................................... 22,395
Advance billings and customer deposits.............................................. 7,982
Accrued interest.................................................................... 845
Accrued contract settlements........................................................ 3,158
Accrued cable programming expense................................................... 2,231
Accrued expenses.................................................................... 23,064
--------
Total current liabilities............................................................ 72,441
--------
Long-Term Debt....................................................................... 110,000
Deferred Income Taxes................................................................ 24,992
Other Deferred Credits............................................................... 2,570
Minority Interest.................................................................... 14,916
Commitments and Contingencies
Common Shareholders' Equity.......................................................... 373,760
--------
Total Liabilities and Shareholders' Equity........................................... $598,679
========
</TABLE>
RCN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1996 1997 1996 1997
---------- ----------- ----------- -----------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Sales................................................... $ 26,746 $ 31,148 $ 75,763 $ 91,854
Costs and expenses, excluding depreciation and
amortization........................................... 17,558 35,480 54,599 91,183
Nonrecurring charges.................................... -- -- -- 10,000
Depreciation and amortization........................... 9,207 13,680 27,037 39,135
--------- ----------- ----------- -----------
Operating (loss)........................................ (19) (18,012) (5,873) (48,464)
Interest Income......................................... 6,159 3,681 19,750 13,442
Interest expense........................................ (4,795) (3,331) (12,553) (10,460)
Other income (expense), net............................. (12) (371) (473) 229
--------- ----------- ----------- -----------
Income (loss) before income taxes....................... 1,333 (18,033) 851 (45,253)
(Benefit) for income taxes.............................. (389) (4,764) (68) (11,907)
--------- ----------- ----------- -----------
Income (loss) before equity in unconsolidated
entities and minority interest......................... 1,722 (13,269) 919 (33,346)
Equity in loss of unconsolidated entities............... (393) (1,089) (1,692) (2,650)
Minority interest in loss of consolidated entities...... 301 2,543 211 3,931
--------- ----------- ----------- -----------
Income (loss) before extraordinary charge............... 1,630 (11,815) (562) (32,065)
Extraordinary charge--debt prepayment penalty,
net of tax............................................ -- (3,210) -- (3,210)
--------- ----------- ----------- -----------
Net Income (loss)....................................... $ 1,630 $ (15,025) $ (562) $ (35,275)
========= =========== =========== ===========
Earnings (loss) per average common share
Income (loss) before extraordinary charge............... $ 0.06 $ (0.43) $ (0.02) $ (1.17)
---------- ----------- ----------- -----------
Extraordinary charge--debt prepayment penalty,
net of tax............................................ -- (0.12) -- (0.12)
---------- ----------- ----------- -----------
Net Income (loss) to shareholders....................... $ 0.06 $ (0.55) $ (0.02) $ (1.28)
---------- ----------- ----------- -----------
Average shares outstanding.............................. 27,446,167 27,484,566 27,445,167 27,481,298
</TABLE>
RCN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. $ (2,607) $ 202
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment................................ (28,383) (43,890)
Purchase of loan receivable............................................... (13,088) --
Purchases of short-term investments....................................... (66,328) --
Sales and maturities of short-term investments............................ 133,006 46,935
Acquisitions.............................................................. (29,406) (30,490)
Proceeds from sale of partnership interest................................ -- 1,900
Other..................................................................... 2,815 4,275
-------- --------
Net cash used in investing activities...................................... (1,384) (21,270)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt................................................ 19,000 110,000
Redemption of Long-Term Debt.............................................. (25,750) (131,250)
Transfer from C-TEC....................................................... 61,780 132,231
Transfer (to) C-TEC....................................................... (72,176) (112,046)
Change in affiliate notes................................................. 38,832 143,627
-------- --------
Net cash (used in) financing activities.................................... 21,686 142,562
-------- --------
Net increase (decrease) in cash and temporary cash investments............. 17,695 121,494
Cash and temporary cash investments at beginning of year................... 37,998 61,843
-------- --------
Cash and temporary cash investments at September 30,....................... $ 55,693 $183,337
======== ========
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest (net of amounts capitalized)..................................... $ 15,818 $ 14,656
======== ========
Income taxes.............................................................. $ 435 $ 743
======== ========
</TABLE>
RCN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
1. The Condensed 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 Condensed Consolidated Financial Statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial information. The Condensed 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 Prospectus.
2. Prior to September 30, 1997, the Company was operated as
part of C-TEC Corporation ("C-TEC"). On September 30, 1997, C-TEC
distributed 100 percent of the outstanding shares of common stock of its
wholly owned subsidiaries, RCN Corporation ("RCN") and Cable Michigan, Inc.
("Cable Michigan") to holders of record of C-TEC's Common Stock and C-TEC's
Class B Common Stock as of the close of business on September 19, 1997 (the
"Distribution") in accordance with the terms of a Distribution Agreement
dated September 5, 1997 among C-TEC, RCN and Cable Michigan. RCN consists
primarily of C-TEC's high growth, bundled residential voice, video and
Internet access operations in the Boston to Washington, D.C. corridor, its
existing New York, New Jersey and Pennsylvania cable television operations,
a portion of its long distance operations and its international investment
in Megacable, S.A. de C.V. Cable Michigan, Inc. consists of C-TEC's
Michigan Cable operations, including its 62% ownership in Mercom, Inc. C-TEC,
RCN and Cable Michigan have entered into certain agreements providing for
the Distribution, and governing various ongoing relationships between the
three companies, including a distribution agreement and a tax- sharing
agreement. 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. As part of C-TEC's
restructuring, C-TEC changed its name to Commonwealth Telephone
Enterprises, Inc. ("CTE").
3. The Company owns a forty percent equity interest in
Megacable, S.A. de C.V. ("Megacable"). For the quarters ended September
30, 1997 and 1996, the Company recorded equity in the earnings (loss) of
Megacable which consists of its proportionate share of income and
amortization of excess cost over equity in net assets of ($930) and ($393),
respectively. For the nine months ended September 30, 1997 and 1996, the
Company recorded equity in the earnings (loss) of Megacable which consists
of its proportionate share of income and amortization of excess cost over
equity in net assets of ($2,477) and ($1,692), respectively.
Summarized information for the financial position and results
of operations of Megacable, as of and for the nine months ended September 30,
1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Assets $70,704 $76,217
Liabilities 9,696 8,055
Shareholders' equity 61,008 68,162
Sales 17,202 22,281
Cost and expenses 11,251 15,231
Foreign currency transaction losses 8 --
Net income $ 7,546 $ 6,827
</TABLE>
Effective January 1, 1997, since the three-year cumulative
rate of inflation at December 31, 1996 exceeded 100%, Mexico is being
treated for accounting purposes as having a highly inflationary economy.
Therefore, the U.S. dollar is treated as the functional currency and
translation adjustments are included in income. The Company's
proportionate share of such adjustments were gains (losses) of $27 and
($19), for the three and nine month periods ended September 30, 1997,
respectively.
4. The Company has in place a $125,000 credit agreement for
C-TEC Cable Systems, Inc. comprised of two credit facilities. The first is a
five year revolving credit facility in the amount of $25,000 which provides
credit availability through June 30, 2002. Revolving loans may be repaid and
reborrowed from time to time. The second is a term credit facility in the
amount of $100,000 which is to be repaid over six years in quarterly
installments from September 30, 1999 through June 30, 2005. Interest only is
due through June 30, 1999. The interest rate will be based on either a LIBOR
or Base Rate option, at the election of RCN (6.77% at September 30, 1997). The
credit agreement is unsecured. At September 30, 1997, the entire $100,000 term
credit facility is outstanding and $10,000 of the revolving credit facility is
outstanding. C-TEC Cable Systems, Inc. used the proceeds to prepay higher
priced Senior Secured Notes. The early extinguishment of the Senior Secured
Notes resulted in an extraordinary charge of $3,210, net of taxes, against
third quarter earnings. The financings were provided by a syndicate of
commercial banks and arranged and underwritten by First Union National Bank.
The credit agreement contains restrictive covenants which generally require
the Company to maintain certain debt to cash flow and interest coverage ratios
and place certain limitations on additional debt and investments. The Company
does not believe that these covenants will materially restrict its activities.
Maturities of the term credit facility are as follows:
Aggregate
Years Amounts
- ----- ---------
1999 $ 3,750
2000 $11,250
2001 $16,250
2002 $17,500
2003 $19,374
Thereafter $31,876
5. In August 1996, the Company acquired an 80.1% interest in
Freedom New York, L.L.C. and all related rights and liabilities ("Freedom")
from Kiewit Telecom Holdings, Inc. In March 1997, the Company paid $30,000
in connection with a series of transactions which resulted in the Company
having 100% ownership interest in Freedom. The acquisition was accounted
for as a purchase. The purchase price exceeded the fair value of net
assets acquired by $24,955, which was recognized as goodwill with an
amortization period of approximately 6 years. Freedom was transferred to
the Company in connection with the Distribution.
6. For the nine months ended September 30, 1997 nonrecurring
charges of $10,000 represent costs incurred in connection with the
termination of a marketing services agreement held by Freedom.
7. In connection with and prior to the Distribution, the
Company's Board of Directors adopted 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 5,000,000 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 1,000,000 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 are eligible to receive discretionary Awards under 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.
In connection with the Distribution, each CTE outstanding
option was adjusted so that following the distribution each holder thereof
holds options to purchase shares of CTE Common Stock, RCN Corporation Common
Stock and Cable Michigan Common Stock. The number of shares subject to, and
the exercise price of, such resulting options was adjusted to take into
account the Distribution and the CTE 2 for 3 reverse stock split to ensure
that the aggregate intrinsic value of the resulting CTE, RCN and Cable
Michigan Options immediately after the Distribution was equal to the aggregate
intrinsic value of the CTE options immediately prior to the Distribution. At
September 30, 1997, there are approximately 1,520,000 options outstanding at
exercise prices ranging from $12.48 to $16.80 under RCN's 1997 Plan.
8. The Yee Family Trusts, as holders of CTE's Preferred Stock
Series A and Preferred Stock Series B, have recently commenced an action
against the Company, CTE and Cable Michigan, Inc. in the Superior Court of
New Jersey. The complaint alleges that CTE's restructuring constitutes a
fraudulent conveyance and alleges breaches of contract and fiduciary duties
in connection with the restructuring. The plaintiffs are seeking to set
aside the alleged fraudulent conveyance and unspecified monetary damages.
The Company believes this lawsuit is without merit and intends to contest
this action vigorously.
9. Earnings per share amounts are based on net income divided
by the weighted average number of shares outstanding during each period
after giving effect to stock options considered to be dilutive common stock
equivalents.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share". This Statement establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held common
stock or potential common stock. This Statement is effective for financial
statements issued after December 31, 1997, earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented. The Company is currently evaluating the impact, if any, adoption
of SFAS No. 128 will have on its financial statements.
10. 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 joint venture began operations in June 1997. RCN has
consolidated the BECO joint venture in its financial statements at and for the
quarter ended September 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.
11. On September 8, 1997, the Company was notified by the
Federal Communications Commission ("FCC") that the FCC has ruled that
certain of the Company's upper levels of service for its New Jersey systems
are regulated levels of service and that the Company's rates for such
levels of service have exceeded the allowable rates under the FCC rate
regulation rules which have been effective since September 1993. The
Company had treated these levels of service as unregulated. The Company
has had preliminary discussions with the FCC and does not believe that the
ultimate resolution of this matter will have a material impact on its
results of operations or financial condition.
12. In October 1997, the Company received proceeds of
$575,000 from a high-yield private offering (the "Offering") of $225,000
10% Senior Notes and $350,000 11 1/8% Senior Discount Notes. Concurrently
with the closing of the Offering, the Company deposited $60,000 with an
escrow agent, that, together with the proceeds from investment thereof will
be sufficient to pay when due the first six interest payments on the Senior
Notes, with any balance to be retained by the Company.
The Senior Notes are secured to the extent described above.
The Senior Discount notes are unsecured. The Notes will rank senior in right
of payment to all subordinated indebtedness of RCN and will rank pari passu in
right of payment with all existing and future indebtedness of RCN that is not
by its terms subordinated in right and priority to the Notes. In addition,
claims of holders of the Notes will be structurally subordinated to claims of
holders of indebtedness of RCN's subsidiaries.
The Notes mature in October 2007. The Notes will be redeemable
at the option of RCN, in whole or in part, at any time on or after October 15,
2002 at redemption prices for the Senior Notes up to 105% plus accrued and
unpaid interest and at redemption prices for the Senior Discount Notes up to
105.562% plus accrued and unpaid interest.
The Notes contain certain covenants including limitations on
additional indebtedness. The Company does not believe that these covenants
will materially restrict its activities.
Pursuant to a registration rights agreement entered into by
RCN, the Company has agreed to file a registration statement with the
Securities and Exchange Commission with respect to an offer to exchange each
issue of the Notes for senior debt securities of RCN with terms substantially
identical to such Notes (the "Exchange Notes") (except that the Exchange Notes
will not contain terms with respect to transfer restrictions) on or prior to
45 days after the date on which the Notes were originally issued.
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 with 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.
COOPERS & LYBRAND
Victor M. Mendivil E., C.P.A.
Guadalajara, Jalisco, Mexico
February 14, 1997
MEGACABLE, S.A. de C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $25,885,757 $29,616,659
Receivables:
Trade...................................... 606,116 358,296
Sundry debtors and other................... 391,913 519,603
Inventories.................................. 1,800,600 2,685,824
---------- ----------
Total current assets..................... 28,684,386 33,180,382
Investment.................................... 326,357 314,456
Property, systems and equipment, net.......... 9,857,945 12,848,919
Goodwill, net................................. 21,066,999 19,389,406
Deferred income tax........................... 2,099,531 2,092,674
---------- ----------
Total assets............................. $62,035,218 $67,825,837
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $700,737 $1,245,780
Accrued taxes and expenses................... 1,435,105 1,129,236
Current portion of long-term debt............ 2,792,874 485,748
---------- ----------
Total current liabilities.................. 4,928,716 2,860,764
Long-term liabilities:
Long-term debt............................... 4,442,990 3,714,369
---------- ----------
Total liabilities.......................... 9,371,706 6,575,133
---------- ----------
Commitments and contingencies
Stockholders' equity.......................... 52,656,924 61,179,148
Minority interest............................. 6,588 71,556
---------- ----------
Total stockholders' equity................. 52,663,512 61,250,704
---------- ----------
Total liabilities and stockholders' equity. $62,035,218 $67,825,837
========== ==========
</TABLE>
MEGACABLE, S.A. de C.V. AND SUBSIDIARIES
Consolidated Income Statements
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenues...................................... $20,841,223 $23,243,686
Cost and expenses............................. 12,687,179 13,057,161
Depreciation and amortization................. 2,391,200 2,654,568
---------- ----------
15,078,379 15,711,729
---------- ----------
Operating income............................. 5,762,844 7,531,957
---------- ----------
Other income (expenses), net:
Interest, net................................ 3,934,137 2,330,650
Gains/(losses) on foreign exchange, net...... (2,328,982) 629,941
---------- ----------
1,605,155 2,960,591
---------- ----------
Income before income taxes................... 7,367,999 10,492,548
---------- ----------
Income taxes:
Income taxes, asset tax and profit sharing
to personnel............................... 419,372 3,334,881
Benefit for amortization of fiscal losses.... (419,372) (3,052,791)
Deferred income tax.......................... 1,370,798 (20,070)
---------- ----------
1,370,798 262,020
---------- ----------
Income before minority interest............... 5,997,201 10,230,528
Minority interest.............................. 195,630 9,544
---------- ----------
Net income.................................... $5,801,571 $10,220,984
========== ==========
</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>
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 Cash Flows
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 5,801,571 $10,220,984
Depreciation....................................................... 1,432,066 1,505,976
Goodwill amortization.............................................. 959,134 1,148,592
Deferred income tax................................................ 876,116 6,857
Net changes in assets and liabilities:
Receivables...................................................... (323,228) 120,130
Inventories...................................................... 486,037 (885,224)
Accounts payable................................................. (167,236) 545,043
Accrued taxes.................................................... (1,295,136) (240,901)
---------- ----------
Net cash provided by operating activities........................ 7,769,324 12,421,457
---------- ----------
Cash flows used by investing activities:
Purchases of property, systems and equipment....................... (349,809) (4,850,261)
Acquisitions....................................................... (4,354,262) --
Purchase of investments............................................ (92,160) --
---------- ----------
Net cash used in investing activities............................ (4,796,231) (4,850,261)
---------- ----------
Cash flows provided (used) by financing activities:
Increase in capital stock.......................................... 84,115,456 --
Long-term debt..................................................... (49,826,477) (3,035,747)
---------- ----------
Net cash provided by (used in) financing activities.............. 34,288,979 (3,035,747)
---------- ----------
Foreign currency translation adjustment............................. (12,041,767) (804,547)
---------- ----------
Net increase in cash and cash equivalents........................... 25,220,305 3,730,902
At the beginning of the year........................................ 665,452 25,885,757
---------- ----------
At the end of the year.............................................. $25,885,757 $29,616,659
========== ==========
</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 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 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:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Materials and equipment.............. $1,759,107 $2,368,884
Advances to suppliers................ 39,791 248,187
Goods in transit..................... 1,702 68,753
--------- ---------
$1,800,600 $2,685,824
========= =========
</TABLE>
4. Property, Systems and Equipment, Net:
<TABLE>
<CAPTION>
Estimated Useful
Lives 1995 1996
---------------- ----------- ------------
(years)
<S> <C> <C> <C>
Land.................................................. -- $ 188,335 $ 185,823
Buildings............................................. 20 45,811 44,580
Cable signal control and distribution systems......... 9 11,271,206 14,636,740
Automobiles and trucks................................ 10 749,156 1,003,715
Office furniture and equipment........................ 11 565,744 907,975
Improvements to leased property....................... 19 136,556 579,297
---------- ----------
12,956,808 17,358,130
Less accumulated depreciation......................... (3,098,863) (4,509,211)
---------- ----------
$ 9,857,945 $12,848,919
========== ==========
</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>
1995 1996
----------- -----------
<S> <C> <C>
Excess of cost over fair value of shares acquired................. $22,847,065 $22,233,320
Less accumulated amortization..................................... (1,780,066) (2,843,914)
---------- ----------
$21,066,999 $19,389,406
========== ==========
</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>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets (liability):
New operating loss carryforwards.................................. $3,009,103 $1,986,013
Difference between the accumulated depreciation for MEX-GAAP and
for U.S. GAAP................................................... (909,572) 106,661
--------- ---------
Deferred taxes, net............................................ $2,099,531 $2,092,674
========= =========
</TABLE>
7. Long-Term Debt:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<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%......................................................... $5,050,000 $2,500,000
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 (LIBOR + 5.875 points); the average rate during the year
was 12.34% Capital Stock:.......................................................... 2,185,864 1,700,117
--------- ---------
7,235,864 4,200,117
Less current portion shown under current liabilities............................... (2,792,874) (485,748)
--------- ---------
$4,442,990 $3,714,369
========= =========
</TABLE>
8. Capital Stock:
Fixed minimum capital without the right of withdrawal,
represented by on 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 one of its subsidiary companies, except for
the ones listed below, which will be included in the consolidation in the
coming years, as follows:
<TABLE>
<CAPTION>
<S> <C>
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
Less amortization of fiscal losses...................... (5,050,122)
----------
$ --
==========
</TABLE>
As of the fiscal year 1996, Megacable, S.A. de C.V. is
allowed to consolidate its tax results with one of its subsidiary
companies, except for the ones listed below, which will be included in the
consolidation in the coming years, as follows:
<TABLE>
<CAPTION>
Year
----------------
<S> <C>
Mega Control de Mexico.......................... 1997
TV Cable del Golfo.............................. 1997
Megacable Comunicaciones de Mexico.............. 1998
Telemetropoli................................... Not Applicable
Telecable Internacional......................... Not Applicable
</TABLE>
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 Amount adjusted for Year in which the
liable for the payment of asset tax inflation term for recovery 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:
<TABLE>
<CAPTION>
Thousands of U.S. dollars
-----------------------------
1995 1996
------------ ----------
<S> <C> <C>
Assets.................................... $21,959 $23,849
Liabilities............................... 7,970 5,372
------ ------
Net asset position in foreign currency... $13,989 $18,477
====== ======
</TABLE>
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 and 1992, the exchange rate equivalent was $4.995,
$3.1071 and $3.329, respectively.
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Report of Independent Auditors
The Board of Directors
Liberty Cable Television, Inc., and affiliates:
We have audited the accompanying combined balance sheets of
Liberty Cable Television, Inc. and affiliates as of December 31, 1994 and
1995, and the related combined statements of operations, changes in
shareholders' deficit and cash flows for the years then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to
above present fairly, in all material respects, the financial position of
Liberty Cable Television, Inc. and affiliates as of December 31, 1994 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in note 10 to the financial statements, during
March 1996, substantially all of the assets and operations of Liberty Cable
Television, Inc. and affiliates were sold.
KPMG Peat Marwick LLP
New York, New York
November 6, 1996
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Balance Sheets (note 10)
December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Assets
Cash.............................................................................. $76,717 $17,122
Receivables from subscribers, net of allowance for doubtful accounts of
$168,943 in 1994 and $223,381 in 1995........................................... 266,187 177,445
Prepaid expenses and other assets................................................. 23,411 --
Cable televison systems, net of accumulated depreciation of $4,134,613 in
1994 and $5,988,862 in 1995 (note 3)............................................ 7,965,216 9,586,633
---------- ----------
Total Assets.................................................................... $ 8,331,531 $ 9,781,200
========== ==========
Liabilities and Shareholders' Deficit
Payable to banks (note 6)......................................................... 7,686,305 15,000,000
Other notes payable (note 7)...................................................... 189,168 --
Accounts payable.................................................................. 377,218 580,191
Accrued programming (note 4)...................................................... 288,826 291,844
Accrued expenses and litigation costs (note 9).................................... 435,451 1,984,045
Due to affiliates (note 5)........................................................ 8,631,040 10,002,417
---------- ----------
Total liabilities $17,608,008 $27,858,497
========== ==========
Commitments and contingencies (notes 4, 5, 6 and 9)
Shareholders' deficit (note 8):
Common stock...................................................................... 450 450
Additional paid-in capital........................................................ 6,314,058 6,314,058
Accumulated deficit............................................................... (15,590,985) (24,391,805)
---------- ----------
Total shareholders' deficit..................................................... (9,276,477) (18,077,297)
---------- ----------
Total liabilities and shareholders' deficit..................................... $ 8,331,531 $9,781,200
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Statements of Operations
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Revenues.............................................................. $4,394,866 $ 5,955,864
--------- ----------
Operating expenses:
Programming expenses (note 4)........................................ 1,701,465 2,697,500
Repairs and maintenance.............................................. 1,395,120 1,717,412
General and administrative (note 6).................................. 1,082,646 1,408,955
Legal, professional fees and litigation costs (note 9)............... 1,175,816 3,557,908
Salaries and employee benefits....................................... 1,275,455 1,371,244
Marketing and related................................................ 949,962 879,890
Deprecation and amortization......................................... 1,332,557 1,854,249
--------- ----------
Total operating expenses........................................... 8,913,021 13,487,158
--------- ----------
Operating loss..................................................... (4,518,155) (7,531,294)
Interest expense (note 5)............................................. 623,968 1,269,526
--------- ----------
Net loss.............................................................. $(5,142,123) $(8,800,820)
========= ==========
</TABLE>
See accompanying notes to combined financial statements.
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Statements of Cash Flows
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $(5,142,123) $(8,800,820)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization............................................... 1,332,557 1,854,249
Changes in operating assets and liabilities:
(Increase) decrease in receivables from subscribers....................... (78,341) 88,742
(Increase) decrease in prepaid expenses and other assets.................. (2,262) 23,411
Increase in accounts payable.............................................. 240,422 202,973
(Decrease) increase in accrued programming and other liabilities........ (228,795) 1,551,612
--------- ---------
Total adjustments..................................................... 1,263,581 3,720,987
--------- ---------
Net cash used in operating activities................................. (3,878,542) (5,079,833)
--------- ---------
Cash flows from investing activities:
Purchases of cable television systems....................................... (2,407,558) (3,475,666)
--------- ---------
Net cash used in investing activities................................. (2,407,558) (3,475,666)
--------- ---------
Cash flows from financing activities:
Proceeds from bank loans.................................................... 1,000,000 7,325,000
Repayments of bank loans.................................................... (426,390) (11,305)
Repayments of other notes payable........................................... (200,444) (189,168)
Advances from affiliates.................................................... 6,941,416 14,779,377
Repayment of advances from affiliates....................................... (1,000,000) (13,408,000)
--------- ---------
Net cash provided by financing activities............................. 6,314,582 8,495,904
--------- ---------
Net increase (decrease) in cash....................................... 28,482 (59,595)
Cash at beginning of year..................................................... 48,235 76,717
--------- ---------
Cash at end of year........................................................... $ 76,717 $ 17,122
Supplemental cash flow information: ========= =========
Interest paid................................................................. $ 676,378 $ 1,229,320
========= =========
</TABLE>
See accompanying notes to combined financial statements.
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Statements of Changes in Shareholders' Deficit
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Common Additional Paid-In Accumulated
Stock Capital Deficit Total
------- ------------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993........ $450 $6,314,058 $(10,448,862) $ (4,134,354)
Net loss............................ -- -- (5,142,123) (5,142,123)
--- --------- ---------- ----------
Balance at December 31, 1994........ 450 6,314,058 (15,590,985) (9,276,477)
Net loss............................ -- -- (8,800,820) (8,800,820)
--- --------- ---------- ----------
Balance at December 31, 1995........ $450 $6,314,058 $(24,391,805) $(18,077,297)
=== ========= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1994 and 1995
(1) Organization and Nature of Business
Liberty Cable Television, Inc. and affiliates operated a
wireless cable television system serving subscribers who primarily reside in
multiple dwelling units in New York City and certain areas of New Jersey.
Liberty Cable Television, Inc. and its affiliates, Birdsong Communications,
Inc., Liberty Cable Newport, Inc., Liberty Cable Company, Inc. and E.T.
Vision, Inc. (collectively, the "Company"), are owned by a group of related
individuals and share operating facilities and personnel. In March 1996, the
Company sold substantially all of its assets and operations (see note 10).
(2) Summary of Significant Accounting Policies
(a) Principles of Combination
The combined financial statements include the operations of Liberty
Cable Television, Inc. and its affiliates. All intercompany
accounts have been eliminated in combination.
(b) Revenue Recognition
The Company recognizes revenues as cable television services are
provided to subscribers. Subscription revenues billed in advance
for services are deferred and recorded as income in the period in
which the related services are rendered.
(c) Cable Television Systems
Cable television systems are carried at cost and are depreciated
using the straight-line method over the estimated useful lives of
the respective assets.
(d) Income Taxes
Each of the companies in the group is an S corporation, as defined
by the Internal Revenue Service. No provision for Federal or state
income taxes has been made in the accompanying combined financial
statements since any liability for such income taxes is that of the
shareholders and not of the Company. Certain assets have bases for
income tax purposes that differ from the carrying value for
financial reporting purposes, primarily due to differences in
depreciation methods. The reported combined assets reflected in
these combined financial statements exceeded their aggregate tax
basis by approximately $1,700,000 at December 31, 1995.
(e) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and judgments that affect the reported amounts of
assets and liabilities and disclosures of contingencies at the date
of the financial statements and revenues and expenses recognized
during the reported period. Actual results could differ from those
estimates.
(f) Fair Value of Financial Instruments
The Company's carrying value of its receivables from subscribers,
prepaid expenses and other assets and its payable to banks and all
its other liabilities and accounts payable approximate fair value
due to their short-term nature.
(3) Cable Television Systems
Cable television systems are depreciated over their estimated
useful lives of seven years.
(4) Accrued Programming
During 1994, the Company resolved its obligations for payment
for programs provided by certain suppliers in prior years at amounts that were
approximately $330,000 less than the Company had accrued in its combined
financial statements at December 31, 1993. Such amount was recorded as a
reduction in programming expenses in 1994.
(5) Transactions with Affiliates
The Company's primary headend and operations department is
maintained at a building owned and operated by a company whose shareholders
include the shareholders of the Company. Pursuant to an agreement, beginning
January 1, 1994 the Company is charged $30,000 per month for the use of the
facilities and for certain administrative services provided to it by the
affiliated company.
The Company's operations are funded in part by cash advances
from an entity which is partially owned by the shareholders. The Company was
indebted to this entity in the amounts of $8,225,380 and $9,596,756 as of
December 31, 1994 and 1995, respectively. Beginning in 1993, interest on
outstanding advances is charged at the lower of LIBOR plus 1% or the greater
of the prime rate less 3/4% or the Federal Funds Rate plus 1/2%. Interest
expense under this arrangement was $241,479 in 1994 and $424,184 in 1995. The
Company is also indebted to another entity owned by the shareholders in the
amount of $405,660 as of December 31, 1994 and 1995. No interest was charged
on this balance owed.
The Company and a shareholder of the Company entered into a
loan agreement with a bank for $500,000, which was used to purchase an
interest in an unaffiliated cable venture. Prior to January 1, 1991, the
investment was transferred to the shareholder. The shareholder has assumed
the total obligation to the bank; however, the Company is still listed as
borrower of record. This obligation is not reflected in the Company's
combined financial statements.
The Company obtains insurance coverage with entities that are
partially owned by the Company's shareholders at no cost to the Company.
(6) Loans Payable - Banks
The Company has the following loans payable to a bank, all of
which are guaranteed by shareholders of the Company:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Demand note (a)......... $11,305 $ --
Term notes (b).......... 7,675,000 15,000,000
--------- ----------
$7,686,305 $15,000,000
========= ==========
</TABLE>
(a) On November 1, 1991, the Company executed an unsecured
demand note with a bank in the amount of $445,000 which was
completely repaid in 1995. Interest was payable at the bank's
prime lending rate.
(b) During 1993, the Company entered into an agreement with the
bank allowing borrowings up to $7,700,000 under a credit facility.
The agreement calls for interest to be paid on the loan at LIBOR
plus 1/2% or the greater of prime less 3/4% or the Federal Funds
Rate plus 1/2%. The notes matured on June 30, 1995.
On July 1, 1995, the Company entered into a new agreement with
the bank increasing the borrowings to $15,000,000 with interest payable under
the same formula as the notes that matured in June 1995. The new agreement
matured on December 31, 1995 and was extended to March 1996. The loan was
repaid in March 1996 upon the sale of substantially all of the Company's
assets and operations (see note 10).
(7) Other Notes Payable
Other notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Installment note, collateralized by equipment and payable in 36 monthly
installments of $8,233, including interest at 10.5% per annum, through May
1995................................................................................. $63,344 --
Installment note, collateralized by equipment and payable in 36 monthly
installments of $11,091, including interest at 10.5% per annum, through
November 1995........................................................................ 125,824 --
-------
$189,168 --
=======
</TABLE>
(8) Shareholders' Equity (Deficit)
The following is a summary of the capital accounts for each of
the companies included in the combined financial statements:
<TABLE>
<CAPTION>
Common Stock
Number of Par Additional Shareholders'
Shares Value Paid-in Accumulated Equity
Issued Amount Capital Deficit (Deficit)
---------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Liberty Cable Television, Inc.
Balance at December 31, 1992......... 300 $300 $749,700 $(1,728,595) $(978,595)
Net loss............................. -- -- -- (4,306,030) (4,306,030)
--- --- ------- ---------- ----------
Balance at December 31, 1993......... 300 300 749,700 (6,034,625) (5,284,625)
Net loss............................. -- -- -- (5,574,022) (5,574,022)
--- --- ------- ---------- ----------
Balance at December 31, 1994......... 300 300 749,700 (11,608,647) (10,858,647)
Net loss............................. -- -- -- (8,908,590) (8,908,590)
--- --- ------- ---------- ----------
Balance at December 31, 1995......... 300 $300 $749,700 $(20,517,237) $(19,767,237)
=== === ======= ========== ==========
This company has authorized 1,000 shares of common stock at $1.00 par value per share.
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------
Number of Par Additional Shareholders'
Shares Value Paid-in Accumulated Equity
Issued Amount Capital Deficit (Deficit)
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Birdsong Communications, Inc.
Balance at December 31, 1992.......... 150 $150 $1,213,288 $ (965,810) $247,628
Capital contributions, net............ -- -- 29,004 -- 29,004
Net loss.............................. -- -- -- (66,262) (66,262)
--- --- --------- --------- -------
Balance at December 31, 1993.......... 150 150 1,242,292 (1,032,072) 210,370
Net income............................ -- -- -- 76,897 76,897
--- --- --------- --------- -------
Balance at December 31, 1994.......... 150 150 1,242,292 (955,175) 287,267
Net loss.............................. -- -- -- (3,141) (3,141)
--- --- --------- --------- -------
Balance at December 31, 1995.......... 150 $150 $1,242,292 $ (958,316) $284,126
=== === ========= ========= =======
This company has authorized 1,000 shares of common stock at $1.00 par value per share.
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------
Number of Par Additional Shareholders'
Shares Value Paid-in Accumulated Equity
Issued Amount Capital Deficit (Deficit)
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Liberty Cable Newport, Inc.
Balance at December 31, 1992...... 100 $ -- $1,936,789 $(1,614,087) $322,702
Net loss.......................... -- -- -- (2,638) (2,638)
--- --- --------- --------- -------
Balance at December 31, 1993...... 100 -- 1,936,789 (1,616,725) 320,064
Net income -- -- -- 236,215 236,215
--- --- --------- --------- -------
Balance at December 31, 1994...... 100 -- 1,936,789 (1,380,510) 556,279
Net income........................ -- -- -- 133,601 133,601
--- --- --------- --------- -------
Balance at December 31, 1995...... 100 $ -- $1,936,789 $(1,246,909) $689,880
=== === ========= ========= =======
This company has authorized 100 shares of common stock at no par value.
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------
Number of Par Additional Shareholders'
Shares Value Paid-in Accumulated Equity
Issued Amount Capital Deficit (Deficit)
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Liberty Cable Company, Inc.
Balance at December 31, 1992...... 100 $ -- $1,318,474 $(946,789) $371,685
Capital contributions, net........ -- -- 6,400 -- 6,400
Net income........................ -- -- -- 119,928 119,928
--- --- --------- --------- -------
Balance at December 31, 1993...... 100 -- 1,324,874 (826,861) 498,013
Net income........................ -- -- -- 52,792 52,792
--- --- --------- --------- -------
Balance at December 31, 1994...... 100 -- 1,324,874 (774,069) 550,805
Net loss.......................... -- -- -- (83,202) (83,202)
--- --- --------- --------- -------
Balance at December 31, 1995...... 100 $ -- $1,324,874 $(857,271) $467,603
=== === ========= ======== =======
This company has authorized 200 shares of common stock at no par value.
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------
Number of Par Additional Shareholders'
Shares Value Paid-in Accumulated Equity
Issued Amount Capital Deficit (Deficit)
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
E.T. Vision, Inc.
Balance at December 31, 1992..... 400 $ -- $1,082,670 $(968,250) $114,420
Capital distributions, net....... -- -- (22,267) -- (22,267)
Net income....................... -- -- -- 29,671 29,671
--- --- --------- ------- -------
Balance at December 31, 1993..... 400 -- 1,060,403 (938,579) 121,824
Net income....................... -- -- -- 65,995 65,995
--- --- --------- ------- -------
Balance at December 31, 1994..... 400 -- 1,060,403 (872,584) 187,819
Net income....................... -- -- -- 60,512 60,512
--- --- --------- ------- -------
Balance at December 31, 1995..... 400 $ -- $1,060,403 $(812,072) $248,331
=== === ========= ======== =======
This company has authorized 400 shares of common stock at no par value.
</TABLE>
Because the companies share personnel, facilities and
equipment, the capital contributions and certain expenses that were
recorded in the records of the individual companies may not be reflective
of what might have been if these companies were not affiliated.
(9) Commitments and Contingencies
The Company has oral agreements with an officer and certain
directors under which such individuals would be entitled to a portion of the
increase in value of the Company, over a predetermined amount, realized as a
result of an initial public offering or sale of substantially all of the
Company's assets.
In connection with objections raised with the Federal
Communications Commission ("FCC") over the Company's applications for
Operational Fixed Microwave Service Licenses, the Company and the FCC moved
jointly for a summary decision before the presiding administrative law judge.
The joint motion asked that a decision be issued granting Liberty the licenses
it seeks and imposing a forfeiture of approximately $780,000 for violation of
certain FCC rules. Two interveners have opposed this motion which is pending
before the presiding judge. The Company believes that the result contemplated
by the joint motion will likely be ordered by the FCC and has accrued the
forfeiture costs at December 31, 1995.
During 1996, the Company agreed to settle litigation resulting
from a dispute relating to copyright royalties to certain programs it had
broadcast. The Company also settled a separate litigation relating to
franchise operation issues. Both litigation costs have been accrued at
December 31, 1995.
The Company is party to other legal proceedings generally
incidental to its business. Although the ultimate outcome of other legal
proceedings cannot be readily determined, management believes that the outcome
of such proceedings will not have a material adverse effect on the combined
financial position of the Company.
(10) Subsequent Events
During March 1996, the Company entered into an agreement to
sell substantially all of its assets and operations for an amount in excess of
the carrying value of these assets. Assets that were not disposed and
liabilities of the Company were retained by a successor entity to the Company.
Freedom New York, L.L.C.
Condensed Balance Sheet
September 30, 1996
(Unaudited)
Dollars in Thousands
<TABLE>
<CAPTION>
<S> <C>
Assets & temporary cash investments.................................. $(183)
Accounts receivable:
Trade, net allowance for doubtful accounts of $95................... 323
Other............................................................... 559
Prepaid expenses and other current assets............................ 372
------
Total current assets.............................................. 1,071
Property, plant and equipment, net of accumulated depreciation
of $846........................................................... 17,366
Intangible assets, net of accumulated amortization of $2,462......... 15,772
------
Total Assets...................................................... $34,209
======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable:
Trade............................................................. $1,614
Affiliate......................................................... 734
Other............................................................. 550
Notes payable, affiliate............................................ 4,070
Accrued expenses.................................................... 1,289
------
Total liabilities................................................. 8,257
Partners' capital................................................... 25,952
------
Total liabilities and partners' capital........................... $34,209
======
</TABLE>
Freedom New York, L.L.C.
Condensed Statement of Operations
For the Period March 6, 1996 to September 30, 1996
and for the Three Months ended September 30, 1996
(Unaudited)
Dollars in Thousands
<TABLE>
<CAPTION>
Three months Period
ended March 6, 1996
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Sales................................ $ 2,074 $ 4,590
Costs and expenses, excluding
depreciation and amortization...... 2,852 5,963
Depreciation and amortization........ 1,518 3,309
------- -------
Operating loss....................... (2,296) (4,682)
Interest income...................... 1 5
Interest expense..................... (189) (581)
------- -------
Net loss............................ $(2,484) $(5,258)
======= =======
</TABLE>
Note to condensed Statement of Operations:
Information for the corresponding periods of the prior year
is not presented since Freedom New York, L.L.C. was formed in March 1996.
Freedom New York, L.L.C.
Condensed Statement of Cash Flows
For the Period March 6, 1996 to September 30, 1996
(Unaudited)
Dollars in Thousands
Cash flows from operating activities............................ $ 983
--------
Cash flows from investing activities
Capital expenditures........................................... (3,736)
Acquisition of Assets of Liberty Cable Television, Inc. et al.. (26,500)
--------
Net cash used in investing activities.......................... $(30,236)
--------
Cash flows from financing activities:
Advances from affiliates:...................................... $ 4,070
Partners' capital Contributions................................ 25,000
--------
Net cash provided by operating activities...................... $ 29,070
--------
Net decrease in cash and temporary cash investments............ (183)
Cash and temporary cash investments, beginning................. --
--------
Cash and temporary cash investments, ending.................... $ (183)
========
<TABLE>
<S> <C>
No person has been authorized to give any
information or to make any representations, other
than those contained in this Prospectus, in
connection with the offering made hereby, and, if
given or made, such information or representation
must not be relied upon as having been authorized
by the Company, or any other person. Neither the
delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any
implication that there has been no change in the
affairs of the Company since the date hereof. This $826,045,000
Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered
hereby by anyone in any jurisdiction in which such [LOGO]
offer or solicitation is not authorized or in which
the person making such offer or solicitation is not
qualified to do so or to any person to whom it is RCN Corporation
unlawful to make such offer or solicitation.
$225,000,000
10% Senior Exchange Notes
----------------- due 2007
TABLE OF CONTENTS $601,045,000
11 1/8% Senior Discount Exchange
Page Notes
----
due 2007
Summary...................................................... 1
Risk Factors................................................. 14
Use of Proceeds.............................................. 23
Capitalization............................................... 24
Unaudited Pro Forma Consolidated Financial
Statements................................................. 25
Selected Historical Consolidated Financial Data.............. 32 ----------
Management's Discussion and Analysis of PROSPECTUS
Financial Condition and Results of Operations.............. 34 ----------
Business..................................................... 50
Management................................................... 78
Security Ownership of Certain Beneficial Owners
and Management............................................. 85
Description of the Distribution and Related
Agreements................................................. 87
Description of the Credit Agreement.......................... 92
Description of the New Notes................................. 94
The Exchange Offer........................................... 44 November 26, 1997
Book-Entry; Delivery and Form................................ 122
Certain U.S. Federal Income Tax Considerations............... 123
Plan of Distribution......................................... 126
Legal Matters................................................ 126
Independent Auditors......................................... 126
Additional Information....................................... 126
Index to Financial Statements................................ F-i
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Reference is made to Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL"), which enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or it stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
the unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) for any transaction from which a director derived an improper personal
benefit.
Section 145 of the DGCL empowers the Company to indemnify,
subject to the standards set forth therein, any person in connection with any
action, suit or proceeding brought before or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company. The DGCL also provides that the Company may purchase insurance
on behalf of any such director, officer, employee or agent.
The Company's Amended and Restated Articles of Incorporation
provides in effect for the indemnification by the Company of each director and
officer of the Company to the fullest extent permitted by applicable law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Document
- ------- --------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to Amendment No. 1 to
the Company's Information Statement on Form 10/A ("Form 10A")
filed on August 22, 1997)
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Form 10A)
4.1 Indenture dated as of October 17, 1997 between the Company, as
Issuer, and The Chase Manhattan Bank, as Trustee, with respect to
the 10% Senior Notes due 2007
4.2 Form of the 10% Senior Exchange Note due 2007 (included in Exhibit
4.1)
4.3 Indenture dated as of October 17, 1997 between the Company, as
Issuer, and The Chase Manhattan Bank, as Trustee, with respect to
the 11 1/8% Senior Discount Notes due 2007
4.4 Form of the 11 1/8% Senior Discount Exchange Note due 2007 (included
in Exhibit 4.3)
4.5 Registration Rights Agreement dated as of October 17, 1997 by and
among the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Salomon Brothers Inc and NationsBanc Montgomery
Securities, Inc., as Initial Purchasers
4.6 Escrow Agreement dated as of October 17, 1997 among The Chase
Manhattan Bank, as escrow agent, The Chase Manhattan Bank, as
Trustee under the Indenture (as defined therein), and the Company
5.1 Opinion of Davis Polk & Wardwell
10.1 Tax Sharing Agreement by and among C-TEC Corporation, Cable
Michigan, Inc. and the Registrant (incorporated by reference to
Exhibit 10.1 to the Company's Form 10A)
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. (incorporated by reference to Exhibit 10.2 to
the Company's Form 10A)
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. (incorporated by reference to Exhibit 10.3 to the
Company's Form 10A)
10.4 Telephone Service to Reseller Agreement for Boston among
Metropolitan Fiber Systems/McCourt, Inc. and RCN Telecom Services
of Massachusetts, Inc. (incorporated by reference to Exhibit 10.4
to the Company's Form 10A)
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. (incorporated by reference to Exhibit
10.5 to the Company's Form 10A)
10.6 OVS Agreement dated May 8, 1997 between RCN Telecom Services, Inc.
and MFS Communication Company, Inc. (incorporated by reference to
Exhibit 10.6 of the Company's Form 10A)
10.7 Joint Venture Agreement dated as of December 23, 1996 between RCN
Telecom Services, Inc. and Boston Energy Technology Group, Inc.
(incorporated by reference to Exhibit 10.7 to the Company's Form
10A)
10.8 Amended and Restated Operating Agreement of RCN-BECOCOM, LLC dated
as of June 17, 1997 (incorporated by reference to Exhibit 10.8 to
the Company's Form 10A)
10.9 Management Agreement dated as of June 17, 1997 among RCN Operating
Services, Inc. and BECOCOM, Inc. (incorporated by reference to
Exhibit 10.9 to the Company's Form 10A)
10.10 Construction and Indefeasible Right of Use Agreement dated as of
June 17, 1997 between BECOCOM, Inc. and RCN-BECOCOM, LLC
(incorporated by reference to Exhibit 10.10 to the Company's Form
10A)
10.11 License Agreement dated as of June 17, 1997 between Boston Edison
Company and BECOCOM, Inc. (incorporated by reference to Exhibit
10.11 to the Company's Form 10A)
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 (incorporated by reference to Exhibit
10.12 to the Company's Form 10A)
10.13 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* (incorporated by
reference to Exhibit 4.1 to the Company's Information Statement on
Form 10 ("Form 10") filed on July 9, 1997)
12.1 Statement regarding Computation of Earnings Ratio to Fixed Charges
21.1 Subsidiaries (incorporated by reference to Exhibit 21.1 to the
Company's Form 10)
23.1 Consent of Coopers & Lybrand L.L.P. with respect to RCN Corporation
23.2 Consent of Coopers & Lybrand L.L.P. with respect to Megacable, S.A.
de C.V.
23.3 Consent of KPMG Peat Marwick LLP with respect to Liberty Cable
Television, Inc.
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
25.1 Statement of Eligibility of Trustee
99.1 Form of Letter of Transmittal to 10% Senior Notes due 2007 of the
Company
99.2 Form of Letter of Transmittal to 11 1/8% Senior Discount Notes due
2007 of the Company
99.3 Form of Notice of Guaranteed Delivery
99.4 Form of Letter to Record Holders
99.5 Form of Letter to Beneficial Holders
99.6 Form of Instruction from Owner of 10% Senior Notes due 2007 of the
Company
99.7 Form of Instruction from Owner of 11 1/8% Senior Discount Notes due
2007 of the Company
- ---------------
* Exhibits and schedules which have not been filed with Exhibit 10.13 will be
provided to the Commission by the Registrant upon request.
</TABLE>
Item 22. Undertakings
(a) the undersigned Registrants hereby undertake:
(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts
or arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; (iii) to
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
New York, on this 26th day of November, 1997.
RCN CORPORATION
By: /s/ Bruce Godrey
-----------------------------------
Bruce Godfrey
Executive Vice President and Chief
Financial Officer
The registrant and each person whose signature appears below
constitutes and appoints Michael J. Mahoney and Bruce Godfrey his true and
lawful attorneys-in-fact, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
and file any and all amendments (including post-effective amendments) to this
registration statement, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David C. McCourt Director, Chairman and November 26, 1997
- ---------------------------- Chief Executive Officer
David C. McCourt
/s/ Michael J. Mahoney Director, President and November 26, 1997
- ---------------------------- Chief Operating Officer
Michael J. Mahoney
/s/ Bruce C. Godfrey Director, Executive Vice November 26, 1997
- ---------------------------- President and Chief
Bruce C. Godfrey Financial Officer
/s/ James Q. Crowe Director November 26, 1997
- ----------------------------
James Q. Crowe
/s/ Thomas May Director November 26, 1997
- ----------------------------
Thomas May
/s/ Walter Scott, Jr. Director November 26, 1997
- ----------------------------
Walter Scott, Jr.
/s/ Michael B. Yanney Director November 26, 1997
- ----------------------------
Michael B. Yanney
- ---------------------------- Director
Alfred Fasola
/s/ Thomas P. O'Neill, III Director November 26, 1997
- ----------------------------
Thomas P. O'Neill, III
/s/ Richard R. Jaros Director November 26, 1997
- ----------------------------
Richard R. Jaros
Director
- ----------------------------
Eugene Roth
/s/ Stuart E. Graham Director November 26, 1997
- ----------------------------
Stuart E. Graham
/s/ Ralph Hromisin Vice President and November 26, 1997
- ---------------------------- Corporate Controller
Ralph Hromisin
</TABLE>
EXHIBIT 4.1
==============================================================================
RCN CORPORATION, as Issuer
and
THE CHASE MANHATTAN BANK, as Trustee
------------
INDENTURE
Dated as of October 17, 1997
------------
$225,000,000
10% Senior Notes due 2007, Series A
10% Senior Notes due 2007, Series B
==============================================================================
Reconciliation and tie between Trust Indenture Act of 1939, as amended, and
Indenture, dated as of October 17, 1997
Trust Indenture Indenture
Act Section Section
- --------------- ---------
Section 310 (a)(1).......................................... 6.05, 6.09
(a)(2).......................................... 6.05, 6.09
(a)(3).......................................... 6.05
(a)(4).......................................... 6.05
(b)............................................. 6.05, 6.08, 6.10
Section 311 (a)............................................. 6.07
(b)............................................. 6.07
(c)............................................. Not Applicable
Section 312 (a)............................................. 3.05, 7.01
(b)............................................. 7.02
(c)............................................. 7.02
Section 313 (a)............................................. 7.03
(b)............................................. 7.03
(c)............................................. 7.03
(d)............................................. 7.03
Section 314 (a)............................................. 7.04, 10.09
(b)............................................. Not Applicable
(c)(1).......................................... 1.04, 4.04,
12.01(c)
(c)(2).......................................... 1.04, 4.04,
12.01(c)
(c)(3).......................................... 13.03, 13.04
(d)............................................. Not Applicable
(e)............................................. 1.04
Section 315 (a)............................................. 6.01(a)
(b)............................................. 6.02
(c)............................................. 6.01(b)
(d)............................................. 6.01(c)
(e)............................................. 5.14
Section 316 (a) (last sentence) ............................ 3.14
(a)(1)(A)....................................... 5.12
(a)(1)(B)....................................... 5.13
(a)(2).......................................... Not Applicable
(b)............................................. 5.08
Section 317 (a)(1).......................................... 5.03
(a)(2).......................................... 5.04
(b)............................................. 10.03
Section 318 (a)............................................. 1.08
TABLE OF CONTENTs
Page
----
PARTIES....................................................................1
RECITALS...................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions..................................................1
Section 1.02. Other Definitions...........................................30
Section 1.03. Rules of Construction.......................................30
Section 1.04. Form of Documents Delivered to Trustee.....................31
Section 1.05. Acts of Holders.............................................32
Section 1.06. Notices, etc., to the Trustee and the Company...............33
Section 1.07. Notice to Holders; Waiver...................................33
Section 1.08. Conflict with Trust Indenture Act...........................34
Section 1.09. Effect of Headings and Table of Contents....................34
Section 1.10. Successors and Assigns......................................34
Section 1.11. Separability Clause.........................................34
Section 1.12. Benefits of Indenture.......................................34
Section 1.13. GOVERNING LAW...............................................35
Section 1.14. No Recourse Against Others..................................35
Section 1.15. Independence of Covenants...................................35
Section 1.16. Exhibits....................................................35
Section 1.17. Counterparts................................................35
Section 1.18. Duplicate Originals.........................................35
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating.............................................36
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms.............................................36
Section 3.02. Registrar and Paying Agent..................................37
Section 3.03. Execution and Authentication................................38
Section 3.04. Temporary Notes.............................................39
Section 3.05. Transfer and Exchange.......................................40
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.................41
Section 3.07. Payment of Interest; Interest Rights Preserved..............42
Section 3.08. Persons Deemed Owners.......................................43
Section 3.09. Cancellation................................................44
Section 3.10. Computation of Interest.....................................44
Section 3.11. Legal Holidays..............................................44
Section 3.12. CUSIP and CINS Numbers......................................45
Section 3.13. Paying Agent To Hold Money in Trust.........................45
Section 3.14. Treasury Notes..............................................45
Section 3.15. Deposits of Monies..........................................46
Section 3.16. Book-Entry Provisions for Global Notes......................46
Section 3.17. Special Transfer Provisions.................................47
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant
Defeasance................................................52
Section 4.02. Defeasance and Discharge....................................52
Section 4.03. Covenant Defeasance.........................................53
Section 4.04. Conditions to Defeasance or Covenant Defeasance.............53
Section 4.05. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous Provisions.......56
Section 4.06. Reinstatement...............................................57
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default...........................................57
Section 5.02. Acceleration of Maturity Rescission and Annulment...........60
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee...................................................60
Section 5.04. Trustee May File Proofs of Claims...........................61
Section 5.05. Trustee May Enforce Claims Without Possession of Notes......63
Section 5.06. Application of Money Collected..............................63
Section 5.07. Limitation on Suits.........................................64
Section 5.08. Unconditional Right of Holders To Receive
Principal, Premium and Interest...........................64
Section 5.09. Restoration of Rights and Remedies..........................65
Section 5.10. Rights and Remedies Cumulative..............................65
Section 5.11. Delay or Omission Not Waiver................................65
Section 5.12. Control by Majority.........................................65
Section 5.13. Waiver of Past Defaults.....................................66
Section 5.14. Undertaking for Costs.......................................66
Section 5.15. Waiver of Stay, Extension or Usury Laws.....................67
Section 5.16. Unconditional Right of Holders To Receive Payment...........67
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.........................67
Section 6.02. Notice of Defaults..........................................68
Section 6.03. Certain Rights of Trustee...................................69
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof..................71
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc.........71
Section 6.06. Money Held in Trust.........................................71
Section 6.07. Compensation and Indemnification of Trustee and Its Prior
Claim.....................................................72
Section 6.08. Conflicting Interests.......................................73
Section 6.09. Corporate Trustee Required; Eligibility.....................73
Section 6.10. Resignation and Removal; Appointment of Successor Trustee...73
Section 6.11. Acceptance of Appointment by Successor......................75
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business....................................76
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish
Trustee Names and Addresses of Holders....................77
Section 7.02. Communications of Holders...................................77
Section 7.03. Reports by Trustee..........................................78
Section 7.04. Reports by Company..........................................78
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms........79
Section 8.02. Successor Substituted.......................................80
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers
Without Consent of Holders................................81
Section 9.02. Supplemental Indentures, Agreements and Waivers
with Consent of Holders. .................................82
Section 9.03. Execution of Supplemental Indentures, Agreements and
Waivers...................................................83
Section 9.04. Effect of Supplemental Indentures...........................84
Section 9.05. Conformity with Trust Indenture Act.........................84
Section 9.06. Reference in Notes to Supplemental Indentures...............84
Section 9.07. Record Date.................................................84
Section 9.08. Revocation and Effect of Consents...........................85
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.................85
Section 10.02. Maintenance of Office or Agency............................85
Section 10.03. Money for Note Payments To Be Held in Trust................86
Section 10.04. Corporate Existence........................................88
Section 10.05. Payment of Taxes and Other Claims..........................88
Section 10.06. Maintenance of Properties..................................88
Section 10.07. Insurance..................................................89
Section 10.08. Books and Records..........................................89
Section 10.09. Provision of Financial Statements..........................89
Section 10.10. Change of Control..........................................89
Section 10.11. Limitation on Additional Indebtedness......................92
Section 10.12. Statement by Officers as to Default........................93
Section 10.13. Limitation on Restricted Payments..........................94
Section 10.14. Limitation on Transactions with Affiliates.................97
Section 10.15. Disposition of Proceeds of Asset Sales.....................98
Section 10.16. Limitation on Liens Securing Certain Indebtedness.........102
Section 10.17. Limitation on Business....................................103
Section 10.18. Limitation on Certain Guarantees and Indebtedness of
Restricted Subsidiaries and Restricted Affiliates.......103
Section 10.19. Limitation on Issuances and Sales of Preferred Stock
by Restricted Subsidiaries and Restricted Affiliates....104
Section 10.20. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries or Restricted
Affiliates..............................................104
Section 10.21. Designations of Unrestricted Subsidiaries................105
Section 10.22. Designations of Restricted Affiliates.....................107
Section 10.23. Compliance Certificates and Opinions. ....................108
Section 10.24. Reports...................................................109
Section 10.25. Escrow Account............................................109
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture...................110
Section 11.02. Application of Trust Money................................111
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee....................................111
Section 12.02. Selection of Notes To Be Redeemed.........................111
Section 12.03. Notice of Redemption......................................112
Section 12.04. Effect of Notice of Redemption............................113
Section 12.05. Deposit of Redemption Price...............................113
Section 12.06. Notes Redeemed or Purchased in Part.......................113
ARTICLE THIRTEEN
COLLATERAL AND SECURITY
Section 13.01. Escrow Agreement..........................................114
Section 13.02. Recording and Opinions....................................115
Section 13.03. Release of Collateral.....................................116
Section 13.04. Certificates of the Company...............................117
Section 13.05. Authorization of Actions to Be Taken by the
Trustee Under the Escrow Agreement......................117
Section 13.06. Authorization of Receipt of Funds by the Trustee
Under the Escrow Agreement..............................118
Section 13.07. Termination of Security Interest..........................118
Exhibit A-1 - Form of Series A Note
Exhibit A-2 - Form of Series B Note
Exhibit B - Form of Legend for Book-Entry Securities
Exhibit C - Form of Certificate To Be Delivered in Connection
with Transfers to Non-QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered in Connection
with Transfers Pursuant to Regulation S
INDENTURE, dated as of October 17, 1997, between RCN
CORPORATION, a corporation incorporated under the laws of the State of
Delaware (the "Company"), as issuer, and THE CHASE MANHATTAN BANK, a New York
banking corporation, as trustee (the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of (i)
10% Senior Notes due 2007, Series A (the "Initial Notes"), and (ii) 10% Senior
Notes due 2007, Series B, to be issued in exchange for the 10% Senior Notes
due 2007, Series A, pursuant to the Registration Rights Agreement (the
"Exchange Notes" and, together with the Initial Notes, the "Notes," treated as
a single class of securities under this Indenture), of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary have been done to make the Notes, when
executed by the Company, and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of each of the Company and the Trustee in
accordance with the terms hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders (as hereinafter defined) of
the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a person existing
at the time such person becomes a Restricted Subsidiary or Restricted
Affiliate or assumed in connection with an Asset Acquisition by such person
and not incurred in connection with, or in anticipation of, such person
becoming a Restricted Subsidiary or Restricted Affiliate or such Asset
Acquisition; provided that Indebtedness of such person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such person becomes a Restricted
Subsidiary or Restricted Affiliate or such Asset Acquisition shall not
constitute Acquired Indebtedness.
"Affiliate" of any specified person means any other person
which, directly or indirectly, controls, is controlled by or is under direct
or indirect common control with, such specified person. For the purposes of
this definition, "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Affiliate Income Tax Expense" means, with respect to any
period and any Restricted Affiliate, the aggregate provision for United States
corporation, local, foreign and other income taxes of such Restricted
Affiliate for such period as determined in accordance with GAAP.
"Affiliate Interest Expense" means, with respect to any period
and any Restricted Affiliate, without duplication, the sum of (i) the interest
expense of such Restricted Affiliate and its Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net cost under
Interest Rate Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all accrued
interest, (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued during such period as
determined on a consolidated basis in accordance with GAAP and (iii) the amount
of dividends in respect of Disqualified Stock paid during such period.
"Affiliate Net Income" means, with respect to any period and
any Restricted Affiliate, the net income of such Restricted Affiliate and its
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, adjusted, to the extent included in calculating such net
income of such Restricted Affiliate and its Subsidiaries, by excluding,
without duplication, (i) all extraordinary, unusual or nonrecurring gains or
losses of such person (net of fees and expenses relating to the transaction
giving rise thereto) for such period, (ii) income of such Restricted Affiliate
or any of its Subsidiaries derived from or in respect of all unconsolidated
Investments, except to the extent of any dividends or distributions actually
received by such Restricted Affiliate or any of its Subsidiaries, (iii) net
income (or loss) of any other person combined with such Restricted Affiliate
or any of its Subsidiaries on a "pooling of interests" basis attributable to
any period prior to the date of combination, (iv) any gain or loss, net of
taxes, realized by such person upon the termination of any employee pension
benefit plan during such period, and (v) gains or losses in respect of any
Asset Sales (net of fees and expenses relating to the transaction giving rise
thereto) during such period.
"Affiliate Operating Cash Flow" means, with respect to any
period and any Restricted Affiliate, the Affiliate Net Income of such
Restricted Affiliate and its Subsidiaries on a consolidated basis for such
period increased, only to the extent deducted in arriving at Affiliate Net
Income for such period, by the sum of (i) the Affiliate Income Tax Expense
accrued according to GAAP for such period (other than taxes attributable to
extraordinary gains or losses and gains and losses from Asset Sales); (ii)
Affiliate Interest Expense for such period; (iii) depreciation of such
Restricted Affiliate for such period; (iv) amortization of such Restricted
Affiliate and its Subsidiaries for such period, including, without limitation,
amortization of capitalized debt issuance costs for such period, all
determined in accordance with GAAP; and (v) other non-cash charges decreasing
Affiliate Net Income.
"Affiliate Pro Forma Operating Cash Flow" means Affiliate
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of the applicable Restricted Affiliate are available.
For purposes of this definition, "Affiliate Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Restricted Affiliate
or any of its Subsidiaries incurring Acquired Indebtedness) occurring during
the period commencing on the first day of such four fiscal quarter period to
and including the date of the transaction giving rise to the need to calculate
"Affiliate Pro Forma Operating Cash Flow" as if such Asset Sale or Asset
Acquisition occurred on the first day of such period.
"Asset Acquisition" means (i) any capital contribution (by
means of transfers of cash or other property to others or payments for
property or services for the account or use of others, or otherwise) by the
Company or any Restricted Subsidiary or Restricted Affiliate to any other
person, or any acquisition or purchase of Capital Stock of any other person by
the Company or any Restricted Subsidiary or Restricted Affiliate, in either
case pursuant to which such person shall (a) become a Restricted Subsidiary or
Restricted Affiliate or (b) shall be merged with or into the Company or any
Restricted Subsidiary or Restricted Affiliate or (ii) any acquisition by the
Company or any Restricted Subsidiary or Restricted Affiliate of the assets of
any person which constitute substantially all of an operating unit or line of
business of such person or which is otherwise outside of the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for
security purposes) or other disposition (that is not for security purposes) to
any person other than the Company or a Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Capital Stock of
any Restricted Subsidiary (other than customary stock option programs) or any
Restricted Affiliate, (ii) any assets of the Company or any Restricted
Subsidiary or any Restricted Affiliate which constitute substantially all of
an operating unit or line of business of the Company and the Restricted
Subsidiaries and the Restricted Affiliates or (iii) any other property or
asset of the Company or any Restricted Subsidiary or any Restricted Affiliates
outside of the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any disposition of
properties and assets of the Company and/or the Restricted Subsidiaries that
is governed under Section 8.01, (ii) sales of property or equipment that have
become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary or
Restricted Affiliate, as the case may be, and (iii) for purposes of Section
10.15 any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions occurring within one year, either (x) involving assets with a
Fair Market Value not in excess of $500,000 or (y) which constitutes the
incurrence of a Capitalized Lease Obligation.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments; provided that, in the case of any
Capitalized Lease Obligation, all calculations hereunder shall give effect to
any applicable options to renew in favor of the Company or any Restricted
Subsidiary or Restricted Affiliate.
"Bankruptcy Law" means Title 11, United States Code or any
similar federal or state law relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or the law of any
other jurisdiction relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Bankruptcy Order" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation,
receivership, winding-up, dissolution, "concordate" or reorganization, or
appointing a Custodian of a debtor or of all or any substantial part of a
debtor's property, or providing for the staying, arrangement, adjustment or
composition of indebtedness or other relief of a debtor.
"BECO Joint Venture" means RCN-BECOCOM, LLC, a Massachusetts
limited liability company formed under the terms of a Joint Venture Agreement
dated as of December 23, 1996 between RCN Telecom Services, Inc. and Boston
Energy Technology Group, Inc.
"Board" means the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Buildout Costs" means the cost of the construction, expansion,
development or acquisition (other than an Asset Acquisition of any person that
is not a Restricted Affiliate on the Issue Date) of properties or assets
(tangible or intangible) to be utilized, directly or indirectly, for the
design, development, construction, installation, integration, management or
provision of a Permitted Business.
"Buildout Indebtedness" means Indebtedness incurred by the
Company and/or any Restricted Subsidiary and/or any Restricted Affiliate to
the extent the proceeds thereof are used to finance or support Buildout Costs
in respect of a Permitted Business of the Company and/or any Restricted
Subsidiary and/or Restricted Affiliate.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York, New York are authorized or obligated by law, regulation or executive
order to close.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of, such person's capital
stock, whether outstanding on the Issue Date or issued after the Issue Date,
and any and all rights (other than any evidence of Indebtedness), warrants or
options exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) any property (whether real, personal or mixed, immovable or movable) that
is required to be classified and accounted for as a capitalized lease
obligation under GAAP, and, for the purpose of this Indenture, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness
(with, for purposes of Section 10.15 hereof only, a maturity of 365 days or
less) issued or directly and fully guaranteed or insured by the United States
or any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof or such Indebtedness
constitutes a general obligation of such country); (ii) deposits, certificates
of deposit or acceptances (with, for purposes of Section 10.15 hereof only, a
maturity of 365 days or less) of any financial institution that is a member
of the Federal Reserve System, in each case having combined capital and
surplus and undivided profits (or any similar capital concept) of not less
than $500.0 million and whose senior unsecured debt is rated at least "A-1" by
S&P or "P-1" by Moody's; (iii) commercial paper with a maturity of 365 days
or less issued by a corporation (other than an Affiliate of the Company)
organized under the laws of the United States or any State thereof and rated
at least "A-1" by S&P or "P-1" by Moody's; (iv) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States
Government maturing within 365 days from the date of acquisition; and (v)
money market funds which invest substantially all of their assets in
securities of the type described in the preceding clauses (i) through (iv).
"Cedel" means Cedel Bank, Societe Anonyme.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding the Kiewit Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total Voting Stock of
the Company; or (b) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any
person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation or its parent
corporation and/or (2) cash, securities and other property in an amount which
could be paid by the Company as a Restricted Payment under this Indenture and
(ii) immediately after such transaction no "person" or "group" (as such terms
are used in Section 13(d) and 14(d) of the Exchange Act), excluding the Kiewit
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
surviving or transferee corporation or its parent corporation, as applicable;
or (c) during any consecutive two-year period, individuals who at the beginning
of such period constituted the Board (together with any new directors whose
election by the Board or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason (other than by action of the Kiewit Holders) to constitute a majority
of the Board then in office.
"Collateral" shall have the meaning ascribed to such term in
the Escrow Agreement.
"Common Stock" means, with respect to any person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of such person's common stock
whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the person named as the "Company" in the first
paragraph of this Indenture, until a successor person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one of its Chairman of the
Board, its Vice-Chairman, its Chief Executive Officer, its President or a Vice
President, and by its Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to any
period, the aggregate provision for United States corporation, local, foreign
and other income taxes of the Company and the Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP and of
each of the Restricted Affiliates for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any
period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries and the Restricted Affiliates for such
period as determined on a consolidated basis in accordance with GAAP,
including, without limitation, (a) any amortization of debt discount, (b) the
net cost under Interest Rate Obligations (including any amortization of
discounts), (c) the interest portion of any deferred payment obligation, (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and similar transactions
and (e) all accrued interest, (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued during such
period as determined on a consolidated basis in accordance with GAAP and (iii)
the amount of dividends in respect of Disqualified Stock paid during such
period.
"Consolidated Net Income" means, with respect to any period,
the consolidated net income of the Company and the Restricted Subsidiaries for
such period in accordance with GAAP, adjusted, without duplication, (A) to
include the consolidated net income of the Restricted Affiliates only to the
extent of the equity interest of the Company and the Restricted Subsidiaries
and (B) adjusted, to the extent included in calculating such adjusted
consolidated net income of the Company and the Restricted Subsidiaries, by
excluding, without duplication, (i) all extraordinary, unusual or nonrecurring
gains or losses of such person (net of fees and expenses relating to the
transaction giving rise thereto) for such period, (ii) subject to clause (A)
above, income of the Company and the Restricted Subsidiaries and the Restricted
Affiliates derived from or in respect of all unconsolidated Investments,
except to the extent of any dividends or distributions actually received by
the Company or any Restricted Subsidiary, (iii) the portion of net income (or
loss) of such person allocable to minority interests in Restricted
Subsidiaries and Restricted Affiliates for such period, (iv) net income (or
loss) of any other person combined with the Company or any Restricted
Subsidiary or Restricted Affiliate on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) any gain or
loss, net of taxes, realized by such person upon the termination of any
employee pension benefit plan during such period, (vi) gains or losses in
respect of any Asset Sales (net of fees and expenses relating to the
transaction giving rise thereto) during such period and (vii) except to the
extent permitted by clause (vii) of Section 10.20 hereof, the net income of any
Restricted Subsidiary or Restricted Affiliate for such period to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary or Restricted Affiliate of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted subsidiary or
Restricted Affiliate or its stockholders.
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income for such period increased, only to the
extent (which, in the case of the Restricted Affiliates, means to the extent
of the equity interest of the Company and the Restricted Subsidiaries)
deducted in arriving at Consolidated Net Income for such period, by the sum of
(i) the Consolidated Income Tax Expense accrued according to GAAP for such
period (other than taxes attributable to extraordinary gains or losses and
gains and losses from Asset Sales); (ii) Consolidated Interest Expense for
such period; (iii) depreciation of the Company and the Restricted Subsidiaries
and the Restricted Affiliates for such period; (iv) amortization of the
Company and the Restricted Subsidiaries and the Restricted Affiliates for such
period, including, without limitation, amortization of capitalized debt
issuance costs for such period, all determined on a consolidated basis in
accordance with GAAP, and (v) other non-cash charges decreasing
Consolidated Net Income.
"Consolidated Pro Forma Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of the Company are available. For purposes of calculating
"Consolidated Operating Cash Flow" for any four fiscal quarters for purposes
of this definition, (i) any Subsidiary of the Company that is a Restricted
Subsidiary on the date of the transaction giving rise to the need to calculate
"Consolidated Pro Forma Operating Cash Flow" (the "Transaction Date") (or
would become a Restricted Subsidiary in connection with the transaction that
requires determination of such amount) shall be deemed to have been a
Restricted Subsidiary at all times during such four fiscal quarters, (ii) any
Joint Venture that is a Restricted Affiliate on the Transaction Date (or would
become a Restricted Affiliate in connection with the transaction that requires
the determination of such amount) shall be deemed to have been a Restricted
Affiliate at all times during such four fiscal quarters, (iii) any Subsidiary
of the Company that is not a Restricted Subsidiary on the Transaction Date (or
would cease to be a Restricted Subsidiary in connection with the transaction
that requires the determination of such amount) shall be deemed not to have
been a Restricted Subsidiary at any time during such four fiscal quarters and
(iv) any Joint Venture that is not a Restricted Affiliate on the Transaction
Date (or would cease to be a Restricted Affiliate in connection with the
transaction that requires the determination of such amount) shall be deemed not
to have been a Restricted Affiliate at any time during such four fiscal
quarters. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company's or one of
the Restricted Subsidiaries' or Restricted Affiliates' (including any person
who becomes a Restricted Subsidiary or Restricted Affiliate as a result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
period commencing on the first day of such four fiscal quarter period to and
including the Transaction Date, as if such Asset Sale or Asset Acquisition
occurred on the first day of such period.
"consolidation" means, (i) with respect to the Company, the
consolidation of the accounts of the Restricted Subsidiaries with those of the
Company all in accordance with GAAP; provided that "consolidation" will not
include consolidation of the accounts of any Unrestricted Subsidiary or
Restricted Affiliate with the accounts of the Company and (ii) with respect to
any Restricted Affiliate, the consolidation of the accounts of the
Subsidiaries of such Restricted Affiliate with those of such Restricted
Affiliate, all in accordance with GAAP. The term "consolidated" has a
correlative meaning to the foregoing.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which office at the date of execution of this
Indenture is located at 450 West 33rd Street, 15th Floor, New York, New York
10001, Attention: Global Trust Services, or at any other time at such other
address as the Trustee may designate from time to time by notice to the
Noteholders.
"Custodian" means any receiver, interim receiver, receiver and
manager, receiver-manager, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law or any other law respecting secured
creditors and the enforcement of their security or any other person with like
powers whether appointed judicially or out of court and whether pursuant to an
interim or final appointment.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Default Amount" means all principal, premium, if any, and
accrued and unpaid interest in respect of the Notes.
"Depository" means The Depository Trust Company, its nominees
and successors.
"Designation Amounts" means, at any date of determination, the
sum of all US Designation Amounts and all JV Revocation Amounts.
"Disinterested Director" means, with respect to any transaction
or series of related transactions, a member of the Board of the Company other
than a director who (i) has any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions or
(ii) is an employee or officer of the Company or an Affiliate that is itself a
party to such transaction or series of transactions or an Affiliate of a party
to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any
Capital Stock which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or becomes mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes; provided such Capital Stock shall only constitute Disqualified
Stock to the extent it so matures or becomes so redeemable or exchangeable on
or prior to the final maturity date of the Notes; provided, further, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the final maturity date of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in Section 10.15
and Section 10.10 hereof and such Capital Stock specifically provides that
such person will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to Section 10.15 and Section 10.10 hereof described above
and at all times subject to the covenant in Section 10.13 hereof.
"Escrow Account" means an escrow account established under the
Escrow Agreement for the deposit of a portion of the net proceeds from the
sale of the Notes (the "Initial Escrow Amount"), and the proceeds from the
investment thereof.
"Escrow Agent" means The Chase Manhattan Bank, as Escrow Agent
pursuant to the Escrow Agreement until a successor escrow agent replaces it in
accordance with the provisions of the Escrow Agreement and thereafter means
such successor.
"Escrow Agreement" means the Escrow and Security Agreement
dated as of October 17, 1997 among the Company, the Trustee and the Escrow
Agent.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Exchange Notes" means the 10% Senior Notes due 2007, Series B,
to be issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement.
"Exchange Offer" shall have the meaning specified in the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or
property, the price that could be negotiated in an arms-length free market
transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under pressure or compulsion to complete the
transaction. Any Asset Sale pursuant to the terms of the deadlock event
"buy-sell" arrangements in Section 7.8 of the Amended and Restated
Operating Agreement of RCN-BECOCOM, LLC, as in effect on the Issue Date, or
any comparable provisions of any documentation for the PEPCO Joint Venture,
shall be deemed to have been made for Fair Market Value. Unless otherwise
specified in this Indenture, Fair Market Value shall be determined by the
Board acting in good faith and shall be evidenced by a Board Resolution.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States and which are applicable
as of the date of determination and which are consistently applied for all
applicable periods.
"Global Notes" means one or more of the Regulation S Global
Notes and/or the 144A Global Notes.
"guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
"Holder" or "Noteholder" means a person in whose name a Note is
registered in the Note Register.
"Indebtedness" means, with respect to any person, without
duplication, (i) any liability, contingent or otherwise, of such person (A)
for borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof) or (B) evidenced by
a note, debenture or similar instrument or letter of credit (including a
purchase money obligation) or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of property or (D) in respect of an Interest Rate Obligation or
currency agreement; or (ii) any liability of others of the kind described in
the preceding clause (i) which the person has guaranteed or which is otherwise
its legal liability; or (iii) any obligation secured by a Lien (other than
Liens on Capital Stock or Indebtedness of any Unrestricted Subsidiary) to which
the property or assets of such person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such person's legal liability (the amount of such obligation being deemed to
be the lesser of the value of such property or asset or the amount of the
obligation so secured); (iv) all Disqualified Stock valued at the greater of
its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends; and (v) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (i), (ii), (iii) or (iv).
In no event shall "Indebtedness" include trade payables and accrued
liabilities that are current liabilities incurred in the ordinary course of
business, excluding the current maturity of any obligation which would
otherwise constitute Indebtedness. For purposes of Section 10.11 and Section
10.13 hereof and the definition of "Events of Default," in determining the
principal amount of any Indebtedness to be incurred by the Company or a
Restricted Subsidiary or which is outstanding at any date, the principal
amount of any Indebtedness which provides that an amount less than the
principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accreted value thereof at the date of
determination. Indebtedness of any person that becomes a Restricted
Subsidiary shall be deemed incurred at the time that such a person becomes a
Restricted Subsidiary.
"Indenture" means this instrument as originally executed
(including all exhibits and schedules hereto) and as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto
entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company
under this Indenture or under the Notes, to pay principal of, premium, if any,
and interest on the Notes when due and payable, whether at maturity, by
acceleration, call for redemption or repurchase or otherwise, and all other
amounts due or to become due under or in connection with this Indenture or the
Notes and the performance of all other obligations to the Trustee (including,
but not limited to, payment of all amounts due the Trustee under Section 6.07
hereof), the Escrow Agent and the Holders of the Notes under this Indenture,
the Escrow Agreement and the Notes, according to the terms thereof.
"Independent Financial Advisor" means a United States
investment banking, consulting or accounting firm of national standing in the
United States (i) which does not, and whose directors, officers and employees
or Affiliates do not, have a material direct or indirect financial interest in
the Company or any of its Subsidiaries or Affiliates and (ii) which, in the
judgment of the Board, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Notes" means the 10% Senior Notes due 2007, Series A,
of the Company.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Salomon Brothers Inc and Montgomery Securities.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act.
"interest," when used with respect to any Note, means the
amount of all interest accruing on such Note, including all additional
interest payable on the Notes pursuant to the Registration Rights Agreement
and all interest accruing subsequent to the occurrence of any events specified
in Sections 5.01(viii), (ix) and (x) hereof or which would have accrued but
for any such event, whether or not such claims are allowable under applicable
law.
"Interest Payment Date" means when used with respect to any
Note, the Stated Maturity of an installment of interest on such Note, as set
forth in such Note.
"Interest Rate Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount and shall include without limitation, interest
rate swaps, caps, floors, collars, forward interest rate agreements and
similar agreements.
"Investment" means, with respect to any person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by
means of transfers of property to others, payments for property or services
for the account or use of others, or otherwise), or any purchase or ownership
of any stocks, bonds, notes, debentures or other securities of, any other
person. Notwithstanding the foregoing, in no event shall any issuance of
Capital Stock (other than Disqualified Stock) of the Company in exchange for
Capital Stock, property or assets of another person constitute an Investment
by the Company in such other person.
"Issue Date" means the original date of issuance of the Notes.
"Joint Venture" means any person engaged in a Permitted
Business in which the Company or one of the Restricted Subsidiaries (the "RCN
Partner") owns not less than 50% of the Voting Stock and not less than 50% of
each class of Capital Stock and in respect of which (a) there are no more than
five other beneficial holders of Capital Stock and Voting Stock (the "Other
Partners"), (b) all of its Subsidiaries are wholly owned by such person and
(c) the RCN Partner and the Other Partners have entered into contractual
arrangements that require their joint consent to take actions in respect of any
of the following: (1) the payment or distribution of any dividends, whether
in cash or other property, by such person or any of its Subsidiaries to the
RCN Partner; (2) the making of any advance or loan of any cash or other
property by such person or any of its Subsidiaries to the Company or any of the
Restricted Subsidiaries; (3) the incurrence of any Indebtedness by such person
or any of its Subsidiaries; or (4) any other material operating or financial
decision with respect to the business of such person or any of its
Subsidiaries; provided that customary financial and other restrictive
covenants in any loan or advances made by the RCN Partner and the Other
Partners to such person or any of its Subsidiaries and not entered into with
the purpose of influencing the management of such person or any of its
Subsidiaries shall not, by itself, cause such person to not constitute a Joint
Venture.
"Kiewit Holders" means Peter Kiewit Sons' Inc., Kiewit
Diversified Group, Inc. and Kiewit Telecom Holdings, Inc. and any of their
respective controlled Affiliates.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Material Restricted Subsidiary" means any Restricted
Subsidiary of the Company, which, at any date of determination, is a
"Significant Subsidiary" (as that term is defined in Regulation S-X issued
under the Securities Act), but shall, in any event, include (x) any Guarantor
or (y) any Restricted Subsidiary of the Company which, at any date of
determination, is an obligor under any Indebtedness in an aggregate principal
amount equal to or exceeding $10.0 million.
"Maturity Date" means, with respect to any Note, the date
specified in such Note as the fixed date on which the principal of such Note
is due and payable.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash (including assumed liabilities and other
items deemed to be cash under the proviso to the first sentence of Section
10.15 hereof) or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary or any Restricted Affiliate) net
of (i) brokerage commissions and other fees and expenses (including fees and
expenses of legal counsel, accountants, consultants and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result
of such Asset Sale, (iii) amounts required to be paid to any person (other
than the Company or any Restricted Subsidiary or any Restricted Affiliate)
owning a beneficial interest in or having a Permitted Lien on the assets
subject to the Asset Sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary or any Restricted Affiliate, as the case
may be, as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary or any Restricted Affiliate, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.
"New Joint Venture" means any Joint Venture (excluding in any
event the BECO Joint Venture and the PEPCO Joint Venture) formed after the
Issue Date and in which no Investment has been made on or prior to the Issue
Date.
"Non-U.S. Person" has the meaning assigned to such term in
Regulation S.
"Notes" shall have the meaning specified in the recitals of
this Indenture.
"Offering Memorandum" means the Offering Memorandum dated
October 10, 1997 pursuant to which the Notes were offered.
"Officer" means, with respect to the Company, the Chairman of
the Board, a Vice Chairman, the President, a Vice President, the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman, the President or a Vice President, and
by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer, of the Company and delivered to the Trustee.
"144A Global Note" means a permanent global note in registered
form representing the aggregate principal amount of Notes sold in reliance on
Rule 144A under the Securities Act.
"Opinion of Counsel" means a written opinion of counsel who may
be counsel for the Company or the Trustee, and who shall be reasonably
acceptable to the Trustee.
"Other Partners" has the meaning set forth in the definition of
"Joint Venture."
"Other Senior Debt Pro Rata Share" means the amount of the
applicable Excess Proceeds obtained by multiplying the amount of such Excess
Proceeds by a fraction, (i) the numerator of which is the aggregate accreted
value and/or principal amount, as the case may be, of all Indebtedness (other
than (x) the Notes and (y) Subordinated Indebtedness) of the Company
outstanding at the time of the applicable Asset Sale with respect to which the
Company is required to use Excess Proceeds to repay or make an offer to
purchase or repay and (ii) the denominator of which is the sum of (a) the
aggregate principal amount of all Notes outstanding at the time of the offer to
purchase or repay with respect to the applicable Asset Sale and (b) the
aggregate principal amount or the aggregate accreted value, as the case may
be, of all other Indebtedness (other than Subordinated Indebtedness) of the
Company outstanding at the time of the applicable Asset Sale Offer with
respect to which the Company is required to use the applicable Excess Proceeds
to offer to repay or make an offer to purchase or repay.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company or any Affiliate
thereof) in trust or set aside and segregated in trust by the Company
or any Affiliate thereof (if the Company or such Affiliate shall act
as Paying Agent) for the Holders of such Notes; provided, however,
that if such Notes are to be redeemed, notice of such redemption has
been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(c) Notes with respect to which the Company has effected
defeasance or covenant defeasance as provided in Article Four, to the
extent provided in Sections 4.02 and 4.03 hereof; and
(d) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture, other
than any such Notes in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such Notes are
held by a bona fide purchaser in whose hands the Notes are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that a Responsible Officer of the
Trustee actually knows to be so owned shall be so disregarded. The Company
shall notify the Trustee, in writing, when it repurchases or otherwise acquires
Notes, of the aggregate principal amount of such Notes so repurchased or
otherwise acquired. Notes so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Notes and that
the pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or such other obligor. If the Paying Agent holds, in
its capacity as such, on any Maturity Date or on any optional redemption date
money sufficient to pay all accrued interest and principal with respect to
such Notes payable on that date and is not prohibited from paying such money
to the Holders thereof pursuant to the terms of this Indenture, then on and
after that date such Notes cease to be Outstanding and interest on them ceases
to accrue. Notes may also cease to be Outstanding to the extent expressly
provided in Article Four.
"PEPCO Joint Venture" means the joint venture to be formed
pursuant to the binding letter of intent dated August 1, 1997 between RCN
Telecom Services, Inc. and Potomac Capital Investment Corporation.
"Permitted Business" means any telecommunications business
(including, without limitation, the development and provision of voice, video
and data transmission products, services and systems), and any business
reasonably related to the foregoing.
"Permitted Credit Facility" means (i) any senior commercial
term loan and/or revolving credit facility (including any letter of credit
subfacility) entered into principally with commercial banks and/or other
financial institutions typically party to commercial loan agreements and (ii)
any senior credit facility entered into with any vendor or supplier (or any
financial institution acting on behalf of or for the purpose of directly
financing purchases from such vendor or supplier) to the extent the
Indebtedness thereunder is incurred for the purpose of financing the cost
(including the cost of design, development, construction, manufacture or
acquisition) of personal property or fixtures, used, or to be used, in a
Permitted Business.
"Permitted Indebtedness" means the following Indebtedness (each
of which shall be given independent effect):
(a) Indebtedness under the Notes, this Indenture and the
Senior Discount Notes Indenture;
(b) Indebtedness of the Company and/or any Restricted
Subsidiary and/or any Restricted Affiliate outstanding on the Issue Date;
(c) (i) Indebtedness of any Restricted Subsidiary or
Restricted Affiliate owed to and held by the Company or a Restricted
Subsidiary or Restricted Affiliate and (ii) Indebtedness of the
Company, not secured by any Lien, owed to and held by any Restricted
Subsidiary or Restricted Affiliate; provided that an incurrence of
Indebtedness shall be deemed to have occurred upon (x) any sale or
other disposition (excluding assignments as security to financial
institutions) of any Indebtedness of the Company or a Restricted
Subsidiary or Restricted Affiliate referred to in this clause (c) to a
person (other than the Company or a Restricted Subsidiary or
Restricted Affiliate) or (y) any sale or other disposition by the
Company or any Restricted Subsidiary of Capital Stock of a Restricted
Subsidiary or Restricted Affiliate, or Designation of an Unrestricted
Subsidiary or JV Revocation of a Restricted Affiliate, which holds
Indebtedness of the Company or another Restricted Subsidiary or
Restricted Affiliate such that such Restricted Subsidiary or
Restricted Affiliate, in any such case, ceases to be a Restricted
Subsidiary or Restricted Affiliate, as the case may be;
(d) Interest Rate Obligations of the Company and/or any
Restricted Subsidiary and/or any Restricted Affiliate relating to
Indebtedness of the Company and/or such Restricted Subsidiary and/or
Restricted Affiliate, as the case may be (which Indebtedness (x) bears
interest at fluctuating interest rates and (y) is otherwise permitted
to be incurred under Section 10.11 hereof), but only to the extent
that the notional principal amount of such Interest Rate Obligations
does not exceed the principal amount of the Indebtedness (and/or
Indebtedness subject to commitments) to which such Interest Rate
Obligations relate;
(e) Indebtedness of the Company and/or any Restricted
Subsidiary and/or any Restricted Affiliate in respect of performance
bonds of the Company or any Restricted Subsidiary or Restricted
Affiliate or surety bonds provided by the Company or any Restricted
Subsidiary or Restricted Affiliate incurred in the ordinary course of
business;
(f) Indebtedness of the Company and/or any Restricted
Subsidiary and/or any Restricted Affiliate to the extent it represents
a replacement, renewal, refinancing or extension (a "Refinancing") of
outstanding Indebtedness of the Company and/or any Restricted
Subsidiary and/or any Restricted Affiliate incurred or outstanding
pursuant to clause (a), (b), (g), or (h) of this definition or the
proviso of Section 10.11 hereof, provided that (1) Indebtedness of
the Company may not be Refinanced to such extent under this clause (f)
with Indebtedness of any Restricted Subsidiary or Restricted
Affiliate, (2) Indebtedness of a Restricted Affiliate may not be
Refinanced with Indebtedness of the Company or a Restricted Subsidiary
in an amount exceeding the RCN Share of such Indebtedness and (3) any
such Refinancing shall only be permitted under this clause (f) to the
extent that (x) it does not result in a lower Average Life to Stated
Maturity of such Indebtedness as compared with the Indebtedness being
Refinanced and (y) it does not exceed the sum of the principal amount
(or, if such Indebtedness provides for a lesser amount to be due and
payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being Refinanced
plus the amount of accrued interest thereon and the amount of any
reasonably determined prepayment premium necessary to accomplish such
Refinancing and such reasonable fees and expenses incurred in
connection therewith;
(g) Buildout Indebtedness (including under one or more
Permitted Credit Facilities); provided that no Indebtedness may be
incurred under this clause (g) on any date on or after October 15,
2002;
(h) Indebtedness of the Company and/or any Restricted
Subsidiary and/or any Restricted Affiliate incurred under one or more
Permitted Credit Facilities, and any Refinancings (whether an initial
Refinancing or one or more successive Refinancings) of the foregoing
otherwise incurred in compliance with clause (f), such that the
aggregate principal amount of the Indebtedness of the Company and the
Restricted Subsidiaries and the RCN Share of any Indebtedness of a
Restricted Affiliate does not exceed $150 million at any time
outstanding; provided, however, such amount shall be increased to $200
million if the Company shall designate as a Restricted Affiliate
pursuant to Section 10.22 a Joint Venture formed to develop a
Permitted Business in a Metropolitan Statistical Area which contains
greater than 400,000 households;
(i) Subordinated Indebtedness of any Restricted Affiliate
owed to and held by any of the Other Partners in such Restricted
Affiliate to the extent (x) such Indebtedness is incurred to fund the
proportionate share (based upon equity ownership) of the Company or
any Restricted Subsidiary of any mandatory capital call made by such
Restricted Affiliate and in respect to which the Company or such
Restricted Subsidiary has defaulted and (y) such Indebtedness is not
secured by any Lien; and
(j) in addition to the items referred to in clauses (a)
through (i) above, Indebtedness of the Company and/or the Restricted
Subsidiaries having an aggregate principal amount not to exceed $10
million at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection
and lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Obligations incurred in compliance with Section
10.11 hereof; and (d) Investments in the Company or any Restricted Subsidiary
or Investments made in any person as a result of which such person becomes a
Restricted Subsidiary.
"person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however
designated) of such person's preferred or preference stock whether now
outstanding, or issued after the Issue Date, and including, without
limitation, all classes and series of preferred or preference stock of such
person.
"Private Exchange Notes" shall have the meaning specified in
the Registration Rights Agreement.
"Private Placement Legend" shall mean the first paragraph of
the legend initially set forth in the Notes in the form set forth on Exhibit
A-1.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"RCN Share" means, with respect to the Indebtedness of any
Restricted Affiliate, an amount of such Indebtedness determined by reference
to the percentage common equity interest of the Company and the Restricted
Subsidiaries in such Restricted Affiliate.
"Redemption Date" means, with respect to any Note to be
redeemed, the date fixed by the Company for such redemption pursuant to this
Indenture and the Notes.
"Redemption Price" means, with respect to any Note to be
redeemed, the price fixed for such redemption pursuant to the terms of this
Indenture and the Notes.
"Refinancing" has the meaning set forth in clause (f) of the
definition of "Permitted Indebtedness."
"Registrable Securities" shall have the meaning specified in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of October 17, 1997 by and among the Company and the
Initial Purchasers, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Regular Record Date" means the Regular Record Date specified
in the Notes.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a permanent global note in
registered form representing the aggregate principal amount of Notes sold in
reliance on Regulation S under the Securities Act.
"Responsible Officer" means, when used with respect to the
Trustee, any officer within the Corporate Trust Office including any Vice
President, Managing Director, Assistant Vice President, Secretary, Assistant
Secretary or Assistant Treasurer or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also, with respect to a particular matter, any
other officer to whom such matter is referred because of such officer's
knowledge and familiarity with the particular subject.
"Restricted Affiliate" means any Joint Venture designated as
such pursuant to and in compliance with Section 10.22 hereof until an
effective JV Revocation in respect thereof has been made.
"Restricted Affiliate Group" means, collectively, any
Restricted Affiliate whose Capital Stock is owned directly by the Company or a
Restricted Subsidiary and all of its Subsidiaries.
"Restricted Note" means a Note that constitutes a "restricted
security" within the meaning of Rule 144(a)(3) under the Securities Act;
provided, however, that the Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether any Note
constitutes a Restricted Note.
"Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company other than dividends
or distributions payable solely in Capital Stock (other than Disqualified
Stock) of the Company or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Stock) of the Company; (ii) the
purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company (other than any such Capital Stock owned by the
Company or a Wholly Owned Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to
any scheduled repayment, sinking fund or maturity of any Subordinated
Indebtedness (other than any Subordinated Indebtedness held by a Wholly Owned
Restricted Subsidiary); or (iv) the making by the Company or any Restricted
Subsidiary or any Restricted Affiliate of any Investment (other than a
Permitted Investment) in any person.
"Restricted Subsidiary" means any Subsidiary of the Company
that has not been designated by the Board, by a Board Resolution delivered to
the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 10.21 hereof. Any such designation may be revoked by a Board
Resolution delivered to the Trustee, subject to the provisions of such
covenant.
"Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness
of such Restricted Subsidiary and (ii) in respect of which the Company is not
also obligated (by means of a guarantee or otherwise) other than, in the case
of this clause (ii), Indebtedness under any Permitted Credit Facilities.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Corporation.
"SEC" means the Securities and Exchange Commission, as from
time to time constituted, or if at any time after the execution of this
Indenture such Commission is not existing and performing the applicable duties
now assigned to it, then the body or bodies performing such duties at such
time.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Senior Debt Securities" means any unsubordinated debt
securities (including any guarantee of such securities) issued by the Company
and/or any Restricted Subsidiary and/or any Restricted Affiliate, whether in a
public offering or a private placement; it being understood that the term
"Senior Debt Securities" shall not include any Permitted Credit Facility or
other commercial bank borrowings or similar borrowings, recourse transfers of
financial assets, capital leases or other types of borrowings issued in a
manner not customarily viewed as a "securities offering."
"Senior Discount Notes" means the 11 1/8% Senior Discount Notes
due 2007 of the Company.
"Senior Discount Notes Indenture" means the indenture governing
the Senior Discount Notes dated as of October 17, 1997, by and between the
Company and The Chase Manhattan Bank, as Trustee, as amended or supplemented
from time to time.
"Special Record Date" means, with respect to the payment of any
Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.07
hereof.
"Stated Maturity" means, with respect to any Note or any
installment of interest thereon, the dates specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest, is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the
Company or any Guarantor which is expressly subordinated in right of payment
to any other Indebtedness of the Company or such Guarantor; provided that, for
purposes of Section 10.16 and Section 10.18, "Subordinated Indebtedness" means
any Indebtedness of the Company or any Restricted Subsidiary or Restricted
Affiliate that is expressly subordinated in right of payment to any other
Indebtedness of such person.
"Subsidiary" means, with respect to any person, (i) any
corporation of which the outstanding Capital Stock having at least a majority
of the votes entitled to be cast in the election of directors shall at the
time be owned, directly or indirectly, by such person, or (ii) any other
person of which at least a majority of voting interest is at the time, directly
or indirectly, owned by such person. In no event shall "Subsidiary" include
any Joint Venture.
"Total Affiliate Indebtedness" means, at any date of
determination, with respect to any Restricted Affiliate, the aggregate
consolidated amount of all Indebtedness of such Restricted Affiliate and its
Subsidiaries outstanding as of the date of determination.
"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the sum of (i) the aggregate amount of all
Indebtedness of the Company and the Restricted Subsidiaries and (ii) the sum
of the RCN Share of the Indebtedness of each of the Restricted Affiliates, in
each case outstanding as of the date of determination and determined on a
consolidated basis.
"Total Invested Equity Capital" means, at any time of
determination, the sum of, without duplication, (i) $216.6 million plus (ii)
the aggregate cash proceeds received by the Company from capital contributions
in respect of existing Capital Stock (other than Disqualified Stock) or the
issuance or sale of Capital Stock (other than Disqualified Stock but including
Capital Stock issued upon conversion of convertible Indebtedness or from the
exercise of options, warrants or rights to purchase Capital Stock (other than
Disqualified Stock)) on or subsequent to the Issue Date, other than to a
Restricted Subsidiary or to a Restricted Affiliate; plus (iii) the aggregate
cash proceeds received by the Company or any Restricted Subsidiary from the
sale, disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment (other than any Investments made pursuant to
clause (d) of the second paragraph of Section 10.13) in an amount equal to the
lesser of (a) the return of capital with respect to such Investment and (b)
the initial amount of such Investment, in either case, less the cost of the
disposition of such Investment, plus (iv) in the case of the Revocation of the
Designation of a Subsidiary as an Unrestricted Subsidiary, an amount equal to
the consolidated net Investment in such Subsidiary on the date of Revocation
but not in an amount exceeding the net amount of any Investments constituting
Restricted Payments made (or deemed made) in such Subsidiary after the Issue
Date plus (v) in the case of the JV Designation after the Issue Date of a New
Joint Venture as a Restricted Affiliate, an amount equal to the consolidated
net Investment in such New Joint Venture on the date of such JV Designation
but not in an amount exceeding the net amount of any Investments constituting
Restricted Payments made (or deemed made) in such New Joint Venture after the
Issue Date minus (vi) the aggregate amount of all Restricted Payments (other
than Restricted Payments referred to in clause (d) or clause (c)(B) of the
second paragraph of Section 10.13) declared or made on and after the Issue
Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939, as amended.
"Trustee" means the person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Notes" means one or more Notes that do not and
are not required to bear the Private Placement Legend in the form set forth in
Exhibit A-2, including, without limitation, the Exchange Notes.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 10.21 hereof.
Any such designation may be revoked by a Board Resolution delivered to the
Trustee, subject to the provisions of such covenant.
"U.S. Government Securities" means securities that are direct
non-callable obligations of the United States of America or securities the
timely payment of whose principal and interest is unconditionally guaranteed
by the full faith and credit of the United States of America.
"Voting Stock" means, with respect to any person, the Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary of which all of the outstanding Capital Stock is owned by the
Company or another Wholly Owned Restricted Subsidiary. For the purposes of
this definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
Section 1.02. Other Definitions.
Defined in
Term Section
---- ----------
"Act" 1.05
"Affiliate Transaction" 10.14
"Agent Member" 3.16
"Asset Sale Offer" 10.15
"Asset Sale Offer Purchase Date" 10.15
"assumed liabilities" 10.15
"Change of Control Date" 10.10
"Change of Control Offer" 10.11
"Change of Control Payment Date" 10.11
"covenant defeasance" 4.03
"Defaulted Interest" 3.07
"defeasance" 4.02
"Defeased Notes" 4.01
"Designation" 10.21
"Event of Default" 5.01
"Excess Proceeds" 10.15
"incur" 10.11
"insolvent person" 4.04
"JV Designation" 10.22
"JV Revocation" 10.22
"JV Revocation Amount" 10.22
"Note Register" 3.05
"Offer Excess Proceeds" 10.15
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Registrar" 3.02
"Replacement Assets" 10.15
"Restricted Period" 3.17
"Revocation" 10.21
"surviving entity" 8.01
"US Designation Amount" 10.21
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular;
(b) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision;
(e) all references to "$" or "dollars" refer to the lawful
currency of the United States of America; and
(f) the words "include," "included" and "including" as used
herein are deemed in each case to be followed by the phrase "without
limitation."
Section 1.04. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified person, it is not necessary
that all such matters be certified by, or covered by the opinion of, only one
such person, or that they be so certified or covered by only one document, but
one such person may certify or give an opinion with respect to some matters
and one or more other persons as to other matters, and any such person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated, with proper identification of each matter covered therein, and
form one instrument.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in
person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where
it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby)
are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution (as provided below
in subsection (b) of this Section 1.05) of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose
of this Indenture and (subject to Section 6.01 hereof) conclusive in
favor of the Trustee and the Company, if made in the manner provided
in this Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any reasonable manner
which the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind
every future Holder of the same Note or the Holder of every Note
issued upon the transfer thereof or in exchange therefor or in lieu
thereof to the same extent as the original Holder, in respect of
anything done, suffered or omitted to be done by the Trustee, any
Paying Agent or the Company in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 1.06. Notices, etc., to the Trustee and the Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed, in
writing, to or with the Trustee at the Corporate Trust Office, 450 West 33rd
Street, 15th Floor, New York, New York 10001, Attention: Global Trust
Services, or at any other address previously furnished in writing to the
Holders and the Company by the Trustee; or
(b) the Company by the Trustee or by any Holder shall be
sufficient for every purpose (except as otherwise expressly provided herein)
hereunder if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at RCN Corporation, 105 Carnegie Center, Princeton, New
Jersey, 08540-6215, Attention: Chief Executive Officer, or at any other
address previously furnished in writing to the Trustee by the Company.
Section 1.07. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise expressly
provided herein) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at the address of such Holder as it appears in
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Any notice when
mailed to a Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually received by such
Holder. Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.08. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or
excluded, as the case may be.
Section 1.09. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Notes issued
pursuant hereto shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Notes issued pursuant
hereto, express or implied, shall give to any person (other than the parties
hereto and their successors hereunder, any Paying Agent and the Holders) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation.
Section 1.15. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or
condition exists.
Section 1.16. Exhibits.
All exhibits attached hereto are by this reference made a part
hereof with the same effect as if herein set forth in full.
Section 1.17. Counterparts.
This Indenture may be executed in any number of counterparts
and by telecopier, each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
Section 1.18. Duplicate Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication with
respect thereto shall be in substantially the forms set forth, or referenced,
in Exhibit A-1 and Exhibit A-2, respectively, annexed hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon
as may be required to comply with any applicable law or with the rules of the
Depository, any clearing agency or any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof.
The definitive Notes shall be printed, typewritten,
lithographed or engraved or produced by any combination of these methods or
may be produced in any other manner permitted by the rules of any securities
exchange on which the Notes may be listed, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its issuance and shall
show the date of its authentication. The terms and provisions contained in
the Notes shall constitute, and are expressly made, a part of this Indenture.
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is limited to $225,000,000 in
aggregate principal amount of Notes, except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Notes pursuant to Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.10 or 10.15
hereof.
The final Stated Maturity of the Notes shall be October 15,
2007, and the Notes shall bear interest at the rate of 10% per annum from the
Issue Date or from the most recent Interest Payment Date to which interest has
been paid, as the case may be, payable semi-annually thereafter in arrears on
April 15 and October 15, in each year, commencing on April 15, 1998, to the
Holders of record at the close of business on April 1 and October 1 ,
respectively, immediately preceding such Interest Payment Dates, until the
principal thereof is paid or duly provided for. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be
payable on demand.
Section 3.02. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in The City of New York, State of New
York) where Notes may be presented for registration of transfer or for exchange
(the "Registrar"), an office or agency (which shall be located in the Borough
of Manhattan in The City of New York, State of New York) where Notes may be
presented for payment (the "Paying Agent" or "Agent") and an office or agency
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term "Paying
Agent" or "Agent" includes any additional paying agent. The Company may act
as its own Paying Agent, except for the purposes of payments on account of
principal on the Notes pursuant to Sections 10.10 and 10.15 hereof.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the Trust Indenture Act. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any such Agent. If the Company
fails to maintain a Registrar or Paying Agent, or fails to give the foregoing
notice, the Trustee shall act as such and shall be entitled to appropriate
compensation in accordance with Section 6.07 hereof.
The Company initially appoints the Trustee as the Registrar and
Paying Agent and agent for service of notices and demands in connection with
the Notes.
Section 3.03. Execution and Authentication.
The Initial Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 hereto. The
Exchange Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of Exhibit A-2 hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange
rule or usage. The Company shall approve the form of the Notes and any
notation, legend or endorsement thereon. Each Note shall be dated the date of
issuance and shall show the date of its authentication.
The terms and provisions contained in the Notes annexed hereto
as Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Global Notes, substantially in the form set forth in
Exhibit A-1, deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided and shall bear the legend set forth in Exhibit B. The aggregate
principal amount of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
Notes issued in exchange for interests in a Global Note
pursuant to Section 3.17 hereof may be issued in the form of permanent
certificated Notes in registered form in substantially the form set forth in
Exhibit A-1 (the "Physical Notes").
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign, and one Officer or an Assistant Secretary
(each of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Notes for the Company by manual or
facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note was an Officer or Assistant Secretary at the time of such execution but
no longer holds that office or position at the time the Trustee authenticates
the Note, the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for original
issue in an aggregate principal amount not to exceed $225,000,000, (ii)
Private Exchange Notes from time to time only in exchange for a like principal
amount of Initial Notes and (iii) Unrestricted Notes from time to time only in
exchange for (A) a like principal amount of Initial Notes or (B) a like
principal amount of Private Exchange Notes, in each case upon a written order
of the Company in the form of an Officers' Certificate of the Company. Each
such written order shall specify the amount of Notes to be authenticated and
the date on which the Notes are to be authenticated, whether the Notes are to
be Initial Notes, Private Exchange Notes or Unrestricted Notes and whether
(subject to this Section 3.03) the Notes are to be issued as Physical Notes or
Global Notes and such other information as the Trustee may reasonably request.
The aggregate principal amount of Notes outstanding at any time may not exceed
$225,000,000, except as provided in Section 3.06 hereof.
Notwithstanding the foregoing, all Notes issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Notes may vote or consent) as one class and no series of Notes will have
the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Notes. Unless otherwise provided in
the appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
Section 3.04. Temporary Notes.
Until definitive Notes are prepared and ready for delivery, the
Company may execute and upon a Company Order the Trustee shall authenticate
and deliver temporary Notes. Temporary Notes shall be substantially in the
form of definitive Notes, in any authorized denominations, but may have
variations that the Company reasonably considers appropriate for temporary
Notes as conclusively evidenced by the Company's execution of such temporary
Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay but in no event
later than the date that the Exchange Offer is consummated. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 10.02 hereof,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Notes, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of like tenor and of authorized denominations. Until so
exchanged the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
Section 3.05. Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 10.02 hereof
being sometimes referred to herein as the "Note Register") in which, subject
to such reasonable regulations as the Registrar may prescribe, the Company
shall provide for the registration of Notes and of transfers and exchanges of
Notes. The Trustee is hereby initially appointed Registrar for the purpose of
registering Notes and transfers of Notes as herein provided.
When Notes are presented to the Registrar or a co-Registrar
with a request from the Holder of such Notes to register the transfer or
exchange for an equal principal amount of Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange
as requested; provided, however, that every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed or be accompanied
by a written instrument of transfer or exchange in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. Whenever any Notes are so presented for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Notes which the Holder making the exchange is entitled to receive. No service
charge shall be made to the Noteholder for any registration of transfer or
exchange. The Company may require from the Noteholder payment of a sum
sufficient to cover any transfer taxes or other governmental charge that may
be imposed in relation to a transfer or exchange, but this provision shall not
apply to any exchange pursuant to Section 10.10, 10.15 or 9.06 hereof (in
which events the Company will be responsible for the payment of all such taxes
which arise solely as a result of the transfer or exchange and do not depend on
the tax status of the Holder). The Trustee shall not be required to exchange
or register the transfer of any Note for a period of 15 days immediately
preceding the first mailing of notice of redemption of Notes to be redeemed or
of any Note selected, called or being called for redemption except, in the
case of any Note where public notice has been given that such Note is to be
redeemed in part, the portion thereof not to be redeemed.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests
in such Global Notes may be effected only through a book-entry system
maintained by the Holder of such Global Note (or its agent), and that
ownership of a beneficial interest in the Note shall be required to be
reflected in a book-entry system.
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note of any series claims that the Note has been lost, destroyed
or wrongfully taken, the Company shall execute and upon a Company Order, the
Trustee shall authenticate and deliver a replacement Note of like tenor and
principal amount, bearing a number not contemporaneously outstanding if the
Holder of such Note furnishes to the Company and to the Trustee evidence
reasonably acceptable to them of the ownership and the destruction, loss or
theft of such Note and an indemnity bond shall be posted by such Holder,
sufficient in the judgment of the Company or the Trustee, as the case may be,
to protect the Company, the Trustee or any Agent from any loss that any of
them may suffer if such Note is replaced. The Company may charge such Holder
for the Company's expenses in replacing such Note (including (i) expenses of
the Trustee charged to the Company and (ii) any tax or other governmental
charge that may be imposed) and the Trustee may charge the Company for the
Trustee's expenses in replacing such Note.
Every replacement Note issued pursuant to this Section in lieu
of any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the person
in whose name that Note (or one or more Predecessor Notes) is registered at
the close of business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date and
interest on such defaulted interest at the then applicable interest rate
borne by the Notes, to the extent lawful (such defaulted interest and interest
thereon herein collectively called "Defaulted Interest") shall forthwith cease
to be payable to the Holder on the Regular Record Date; and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Note and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit on or prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit
of the persons entitled to such Defaulted Interest as provided in this
subsection (a). Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company in writing of such Special Record Date.
In the name and at the expense of the Company, the Trustee shall cause
notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at its address as it appears in the Note
Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the persons in whose names the Notes (or
their respective Predecessor Notes) are registered on such Special
Record Date and shall no longer be payable pursuant to the following
subsection (b).
(b) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon
such notice as may be required by such exchange, if, after written
notice given by the Company to the Trustee of the proposed payment
pursuant to this subsection (b), such payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Note.
Section 3.08. Persons Deemed Owners.
Prior to and at the time of due presentment for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name any Note is registered in the Note Register
as the owner of such Note for the purpose of receiving payment of principal
of, premium, if any, and (subject to Section 3.07 hereof) interest on such
Note and for all other purposes whatsoever, whether or not such Note shall be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
Section 3.09. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. The Registrar and the Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer or exchange, redemption
or payment. The Trustee and no one else shall cancel all Notes surrendered
for registration of transfer, exchange, payment, replacement or cancellation.
No Notes shall be authenticated in lieu of or in exchange for any Notes
canceled as provided in this Section 3.09 hereof, except as expressly
permitted by this Indenture. All canceled Notes held by the Trustee shall be
destroyed and certification of their destruction delivered to the Company
unless by a Company Order the Company shall timely direct that the canceled
Notes be returned to it. The Trustee shall provide the Company a list of all
Notes that have been canceled from time to time as requested by the Company.
Section 3.10. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
Section 3.11. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
date established for the payment of Defaulted Interest or Stated Maturity of
any Note shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Notes) payment of principal, premium, if
any, or interest need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or at the Stated Maturity, as the case may be. In such
event, no interest shall accrue with respect to such payment for the period
from and after such Interest Payment Date, Redemption Date, date established
for the payment of Defaulted Interest or Stated Maturity, as the case may be,
to the next succeeding Business Day and, with respect to any Interest Payment
Date, interest for the period from and after such Interest Payment Date shall
accrue with respect to the next succeeding Interest Payment Date.
Section 3.12. CUSIP and CINS Numbers.
The Company in issuing the Notes may use "CUSIP" and "CINS"
numbers (if then generally in use), and if so, the Trustee shall use the CUSIP
or CINS numbers, as the case may be, in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP or
CINS number, as the case may be, printed in the notice or on the Notes, and
that reliance may be placed only on the other identification numbers printed
on the Notes. The Company shall promptly notify the Trustee in writing of any
change in the CUSIP or CINS number of any type of Notes.
Section 3.13. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment
of principal of, premium, if any, or interest on the Notes, and shall notify
the Trustee of any default by the Company in making any such payment. Money
held in trust by the Paying Agent need not be segregated except as required by
law and in no event shall the Paying Agent be liable for any interest on any
money received by it hereunder. The Company at any time may require the
Paying Agent to pay all money held by it to the Trustee and account for any
funds disbursed and the Trustee may at any time during the continuance of any
Event of Default, upon a Company Order to the Paying Agent, require such
Paying Agent to pay forthwith all money so held by it to the Trustee and to
account for any funds disbursed. Upon making such payment, the Paying Agent
shall have no further liability for the money delivered to the Trustee.
Section 3.14. Treasury Notes.
In determining whether the Holders of the required aggregate
principal amount of Notes have concurred in any direction, waiver, consent or
notice, Notes owned by the Company or an Affiliate of the Company shall be
considered as though they are not outstanding, except that for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which a Responsible Officer of the
Trustee actually knows are so owned shall be so considered. The Company shall
notify the Trustee, in writing, when it or any of its Affiliates repurchases
or otherwise acquires Notes, of the aggregate principal amount of such Notes
so repurchased or otherwise acquired.
Section 3.15. Deposits of Monies.
Prior to 1:00 p.m. New York City time on each Interest Payment
Date, maturity date, Change of Control Payment Date and Asset Sale Offer
Purchase Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any,
due on such Interest Payment Date, maturity date, Change of Control Payment
Date and Asset Sale Offer Purchase Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date, maturity date, Change of Control Payment Date and Asset
Sale Offer Purchase Date, as the case may be.
Section 3.16. Book-Entry Provisions for Global Notes.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian,
or under the Global Note, and the Depository may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner
of the Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent
of the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be
transferred or exchanged for Physical Notes in accordance with the rules and
procedures of the Depository and the provisions of Sections 3.03 and 3.17
hereof. In addition, Physical Notes shall be transferred to all beneficial
owners, in exchange for their beneficial interests in Global Notes if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Note, or that it will cease to be a "Clearing
Agency" under the Exchange Act, and in either case a successor Depository is
not appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Registrar has received a written
request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one or
more Physical Notes of like tenor and principal amount of authorized
denominations.
(d) In connection with the transfer of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Notes, an equal aggregate principal amount at maturity
of Physical Notes of like tenor of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered
in exchange for an interest in a Global Note pursuant to this Section 3.16
shall, except as otherwise provided by Section 3.17 hereof, bear the Private
Placement Legend.
(f) The Holder of any Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
Section 3.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following additional provisions shall apply with respect to the
registration of any proposed transfer of an Initial Note to any Institutional
Accredited Investor which is not a QIB:
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither
the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time
on or prior to the second anniversary of the Issue Date and such
transfer can otherwise be lawfully made under the Securities Act
without registering such Initial Notes thereunder or (y) the
proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto and any legal
opinions and certifications required thereby; and
(ii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the
Registrar of (x) written instructions given in accordance with
the Depository's and the Registrar's procedures and (y) the
appropriate certificate, if any, required by clause (y) of
paragraph (i) above, together with any required legal opinions
and certifications, the Registrar shall register the transfer and
reflect on its books and records the date and a decrease in the
principal amount of the Global Note from which such interests are
to be transferred in an amount equal to the principal amount of
the Notes to be transferred and the Company shall execute and
upon a Company Order, the Trustee shall authenticate Physical
Notes in a principal amount equal to the principal amount of the
Global Note to be transferred.
(b) Transfers to Non-U.S. Persons. The following additional
provisions shall apply with respect to the registration of any proposed
transfer of an Initial Note to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither
the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time
on or prior to the second anniversary of the Issue Date and such
transfer can otherwise be lawfully made under the Securities Act
without registering such Initial Notes thereunder or (y) the
proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto;
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in a Regulation S
Global Note upon receipt by the Registrar of (x) written
instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if
any, required by clause (y) of paragraph (i) above, together with
any required legal opinions and certifications, the Registrar
shall register the transfer and reflect on its books and records
the date and an increase in the principal amount of the
Regulation S Global Note in an amount equal to the principal
amount of Physical Notes to be transferred, and the Trustee shall
cancel the Physical Notes so transferred;
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the
Registrar of (x) written instructions given in accordance with
the Depository's and the Registrar's procedures and (y) the
appropriate certificate, if any, required by clause (y) of
paragraph (i) above, together with any required legal opinions
and certifications, the Registrar shall register the transfer and
reflect on its books and records the date and (A) a decrease in
the principal amount of the Global Note from which such interests
are to be transferred in an amount equal to the principal amount
of the Notes to be transferred and (B) an increase in the
principal amount of the Regulation S Global Note in an amount
equal to the principal amount of the Global Note to be
transferred; and
(iv) until the 41st day after the Issue Date (the
"Restricted Period"), an owner of a beneficial interest in the
Regulation S Global Note may not transfer such interest to a
transferee that is a U.S. person or for the account or benefit of
a U.S. person within the meaning of Rule 902(o) of the Securities
Act. During the Restricted Period, all beneficial interests in
the Regulation S Global Note shall be transferred only through
Cedel or Euroclear, either directly if the transferor and
transferee are participants in such systems, or indirectly
through organizations that are participants.
(c) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of an Initial Note
to a QIB (excluding Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither
the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time
on or prior to the second anniversary of the Issue Date and such
transfer can otherwise be lawfully made under the Securities Act
without registering such Initial Note thereunder or (y) such
transfer is being made by a proposed transferor who has checked
the box provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that
the sale has been made in compliance with the provisions of Rule
144A to a transferee who has signed the certification provided
for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the
Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware
that the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by
Rule 144A;
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the 144A Global
Note, upon receipt by the Registrar of written instructions given
in accordance with the Depository's and the Registrar's
procedures, the Registrar shall register the transfer and reflect
on its book and records the date and an increase in the principal
amount of the 144A Global Note in an amount equal to the
principal amount of Physical Notes to be transferred, and the
Trustee shall cancel the Physical Note so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the
Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
register the transfer and reflect on its books and records the
date and (A) a decrease in the principal amount of the Global
Note from which interests are to be transferred in an amount
equal to the principal amount of the Notes to be transferred and
(B) an increase in the principal amount of the 144A Global Note
in an amount equal to the principal amount of the Global Note to
be transferred.
(d) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Registrar shall deliver Notes that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or replacement
of Notes bearing the Private Placement Legend, the Registrar shall deliver
only Notes that bear the Private Placement Legend unless (i) the circumstances
contemplated by paragraphs (a)(i)(x) or (b)(i)(x) of this Section 3.17 exist,
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act or (iii) such
Note has been sold pursuant to an effective registration statement under the
Securities Act.
(e) Other Transfers. If a Holder proposes to transfer a Note
constituting a Restricted Note pursuant to any exemption from the registration
requirements of the Securities Act other than as provided for by Section
3.17(a) and (b) hereof, the Registrar shall only register such transfer or
exchange if such transferor delivers an Opinion of Counsel satisfactory to the
Company and the Registrar that such transfer is in compliance with the
Securities Act and the terms of this Indenture; provided, however, that the
Company may, based upon the opinion of its counsel, instruct the Registrar by
a Company Order not to register such transfer in any case where the proposed
transferee is not a QIB, or a Non-U.S. person or an Institutional Accredited
Investor.
(f) General. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 3.16 hereof or this
Section 3.17. The Company shall have the right to inspect and make copies of
all such letters, notices or other written communications at any reasonable
time upon the giving of reasonable prior written notice to the Registrar.
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Notes, elect to have either Section 4.02 or Section
4.03 hereof be applied to all of the Outstanding Notes (the "Defeased Notes"),
upon compliance with the conditions set forth below in this Article Four.
Section 4.02. Defeasance and Discharge.
Upon the Company's exercise under Section 4.01 hereof of the
option applicable to this Section 4.02, the Company shall be deemed to have
been discharged from its obligations with respect to the Defeased Notes on the
date the conditions set forth below are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the Defeased
Notes, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 4.05 and the other Sections of this Indenture referred to
in (a) and (b) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, and, upon Company Request, shall
execute proper instruments acknowledging the same), except for the following,
which shall survive until otherwise terminated or discharged hereunder: (a)
the rights of Holders of Defeased Notes to receive, solely from the trust fund
described in Section 4.04 hereof and as more fully set forth in such Section,
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (b) the Company's obligations with respect
to such Defeased Notes under Sections 3.04, 3.05, 3.06, 10.02 and 10.03
hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, including, without limitation, the Trustee's rights under Sections
4.05 and 6.07 hereof, and (d) this Article Four. Subject to compliance with
this Article Four, the Company may exercise its option under this Section 4.02
notwithstanding the prior exercise of its option under Section 4.03 hereof with
respect to the Notes.
Section 4.03. Covenant Defeasance.
Upon the Company's exercise under Section 4.01 hereof of the
option applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained in Sections 10.06
through 10.23 hereof and the provisions of clause (c) of Section 8.01 shall
not apply, with respect to the Defeased Notes, on and after the date the
conditions set forth below are satisfied (hereinafter, "covenant defeasance"),
and the Defeased Notes shall thereafter be deemed not to be "Outstanding" for
the purposes of any direction, waiver, consent or declaration or Act of Holders
(and the consequences of any thereof) in connection with such covenants, but
shall continue to be deemed "Outstanding" for all other purposes hereunder.
For this purpose, such covenant defeasance means that, with respect to the
Defeased Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any
such Section or Article, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or Article or by reason of any
reference in any such Section or Article to any other provision herein or in
any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 5.01(iii) or (iv) hereof, but, except as
specified above, the remainder of this Indenture and such Defeased Notes shall
be unaffected thereby.
Section 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 4.02 or Section 4.03 hereof to the Defeased Notes:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.09 hereof who shall agree to comply with the
provisions of this Article Four applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Notes, (a) money in an amount, or (b) U.S.
Government Obligations which through the scheduled payment of
principal, premium, if any, and interest in respect thereof in
accordance with their terms will provide, not later than the due date
of any payment, money in an amount, or (c) a combination thereof, in
any such case, sufficient without reinvestment, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay
and discharge the entire Indebtedness in respect of, and which shall
be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of, premium, if any, and interest on the
Defeased Notes at the Stated Maturity of such principal or installment
of principal, premium, if any, or interest or (if the Company has made
irrevocable arrangements satisfactory to such Trustee for the giving
of notice of redemption by such Trustee in the name and at the expense
of the Company) the redemption date thereof, as the case may be, in
accordance with the terms of the Indenture and the Notes; provided,
however, that the Trustee shall have been irrevocably instructed to
apply such cash or the proceeds of such U.S. Government Obligations
to said payments with respect to the Notes;
(2) No Default with respect to the Outstanding Notes shall have
occurred and be continuing on the date of such deposit or, insofar as
Section 4.02 hereof is concerned, at any time during the period ending
on the ninety-first day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period) no Default relating to Section 5.01(viii),
(ix) or (x) hereof;
(3) Neither the Company nor any Subsidiary of the Company is an
"insolvent person" within the meaning of any applicable Bankruptcy Law
on the date of such deposit or at any time during the period ending on
the ninety-first day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);
(4) Such defeasance or covenant defeasance shall not cause the
Trustee for the Notes to have a conflicting interest in violation of
Section 6.08 hereof and for purposes of the Trust Indenture Act with
respect to any securities of the Company;
(5) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the
Company is a party or by which it is bound;
(6) In the case of an election under Section 4.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (y) since the
date hereof, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of the Outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as
a result of such deposit, defeasance and discharge to be effected with
respect to the Notes and will be subject to federal income tax on the
same amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not
occurred;
(7) In the case of an election under Section 4.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of the deposit and covenant defeasance to be effected with
respect to the Notes and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would have
been the case if such deposit and covenant defeasance had not
occurred;
(8) The Company shall have delivered to the Trustee, an Opinion
of Counsel to the effect that, immediately following the ninety-first
day after the deposit, the trust funds established pursuant to this
Article will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally under any applicable U.S. Federal or
state law;
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit made by the Company
pursuant to its election under Section 4.02 or 4.03 hereof was not
made by the Company with the intent of preferring the Holders over the
other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others;
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that (i)
all conditions precedent (other than conditions requiring the passage
of time) provided for relating to either the defeasance under Section
4.02 or the covenant defeasance under Section 4.03 (as the case may
be) have been complied with as contemplated by this Section 4.04 and
(ii) if any other Indebtedness of the Company shall then be
outstanding or committed, such defeasance or covenant defeasance will
not violate the provisions of the agreements or instruments evidencing
such Indebtedness; and
(11) Such defeasance or covenant defeasance shall not result in
a trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act of 1940, as amended,
unless such trust shall be registered under the Act or exempt from
registration thereunder.
Opinions required to be delivered under this Section may have
such qualifications as are customary for opinions of the type required and
reasonably acceptable to the Trustee.
Section 4.05. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous
Provisions.
Subject to the proviso of the last paragraph of Section 10.03,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 4.05, the "Trustee") pursuant to Section 4.04 in
respect of the Defeased Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture,
to the payment, either directly or through any Paying Agent (other than the
Company) as the Trustee may determine, to the Holders of such Notes of all sums
due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee, its officers,
directors, employees and agents and hold them harmless against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 4.04 or the principal, premium, if any, and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Defeased Notes.
Anything in this Article Four to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 4.04 which, in the opinion of an internationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would
then be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
Section 4.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 4.02 or 4.03 hereof, as
the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 4.02 or 4.03 hereof, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money and U.S.
Government Obligations in accordance with Section 4.02 or 4.03 hereof, as the
case may be; provided, however, that if the Company makes any payment of
principal, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money and
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) default in the payment of interest on the Notes when it
becomes due and payable and continuance of such default for a period
of 30-days or more (provided such 30 day grace period shall be
inapplicable for the first six interest payments due on the Notes); or
(ii) default in the payment of the principal of, or premium,
if any, on the Notes when due; or
(iii) default in the performance, or breach, of any covenant
described under Section 10.10, Section 10.15 or Article Eight; or
(iv) default in the performance, or breach, of any covenant
in this Indenture (other than defaults specified in clause (i), (ii)
or (iii) above) or the Escrow Agreement, and continuance of such
default or breach for a period of 30 days or more after written notice
to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the
outstanding Notes (in each case, when such notice is deemed received
in accordance with this Indenture); or
(v) failure to perform any term, covenant, condition or
provision of one or more classes or issues of Indebtedness in an
aggregate principal amount of $10.0 million or more under which the
Company or a Material Restricted Subsidiary is obligated, and either
(a) such Indebtedness is already due and payable in full or (b) such
failure results in the acceleration of the maturity of such
Indebtedness; or
(vi) any holder of at least $10.0 million in aggregate
principal amount of Indebtedness of the Company or any Material
Restricted Subsidiary shall commence judicial proceedings or take any
other action to foreclose upon or dispose of assets of the Company or
any Material Restricted Subsidiary having an aggregate Fair Market
Value, individually or in the aggregate, of $10.0 million or more or
shall have exercised any right under applicable law or applicable
security documents to take ownership of any such assets in lieu of
foreclosure; provided that, in any such case, the Company or any
Material Restricted Subsidiary shall not have obtained, prior to any
such foreclosure or disposition of assets, a stay of all such actions
that remains in effect; or
(vii) one or more non-appealable judgments, orders or decrees
for the payment of money of $10.0 million or more, either individually
or in the aggregate, shall be entered into against the Company or any
Material Restricted Subsidiary or any of their respective properties
and shall not be discharged and there shall have been a period of 60
days or more during which a stay of enforcement of such judgment or
order, by reason of pending appeal or otherwise, shall not be in
effect; or
(viii) the Company or any Material Restricted Subsidiary of the
Company pursuant to or under or within the meaning of any Bankruptcy
Law;
(A) commences a voluntary case or proceeding;
(B) consents to the making of a Bankruptcy Order in an
involuntary case or proceeding or the commencement of any
case against it;
(C) consents to the appointment of a Custodian of it or
for any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors;
(E) files an answer or consent seeking reorganization
or relief;
(F) shall admit in writing its inability to pay its
debts generally; or
(G) consents to the filing of a petition in bankruptcy.
(ix) a court of competent jurisdiction in any involuntary
case or proceeding enters a Bankruptcy Order against the Company or
any Material Restricted Subsidiary, and such Bankruptcy Order remains
unstayed and in effect for 60 consecutive days; or
(x) a Custodian shall be appointed out of court
with respect to the Company or any Material Restricted Subsidiary or
with respect to all or any substantial part of the assets or
properties of the Company or any Material Restricted Subsidiary;
(xi) the Company shall assert or acknowledge in writing that
the Escrow Agreement is invalid or unenforceable; or
(xii) the Company shall have failed on the Issue Date to enter
into the Escrow Agreement or pursuant thereto fail to place the
Initial Escrow Amount (as defined in the Escrow Agreement) in the
Escrow Account held by the Escrow Agent for the benefit of the Holders
of the Notes and the Trustee.
Section 5.02. Acceleration of Maturity Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in clause (viii), (ix) or (x) of Section 5.01 hereof with respect to
the Company) occurs and is continuing, then the Trustee or the holders of at
least 25% in principal amount of the Outstanding Notes may, by written notice,
and the Trustee upon the request of the holders of not less than 25% in
principal amount of the outstanding Notes shall, declare the Default Amount of
all Outstanding Notes to be immediately due and payable and upon any such
declaration such amounts shall become immediately due and payable. If an
Event of Default specified in clause (viii), (ix) or (x) above with respect to
the Company occurs and is continuing, then the Default Amount of all
Outstanding Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
After a declaration of acceleration or any ipso facto
acceleration as related to clause (viii), (ix) or (x) of Section 5.01, the
holders of a majority in aggregate principal amount of Outstanding Notes may,
by notice to the Trustee, rescind such declaration of acceleration and its
consequences if all existing Events of Default, other than nonpayment of the
principal of, and accrued and unpaid interest on, the Notes that has become
due solely as a result of such acceleration, have been cured or waived and if
the rescission of acceleration would not conflict with any judgment or decree.
Section 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if an Event of Default specified in
Section 5.01(i), 5.01(ii) or 5.01(iii) (to the extent relating to a payment
required by Section 10.10 or Section 10.15) shall have occurred and be
continuing, the Company will, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders of such Notes, the whole amount then due and
payable on such Notes for principal, premium, if any, and interest, with
interest upon the overdue principal, premium, if any, and, to the extent that
payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate then borne by the Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may,
but is not obligated under this paragraph to, institute a judicial proceeding
for the collection of the sums so due and unpaid and may, but is not obligated
under this paragraph to, prosecute such proceeding to judgment or final
decree, and may, but is not obligated under this paragraph to, enforce the
same against the Company or any other obligor upon the Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Notes, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion, but is not obligated under this paragraph to, (i)
proceed to protect and enforce its rights and the rights of the Holders under
this Indenture by such appropriate private or judicial proceedings as the
Trustee shall deem most effectual to protect and enforce such rights, whether
for the specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted herein or (ii)
proceed to protect and enforce any other proper remedy. No recovery of any
such judgment upon any property of the Company shall affect or impair any
rights, powers or remedies of the Trustee or the Holders.
Section 5.04. Trustee May File Proofs of Claims.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor upon
the Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in
respect of the Notes and to file such other papers or documents
as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation,
fees, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the
same;
and any Custodian, in any such judicial proceeding, is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay the Trustee as administrative expenses associated with any such
proceeding and, in the event that the Trustee shall consent to the making of
such payments directly to Holders, any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07 hereof.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any
plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Notes or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture, the
Escrow Agreement or the Notes may be prosecuted and enforced by the Trustee
without the possession of any of the Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, fees, expenses, disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of the Holders of the Notes in
respect of which such judgment has been recovered.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article,
including such amounts held pursuant to the Escrow Agreement, shall be applied
in the following order, at the date or dates fixed by the Trustee and, in case
of the distribution of such money on account of principal, premium, if any, or
interest, upon presentation of the Notes and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders for principal and premium, if any, amounts
owing under the Notes, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal and premium, if any; and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Noteholders pursuant to this
Section 5.06.
Section 5.07. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
a majority in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture or any Note,
except in the manner provided in this Indenture and for the equal and ratable
benefit of all the Holders.
Section 5.08. Unconditional Right of Holders To Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional,
to receive cash payment of the principal of, premium, if any, and (subject to
Section 3.07 hereof) interest on such Note on the respective Stated Maturities
expressed in such Note (or, in the case of redemption, on the respective
Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of
the Trustee and the Holders shall continue as though no such proceeding had
been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article Five or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
Section 5.12. Control by Majority.
The Holders of a majority in aggregate principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided, however,
that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture or the Escrow Agreement or any Note or
expose the Trustee to personal liability; and
(b) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Notes may on behalf of the Holders of all the Notes
waive any past Default hereunder and its consequences, except a Default
(a) in the payment of the principal of, or interest on any
Outstanding Note or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected thereby.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 5.14 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Notes, or to any suit instituted by any Holder for the enforcement
of the payment of the principal of, premium, if any, or interest on any Note
on or after the respective Stated Maturities expressed in such Note (or, in
the case of redemption, on or after the respective Redemption Dates).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law or any usury or other law wherever enacted, now or at any time hereafter
in force, which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium, if any, or interest on the Notes
contemplated herein or in the Notes or which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.16. Unconditional Right of Holders To Receive
Payment.
Notwithstanding any other provision in this Indenture or the
Escrow Agreement and any other provision of any Note, the right of any Holder
of any Note to receive payment of the principal of, premium, if any, and
interest on such Note on or after the respective Stated Maturities (or the
respective Redemption Dates, in the case of redemption) expressed in such
Note, or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and the Escrow
Agreement, and no implied covenants or obligations shall be read into
this Indenture and the Escrow Agreement against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture and the Escrow Agreement; but in the case of any
such certificates or opinions which by provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture or the Escrow
Agreement.
(b) During the existence of an Event of Default, the Trustee
is required to exercise such rights and powers vested in it under this
Indenture and the Escrow Agreement and use the same degree of care and skill
in its exercise thereof as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that no
provision of this Indenture or the Escrow Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture and the Escrow Agreement relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 6.01.
Section 6.02. Notice of Defaults.
Within 45 days after the occurrence of any Default, the Trustee
shall transmit by mail to all Holders, as their names and addresses appear in
the Note Register, notice of such Default hereunder actually known to a
Responsible Officer of the Trustee, unless such Default shall have been cured
or waived; provided, however, that, except in the case of a Default in the
payment of the principal of, premium, if any, or interest on any Note or in
the case of any Default arising from the occurrence of a Change of Control,
the Trustee shall be protected in withholding such notice if and so long as a
trust committee of Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Holders.
Section 6.03. Certain Rights of Trustee.
Subject to Section 6.01 hereof and the provisions of Section
315 of the Trust Indenture Act:
(a) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board may be sufficiently evidenced by
a Board Resolution thereof;
(c) the Trustee may consult with counsel and any advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon in
accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture or the
Escrow Agreement at the request or direction of any of the Holders
pursuant to this Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity satisfactory to it
against the costs, expenses and liabilities which might be incurred by
the Trustee in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture or the Escrow Agreement other than any liabilities arising
out of its own negligence;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, approval, appraisal, bond, debenture, note,
coupon, security, other evidence of indebtedness or other paper or
document unless requested in writing so to do by the Holders of not
less than a majority in aggregate principal amount of the Notes then
Outstanding; provided, however, that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in
the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the
Trustee may require indemnity satisfactory to it against such expenses
or liabilities as a condition to proceeding; the reasonable expenses
of every such investigation shall be paid by the Company or, if paid
by the Trustee or any predecessor Trustee, shall be repaid by the
Company upon demand; provided, further, the Trustee in its discretion
may make such further inquiry or investigation into such facts or
matters as it may deem fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or
by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents, attorneys, custodians or nominees and the Trustee
shall not be responsible for any misconduct or negligence on the part
of any agent, custodian or nominee or attorney appointed with due care
by it hereunder;
(h) except with respect to Section 10.01, the Trustee shall
have no duty to inquire as to the performance of the Company's
covenants in Article Ten. In addition, the Trustee shall not be
deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 5.01(i), 5.01(ii)
and 10.01 or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or obtained actual knowledge;
and
(i) if the Trustee is acting in the capacity of Registrar
and/or Paying Agent, then the rights afforded to the Trustee under
this Section 6.03 shall also be afforded to it as Registrar and/or
Paying Agent.
Section 6.04. Trustee Not Responsible for Recitals,
Dispositions of Notes or Application
of Proceeds Thereof.
The recitals contained herein, in the Notes and in the Escrow
Agreement, except the Trustee's certificate of authentication, shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture, the Escrow Agreement or the Notes except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture and the Escrow Agreement, authenticate the Notes and perform its
obligations hereunder and that the statements made by it in a Statement of
Eligibility and Qualification on Form T-1, if any, to be supplied to the
Company are true and accurate subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Notes or the proceeds thereof.
Section 6.05. Trustee and Agents May Hold Notes;
Collections; Etc.
The Trustee, any Paying Agent, Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Notes, with the same rights it would have if it were not the
Trustee, Paying Agent, Registrar or such other agent and, subject to Section
6.08 hereof and Sections 310 and 311 of the Trust Indenture Act, may otherwise
deal with the Company and receive, collect, hold and retain collections from
the Company with the same rights it would have if it were not the Trustee,
Paying Agent, Registrar or such other agent.
Section 6.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required herein or by law. The Trustee shall not be under any liability for
interest on any moneys received by it hereunder.
Section 6.07. Compensation and Indemnification of Trustee and
Its Prior Claim.
The Company covenants and agrees: (a) to pay to the Trustee
from time to time, and the Trustee shall be entitled to, reasonable
compensation for all services rendered by it hereunder (which shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust); (b) to reimburse the Trustee and each predecessor Trustee
upon its request for all reasonable expenses, fees, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the
provisions of this Indenture (including the reasonable compensation, fees, and
the expenses and disbursements of its counsel and of all agents and other
persons not regularly in its employ), except any such expense, disbursement or
advance as may arise from its negligence or bad faith; and (c) to indemnify
the Trustee and any of its officers, directors, employees and agents and each
predecessor Trustee for and to hold it harmless against any loss, liability or
expense (including attorneys' fees and expenses incurred in defending
themselves) incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this Indenture or
in respect of the Escrow Agreement or the trusts hereunder and its duties
hereunder, including enforcement of this Section 6.07. The obligations of the
Company under this Section to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, fees, disbursements and advances shall constitute an
additional obligation hereunder and shall survive the satisfaction and
discharge of this Indenture. To secure the Company's payment obligations in
this Section 6.07, the Trustee shall have a Lien prior to the Notes on all
money or property held or collected by the Trustee, except that held to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture. The obligations of the Company
under this Section to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction and discharge of
this Indenture or the rejection or termination of this Indenture under
bankruptcy law. Such additional indebtedness shall be a senior claim to that
of the Notes upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the Holders of particular
Notes, and the Notes are hereby subordinated to such senior claim. If the
Trustee renders services and incurs expenses following an Event of Default
under Section 5.01(viii), Section 5.01(ix) or Section 5.01(x) hereof, the
parties hereto and the Holders by their acceptance of the Notes hereby agree
that such expenses are intended to constitute expenses of administration under
any bankruptcy law.
Section 6.08. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and
(2) and which shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of any Federal, state,
territorial or District of Columbia supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the
effect hereinafter specified in this Article.
Section 6.10. Resignation and Removal; Appointment of
Successor Trustee.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee, or any trustee or trustees hereinafter
appointed, may at any time resign by giving written notice thereof to the
Company at least 20 Business Days prior to the date of such proposed
resignation. Upon receiving such notice of resignation, the Company shall,
after all monies due and owing have been paid to the Trustee, promptly appoint
a successor trustee by written instrument executed by authority of the Board,
a copy of which shall be delivered to the resigning Trustee and a copy to the
successor Trustee. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 20 Business Days after the
giving of such notice of resignation, the resigning Trustee may, or any Holder
who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper, appoint a
successor Trustee.
(c) The Trustee may be removed at any time by an Act of the
Holders of a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act in accordance with
Section 6.08 hereof after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Note for at
least six months, or
(2) the Trustee shall cease to be eligible under Section
6.09 hereof and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona fide
Holder of a Note for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or
of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or
affairs for the purpose or rehabilitation, conservation or
liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, the Holder of any Note who has been
a bona fide Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders of the Notes and accepted appointment
in the manner hereinafter provided, the Holder of any Note who has been a bona
fide Holder for at least six months may, subject to Section 5.14, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Notes as their names and addresses appear in the Note Register.
Each notice shall include the name of the successor Trustee and the address of
its Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee as if
originally named as Trustee hereunder; but, nevertheless, on the written
request of the Company or the successor Trustee, upon payment of amounts due
to it pursuant to Section 6.07, such retiring Trustee shall duly assign,
transfer and deliver to the successor Trustee all moneys and property at the
time held by it hereunder and shall execute and deliver an instrument
transferring to such successor Trustee all the rights, powers, duties and
obligations of the retiring Trustee. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights
and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior
claim upon all property or funds held or collected by such Trustee to secure
any amounts then due it pursuant to the provisions of Section 6.07.
No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under
this Article.
Upon acceptance of appointment by any successor Trustee as
provided in this Section 6.11, the successor shall give notice thereof to the
Holders of the Notes, by mailing such notice to such Holders at their
addresses as they shall appear on the Note Register. If the acceptance of
appointment is substantially contemporaneous with the resignation, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 6.10. If the Company fails to give such notice within
10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be given at the expense of the
Company.
Section 6.12. Merger, Conversion, Amalgamation, Consolidation
or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or amalgamated, or any
corporation resulting from any merger, conversion, amalgamation or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, provided such corporation shall be eligible under this Article Six to
serve as Trustee hereunder.
In case at the time such successor to the Trustee under this
Section 6.12 shall succeed to the trusts created by this Indenture any of the
Notes shall have been authenticated but not delivered, any such successor to
the Trustee may adopt the certificate of authentication of any predecessor
Trustee and deliver such Notes so authenticated; and, in case at that time any
of the Notes shall not have been authenticated, any successor to the Trustee
under this Section 6.12 may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor Trustee; and in all such
cases such certificate shall have the full force which it is anywhere in the
Notes or in this Indenture provided that the certificate of the Trustee shall
have been authenticated.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish
Trustee Names and Addresses of Holders.
(a) The Trustee shall preserve the names and addresses of the
Noteholders and otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause the Registrar to furnish
to the Trustee before each Interest Payment Date, and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the
Noteholders. Neither the Company nor the Trustee shall be under any
responsibility with regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the
Trustee
(i) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such
Regular Record Date; and
(ii) at such other times as the Trustee may reasonably
request in writing, within 30 days after receipt by the Company
of any such request, a list of similar form and content as of a
date not more than 15 days prior to the time such list is
furnished;
provided, however, that if and so long as the Trustee shall be the Registrar,
no such list need be furnished pursuant to this Subsection 7.01(b).
Section 7.02. Communications of Holders.
Holders may communicate with other Holders with respect to
their rights under this Indenture or under the Notes pursuant to Section
312(b) of the Trust Indenture Act. The Company and the Trustee and any and
all other persons benefited by this Indenture shall have the protection
afforded by Section 312(c) of the Trust Indenture Act.
Section 7.03. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 following the date of this Indenture, the Trustee shall mail to
all Holders, as their names and addresses appear in the Note Register, a brief
report dated as of such May 15, in accordance with, and to the extent required
under Section 313 of the Trust Indenture Act. At the time of its mailing to
Holders, a copy of each such report shall be filed by the Trustee with the
Company, the SEC and with each stock exchange on which the Notes are listed.
The Company shall notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.04. Reports by Company.
The Company shall:
(a) file with the SEC the copies of annual reports and of the
information, documents and other reports (or copies of such portions
of any of the foregoing as the SEC may from time to time by rules and
regulations prescribe) required to be filed with the SEC pursuant to
Section 13 or Section 15 of the Exchange Act, whether or not the
Company has a class of securities registered under the Exchange Act;
(b) file with the Trustee within 15 days after it files or
would be required to file the information specified in subsection (a)
of this Section 7.04 reports and documents with the SEC copies of such
information;
(c) file with the Trustee and the SEC in accordance with
rules and regulations prescribed from time to time by the SEC, such
additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(d) transmit by mail to all Holders, as their names and
addresses appear in the Note Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents
and reports required to be filed by the Company pursuant to
subsections (a) and (c) of this Section as may be required by rules
and regulations prescribed from time to time by the SEC.
Notwithstanding anything to the contrary herein, the Trustee
shall have no duty to review information provided pursuant to subsection (b)
of this Section 7.04 for purposes of determining compliance with any
provisions of this Indenture.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc.,
Only on Certain Terms.
The Company will not (i) consolidate or combine with or merge
with or into or, directly or indirectly, sell, assign, convey, lease, transfer
or otherwise dispose of all or substantially all of its properties and assets
to any person or persons in a single transaction or through a series of
transactions, or (ii) permit any of the Restricted Subsidiaries to enter into
any such transaction or series of transactions if it would result in the
disposition of all or substantially all of the properties or assets of the
Company and the Restricted Subsidiaries on a consolidated basis, unless, in
the case of either (i) or (ii), (a) the Company shall be the continuing person
or, if the Company is not the continuing person, the resulting, surviving or
transferee person (the "surviving entity") shall be a company organized and
existing under the laws of the United States or any State or territory thereof;
(b) the surviving entity shall expressly assume all of the obligations of the
Company under the Notes, the Escrow Agreement and this Indenture, and shall,
if required by law to effectuate such assumption, execute a supplemental
indenture to effect such assumption which supplemental indenture shall be
delivered to the Trustee and shall be in form and substance reasonably
satisfactory to the Trustee; (c) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Company or the surviving entity (assuming such surviving entity's
assumption of the Company's obligations under the Notes and this Indenture),
as the case may be, would be able to incur $1.00 of Indebtedness under clause
(A)(X) of the proviso of Section 10.11; (d) immediately after giving effect to
such transaction or series of transactions on a pro forma basis (including,
without limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
no Default shall have occurred and be continuing; and (e) the Company or the
surviving entity, as the case may be, shall have delivered to the Trustee an
Officers' Certificate and Opinion of Counsel stating that such transaction or
series of transactions, and, if a supplemental indenture is required in
connection with such transaction or series of transactions to effectuate such
assumption, such supplemental indenture, complies with this covenant and that
all conditions precedent in this Indenture relating to the transaction or
series of transactions have been satisfied.
Section 8.02. Successor Substituted.
Upon any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all
of the assets of the Company in accordance with the foregoing in which the
Company or the Restricted Subsidiary, as the case may be, is not the
continuing corporation, the successor corporation formed by such a
consolidation or into which the Company or such Restricted Subsidiary is
merged or to which such transfer is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company or such Restricted
Subsidiary, as the case may be, under this Indenture, the Escrow Agreement and
the Notes with the same effect as if such successor corporation had been named
as the Company or such Restricted Subsidiary therein; and thereafter, except
in the case of (i) any lease or (ii) any sale, assignment, conveyance,
transfer, lease or other disposition to a Restricted Subsidiary of the
Company, the Company shall be discharged from all obligations and covenants
under this Indenture, the Escrow Agreement and the Notes.
For all purposes of this Indenture and the Notes (including the
provision of this Article Eight and Sections 10.11, Section 10.13 and Section
10.16), Subsidiaries of any surviving entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries as provided pursuant to Section 10.21 and all Indebtedness, and
all Liens on property or assets, of the Company and the Restricted
Subsidiaries in existence immediately prior to such transaction or series of
related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers
Without Consent of Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution of the Board, and the Trustee, at any time
and from time to time, may amend, waive, modify or supplement this Indenture
or the Notes for any of the following purposes:
(a) to evidence the succession of another person to the
Company, and the assumption by any such successor of the covenants of
the Company in the Notes;
(b) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company, herein, in the Notes;
(c) to cure any ambiguity, to correct or supplement any
provision herein, in the Notes which may be defective or inconsistent
with any other provision herein or to make any other provisions with
respect to matters or questions arising under this Indenture or the
Notes; provided, however, that, in each case, such provisions shall
not materially adversely affect the legal rights of the Holders;
(d) to comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 9.05 hereof or otherwise;
(e) to mortgage, pledge, hypothecate or grant a security
interest in any property or assets in favor of the Trustee for the
benefit of the Holders as security for the payment and performance of
this Indenture Obligations or to amend, modify or supplement the
Escrow Agreement to insure a first priority perfected security
interest on the Collateral in favor of the Trustee;
(f) to make any other change that does not materially
adversely affect the legal rights of any Holder; or
(g) to add Guarantors with respect to the Notes;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not materially
adversely affect the legal rights of any Holder.
Section 9.02. Supplemental Indentures, Agreements and Waivers
with Consent of Holders.
With the written consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Notes delivered to
the Company and the Trustee, the Company when authorized by a Board
Resolution, together with the Trustee, may amend, waive, modify or supplement
any other provision of this Indenture or the Notes; provided, however, that no
such amendment, waiver, modification or supplement may, without the consent of
the Holder of each Outstanding Note affected thereby:
(i) reduce the principal amount of, change the fixed
maturity of, or alter the redemption provisions of, the Notes, (other
than, subject to clause (vii) below, provisions relating to repurchase
of Notes upon the occurrence of an Asset Sale or a Change at Control),
(ii) change the currency in which any Notes or amounts owing
thereon is payable,
(iii) reduce the percentage of principal amount outstanding
of Notes which must consent to an amendment, supplement or waiver or
consent to take any action under this Indenture or the Notes,
(iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes,
(v) waive a default in payment with respect to the Notes or
any Guarantee,
(vi) reduce the rate or extend the time for payment
of interest on the Notes,
(vii) following the occurrence of a Change of Control or an
Asset Sale, alter the Company's obligation to purchase Notes as a
result thereof in accordance with this Indenture or waive any default
in the performance thereof,
(viii) affect the ranking of the Notes in a manner adverse to
the holder of the Notes,
(ix) release any Guarantor from any of its obligations under
its Guarantee or this Indenture except in compliance with the terms of
this Indenture, or
(x) permit the creation of any Lien (other than the Lien of
the Pledgee) created by the Escrow Agreement or terminate the Lien
created by the Escrow Agreement.
Upon the written request of the Company accompanied by a copy
of a Board Resolution of the Board authorizing the execution of any such
supplemental indenture or other agreement, instrument or waiver, and an
Officer's Certificate and an Opinion of Counsel upon which the Trustee shall
be fully protected in relying as conclusive evidence that such change,
agreement, supplement or waiver is permitted by this Indenture and upon the
filing with the Trustee of evidence of the consent of Holders as aforesaid,
the Trustee shall join with the Company in the execution of such supplemental
indenture or other agreement, instrument or waiver.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture
or other agreement, instrument or waiver, but it shall be sufficient if such
Act shall approve the substance thereof.
Section 9.03. Execution of Supplemental Indentures,
Agreements and Waivers.
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
from each obligor under the Notes entering into such supplemental indenture,
agreement, instrument or waiver, each stating that the execution of such
supplemental indenture, agreement, instrument or waiver (a) is authorized or
permitted by this Indenture and (b) does not violate the provisions of any
agreement or instrument evidencing any other Indebtedness of the Company or
any other Subsidiary of the Company. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture, agreement,
instrument or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture, the Notes or otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article Nine, this Indenture and/or the Notes, if applicable, shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture and/or the Notes, if applicable, as the case may be,
for all purposes; and every Holder of Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Board, to any such supplemental indenture may be prepared and executed
by the Company and authenticated and delivered by the Trustee upon a Company
Order in exchange for Outstanding Notes.
Section 9.07. Record Date.
The Company may, but shall not be obligated to, fix, a record
date for the purpose of determining the Holders entitled to consent to any
supplemental indenture, agreement or instrument or any waiver, and shall
promptly notify the Trustee of any such record date. If a record date is
fixed those persons who were Holders at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such supplemental indenture, agreement or instrument or waiver or to revoke
any consent previously given, whether or not such persons continue to be
Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
Section 9.08. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt
as the consenting Holder's Note, even if a notation of the consent is not made
on any Note. However, any such Holder, or subsequent Holder, may revoke the
consent as to his Note or portion of a Note if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. An
amendment or waiver shall become effective in accordance with its terms and
thereafter bind every Holder.
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
Section 10.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan in The
City of New York, State of New York, an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
office of the Trustee at its Corporate Trust Office will be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York, State of New
York) where the Notes may be presented or surrendered for any or all such
purposes, and may from time to time rescind such designation; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in The City of New
York, State of New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and any
change in the location of any such other office or agency.
Section 10.03. Money for Note Payments To Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of, premium, if any, or
interest on any of the Notes, segregate and hold in trust for the benefit of
the Holders entitled thereto a sum sufficient to pay the principal, premium,
if any, or interest so becoming due until such sums shall be paid to such
persons or otherwise disposed of as herein provided, and will promptly notify
the Trustee of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will,
on or before each due date of the principal of, premium, if any, or interest
on, any Notes, deposit with a Paying Agent a sum in same day funds sufficient
to pay the principal, premium, if any, or interest so becoming due, such sum
to be held in trust for the benefit of the Holders entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent will agree with the Trustee,
subject to the provisions of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on Notes in trust for the benefit of
the Holders entitled thereto until such sums shall be paid to such
Holders or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal of, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights
and liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent will be released from all further liability
with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Note and remaining unclaimed for two years
after such principal, premium, if any, or interest has become due and payable
shall be paid to the Company upon receipt of a Company Request therefor, or
(if then held by the Company) will be discharged from such trust; and the
Holder of such Note will thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, will thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, at the
option of the Company in the New York Times or the Wall Street Journal
(national edition), notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining shall be
repaid to the Company.
Section 10.04. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory), licenses and franchises
of the Company and each of the Restricted Subsidiaries; provided, however,
that the Company will not be required to preserve any such right, license or
franchise if the Board shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries as a whole and that the loss thereof is not adverse in
any material respect to the Holders; provided, further, that the foregoing
will not prohibit a sale, transfer or conveyance of a Subsidiary of the
Company or any of its assets in compliance with the terms of this Indenture.
Section 10.05. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed (i) upon the Company or
any of its Restricted Subsidiaries or (ii) upon the income, profits or
property of the Company or any of the Restricted Subsidiaries and (b) all
material lawful claims for labor, materials and supplies, which, if unpaid,
could reasonably be expected to become a Lien upon the property of the Company
or any of the Restricted Subsidiaries; provided, however, that the Company
will not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim (x) whose amount, applicability or
validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted or (y) if the failure to so pay, discharge
or cause to be paid or discharged could not reasonably be expected to have a
Material Adverse Effect (as defined in the Purchase Agreement).
Section 10.06. Maintenance of Properties.
The Company shall cause all material properties owned by the
Company or any of the Restricted Subsidiaries or used or held for use in the
conduct of their respective businesses to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided, however, that
nothing in this Section 10.06 will prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any of the Restricted Subsidiaries and is not disadvantageous in
any material respect to the Holders.
Section 10.07. Insurance.
The Company shall at all times keep all of its and the
Restricted Subsidiaries' properties which are of an insurable nature insured
with insurers, believed by the Company in good faith to be financially sound
and responsible, against loss or damage to the extent that property of similar
character is usually and customarily so insured by corporations similarly
situated and owning like properties.
Section 10.08. Books and Records.
The Company shall keep proper books of record and account, in
which full and correct entries will be made of all financial transactions and
the assets and business of the Company and each Restricted Subsidiary and each
Restricted Affiliate of the Company in material compliance with GAAP.
Section 10.09. Provision of Financial Statements.
The Company shall file with the SEC (so long as the SEC will
accept any such filings, the Trustee and the Initial Purchasers the annual
reports, quarterly reports and other documents required to be filed with the
SEC pursuant to Sections 13 and 15 of the Exchange Act, whether or not the
Company has a class of securities registered under the Exchange Act. The
Company will also comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
Section 10.10. Change of Control.
Upon the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall make an
offer to purchase (the "Change of Control Offer"), on a business day (the
"Change of Control Payment Date") not later than 60 days following the Change
of Control Date, all Notes then outstanding at a purchase price equal to 101%
of the principal amount thereof on any Change of Control Payment Date, plus
accrued and unpaid interest, if any, to any Change of Control Payment Date.
Notice of a Change of Control Offer shall be given to Holders and the Trustee
not less than 25 days nor more than 45 days before the Change of Control
Payment Date. The Change of Control Offer is required to remain open for at
least 20 business days and until the close of business on the Change of
Control Payment Date. Failure to mail the notice of a Change of Control Offer
on the date specified below or to have satisfied the foregoing condition
precedent by the date that such notice is required to be mailed will
constitute a covenant Default under Section 5.01(iv).
Notice of a Change of Control Offer shall be mailed by the
Company not more than 20 Business Days after the Change of Control Date to the
Holders of Notes at their last registered addresses with a copy to the Trustee
and the Paying Agent. The Change of Control Offer shall remain open from the
time of mailing for at least 20 Business Days and until 5:00 p.m., New York
City time, on the Change of Control Payment Date. The notice, which shall
govern the terms of the Change of Control Offer, shall include such
disclosures as are required by law and shall state:
(a) that the Change of Control Offer is being made pursuant
to this Section 10.10 and that all Notes tendered into the Change of
Control Offer will be accepted for payment;
(b) the purchase price (including the amount of accrued
interest, if any) for each Note, the Change of Control Payment Date
and the date on which the Change of Control Offer expires;
(c) that any Note not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment
of the purchase price, any Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(e) that Holders electing to have Notes purchased pursuant
to a Change of Control Offer will be required to surrender their Notes
to the Paying Agent at the address specified in the notice prior to
5:00 p.m., New York City time, on the Change of Control Payment Date
and must complete any form letter of transmittal proposed by the
Company and acceptable to the Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to withdraw
their election if the Paying Agent receives, not later than 5:00 p.m.,
New York City time, on the Change of Control Payment Date, a facsimile
transmission or letter setting forth the name of the Holders, the
principal amount of Notes the Holders delivered for purchase, the Note
certificate number (if any) and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(g) that Holders whose Notes are purchased only in part
will be issued Notes of like tenor equal in principal amount to the
unpurchased portion of the Notes surrendered;
(h) the instructions that Holders must follow in order to
tender their Notes; and
(i) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
SEC pursuant to the Exchange Act (or, if the Company is not required
to file any such reports with the SEC, the comparable reports prepared
pursuant to Section 10.09), a description of material developments in
the Company's business, information with respect to pro forma
historical financial information after giving effect to such Change of
Control and such other information concerning the circumstances and
relevant facts regarding such Change of Control and Change of Control
Offer as would, in the good faith judgment of the Company, be material
to a Holder of Notes in connection with the decision of such Holder as
to whether or not it should tender Notes pursuant to the Change of
Control Offer.
On the Change of Control Payment Date, the Company will (i)
accept for payment Notes or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Notes or portions
thereof so tendered and accepted and (iii) deliver to the Trustee the Notes so
accepted together with an Officers' Certificate setting forth the Notes or
portions thereof tendered to and accepted for payment by the Company. The
Paying Agent will promptly mail or deliver to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Note of like
tenor equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer not later than the first Business Day
following the Change of Control Payment Date. Except as described above with
respect to a Change of Control, this Indenture does not contain provisions
that permit the Holders to require that the Company repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction
which may be highly leveraged. If a Change of Control Offer is made, there
can be no assurance that the Company will have available funds sufficient to
pay for all of the Notes that might be delivered by holders of Notes seeking
to accept the Change of Control Offer. The Company shall not be required to
make a Change of Control Offer following a Change of Control if a third party
makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made
by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
If the Company is required to make a Change of Control Offer,
the Company will comply with all applicable tender offer laws and regulations,
including, to the extent applicable, Section 14(e) and Rule 14e-1 under the
Exchange Act, and any other applicable securities laws and regulations. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of this Section 10.10, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 10.10 by virtue thereof.
Section 10.11. Limitation on Additional Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, directly or indirectly, create, incur,
assume, issue, guarantee or in any manner become directly or indirectly liable
for or with respect to, contingently or otherwise, the payment of
(collectively to "incur") any Indebtedness (including any Acquired
Indebtedness), except for Permitted Indebtedness; provided, that (A)(i) the
Company will be permitted to incur Indebtedness (including Acquired
Indebtedness and Buildout Indebtedness) and (ii) a Restricted Subsidiary or
Restricted Affiliate will be permitted to incur Acquired Indebtedness or
Buildout Indebtedness, if, in either case, immediately after giving pro forma
effect to such incurrence (including the application of the net proceeds
therefrom), either (X) the ratio of Total Consolidated Indebtedness to
Consolidated Pro Forma Operating Cash Flow would not be greater than or equal
to 5.5 to 1.0 if such Indebtedness is incurred prior to October 15, 2000 or 5.0
to 1.0 if such Indebtedness is incurred on or after October 15, 2000 or (Y)
the ratio of Total Consolidated Indebtedness to Total Invested Equity Capital
would not exceed 2.0 to 1.0 and (B) on or after October 15, 2002, a Restricted
Affiliate will be permitted to incur Acquired Indebtedness or Buildout
Indebtedness, if, after giving pro forma effect to such incurrence (including
the application of the net proceeds therefrom), the ratio of Total Affiliate
Indebtedness to Affiliate Pro Forma Operating Cash Flow of such Restricted
Affiliate would not be greater than or equal to 4.0 to 1.0.
For purposes of determining compliance with this Section 10.11,
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness permitted by this covenant, the Company in its
sole discretion shall classify such item of Indebtedness and only be required
to include the amount of such Indebtedness as one of such types.
Section 10.12. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company ending after the date hereof, a
written statement signed by the chairman or a chief executive officer, the
principal financial officer or principal accounting officer of the Company,
stating (i) that a review of the activities of the Company during the
preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and the Escrow
Agreement, and (ii) that, to the knowledge of each officer signing such
certificate, the Company has kept, observed, performed and fulfilled each and
every covenant and condition contained in this Indenture and the Escrow
Agreement and is not in default in the performance or observance of any of
the terms, provisions, conditions and covenants hereof (or, if a Default shall
have occurred, describing all such Defaults of which such officers may have
knowledge, their status and what action the Company is taking or proposes to
take with respect thereto). When any Default under this Indenture or a
default under the Escrow Agreement has occurred and is continuing, or if the
Trustee or any Holder or the trustee for or the holder of any other evidence
of Indebtedness of the Company or any Restricted Subsidiary gives any notice
or takes any other action with respect to a claimed default (other than with
respect to Indebtedness (other than Indebtedness evidenced by the Notes) in
the principal amount of less than $1.0 million), the Company will promptly
notify the Trustee of such Default, notice or action and will deliver to the
Trustee by registered or certified mail or by telegram, or facsimile
transmission followed by hard copy by registered or certified mail an
Officers' Certificate specifying such event, notice or other action within
five Business Days after the Company becomes aware of such occurrence and what
action the Company is taking or proposes to take with respect thereto.
Section 10.13. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of the
Restricted Subsidiaries or Restricted Affiliates to, make, directly or
indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be
continuing at the time of or upon giving effect to such Restricted
Payment;
(ii) immediately after giving effect to such Restricted
Payment, the Company would be able to incur $1.00 of Indebtedness
under clause (A)(X) of the proviso of Section 10.11 hereof; and
(iii) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or
made on or after the Issue Date and all Designation Amounts does not
exceed an amount equal to the sum of, without duplication, (a) 50% of
the cumulative Consolidated Net Income accrued on a cumulative basis
during the period beginning on October 1, 1997 and ending on the last
day of the fiscal quarter of the Company immediately preceding the
date of such proposed Restricted Payment (or, if such cumulative
Consolidated Net Income for such period is a deficit, minus 100% of
such deficit), plus (b) the aggregate net cash proceeds received by
the Company from the issue or sale (other than to a Restricted
Subsidiary or Restricted Affiliate of the Company) of its Capital
Stock (other than Disqualified Stock) on or after the Issue Date
(including, without duplication, upon exercise of warrants, options or
rights), plus (c) the aggregate net proceeds received by the Company
from the issuance (other than to a Restricted Subsidiary or to a
Restricted Affiliate of the Company) on or after the Issue Date of its
Capital Stock (other than Disqualified Stock) upon the conversion of,
or exchange for, Indebtedness of the Company or a Restricted
Subsidiary, plus (d) in the case of the disposition or repayment of
any Investment constituting a Restricted Payment made other than an
Investment made pursuant to clause (e), (f) or (g) of the following
paragraph made after the Issue Date, an amount equal to the lesser of
the return of capital with respect to such Investment and the cost of
such Investment, in either case, less the cost of the disposition of
such Investment, plus (e) in the case of any Revocation of the
Designation of a Subsidiary as an Unrestricted Subsidiary, an amount
equal to the consolidated net Investment in such Subsidiary on the
date of Revocation but not in an amount exceeding the net amount of
any Investments constituting Restricted Payments made (or deemed made)
in such Subsidiary after the Issue Date plus (f) in the case of the JV
Designation after the Issue Date of a New Joint Venture as a
Restricted Affiliate, an amount equal to the consolidated net
Investment in such New Joint Venture on the date of such JV
Designation but not in an amount exceeding the net amount of any
Investments constituting Restricted Payments made (or deemed made) in
such New Joint Venture after the Issue Date. For purposes of the
preceding clauses (b) and (c) and without duplication, the value of
the aggregate net cash proceeds received by the Company upon the
issuance of Capital Stock either upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness or upon the
exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or
rights plus the incremental amount received by the Company upon the
conversion, exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other than
cash shall be valued at its Fair Market Value.
The provisions of this Section 10.13 shall not prohibit (each
of which shall be given independent effect):
(a) the payment of any dividend or other distribution within
60 days after the date of declaration thereof, if at such date of
declaration such payment would comply with the provisions of this
Indenture;
(b) so long as no Default shall have occurred and be
continuing, the purchase, redemption, retirement or other acquisition
of any shares of Capital Stock of the Company (A) in exchange for or
conversion into or (B) out of the net cash proceeds of the
substantially concurrent issue and sale (other than to a Restricted
Subsidiary or to a Restricted Affiliate) of shares of Capital Stock of
the Company (other than Disqualified Stock); provided that any such
net cash proceeds pursuant to the immediately preceding subclause (B)
are excluded from clause (iii)(b) of the preceding paragraph;
(c) so long as no Default shall have occurred and be
continuing, the purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Indebtedness made by exchange
for (including any such exchange pursuant to the exercise of a
conversion right or privilege in which cash is paid in lieu of
fractional shares or scrip), or out of the net cash proceeds of, a
substantially concurrent issue or sale (other than to a Restricted
Subsidiary or to a Restricted Affiliate) of (A) Capital Stock (other
than Disqualified Stock) of the Company; provided that any such net
cash proceeds, to the extent so used, are excluded from clause
(iii)(b) of the preceding paragraph, and/or (B) other Subordinated
Indebtedness, having an Average Life to Stated Maturity that is equal
to or greater than the Average Life to Stated Maturity of the
Subordinated Indebtedness being purchased, redeemed, defeased or
otherwise acquired or retired;
(d) so long as no Default shall have occurred and be
continuing, any Investment constituting a Restricted Payment made by
the Company or any Restricted Subsidiary in any Restricted Affiliate
to fund the capital requirements for financing or supporting a
Permitted Business of such Restricted Affiliate;
(e) so long as no Default shall have occurred and be
continuing, Investments constituting a Restricted Payment made by the
Company or any Restricted Subsidiary in any person (including any
Unrestricted Subsidiary or a Restricted Affiliate) in an amount not to
exceed $10 million in the aggregate at any time outstanding;
(f) so long as no Default shall have occurred and be
continuing, the making of a direct or indirect Investment constituting
a Restricted Payment out of the proceeds of the issue or sale (other
than to a Subsidiary or to a Restricted Affiliate) of Capital Stock
(other than Disqualified Stock) of the Company; provided that any such
net cash proceeds are excluded from clause (iii)(b) of the preceding
paragraph; or
(g) so long as no Default shall have occurred and be
continuing, any Investment constituting a Restricted Payment made in
Megacable S.A. de C.V. not to exceed $20 million in the aggregate at
any time outstanding.
Restricted Payments of the type set forth in the preceding
clauses (e) and (g) shall be included in making the determination of available
amounts under clause (iii) of the preceding paragraph to the extent they are
outstanding.
In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with
GAAP be subject to rescission or constitute a Default by reason of any
requisite subsequent restatement of such financial statements which would have
made such Restricted Payment prohibited at the time that it was made.
Section 10.14. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit, cause or suffer
any Restricted Subsidiary to, conduct any business or enter into any
transaction (or series of related transactions which are similar or part of a
common plan) with or for the benefit of any of their respective Affiliates or
any beneficial holder of 10% or more of the Common Stock of the Company or any
officer or director of the Company (each, an "Affiliate Transaction"), unless
the terms of the Affiliate Transaction are set forth in writing, and are fair
and reasonable to the Company or such Restricted Subsidiary, as the case may
be. Each Affiliate Transaction involving aggregate payments or other Fair
Market Value in excess of $5 million shall be approved by a majority of the
Board, such approval to be evidenced by a Board Resolution stating that the
Board has determined that such transaction or transactions comply with the
foregoing provisions. In addition to the foregoing, each Affiliate
Transaction involving aggregate consideration of $10 million or more shall be
approved by a majority of the Disinterested Directors; provided that, in lieu
of such approval by the Disinterested Directors, the Company may obtain a
written opinion from an Independent Financial Advisor stating that the terms
of such Affiliate Transaction to the Company or the Restricted Subsidiary, as
the case may be, are fair from a financial point of view. In addition, a
Restricted Affiliate shall not enter into any transaction (or series of related
transactions which are similar or part of a common plan) with or for the
benefit of the Other Partner, unless the terms of such transaction or
transactions are in writing, and are fair and reasonable to such Restricted
Affiliate. For purposes of this covenant, any Affiliate Transaction approved
by a majority of the Disinterested Directors or as to which a written opinion
has been obtained from an Independent Financial Advisor, on the basis set
forth in the preceding sentence, shall be deemed to be on terms that are fair
and reasonable to the Company and the Restricted Subsidiaries, as the case may
be, and therefore shall be permitted under this covenant.
Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions with or among, or solely for
the benefit of, the Company and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) transactions among any of the Company or the Restricted
Subsidiaries, on the one hand, and any of the Restricted Affiliates, on the
other hand, provided that such transactions are in the ordinary course of
business and are related to or in furtherance of a Permitted Business, (iv)
dividends paid by the Company pursuant to and in compliance with this Section
10.13, (v) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries bonuses, employment
agreements and arrangements, compensation or employee benefit arrangements or
legal fees and (vi) grants of customary registration rights with respect to
securities of the Company.
Section 10.15. Disposition of Proceeds of Asset Sales.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, make any Asset Sale unless (a) the
Company or such Restricted Subsidiary or such Restricted Affiliate, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 75% of such consideration consists of cash or
Cash Equivalents; provided that the amount of any liabilities (other than
Subordinated Indebtedness or Indebtedness of a Restricted Subsidiary that
would not constitute Restricted Subsidiary Indebtedness) that are assumed by
the transferee of any such assets pursuant to an agreement that
unconditionally releases the Company or such Restricted Subsidiary or
Restricted Affiliate, as the case may be, from further liability shall be
treated as cash for purposes of this Section 10.15. The Company or the
applicable Restricted Subsidiary, as the case may be, may (i) apply the Net
Cash Proceeds from any such Asset Sale by the Company or a Restricted
Subsidiary and the Net Cash Proceeds of any Asset Sale by a Restricted
Affiliate to the extent distributed to the Company or a Restricted Subsidiary
within 365 days of the receipt thereof to repay an amount of Indebtedness
(other than Subordinated Indebtedness) of the Company in an amount not
exceeding the Other Senior Debt Pro Rata Share and elect to permanently reduce
the amount of the commitments thereunder by the amount of the Indebtedness so
repaid, (ii) apply the Net Cash Proceeds from such Asset Sale by the Company
or a Restricted Subsidiary and the Net Cash Proceeds of any Asset Sale by a
Restricted Affiliate to the extent distributed to the Company or a Restricted
Subsidiary to repay any Restricted Subsidiary Indebtedness and elect to
permanently reduce the commitments thereunder by the amount of the
Indebtedness so repaid or (iii) apply the Net Cash Proceeds from any Asset Sale
by the Company or a Restricted Subsidiary and the Net Cash Proceeds of any
Asset Sale by a Restricted Affiliate to the extent distributed to the Company
or a Restricted Subsidiary within 365 days thereof, to an investment in
properties and assets that will be used in a Permitted Business (or in Capital
Stock and other securities of any person that will become a Restricted
Subsidiary or Restricted Affiliate as a result of such investment to the
extent such person owns properties and assets that will be used in a Permitted
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding anything herein to the contrary, in the event of any Asset
Sale of all or substantially all of the properties or assets of any Restricted
Affiliate Group, whether in a single transaction or series of related
transactions, the Restricted Affiliate Group shall be required to distribute
the Net Cash Proceeds therefrom, after providing for all Indebtedness and
other liabilities of such Restricted Affiliate Group, to the Company or a
Restricted Subsidiary and the Other Partner on a pro rata basis in accordance
with their respective equity interests. Any Net Cash Proceeds from any Asset
Sale that are neither used to repay, and permanently reduce the commitments
under, any Restricted Subsidiary Indebtedness as set forth in clause (ii) of
the preceding sentence or invested in Replacement Assets within the 365-day
period as set forth in clause (iii) shall constitute "Excess Proceeds." Any
Excess Proceeds not used as set forth in clause (i) of the second preceding
sentence shall constitute "Offer Excess Proceeds" subject to disposition as
provided below.
When the aggregate amount of Offer Excess Proceeds equals or
exceeds $10.0 million, the Company shall make an offer to purchase (an "Asset
Sale Offer"), from all Holders issued under this Indenture, that aggregate
principal amount of Notes as can be purchased by application of such Offer
Excess Proceeds at a price in cash equal to 100% of the principal amount
thereof plus, in each case, accrued and unpaid interest, if any, to the
purchase date. Each Asset Sale Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the extent
that the aggregate purchase price for the applicable issue of Notes tendered
pursuant to an Asset Sale Offer is less than the Offer Excess Proceeds, the
Company or any Restricted Subsidiary may use such deficiency for general
corporate purposes. If the aggregate purchase price for the Notes validly
tendered and not withdrawn by holders thereof exceeds the amount of Notes which
can be purchased with the Offer Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Offer Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, the
Company, the Restricted Subsidiaries and the Restricted Affiliates will be
permitted to consummate an Asset Sale without complying with such paragraphs
to the extent (i) at least 75% of the consideration of such Asset Sale
constitutes Replacement Assets, cash or Cash Equivalents (including
obligations deemed to be cash under this covenant) and (ii) such Asset Sale is
for Fair Market Value; provided that any consideration constituting (or deemed
to constitute) cash or Cash Equivalents received by the Company, any of the
Restricted Subsidiaries or any of the Restricted Affiliates in connection with
any Asset Sale permitted to be consummated under this paragraph shall
constitute Net Cash Proceeds subject to the provisions of the two preceding
paragraphs.
Notice of an Asset Sale Offer shall be mailed by the Company
not more than 20 Business Days after the obligation to make such Asset Sale
Offer arises to the Holders of Notes at their last registered addresses with a
copy to the Trustee and the Paying Agent. The Asset Sale Offer shall remain
open from the time of mailing for at least 20 Business Days and until 5:00
p.m., New York City time, on the date fixed for Purchase of Notes validly
tendered and not withdrawn, which date shall be not later than the 30th
Business Day following the mailing of such Asset Sale Offer (the "Asset Sale
Offer Purchase Date"). The notice, which shall govern the terms of the Asset
Sale Offer, shall include such disclosures as are required by law and shall
state:
(a) that the Asset Sale Offer is being made pursuant to
this Section 10.15 and that the Asset Sale Offer shall remain open for
a period of 20 Business Days or such longer period as may be required
by law;
(b) the purchase price (including the amount of accrued
interest, if any) for each Note, the Asset Sale Offer Purchase Date
and the date on which the Asset Sale Offer expires;
(c) that any Note not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment
of the purchase price, any Note accepted for payment pursuant to the
Asset Sale Offer shall cease to accrue interest after the Asset Sale
Offer Purchase Date;
(e) that Holders electing to have Notes purchased pursuant
to an Asset Sale Offer will be required to surrender their Notes to
the Paying Agent at the address specified in the notice prior to 5:00
p.m., New York City time, on the Asset Sale Offer Purchase Date and
must complete any form letter of transmittal proposed by the Company
and acceptable to the Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to withdraw
their election if the Paying Agent receives, not later than 5:00 p.m.,
New York City time, on the Asset Sale Offer Purchase Date, a facsimile
transmission or letter setting forth the name of the Holders, the
principal amount of Notes the Holders delivered for purchase, the Note
certificate number (if any) and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(g) that Holders whose Notes are purchased only in part
will be issued Notes of like tenor equal in principal amount to the
unpurchased portion of the Notes surrendered;
(h) the instructions that Holders must follow in order to
tender their Notes; and
(i) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
Commission pursuant to the Exchange Act (or, if the Company is not
required to file any such reports with the SEC, the comparable reports
prepared pursuant to Section 10.24), a description of material
developments in the Company's business, information with respect to
pro forma historical financial information after giving effect to such
Asset Sale and such other information concerning the circumstances and
relevant facts regarding such Asset Sale and Asset Sale Offer as
would, in the good faith judgment of the Company, be material to a
Holder of Notes in connection with the decision of such Holder as to
whether or not it should tender Notes pursuant to the Asset Sale
Offer.
On the Asset Sale Offer Purchase Date, the Company will (i)
accept for payment Notes or portions thereof tendered pursuant to the Asset
Sale Offer, (ii) deposit with the Paying Agent money, in immediately available
funds, sufficient to pay the purchase price of all Notes or portions thereof
so tendered and accepted and (iii) deliver to the Trustee the Notes so
accepted together with an Officers' Certificate setting forth the Notes or
portions thereof tendered to and accepted for payment by the Company. The
Paying Agent will promptly mail or deliver to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Note of like
tenor equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company will publicly announce the
results of the Asset Sale Offer not later than the first Business Day
following the Asset Sale Offer Purchase Date.
If the Company is required to make an Asset Sale Offer, the
Company shall comply with all applicable tender offer rules, including to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations.
Section 10.16. Limitation on Liens Securing Certain
Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, create, incur, assume or suffer to
exist any Liens of any kind against or upon (i) any property or assets of the
Company or any Restricted Subsidiary or Restricted Affiliate, whether now
owned or hereafter acquired, or any proceeds therefrom, which secure either
(x) Subordinated Indebtedness, unless the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to the Liens securing
such Subordinated Indebtedness or (y) Senior Debt Securities, unless the Notes
are equally and ratably secured with the Liens securing the Senior Debt
Securities, or (ii) the Escrow Account other than the Lien in favor of the
Escrow Agent and Trustee.
Section 10.17. Limitation on Business.
The Company shall not, and will not permit any of the
Restricted Subsidiaries or Restricted Affiliates to, engage in a business
which is not substantially a Permitted Business.
Section 10.18. Limitation on Certain Guarantees and
Indebtedness of Restricted Subsidiaries
and Restricted Affiliates.
The Company shall not permit any Restricted Subsidiary or
Restricted Affiliate, directly or indirectly, to assume, guarantee or in any
other manner become liable whether as issuer, guarantor or co-obligor, with
respect to (i) any Subordinated Indebtedness or (ii) any Senior Debt Securities
unless, in each case, such Restricted Subsidiary or Restricted Affiliate
simultaneously executes and delivers a supplemental indenture providing for
the guarantee of payment of the Notes by such Restricted Subsidiary or
Restricted Affiliate, as the case may be, on a basis senior to any such
Subordinated Indebtedness or pari passu with any such Senior Debt Securities,
as the case may be. Each guarantee of the Notes created pursuant to such
provisions is referred to as a "Guarantee" and the issuer of each such
Guarantee, so long as the Guarantee remains outstanding, is referred to as a
"Guarantor."
Notwithstanding the foregoing, in the event of the
unconditional release of any Guarantor from its obligations in respect of the
Indebtedness which gave rise to the requirement that a Guarantee be given,
such Guarantor shall be released from all obligations under its Guarantee. In
addition, upon any sale or disposition (by merger or otherwise) of any
Guarantor by the Company or a Restricted Subsidiary to any person that is not
an Affiliate of the Company or any of the Restricted Subsidiaries which is
otherwise in compliance with the terms of this Indenture and as a result of
which such Guarantor ceases to be a Restricted Subsidiary of the Company such
Guarantor will be deemed to be automatically and unconditionally released from
all obligations under its Guarantee; provided that each such Guarantor is sold
or disposed of in accordance with Section 10.15 hereof.
Section 10.19. Limitation on Issuances and Sales of Preferred
Stock by Restricted Subsidiaries and
Restricted Affiliates.
The Company (i) shall not permit any Restricted Subsidiary to
issue any Preferred Stock (other than to the Company or a Restricted
Subsidiary) and (ii) shall not permit any person (other than the Company or a
Restricted Subsidiary) to own any Preferred Stock of any Restricted
Subsidiary. In addition, the Company (i) shall not permit any Restricted
Affiliate to issue any Preferred Stock (other than (x) to the Company or a
Restricted Subsidiary or (y) to the holders of Common Stock in such Restricted
Affiliate on a pro rata basis based upon their ownership of Common Stock) or
(ii) will not permit any person not referred to in the preceding parenthetical
of clause (i) of this sentence to own any Preferred Stock of any Restricted
Affiliate.
Section 10.20. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted
Subsidiaries or Restricted Affiliates.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, directly or indirectly, create or
otherwise enter into or cause to become effective any consensual encumbrance
or consensual restriction of any kind on the ability of any Restricted
Subsidiary or Restricted Affiliate to (a) pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits to the extent owned by the
Company or any Restricted Subsidiary or Restricted Affiliate, (b) pay any
Indebtedness owed to the Company or any Restricted Subsidiary or Restricted
Affiliate, (c) make any Investment in the Company or any other Restricted
Subsidiary or Restricted Affiliate or (d) transfer any of its properties or
assets to the Company or to any Restricted Subsidiary or Restricted Affiliate,
except for (i) any encumbrance or restriction in existence on the Issue Date,
(ii) customary non-assignment provisions, (iii) any encumbrance or restriction
pertaining to an asset subject to a Lien to the extent set forth in the
security documentation governing such Lien, (iv) any encumbrance or
restriction applicable to a Restricted Subsidiary or Restricted Affiliate at
the time that it becomes a Restricted Subsidiary or Restricted Affiliate that
is not created in contemplation thereof, (v) any encumbrance or restriction
existing under any agreement that refinances or replaces an agreement
containing a restriction permitted by clause (iv) above; provided that the
terms and conditions of any such encumbrance or restriction are not materially
less favorable to the Holders than those under or pursuant to the agreement
being replaced or the agreement evidencing the Indebtedness refinanced, (vi)
any encumbrance or restriction imposed upon a Restricted Subsidiary or
Restricted Affiliate pursuant to an agreement which has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary or Restricted Affiliate or any Asset Sale
to the extent limited to the Capital Stock or assets in question, and (vii)
any customary encumbrance or restriction applicable to a Restricted Subsidiary
or Restricted Affiliate that is contained in an agreement or instrument
governing or relating to Indebtedness contained in any Permitted Credit
Facility; provided that (subject to customary net worth, leverage, invested
capital and other financial covenants) the provisions of such agreement permit
the payment of interest and principal and mandatory repurchases pursuant to
the terms of this Indenture and the Notes and other indebtedness that is
solely an obligation of the Company; provided further that such agreement may
contain customary covenants regarding the merger of or sale of all or any
substantial part of the assets of the Company or any Restricted Subsidiary or
Restricted Affiliate, customary restrictions on transactions with affiliates,
and customary subordination provisions governing indebtedness owed to the
Company or any Restricted Subsidiary or Restricted Affiliate.
Section 10.21. Designations of Unrestricted Subsidiaries.
The Company shall not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") unless:
(a) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation;
(b) except in the case of a Permitted Investment or an
Investment made pursuant to clause (iii) or (iv) of the second
paragraph of Section 10.13 hereof, immediately after giving effect to
such Designation, the Company would be able to incur $1.00 of
Indebtedness under clause (A)(X) of the proviso of Section 10.11
hereof; and
(c) the Company would not be prohibited under this
Indenture from making an Investment at the time of Designation
(assuming the effectiveness of such Designation) in an amount (the "US
Designation Amount") equal to the Fair Market Value of the net
Investment of the Company or any other Restricted Subsidiary in such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment pursuant
to Section 10.13 hereof for all purposes of this Indenture in the US
Designation Amount. Neither the Company nor any Restricted Subsidiary shall
at any time (x) provide a guarantee of, or similar credit support to, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness); provided that the
Company may pledge Capital Stock or Indebtedness of any Unrestricted
Subsidiary on a nonrecourse basis such that the pledgee has no claim whatsoever
against the Company other than to obtain such pledged property, (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or
both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of an Unrestricted Subsidiary (including any corresponding right
to take enforcement action against such Unrestricted Subsidiary), except in
the case of clause (x) or (y) to the extent permitted under Section 10.13 and
Section 10.14 hereof.
The Company will not revoke any Designation of a Subsidiary as
an Unrestricted Subsidiary (a "Revocation") unless:
(a) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for all
purposes of this Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.
Section 10.22. Designations of Restricted Affiliates.
The Company shall not designate any Joint Venture (other than a
newly created Joint Venture in which no Investment has previously been made)
or any of its Subsidiaries as a "Restricted Affiliate" under this Indenture (a
"JV Designation") unless:
(a) no Default shall have occurred and be continuing at the
time of and after giving effect to such JV Designation; and
(b) all Liens and Indebtedness of such Joint Venture
outstanding immediately following such JV Designation would, if
incurred at such time, have been permitted to be incurred for all
purposes of this Indenture.
Notwithstanding the foregoing, the BECO Joint Venture and the
PEPCO Joint Venture shall initially constitute Restricted Affiliates at the
Issue Date. The Company and the Restricted Subsidiaries shall at all times
maintain a Restricted Affiliate so that it qualifies as a Joint Venture under
clauses (a) and (b) of the definition thereof, unless either (1) the Company
is able to, and does in fact, make an effective JV Revocation under the
provisions set forth below at the time of such event or (2) the Restricted
Affiliate ceases to qualify as a Joint Venture by reason of an Asset Sale by
the Company or a Restricted Subsidiary of all of the Company's or such
Restricted Subsidiary's interest in the Capital Stock of such Restricted
Affiliate to any person other than the Company or a Restricted Subsidiary or
any of their respective Affiliates, which, in the case of this clause (2),
shall be deemed an effective JV Revocation.
The Company shall not revoke any JV Designation of a Joint
Venture as a Restricted Affiliate (a "JV Revocation") unless:
(1) no Default shall have occurred and be continuing at the
time of or after giving effect to such JV Revocation;
(2) except in the case of a Permitted Investment or an
Investment made pursuant to clause (e) or (f) of the second paragraph
of Section 10.13 and except in the case in which the Restricted
Affiliate will become a Restricted Subsidiary, immediately after
giving effect to such JV Revocation, the Company would be able to
incur $1.00 of Indebtedness under the proviso of clause (A)(X) of
Section 10.11 hereof; and
(3) the Company would not be prohibited under the Indenture
from making an Investment at the time of such JV Revocation (assuming
the effectiveness of such JV Revocation) in an amount (the "JV
Revocation Amount") equal to the Fair Market Value of the net
Investment of the Company or any other Restricted Subsidiary in such
Restricted Subsidiary on such date.
In the event of any such JV Revocation, except in the case in
which the Restricted Affiliate will become a Restricted Subsidiary, the
Company shall be deemed to have made an Investment constituting a Restricted
Payment pursuant Section 10.13 for all purposes of this Indenture in the JV
Revocation Amount.
All JV Designations and JV Revocations must be evidenced by
Board Resolutions delivered to the applicable Trustee certifying compliance
with the foregoing provisions.
Section 10.23. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company will
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenants
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with, and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any,
have been complied with, except that, in the case of any such application or
request as to which the furnishing of such documents, certificates and/or
opinions is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture will include:
(i) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 10.24. Reports.
The Company shall, whether or not it has a class of securities
registered under the Exchange Act, furnish without cost to each Holder (in
sufficient quantities for distribution to beneficial holders) and file with
the Trustee and the SEC, (i) within the applicable time period required under
the Exchange Act, after the end of each fiscal year of the Company, the
information required by Form 10-K (or any successor form thereto) under the
Exchange Act with respect to such period, (ii) within the applicable time
period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of the Company, the information
required by Form 10-Q (or any successor form thereto) under the Exchange Act
with respect to such period and (iii) any current reports on Form 8-K (or any
successor forms) required to be filed under the Exchange Act.
Section 10.25. Escrow Account.
The Company shall, on the date of this Indenture, enter into
the Escrow Agreement and, pursuant thereto, shall place the Initial Escrow
Amount in the Escrow Account held by the Escrow Agent for the benefit of the
Holders of the Notes and the Trustee.
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as
to surviving rights or registration of transfer or exchange of Notes herein
expressly provided for) and the Trustee, on written demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when:
(1) either (a) all Notes theretofore authenticated and
delivered (other than (i) Notes which have been destroyed, lost
or stolen and which have been replaced or paid as provided in
Section 3.06 hereof and (ii) Notes for whose payment money has
theretofore been irrevocably deposited or caused to be deposited
in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust,
as provided in Section 10.03) have been delivered to the Trustee
for cancellation; or (b) all such Notes not theretofore delivered
to the Trustee for cancellation have become due and payable and
the Company has irrevocably deposited or caused to be deposited
with the Trustee in trust an amount of money in dollars
sufficient to pay and discharge the entire Indebtedness on such
issue of Notes not theretofore delivered to the Trustee for
cancellation, for the principal of, premium, if any, and interest
to the date of such deposit or maturity date of redemption; and
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied
with; provided, that such Opinion of Counsel may rely, as to
matters of fact, upon an Officers' Certificate.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Sections 4.05 and 6.07 and, if
money shall have been deposited with the Trustee pursuant to subclause (1)(b)
of this Section 11.01, the obligations of the Trustee under Section 11.02 and
the last paragraph of Section 10.03 shall survive.
Section 11.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
10.03, all money deposited with the Trustee pursuant to Section 11.01 shall be
held in trust and applied by it, in accordance with the provisions of the
Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the persons entitled thereto, of the principal of,
premium, if any, and interest on the Notes for whose payment such money has
been deposited with the Trustee.
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 3
of the Initial Notes or Paragraph 2 of the Exchange Notes, it shall notify the
Trustee of the Redemption Date and principal amount of Notes to be redeemed.
The Company shall notify the Trustee of any redemption at least
45 days before the Redemption Date by an Officers' Certificate, stating that
such redemption will comply with the provisions hereof and of the Notes.
Section 12.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed
at any time, selection of such Notes for redemption will be made by the
Trustee in compliance with any applicable requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange (or if the Notes
are so listed but the exchange does not impose requirements with respect to
the selection of debt securities for redemption), on a pro rata basis, by lot
or by such method as the Trustee in its sole discretion shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall
relate, in the case of any Note redeemed or to be redeemed only in part, to
the portion of the principal amount of such Note which has been or is to be
redeemed.
Section 12.03. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed, at the address of
such Holder appearing in the Note register maintained by the Registrar.
All notices of redemption shall identify the Notes to be
redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(c) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date, and the only remaining right
of the Holders of such Notes is to receive payment of the Redemption
Price plus unpaid interest on the Notes through the Redemption Date,
upon surrender to the Paying Agent of the Notes redeemed;
(d) if any Note is to be redeemed in part, the portion of
the principal amount (equal to $1,000 or any integral multiple
thereof) of such Note to be redeemed and that on and after the
Redemption Date, upon surrender for cancellation of such Note to the
Paying Agent, a new Note or Notes in the aggregate principal amount
equal to the unredeemed portion thereof will be issued without charge
to the Noteholder;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price and the name and
address of the Paying Agent; and
(f) the CUSIP or CINS number, if any, relating to such
Notes.
Notice of redemption of Notes to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written
request, by the Trustee in the name and at the expense of the Company.
Section 12.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for
redemption become due and payable on the Redemption Date and at the Redemption
Price. Upon surrender to the Paying Agent, such Notes called for redemption
shall be paid at the Redemption Price plus accrued interest, if any, to the
Redemption Date, but interest installments whose maturity is on or prior to
such Redemption Date will be payable on the relevant Interest Payment Dates to
the Holders of record at the close of business on the relevant record dates
referred to in the Notes.
Section 12.05. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit
with the Paying Agent an amount of money in same day funds sufficient to pay
the Redemption Price of, and any accrued interest on, all the Notes or
portions thereof which are to be redeemed on that date, other than Notes or
portions thereof called for redemption on that date which have been delivered
by the Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such Redemption Price, interest
on the Notes to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Notes are presented for payment, and the
Holders of such Notes shall have no further rights with respect to such Notes
except for the right to receive the Redemption Price plus unpaid interest on
the Notes through the Redemption Date, upon surrender of such Notes. If any
Note called for redemption shall not be so paid upon surrender thereof for
redemption, the principal, premium, if any, and, to the extent lawful, accrued
interest thereon shall, until paid, bear interest from the Redemption Date at
the rate provided in the Notes.
Section 12.06. Notes Redeemed or Purchased in Part.
Upon surrender to the Paying Agent of a Note which is to be
redeemed in part, the Company shall execute and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to, and in exchange for, the unredeemed portion of the
principal of the Note so surrendered that is not redeemed.
ARTICLE THIRTEEN
COLLATERAL AND SECURITY
Section 13.01. Escrow Agreement.
(a) The due and punctual payment of the interest on the Notes
when and as the same shall be due and payable on each Interest Payment Date,
at maturity or by acceleration, and interest on the overdue principal of and
interest (to the extent permitted by law), if any, on the Notes and performance
of all other obligations of the Company to the Holders of Notes or the Trustee
under this Indenture and the Escrow Agreement with respect to the Notes and
the Notes, according to the terms hereunder or thereunder, shall be secured as
provided in the Escrow Agreement which the Company, the Escrow Agent and the
Trustee have entered into simultaneously with the execution of this Indenture.
Upon the acceleration of the maturity of the Notes, the Escrow Agreement will
provide for the foreclosure by the Trustee of the net proceeds of the Escrow
Account. Each Holder of Notes, by its acceptance thereof, consents and agrees
to the terms of the Escrow Agreement (including, without limitation, the
provisions providing for foreclosure and disbursement of Collateral) as the
same may be in effect or may be amended from time to time in accordance with
its terms and authorizes and directs the Escrow Agent and the Trustee to enter
into the Escrow Agreement and to perform its obligations and exercise its
rights thereunder in accordance therewith. The Company shall deliver to the
Trustee copies of the Escrow Agreement, and shall do or cause to be done all
such acts and things as may be necessary or proper, or as may be required by
the provisions of the Escrow Agreement, to assure and confirm to the Trustee
the security interest in the Collateral contemplated by the Escrow Agreement
or any part thereof, as from time to time constituted, so as to render the same
available for the security and benefit of this Indenture with respect to, and
of, the Notes, according to the intent and purposes expressed in the Escrow
Agreement. The Company shall take any and all actions reasonably required to
cause the Escrow Agreement to create and maintain (to the extent possible
under applicable law), as security for the obligations of the Company
hereunder, a valid and enforceable perfected first priority Lien in and on all
the Collateral, in favor of the Trustee for the benefit of the Trustee,
predecessor trustees, and the Holders of Notes, superior to and prior to the
rights of all third persons and subject to no other Liens. The Trustee shall
have no responsibility for perfecting or maintaining the perfection of the
Trustee's security interest in the Collateral or for filing any instrument,
document or notice in any public office at any time or times.
(b) The Escrow Agreement shall further provide that in the
event a portion of the Notes has been retired by the Company, depending upon
the amount available in the Escrow Account, funds representing the interest
payments which have not previously been made on such retired Notes shall, upon
the written request of the Company to the Escrow Agent and the Trustee, be
paid to the Company upon compliance with the release of collateral provisions
of the TIA and upon receipt of a notice relating thereto from the Trustee.
Section 13.02. Recording and Opinions.
(a) The Company shall furnish to the Trustee promptly after
the execution and delivery of this Indenture (but in no event later than five
Business Days after the Issue Date) an Opinion of Counsel either (i) stating
that in the opinion of such counsel all action has been taken with respect to
the recording, registering and filing of this Indenture, financing statements
or other instruments necessary to make effective the Lien intended to be
created by the Escrow Agreement and reciting with respect to the security
interests in the Collateral the details of such action, or (ii) stating that
in the opinion of such counsel no such action is necessary to make such Lien
effective.
(b) The Company shall furnish to the Escrow Agent and the
Trustee on April 15, 1998, and on each April 15 and October 15 thereafter
until the date upon which the balance of Available Funds (as defined in the
Escrow Agreement) shall have been reduced to zero, an Opinion of Counsel,
dated as of such date, either (i) stating that (A) in the opinion of such
counsel, action has been taken with respect to the recording, registering,
filing, re-recording, re-registering and refiling of all supplemental
indentures, financing statements, continuation statements and other
instruments of further assurance as is necessary to maintain the Lien of the
Escrow Agreement and reciting with respect to the security interests in the
Collateral the details of such action or referring to prior Opinions of
Counsel in which such details are given and (B) based on relevant laws as in
effect on the date of such Opinion of Counsel, all financing statements and
continuation statements have been executed and filed that are necessary as of
such date and during the succeeding 12 months fully to preserve and protect,
to the extent such protection and preservation are possible by filing, the
rights of the Holders of Notes and the Trustee hereunder and under the Escrow
Agreement with respect to the security interests in the Collateral or (ii)
stating that, in the opinion of such counsel, no such action is necessary to
maintain such Lien and assignment.
Section 13.03. Release of Collateral.
(a) Subject to subsections (b), (c) and (d) of this Section
13.03, Collateral may be released from the Lien and security interest created
by the Escrow Agreement only in accordance with the provisions of the Escrow
Agreement.
(b) Except to the extent that any Lien on proceeds of
Collateral is automatically released by operation of Section 9-306 of the
Uniform Commercial Code or other similar law, no Collateral shall be released
from the Lien and security interest created by the Escrow Agreement pursuant
to the provisions of the Escrow Agreement, other than to the Holders pursuant
to the terms thereof, unless there shall have been delivered to the Trustee
the certificate required by Section 13.03(d) and Section 13.04.
(c) At any time when a Default shall have occurred and be
continuing and the maturity of the Notes issued on the Issue Date shall have
been accelerated (whether by declaration or otherwise), no Collateral shall be
released pursuant to the provisions of the Escrow Agreement, and no release of
Collateral in contravention of this Section 13.03(c) shall be effective as
against the Holders of Notes, except for the disbursement of all Available
Funds (as defined in the Escrow Agreement) to the Trustee pursuant to Section
6(b) of the Escrow Agreement.
(d) The release of any Collateral from the Liens and security
interests created by this Indenture and the Escrow Agreement shall not be
deemed to impair the security under this Indenture in contravention of the
provisions hereof if and to the extent the Collateral is released pursuant to
the terms hereof or pursuant to the terms of the Escrow Agreement. To the
extent applicable, the Company shall cause TIA Section 314(d) relating to the
release of property or securities from the Lien and security interest of the
Escrow Agreement to be complied with. Any certificate or opinion required by
TIA Section 314(d) may be made by an Officer of the Company except in cases
where TIA Section 314(d) requires that such certificate or opinion be made by
an independent person, which person shall be an independent engineer,
appraiser or other expert selected or approved by the Trustee in the exercise
of reasonable care.
Section 13.04. Certificates of the Company.
The Company shall furnish to the Trustee, prior to any proposed
release of Collateral other than pursuant to the express terms of the Escrow
Agreement, (i) all documents required by TIA Section 314(d) and (ii) an
Opinion of Counsel, which may be rendered by internal counsel to the Company,
to the effect that such accompanying documents constitute all documents
required by TIA Section 314(d). The Trustee may, to the extent permitted by
Section 6.01 and Section 6.03, accept as conclusive evidence of compliance
with the foregoing provisions the appropriate statements contained in such
documents and such Opinion of Counsel.
Section 13.05. Authorization of Actions to Be Taken by the
Trustee Under the Escrow Agreement.
Subject to the provisions of Section 6.01 and Section 6.03, the
Trustee may, without the consent of the Holders of Notes, on behalf of the
Holders of Notes, take all actions it deems necessary or appropriate in order
to (a) enforce any of the terms of the Escrow Agreement and (b) collect and
receive any and all amounts payable in respect of the obligations of the
Company hereunder. The Trustee shall have power to institute and maintain
such suits and proceedings as it may deem expedient to prevent any impairment
of the Collateral by any acts that may be unlawful or in violation of the
Escrow Agreement or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders of Notes in the Collateral (including power to
institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders of Notes
or of the Trustee).
Section 13.06. Authorization of Receipt of Funds by the
Trustee Under the Escrow Agreement.
The Trustee is authorized to receive any funds for the benefit
of the Holders of Notes disbursed under the Escrow Agreement, and to make
further distributions of such funds to the Holders of Notes according to the
provisions of this Indenture.
Section 13.07. Termination of Security Interest.
Upon the earliest to occur of (i) the date upon which the
balance of Available Funds (as defined in the Escrow Agreement) shall have
been reduced to zero, (ii) the payment in full of all obligations of the
Company under this Indenture and the Notes, (iii) legal defeasance pursuant to
Article Four and (iv) covenant defeasance pursuant to Article Four, the Trustee
shall, at the written request of the Company, release the Liens pursuant to
this Indenture and the Escrow Agreement upon the Company's compliance with the
provisions of the TIA pertaining to release of collateral.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
RCN CORPORATION
By:
-------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Trustee
By:
-------------------------------
Name:
Title:
EXHIBIT A-1
[FORM OF NOTE]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE TRANSACTION"
PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X)
THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY
RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER)
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF
THIS SECURITY) OR THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY
BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"),
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE
TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) or (E) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
RCN CORPORATION
------------
10% SENIOR NOTES DUE 2007, SERIES A
CUSIP No. __________
No. ___________ $
RCN CORPORATION, a corporation incorporated under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor corporation under this Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on October 15, 2007, at the office or
agency of the Company referred to below, and to pay interest thereon on April
15 and October 15 (each an "Interest Payment Date"), of each year, commencing
on April 15, 1998, accruing from the Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of 10% per annum, until the principal hereof is paid or duly provided
for. Interest shall be computed on the basis of a 360-day year of twelve
30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture referred
to on the reverse hereof, be paid to the person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on April
1 and October 1 (each a "Regular Record Date"), whether or not a Business Day,
as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the then applicable interest rate borne by the Notes, to
the extent lawful, shall forthwith cease to be payable to the Holder on such
Regular Record Date, and may be paid to the person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice of which shall be given to Holders of Notes not less than
10 days prior to such Special Record Date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, State of New
York, or at such other office or agency of the Company as may be maintained
for such purpose, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private
debts; provided, however, that payment of interest may be made at the option
of the Company by check mailed to the address of the person entitled thereto as
such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: RCN CORPORATION
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10% Senior Notes due 2007, Series A,
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as
Trustee
By:
-------------------------------
Authorized Signatory
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of
Notes of the Company designated as its 10% Senior Notes due 2007, Series A
(herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in this Indenture referred to below) in aggregate principal
amount to $225,000,000, which may be issued under an indenture (herein called
the "Indenture") dated as of October 17, 1997, by and between the Company and
The Chase Manhattan Bank, as trustee (herein called the "Trustee," which term
includes any successor Trustee under this Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement
of the respective rights, limitations of rights, duties, obligations and
immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The Notes include the Initial Notes, the Private Exchange
Notes and the Unrestricted Notes (including the Exchange Notes referred to
below), issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes and the Unrestricted Notes are treated as
a single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S.C. Section Section 77aaa-77bbbb) (the "TIA"), as in effect on
the date of the Indenture. Notwithstanding anything to the contrary herein,
the Notes are subject to all such terms, and Holders of Notes are referred to
the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Registration Rights. Pursuant to the Registration Rights
Agreement by and among the Company and the Initial Purchasers, the Company
will be obligated to consummate an exchange offer pursuant to which the Holder
of this Note shall have the right to exchange this Note for 10% Senior Notes
due 2007, Series B, of the Company (herein called the "Exchange Notes"), which
have been registered under the Securities Act, in like principal amount and
having identical terms as the Notes (other than as set forth in this
paragraph). The Holders of Notes shall be entitled to receive certain
additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.
3. Redemption. The Notes will be redeemable, at the option of
the Company, in whole or in part, on or after October 15, 2002 upon not less
than 30 nor more than 60 days' written notice at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on October 15 of each of the
years indicated below:
Year Percentage
---- ----------
2002.............................. 105.000%
2003.............................. 103.333%
2004.............................. 101.667%
2005 and thereafter............... 100.000%
Notwithstanding the foregoing, in the event that after the
Issue Date and prior to October 15, 2000 the Company issues, in one or more
Public Equity Offerings (as defined) yielding gross cash proceeds of not less
than $30.0 million, the Company may redeem, at its option, up to a maximum of
35% of the initially outstanding aggregate principal amount of the Notes from
the net proceeds thereof at a redemption price equal to 110% of the principal
amount of the Notes, together with accrued and unpaid interest to the date of
redemption; provided that not less than 65% of the originally issued aggregate
principal amount of the Notes would remain outstanding immediately after such
redemption. To effect the foregoing redemption, the Company must mail a
notice of redemption not later than 60 days after the consummation of the
Public Equity Offering that resulted in the requisite gross proceeds. As used
above, "Public Equity Offering" means an underwritten public offering of
Common Stock of the Company effected on a primary basis and registered with
the Commission under the Securities Act.
4. Offers to Purchase. Sections 10.10 and 10.15 of the
Indenture provide that upon the occurrence of a Change of Control and
following certain Asset Sales, and subject to certain conditions and
limitations contained therein, the Company shall make an offer to purchase all
or a portion of the Notes in accordance with the procedures set forth in the
Indenture.
5. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued
and unpaid interest, if any, to and including the date the Notes are paid, may
be declared due and payable in the manner and with the effect provided in the
Indenture.
6. Defeasance. The Indenture contains provisions (which
provisions apply to this Note) for defeasance at any time of (a) the entire
indebtedness of the Company on this Note and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance by
the Company with certain conditions set forth therein.
7. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Notes at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount
of the Notes at the time Outstanding, on behalf of the Holders of all the
Notes, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Note and
their consequences. Any such consent or waiver by or on behalf of the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
future Holders of the Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note.
8. Denominations, Transfer and Exchange. The Notes are
issuable only in registered form without coupons in denominations of $1,000
and any integral multiple thereof. As provided in the Indenture and subject
to certain limitations therein set forth, the Notes are exchangeable for a like
aggregate principal amount of Notes of a different authorized denomination, as
requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
9. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the person in
whose name this Note is registered as the owner hereof for all purposes,
whether or not this Note shall be overdue, and neither the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
10. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
RCN CORPORATION, 105 Carnegie Center, Princeton, New Jersey 08540-6215.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
--------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- ------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the
face of this Note (or any Predecessor Note) or the last date on which the
Company or any Affiliate of the Company was the owner of this Note (or any
Predecessor Note), the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer
and that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents, including (i) a transferee certificate
substantially in the form of Exhibit C to this Indenture in the
case of a transfer to a non-QIB Accredited Investor or (ii) a
transfer certificate substantially in the form of Exhibit D to
this Indenture in the case of a transfer pursuant to Regulation
S, are being furnished which comply with the conditions of
transfer set forth in this Note and this Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if
the appropriate document is not attached or otherwise furnished to the
Trustee, the Trustee or Registrar shall not be obligated to register this Note
in the name of any person other than the Holder hereof unless and until the
conditions to any such transfer of registration set forth herein and in
Section 3.16 and Section 3.17 of this Indenture shall have been satisfied.
- ------------------------------------------------------------------------------
Date: Your signature:
---------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
--------------------------
NOTICE: To be executed
by an executive officer
Signature Guarantee:
---------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
---------- -----------------------------
NOTICE: To be executed by
an executive officer
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.10 or 10.15 of this Indenture, state the amount:
$
-------
Date: Your signature:
---------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
-------------------------
NOTICE: To be executed
by an executive officer
Signature Guarantee:
---------------------------
EXHIBIT A-2
RCN CORPORATION
------------
10% SENIOR NOTES DUE 2007, SERIES B
CUSIP No. __________
No. ___________ $
RCN CORPORATION, a corporation incorporated under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor corporation under this Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on October 15, 2007, at the office or
agency of the Company referred to below, and to pay interest thereon on April
15 and October 15 (each an "Interest Payment Date"), of each year, commencing
on April 15, 1998, accruing from the Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of 10% per annum, until the principal hereof is paid or duly provided
for. Interest shall be computed on the basis of a 360-day year of twelve
30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture referred
to on the reverse hereof, be paid to the person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
April 1 and October 1 (each a "Regular Record Date"), whether or not a
Business Day, as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid, or duly provided for, and interest
on such defaulted interest at the then applicable interest rate borne by the
Notes, to the extent lawful, shall forthwith cease to be payable to the Holder
on such Regular Record Date, and may be paid to the person in whose name this
Note (or one or more Predecessor Notes) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be
fixed by the Trustee, notice of which shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, State of New
York, or at such other office or agency of the Company as may be maintained
for such purpose, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private
debts; provided, however, that payment of interest may be made at the option
of the Company by check mailed to the address of the person entitled thereto as
such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: RCN CORPORATION
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10% Senior Notes due 2007, Series B,
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By:
-------------------------------
Authorized Signatory
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of
Notes of the Company designated as its 10% Senior Notes due 2007, Series B
(herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in this Indenture referred to below) in aggregate principal
amount to $225,000,000, which may be issued under an indenture (herein called
the "Indenture") dated as of October 17, 1997, by and between the Company and
The Chase Manhattan Bank, as trustee (herein called the "Trustee," which term
includes any successor Trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement
of the respective rights, limitations of rights, duties, obligations and
immunities thereunder of the Company, the Trustee, and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The Notes include the Initial Notes, the Private Exchange
Notes and the Unrestricted Notes (including the Exchange Notes), issued in
exchange for the Initial Notes pursuant to the Registration Rights Agreement.
The Initial Notes and the Unrestricted Notes are treated as a single class of
securities under the Indenture.
All capitalized terms used in this Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S.C. Section Section 77aaa-77bbb) (the "TIA"), as in effect on
the date of this Indenture. Notwithstanding anything to the contrary herein,
the Notes are subject to all such terms, and Holders of Notes are referred to
the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Redemption. The Notes will be redeemable, at the option of
the Company, in whole or in part, on or after October 15, 2002 upon not less
than 30 nor more than 60 days' written notice at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on October 15 of each of the
years indicated below:
Year Percentage
---- ----------
2002.............................. 105.000%
2003.............................. 103.333%
2004.............................. 101.667%
2005 and thereafter............... 100.000%
Notwithstanding the foregoing, in the event that after the
Issue Date and prior to October 15, 2000 the Company issues, in one or more
Public Equity Offerings (as defined), yielding gross cash proceeds not less
than $30.0 million, the Company may redeem, at its option, up to a maximum of
35% of the initially outstanding aggregate principal amount of Notes from the
net proceeds thereof at a redemption price equal to 110% of the principal
amount of the Notes, together with accrued and unpaid interest to the date of
redemption; provided that not less than 65% of the originally issued aggregate
principal amount of the Notes would remain outstanding immediately after such
redemption. To effect the foregoing redemption, the Company must mail a
notice of redemption no later than 60 days after the consummation of the
Public Equity Offering that resulted in the requisite gross proceeds. As used
above, "Public Equity Offering" means an underwritten public offering of
Common Stock of the Company effected on a primary basis and registered with
the Commission under the Securities Act.
3. Offers to Purchase. Sections 10.10 and 10.15 of the
Indenture provide that upon the occurrence of a Change of Control and
following certain Asset Sales, and subject to certain conditions and
limitations contained therein, the Company shall make an offer to purchase all
or a portion of the Notes in accordance with the procedures set forth in the
Indenture.
4. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued
and unpaid interest, if any, to and including the date the Notes are paid, may
be declared due and payable in the manner and with the effect provided in the
Indenture.
5. Defeasance. The Indenture contains provisions (which
provisions apply to this Note) for defeasance at any time of (a) the entire
indebtedness of the Company on this Note and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance by
the Company with certain conditions set forth therein.
6. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Notes at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount
of the Notes at the time Outstanding, on behalf of the Holders of all the
Notes, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Note and
their consequences. Any such consent or waiver by or on behalf of the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note.
7. Denominations, Transfer and Exchange. The Notes are
issuable only in registered form without coupons in denominations of $1,000
and any integral multiple thereof. As provided in the Indenture and subject
to certain limitations therein set forth, the Notes are exchangeable for a like
aggregate principal amount of Notes of a different authorized denomination, as
requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
8. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the person in
whose name this Note is registered as the owner hereof for all purposes,
whether or not this Note shall be overdue, and neither the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of this Indenture. Requests may be made to:
RCN CORPORATION, 105 Carnegie Center, Princeton, New Jersey 08540-6215.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
--------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- ------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date: Your signature:
---------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
--------------------------
NOTICE: To be executed
by an executive officer
Signature Guarantee:
---------------------------
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.10 or 10.15 of this Indenture, state the amount:
$
----------
Date: Your signature:
---------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
--------------------------
NOTICE: To be executed
by an executive officer
Signature Guarantee:
---------------------------
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THIS INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS
NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THIS INDENTURE, AND NO TRANSFER OF THIS
NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THIS
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
RCN Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of the 10% Senior Notes due 2007 (the "Notes") of RCN
Corporation (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and,
unless so registered, may not be sold except as permitted in the
following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to (x) the date which is two years
(or such shorter period of time as permitted by Rule 144 under the
Securities Act) after the later of the date of original issue of the
Notes and (y) such later date, if any, as may be required by any
subsequent change in applicable law (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the
Securities Act, (c) so long as the Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a "qualified institutional buyer" under Rule
144A (a "QIB") that purchases for its own account or for the account
of a QIB and to whom notice is given that the transfer is being made
in reliance on Rule 144A, (d) pursuant to offers and sales that occur
outside the United States to "foreign purchasers" (as defined below)
in offshore transactions meeting the requirements of Rule 904 of
Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2),
(3) or (7) of Rule 501 under the Securities Act (an "Accredited
Investor") that is purchasing for its own account or for the account
of such an institutional "accredited investor," or (f) pursuant to any
other available exemption from the registration requirements of the
Securities Act, subject, in each of the foregoing cases, to any
requirement of law that the disposition of our property or the
property of such investor account or accounts be at all times within
our or their control and to compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale
or other transfer of the Notes is proposed to be made pursuant to
clause (c) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in
the form of this letter to the Trustee, which shall provide, among
other things, that the transferee is an Accredited Investor within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company, the Trustee and the
Transfer Agent and Registrar reserve the right prior to any offer,
sale or other transfer prior to the Resale Restriction Termination
Date of the Notes pursuant to clause (d), (e) or (f) above to require
the delivery of an opinion of counsel, certification and/or other
information satisfactory to the Company and the Trustee.
2. We are an Accredited Investor or a QIB purchasing Notes for
our own account or for the account of one or more Accredited
Investors, and we are acquiring the Notes for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act or the securities laws
of any state of the United States and we have such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Notes, and we
and any accounts for which we are acting are each able to bear the
economic risk of our or its investment in the Notes for an indefinite
period.
3. We are acquiring the Notes purchased by us for our own
account or for one or more accounts as to each of which we exercise
sole investment discretion and we and any such account are (a) a QIB,
aware that the sale is being made in reliance on Rule 144A under the
Securities Act, (b) an Accredited Investor, or (c) a person other than
a U.S. person ("foreign purchasers"), which term shall include dealers
or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an
estate or trust) in offshore transactions meeting the requirements of
Rules 903 and 904 of Regulation S under the Securities Act.
4. We have received a copy of the Offering Memorandum and
acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such
questions of representatives of the Company and receive answers
thereto, as we deem necessary in order to verify the information
contained in the Offering Memorandum.
5. We are not purchasing the Notes for or on behalf of, and
will not transfer the Notes to, any pension or welfare plan (as
defined in Section 3 of ERISA), except as may be permitted under ERISA
and as described under "Notice to Investors" in the Offering
Memorandum.
6. In the event that we purchase any Notes, we will acquire
Notes having an outstanding principal amount of at least $250,000 for
our own account and $250,000 for each account for which we are acting.
We understand that the Trustee and the Transfer Agent will not
be required to accept for registration of transfer any Notes acquired by us,
except upon presentation of evidence satisfactory to the Company and the
Trustee that the foregoing restrictions on transfer have been complied with.
We further understand that the Notes purchased by us will be in the form of
definitive physical certificates and that such certificates will bear a legend
reflecting the substance of this paragraph. We further agree to provide to
any person acquiring any of the Notes from us a notice advising such person
that transfers of such Notes are restricted as stated herein and that
certificates representing such Notes will bear a legend to that effect.
We represent that you, the Company, the Trustee and others are
entitled to rely upon the truth and accuracy of our acknowledgments,
representations and agreements set forth herein, and we agree to notify you
promptly in writing if any of our acknowledgments, representations or
agreements herein cease to be accurate and complete. You are also irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
We represent to you that we have full power to make the
foregoing acknowledgments, representations and agreements on our own behalf
and on behalf of any investor account for which we are acting as fiduciary
agent.
As used herein, the terms "offshore transaction," "United
States" and "U.S. person" have the respective meanings given to them in
Regulation S under the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By:
-------------------------------
Date:
-----------------------------
Upon transfer, the Notes would be registered in the name of the
new beneficial owner as follows:
Name:
----------------------------
Address:
--------------------------
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
________________, ____
The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street,
15th Floor
New York, New York 10001-2697
Attention: Corporate Trust Department
Re: RCN CORPORATION
(the "Company") 10% Senior Notes due 2007
(the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate
principal amount of the Securities, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly,
we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities;
(6) if the circumstances set forth in Rule 904(c) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation
or other notice stating that the Securities may be offered and sold
during the restricted period specified in Rule 903(c)(2) or (3), as
applicable, in accordance with the provisions of Regulation S;
pursuant to registration of the Securities under the Securities Act;
or pursuant to an available exemption from the registration
requirements under the Securities Act; and
(7) if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) are applicable thereto, we confirm that
such sale has been made in accordance with such provisions.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
--------------------------
Authorized Signature
EXHIBIT 4.3
==============================================================================
RCN CORPORATION, as Issuer
and
THE CHASE MANHATTAN BANK, as Trustee
_____________________
INDENTURE
Dated as of October 17, 1997
____________________
$601,045,000 Principal Amount at Maturity
11 1/8% Senior Discount Notes due 2007, Series A
11 1/8% Senior Discount Notes due 2007, Series B
Reconciliation and tie between Trust Indenture Act of 1939, as amended, and
Indenture, dated as of October 17, 1997
Trust Indenture Indenture
Act Section Section
--------------- ---------
Section 310 (a)(1)................................... 6.05, 6.09
(a)(2)................................... 6.05, 6.09
(a)(3)................................... 6.05
(a)(4)................................... 6.05
(b)...................................... 6.05, 6.08, 6.10
Section 311 (a)...................................... 6.07
(b)...................................... 6.07
(c)...................................... Not Applicable
Section 312 (a)...................................... 3.05, 7.01
(b)...................................... 7.02
(c)...................................... 7.02
Section 313 (a)...................................... 7.03
(b)...................................... 7.03
(c)...................................... 7.03
(d)...................................... 7.03
Section 314 (a)...................................... 7.04, 10.09
(b)...................................... Not Applicable
(c)(1)................................... 1.04, 4.04, 12.01(c)
(c)(2)................................... 1.04, 4.04, 12.01(c)
(c)(3)................................... 13.03, 13.04
(d)...................................... Not Applicable
(e)...................................... 1.04
Section 315 (a)...................................... 6.01(a)
(b)...................................... 6.02
(c)...................................... 6.01(b)
(d)...................................... 6.01(c)
(e)...................................... 5.14
Section 316 (a) (last sentence) ..................... 3.14
(a)(1)(A)................................ 5.12
(a)(1)((B)............................... 5.13
(a)(2)................................... Not Applicable
(b)...................................... 5.08
Section 317 (a)(1)................................... 5.03
(a)(2)................................... 5.04
(b)...................................... 10.03
Section 318 (a)...................................... 1.08
TABLE OF CONTENTS
Page
----
PARTIES.....................................................................1
RECITALS....................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions...................................................1
Section 1.02. Other Definitions............................................30
Section 1.03. Rules of Construction........................................31
Section 1.04. Form of Documents Delivered to Trustee ......................32
Section 1.05. Acts of Holders..............................................32
Section 1.06. Notices, etc., to the Trustee and the Company................33
Section 1.07. Notice to Holders; Waiver....................................34
Section 1.08. Conflict with Trust Indenture Act............................34
Section 1.09. Effect of Headings and Table of Contents.....................35
Section 1.10. Successors and Assigns.......................................35
Section 1.11. Separability Clause..........................................35
Section 1.12. Benefits of Indenture........................................35
Section 1.13. GOVERNING LAW................................................35
Section 1.14. No Recourse Against Others...................................35
Section 1.15. Independence of Covenants....................................36
Section 1.16. Exhibits.....................................................36
Section 1.17. Counterparts.................................................36
Section 1.18. Duplicate Originals..........................................36
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating..............................................36
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms..............................................37
Section 3.02. Registrar and Paying Agent...................................37
Section 3.03. Execution and Authentication.................................38
Section 3.04. Temporary Notes..............................................40
Section 3.05. Transfer and Exchange........................................41
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes..................42
Section 3.07. Payment of Interest; Interest Rights Preserved...............43
Section 3.08. Persons Deemed Owners........................................44
Section 3.09. Cancellation.................................................44
Section 3.10. Computation of Interest......................................45
Section 3.11. Legal Holidays...............................................45
Section 3.12. CUSIP and CINS Numbers.......................................45
Section 3.13. Paying Agent To Hold Money in Trust..........................46
Section 3.14. Treasury Notes...............................................46
Section 3.15. Deposits of Monies...........................................46
Section 3.16. Book-Entry Provisions for Global Notes.......................47
Section 3.17. Special Transfer Provisions..................................48
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or
Covenant Defeasance........................................53
Section 4.02. Defeasance and Discharge.....................................53
Section 4.03. Covenant Defeasance..........................................54
Section 4.04. Conditions to Defeasance or Covenant Defeasance..............54
Section 4.05. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous Provisions........57
Section 4.06. Reinstatement................................................58
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default............................................58
Section 5.02. Acceleration of Maturity Rescission and Annulment............60
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.................................................61
Section 5.04. Trustee May File Proofs of Claims............................62
Section 5.05. Trustee May Enforce Claims Without Possession of Notes.......63
Section 5.06. Application of Money Collected...............................63
Section 5.07. Limitation on Suits..........................................64
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest.......................................65
Section 5.09. Restoration of Rights and Remedies...........................65
Section 5.10. Rights and Remedies Cumulative...............................65
Section 5.11. Delay or Omission Not Waiver.................................66
Section 5.12. Control by Majority..........................................66
Section 5.13. Waiver of Past Defaults......................................66
Section 5.14. Undertaking for Costs........................................67
Section 5.15. Waiver of Stay, Extension or Usury Laws......................67
Section 5.16. Unconditional Right of Holders To Receive Payment............68
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities..........................68
Section 6.02. Notice of Defaults...........................................69
Section 6.03. Certain Rights of Trustee....................................69
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof...................71
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc..........71
Section 6.06. Money Held in Trust..........................................72
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim................................................72
Section 6.08. Conflicting Interests........................................73
Section 6.09. Corporate Trustee Required; Eligibility......................73
Section 6.10. Resignation and Removal; Appointment of Successor Trustee....73
Section 6.11. Acceptance of Appointment by Successor ......................75
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business.....................................76
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish Trustee
Names and Addresses of Holders.............................77
Section 7.02. Communications of Holders....................................78
Section 7.03. Reports by Trustee...........................................78
Section 7.04. Reports by Company...........................................78
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms.........79
Section 8.02. Successor Substituted........................................80
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers Without
Consent of Holders.........................................81
Section 9.02. Supplemental Indentures, Agreements and Waivers with
Consent of Holders.........................................82
Section 9.03. Execution of Supplemental Indentures, Agreements
and Waivers................................................83
Section 9.04. Effect of Supplemental Indentures............................84
Section 9.05. Conformity with Trust Indenture Act..........................84
Section 9.06. Reference in Notes to Supplemental Indentures................84
Section 9.07. Record Date..................................................84
Section 9.08. Revocation and Effect of Consents............................85
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest..................85
Section 10.02. Maintenance of Office or Agency.............................85
Section 10.03. Money for Note Payments To Be Held in Trust................86
Section 10.04. Corporate Existence.........................................88
Section 10.05. Payment of Taxes and Other Claims...........................88
Section 10.06. Maintenance of Properties...................................88
Section 10.07. Insurance...................................................89
Section 10.08. Books and Records...........................................89
Section 10.09. Provision of Financial Statements...........................89
Section 10.10. Change of Control...........................................89
Section 10.11. Limitation on Additional Indebtedness ......................92
Section 10.12. Statement by Officers as to Default.........................93
Section 10.13. Limitation on Restricted Payments...........................94
Section 10.14. Limitation on Transactions with Affiliates..................97
Section 10.15. Disposition of Proceeds of Asset Sales......................98
Section 10.16. Limitation on Liens Securing Certain Indebtedness..........102
Section 10.17. Limitation on Business.....................................103
Section 10.18. Limitation on Certain Guarantees and Indebtedness of
Restricted Subsidiaries and Restricted Affiliates........103
Section 10.19. Limitation on Issuances and Sales of Preferred Stock
by Restricted Subsidiaries and Restricted Affiliates.....104
Section 10.20. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries or Restricted
Affiliates...............................................104
Section 10.21. Designations of Unrestricted Subsidiaries..................105
Section 10.22. Designations of Restricted Affiliates .....................107
Section 10.23. Compliance Certificates and Opinions.......................108
Section 10.24. Reports....................................................109
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture....................109
Section 11.02. Application of Trust Money.................................110
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee.....................................111
Section 12.02. Selection of Notes To Be Redeemed..........................111
Section 12.03. Notice of Redemption.......................................111
Section 12.04. Effect of Notice of Redemption.............................112
Section 12.05. Deposit of Redemption Price................................113
Section 12.06. Notes Redeemed or Purchased in Part........................113
Exhibit A-1 - Form of Series A Note
Exhibit A-2 - Form of Series B Note
Exhibit B - Form of Legend for Book-Entry Securities
Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers
to Non-QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers
Pursuant to Regulation S
INDENTURE, dated as of October 17, 1997, between RCN
CORPORATION, a corporation incorporated under the laws of the State of
Delaware (the "Company"), as issuer, and The Chase Manhattan Bank, a New York
banking Corporation as trustee (the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of (i)
11 1/8% Senior Discount Notes due 2007, Series A (the "Initial Notes"), and
(ii) 11 1/8% Senior Discount Notes due 2007, Series B, to be issued in
exchange for the Initial Notes pursuant to the Registration Rights Agreement
(the "Exchange Notes" and, together with the Initial Notes, the "Notes",
treated as a single class of securities under this Indenture), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary have been done to make the Notes, when
executed by the Company, and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of each of the Company and the Trustee in
accordance with the terms hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders (as hereinafter defined) of
the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.
"Accreted Value" means, as of any date (the "Specified
Date") with respect to each $1,000 principal amount at maturity of the
Notes:
(i) if the Specified Date is one of the following
dates (each a "Semi-Annual Accrual Date"), the amount set forth
opposite such date below:
Semi-Annual
Accrual Date
------------
Issue Date..................... $ 582.32
April 15, 1998................. $ 614.35
October 15, 1998............... $ 648.52
April 15, 1999................. $ 684.60
October 15, 1999............... $ 722.68
April 15, 2000................. $ 762.88
October 15, 2000............... $ 805.31
April 15, 2001................. $ 850.11
October 15, 2001............... $ 897.40
April 15, 2002................. $ 947.31
October 15, 2002............... $1,000.00
(ii) if the Specified Date occurs between two
Semi-Annual Accrual Dates, the sum of (A) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding the Specified
Date and (B) an amount equal to the product of (i) the Accreted
Value for the immediately following Semi-Annual Date less the
Accreted Value for the immediately preceding Semi-Annual Accrual
Date and (ii) a fraction, the numerator of which is the number
of days actually elapsed from the immediately preceding
Semi-Annual Accrual Date to the Specified Date and the
denominator of which is 180 days; and
(iii) if the Specified Date is on or after October
15, 2002, $1,000.
"Acquired Indebtedness" means Indebtedness of a person existing
at the time such person becomes a Restricted Subsidiary or Restricted
Affiliate or assumed in connection with an Asset Acquisition by such person
and not incurred in connection with, or in anticipation of, such person
becoming a Restricted Subsidiary or Restricted Affiliate or such Asset
Acquisition; provided that Indebtedness of such person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such person becomes a Restricted
Subsidiary or Restricted Affiliate or such Asset Acquisition shall not
constitute Acquired Indebtedness.
"Affiliate" of any specified person means any other person
which, directly or indirectly, controls, is controlled by or is under direct
or indirect common control with, such specified person. For the purposes of
this definition, "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Affiliate Income Tax Expense" means, with respect to any
period and any Restricted Affiliate, the aggregate provision for United States
corporation, local, foreign and other income taxes of such Restricted
Affiliate for such period as determined in accordance with GAAP.
"Affiliate Interest Expense" means, with respect to any period
and any Restricted Affiliate, without duplication, the sum of (i) the interest
expense of such Restricted Affiliate and its Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net cost under
Interest Rate Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all accrued
interest, (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued during such period as
determined on a consolidated basis in accordance with GAAP and (iii) the amount
of dividends in respect of Disqualified Stock paid during such period.
"Affiliate Net Income" means, with respect to any period and
any Restricted Affiliate, the net income of such Restricted Affiliate and its
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, adjusted, to the extent included in calculating such net
income of such Restricted Affiliate and its Subsidiaries, by excluding,
without duplication, (i) all extraordinary, unusual or nonrecurring gains or
losses of such person (net of fees and expenses relating to the transaction
giving rise thereto) for such period, (ii) income of such Restricted Affiliate
and its Subsidiaries derived from or in respect of all unconsolidated
Investments, except to the extent of any dividends or distributions actually
received by such Restricted Affiliate or any of its Subsidiaries, (iii) net
income (or loss) of any other person combined with such Restricted Affiliate
or any of its Subsidiaries on a "pooling of interests" basis attributable to
any period prior to the date of combination, (iv) any gain or loss, net of
taxes, realized by such person upon the termination of any employee pension
benefit plan during such period, and (v) gains or losses in respect of any
Asset Sales (net of fees and expenses relating to the transaction giving rise
thereto) during such period.
"Affiliate Operating Cash Flow" means, with respect to any
period and any Restricted Affiliate, the Affiliate Net Income of such
Restricted Affiliate and its Subsidiaries on a consolidated basis for such
period increased, only to the extent deducted in arriving at Affiliate Net
Income for such period, by the sum of (i) the Affiliate Income Tax Expense
accrued according to GAAP for such period (other than taxes attributable to
extraordinary gains or losses and gains and losses from Asset Sales); (ii)
Affiliate Interest Expense for such period; (iii) depreciation of such
Restricted Affiliate for such period; (iv) amortization of such Restricted
Affiliate and its Subsidiaries for such period including, without limitation,
amortization of capitalized debt issuance costs for such period, all
determined in accordance with GAAP; and (v) other non-cash charges decreasing
Affiliate Net Income.
"Affiliate Pro Forma Operating Cash Flow" means Affiliate
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of the applicable Restricted Affiliate are available.
For purposes of this definition, "Affiliate Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Restricted Affiliate
or any of its Subsidiaries incurring Acquired Indebtedness) occurring during
the period commencing on the first day of such four fiscal quarter period to
and including the date of the transaction giving rise to the need to calculate
"Affiliate Pro Forma Operating Cash Flow" as if such Asset Sale or Asset
Acquisition occurred on the first day of such period.
"Asset Acquisition" means (i) any capital contribution (by
means of transfers of cash or other property to others or payments for
property or services for the account or use of others, or otherwise) by the
Company or any Restricted Subsidiary or Restricted Affiliate to any other
person, or any acquisition or purchase of Capital Stock of any other person by
the Company or any Restricted Subsidiary or Restricted Affiliate, in either
case pursuant to which such person shall (a) become a Restricted Subsidiary or
Restricted Affiliate or (b) shall be merged with or into the Company or any
Restricted Subsidiary or Restricted Affiliate or (ii) any acquisition by the
Company or any Restricted Subsidiary or Restricted Affiliate of the assets of
any person which constitute substantially all of an operating unit or line of
business of such person or which is otherwise outside of the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for
security purposes) or other disposition (that is not for security purposes) to
any person other than the Company or a Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Capital Stock of
any Restricted Subsidiary (other than customary stock option programs) or any
Restricted Affiliate, (ii) any assets of the Company or any Restricted
Subsidiary or any Restricted Affiliate which constitute substantially all of
an operating unit or line of business of the Company and the Restricted
Subsidiaries and the Restricted Affiliates or (iii) any other property or
asset of the Company or any Restricted Subsidiary or any Restricted Affiliates
outside of the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any disposition of
properties and assets of the Company and/or the Restricted Subsidiaries that
is governed under Section 8.01, (ii) sales of property or equipment that have
become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary or
Restricted Affiliate, as the case may be, and (iii) for purposes of Section
10.15 any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions occurring within one year, either (x) involving assets with a
Fair Market Value not in excess of $500,000 or (y) which constitutes the
incurrence of a Capitalized Lease Obligation.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments; provided that, in the case of any
Capitalized Lease Obligation, all calculations hereunder shall give effect to
any applicable options to renew in favor of the Company or any Restricted
Subsidiary or Restricted Affiliate.
"Bankruptcy Law" means Title 11, United States Code or any
similar federal or state law relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or the law of any
other jurisdiction relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Bankruptcy Order" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation,
receivership, winding-up, dissolution, "concordate" or reorganization, or
appointing a Custodian of a debtor or of all or any substantial part of a
debtor's property, or providing for the staying, arrangement, adjustment or
composition of indebtedness or other relief of a debtor.
"BECO Joint Venture" means RCN-BECOCOM, LLC, a Massachusetts
limited liability company formed under the terms of a Joint Venture Agreement
dated as of December 23, 1996 between RCN Telecom Services, Inc. and Boston
Energy Technology Group, Inc.
"Board" means the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Buildout Costs" means the cost of the construction, expansion,
development or acquisition (other than an Asset Acquisition of any person that
is not a Restricted Affiliate on the Issue Date) of properties or assets
(tangible or intangible) to be utilized, directly or indirectly, for the
design, development, construction, installation, integration, management or
provision of a Permitted Business.
"Buildout Indebtedness" means Indebtedness incurred by the
Company and/or any Restricted Subsidiary and/or any Restricted Affiliate to
the extent the proceeds thereof are used to finance or support Buildout Costs
in respect of a Permitted Business of the Company and/or any Restricted
Subsidiary and/or Restricted Affiliate.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York, New York are authorized or obligated by law, regulation or executive
order to close.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of, such person's capital
stock, whether outstanding on the Issue Date or issued after the Issue Date,
and any and all rights (other than any evidence of Indebtedness), warrants or
options exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) any property (whether real, personal or mixed, immovable or movable) that
is required to be classified and accounted for as a capitalized lease
obligation under GAAP, and, for the purpose of this Indenture, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness
(with, for purposes of Section 10.15 hereof only, a maturity of 365 days or
less) issued or directly and fully guaranteed or insured by the United States
or any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof or such Indebtedness
constitutes a general obligation of such country); (ii) deposits, certificates
of deposit or acceptances (with, for purposes of Section 10.15 hereof only, a
maturity of 365 days or less) of any financial institution that is a member
of the Federal Reserve System, in each case having combined capital and
surplus and undivided profits (or any similar capital concept) of not less
than $500.0 million and whose senior unsecured debt is rated at least "A-1" by
S&P or "P-1" by Moody's; (iii) commercial paper with a maturity of 365 days
or less issued by a corporation (other than an Affiliate of the Company)
organized under the laws of the United States or any State thereof and rated
at least "A-1" by S&P or "P-1" by Moody's; (iv) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States
Government maturing within 365 days from the date of acquisition; and (v)
money market funds which invest substantially all of their assets in
securities of the type described in the preceding clauses (i) through (iv).
"Cedel" means Cedel Bank, Societe Anonyme.
"Change of Control" is defined to mean the occurrence of any of
the following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding the Kiewit Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total Voting Stock of
the Company; or (b) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any
person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation or its parent
corporation and/or (2) cash, securities and other property in an amount which
could be paid by the Company as a Restricted Payment under this Indenture and
(ii) immediately after such transaction no "person" or "group" (as such terms
are used in Section 13(d) and 14(d) of the Exchange Act), excluding the Kiewit
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
surviving or transferee corporation or its parent corporation, as applicable;
or (c) during any consecutive two-year period, individuals who at the beginning
of such period constituted the Board (together with any new directors whose
election by the Board or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason (other than by action of the Kiewit Holders) to constitute a majority
of the Board then in office.
"Common Stock" means, with respect to any person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of such person's common stock
whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the person named as the "Company" in the first
paragraph of this Indenture, until a successor person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one of its Chairman of the
Board, its Vice-Chairman, its Chief Executive Officer, its President or a Vice
President, and by its Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to any
period, the aggregate provision for United States corporation, local, foreign
and other income taxes of the Company and the Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP and of
each of the Restricted Affiliates for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any
period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries and the Restricted Affiliates for such
period as determined on a consolidated basis in accordance with GAAP,
including, without limitation, (a) any amortization of debt discount, (b) the
net cost under Interest Rate Obligations (including any amortization of
discounts), (c) the interest portion of any deferred payment obligation, (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and similar transactions
and (e) all accrued interest, (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued during such
period as determined on a consolidated basis in accordance with GAAP and (iii)
the amount of dividends in respect of Disqualified Stock paid during such
period.
"Consolidated Net Income" means, with respect to any period,
the consolidated net income of the Company and the Restricted Subsidiaries for
such period in accordance with GAAP, adjusted, without duplication, (A) to
include the consolidated net income of the Restricted Affiliates only to the
extent of the equity interest of the Company and the Restricted Subsidiaries
and (B) adjusted, to the extent included in calculating such adjusted
consolidated net income of the Company and the Restricted Subsidiaries, by
excluding, without duplication, (i) all extraordinary, unusual or nonrecurring
gains or losses of such person (net of fees and expenses relating to the
transaction giving rise thereto) for such period, (ii) subject to clause (A)
above, income of the Company and the Restricted Subsidiaries and the Restricted
Affiliates derived from or in respect of all unconsolidated Investments,
except to the extent of any dividends or distributions actually received by
the Company or any Restricted Subsidiary, (iii) the portion of net income (or
loss) of such person allocable to minority interests in Restricted
Subsidiaries and Restricted Affiliates for such period, (iv) net income (or
loss) of any other person combined with the Company or any Restricted
Subsidiary or Restricted Affiliate on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) any gain or
loss, net of taxes, realized by such person upon the termination of any
employee pension benefit plan during such period, (vi) gains or losses in
respect of any Asset Sales (net of fees and expenses relating to the
transaction giving rise thereto) during such period and (vii) except to the
extent permitted by clause (vii) of Section 10.20 hereof, the net income of any
Restricted Subsidiary or Restricted Affiliate for such period to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary or Restricted Affiliate of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted subsidiary or
Restricted Affiliate or its stockholders.
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income for such period increased, only to the
extent (which, in the case of the Restricted Affiliates, means to the extent
of the equity interest of the Company and the Restricted Subsidiaries)
deducted in arriving at Consolidated Net Income for such period, by the sum of
(i) the Consolidated Income Tax Expense accrued according to GAAP for such
period (other than taxes attributable to extraordinary gains or losses and
gains and losses from Asset Sales); (ii) Consolidated Interest Expense for
such period; (iii) depreciation of the Company and the Restricted Subsidiaries
and the Restricted Affiliates for such period; (iv) amortization of the
Company and the Restricted Subsidiaries and the Restricted Affiliates for such
period, including, without limitation, amortization of capitalized debt
issuance costs for such period, all determined on a consolidated basis in
accordance with GAAP, and (v) other non-cash charges decreasing
Consolidated Net Income.
"Consolidated Pro Forma Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of the Company are available. For purposes of calculating
"Consolidated Operating Cash Flow" for any four fiscal quarters for purposes
of this definition, (i) any Subsidiary of the Company that is a Restricted
Subsidiary on the date of the transaction giving rise to the need to calculate
"Consolidated Pro Forma Operating Cash Flow" (the "Transaction Date") (or
would become a Restricted Subsidiary in connection with the transaction that
requires determination of such amount) shall be deemed to have been a
Restricted Subsidiary at all times during such four fiscal quarters, (ii) any
Joint Venture that is a Restricted Affiliate on the Transaction Date (or would
become a Restricted Affiliate in connection with the transaction that requires
the determination of such amount) shall be deemed to have been a Restricted
Affiliate at all times during such four fiscal quarters, (iii) any Subsidiary
of the Company that is not a Restricted Subsidiary on the Transaction Date (or
would cease to be a Restricted Subsidiary in connection with the transaction
that requires the determination of such amount) shall be deemed not to have
been a Restricted Subsidiary at any time during such four fiscal quarters and
(iv) any Joint Venture that is not a Restricted Affiliate on the Transaction
Date (or would cease to be a Restricted Affiliate in connection with the
transaction that requires the determination of such amount) shall be deemed not
to have been a Restricted Affiliate at any time during such four fiscal
quarters. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company's or one of
the Restricted Subsidiaries' or Restricted Affiliates' (including any person
who becomes a Restricted Subsidiary or Restricted Affiliate as a result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
period commencing on the first day of such four fiscal quarter period to and
including the Transaction Date, as if such Asset Sale or Asset Acquisition
occurred on the first day of such period.
"consolidation" means, (i) with respect to the Company, the
consolidation of the accounts of the Restricted Subsidiaries with those of the
Company all in accordance with GAAP; provided that "consolidation" will not
include consolidation of the accounts of any Unrestricted Subsidiary or
Restricted Affiliate with the accounts of the Company and (ii) with respect to
any Restricted Affiliate, the consolidation of the accounts of the
Subsidiaries of such Restricted Affiliate with those of such Restricted
Affiliate, all in accordance with GAAP. The term "consolidated" has a
correlative meaning to the foregoing.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which office at the date of execution of this
Indenture is located at 450 West 33rd Street, 15th Floor, New York, New York
10001-2697, Attention: Global Trust Services or at any other time at such
other address as the Trustee may designate from time to time by notice to
the Noteholders.
"Custodian" means any receiver, interim receiver, receiver and
manager, receiver-manager, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law or any other law respecting secured
creditors and the enforcement of their security or any other person with like
powers whether appointed judicially or out of court and whether pursuant to an
interim or final appointment.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Default Amount" means the Accreted Value, premium, if any, and
accrued and unpaid interest in respect of the Notes.
"Depository" means The Depository Trust Company, its nominees
and successors.
"Designation Amounts" means, at any date of determination, the
sum of all US Designation Amounts and all JV Revocation Amounts.
"Designation" has the meaning set forth under Section 10.21
hereof.
"Disinterested Director" means, with respect to any transaction
or series of related transactions, a member of the Board of the Company other
than a director who (i) has any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions or
(ii) is an employee or officer of the Company or an Affiliate that is itself a
party to such transaction or series of transactions or an Affiliate of a party
to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any
Capital Stock which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or becomes mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes; provided such Capital Stock shall only constitute Disqualified
Stock to the extent it so matures or becomes so redeemable or exchangeable on
or prior to the final maturity date of the Notes; provided, further, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the final maturity date of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in Section 10.15
and Section 10.10 hereof and such Capital Stock specifically provides that
such person will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to Section 10.15 and Section 10.10 hereof and at all
times subject to 10.13 hereof.
"Escrow Agent" means The Chase Manhattan Bank, as Escrow Agent
pursuant to the Escrow Agreement until a successor escrow agent replaces it in
accordance with the provisions of the Escrow Agreement and thereafter means
such successor.
"Escrow Agreement" means the Escrow and Security Agreement
dated as of October 17, 1997, executed in connection with the Senior Notes.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Exchange Notes" means the 11 1/8% Senior Discount Notes due
2007, Series B, to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement.
"Exchange Offer" shall have the meaning specified in the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or
property, the price that could be negotiated in an arms-length free market
transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under pressure or compulsion to complete the
transaction. Any Asset Sale pursuant to the terms of the deadlock event
"buy-sell" arrangements in Section 7.8 of the Amended and Restated
Operating Agreement of RCN-BECOCOM, LLC, as in effect on the Issue Date, or
any comparable provisions of any documentation for the PEPCO Joint Venture,
shall be deemed to have been made for Fair Market Value. Unless otherwise
specified in this Indenture, Fair Market Value shall be determined by the
Board acting in good faith and shall be evidenced by a Board Resolution.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States and which are applicable
as of the date of determination and which are consistently applied for all
applicable periods.
"Global Notes" means one or more of the Regulation S Global
Notes and/or the 144A Global Notes.
"guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
"Holder" or "Noteholder" means a person in whose name a Note is
registered in the Note Register.
"Indebtedness" means, with respect to any person, without
duplication, (i) any liability, contingent or otherwise, of such person (A)
for borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof) or (B) evidenced by
a note, debenture or similar instrument or letter of credit (including a
purchase money obligation) or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of property or (D) in respect of an Interest Rate Obligation or
currency agreement; or (ii) any liability of others of the kind described in
the preceding clause (i) which the person has guaranteed or which is otherwise
its legal liability; or (iii) any obligation secured by a Lien (other than
Liens on Capital Stock or Indebtedness of any Unrestricted Subsidiary) to which
the property or assets of such person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such person's legal liability (the amount of such obligation being deemed to
be the lesser of the value of such property or asset or the amount of the
obligation so secured); (iv) all Disqualified Stock valued at the greater of
its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends; and (v) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (i), (ii), (iii) or (iv).
In no event shall "Indebtedness" include trade payables and accrued
liabilities that are current liabilities incurred in the ordinary course of
business, excluding the current maturity of any obligation which would
otherwise constitute Indebtedness. For purposes of Section 10.11 and Section
10.13 hereof and the definition of "Events of Default," in determining the
principal amount of any Indebtedness to be incurred by the Company or a
Restricted Subsidiary or which is outstanding at any date, the principal
amount of any Indebtedness which provides that an amount less than the
principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accreted value thereof at the date of
determination. Indebtedness of any person that becomes a Restricted
Subsidiary shall be deemed incurred at the time that such a person becomes a
Restricted Subsidiary.
"Indenture" means this instrument as originally executed
(including all exhibits and schedules hereto) and as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto
entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company
under this Indenture or under the Notes, to pay principal of, premium, if any,
and interest on the Notes when due and payable, whether at maturity, by
acceleration, call for redemption or repurchase or otherwise, and all other
amounts due or to become due under or in connection with this Indenture or the
Notes and the performance of all other obligations to the Trustee (including,
but not limited to, payment of all amounts due the Trustee under Section 6.07
hereof) and the Holders of the Notes under this Indenture and the Notes,
according to the terms thereof.
"Independent Financial Advisor" means a United States
investment banking, consulting or accounting firm of national standing in the
United States (i) which does not, and whose directors, officers and employees
or Affiliates do not, have a material direct or indirect financial interest in
the Company or any of its Subsidiaries or Affiliates and (ii) which, in the
judgment of the Board, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Notes" means the 11 1/8% Senior Discount Notes due
2007, Series A, of the Company.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Salomon Brothers Inc and Montgomery Securities.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act.
"interest," when used with respect to any Note, means the
amount of all interest accruing on such Note, including all additional
interest payable on the Notes pursuant to the Registration Rights Agreement
and all interest accruing subsequent to the occurrence of any events specified
in Sections 5.01(viii), (ix) and (x) hereof or which would have accrued but
for any such event, whether or not such claims are allowable under applicable
law.
"Interest Payment Date" means, when used with respect to any
Note, the Stated Maturity of an installment of interest on such Note, as set
forth in such Note.
"Interest Rate Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount and shall include without limitation, interest
rate swaps, caps, floors, collars, forward interest rate agreements and
similar agreements.
"Investment" means, with respect to any person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by
means of transfers of property to others, payments for property or services
for the account or use of others, or otherwise), or any purchase or ownership
of any stocks, bonds, notes, debentures or other securities of, any other
person. Notwithstanding the foregoing, in no event shall any issuance of
Capital Stock (other than Disqualified Stock) of the Company in exchange for
Capital Stock, property or assets of another person constitute an Investment
by the Company in such other person.
"Issue Date" means the original date of issuance of the Notes.
"Joint Venture" means any person engaged in a Permitted
Business in which the Company or one of the Restricted Subsidiaries (the "RCN
Partner") owns not less than 50% of the Voting Stock and not less than 50% of
each class of Capital Stock and in respect of which (a) there are no more than
five other beneficial holders of Capital Stock and Voting Stock (the "Other
Partners"), (b) all of its Subsidiaries are wholly owned by such person and
(c) the RCN Partner and the Other Partners have entered into contractual
arrangements that require their joint consent to take actions in respect of any
of the following: (1) the payment or distribution of any dividends, whether
in cash or other property, by such person or any of its Subsidiaries to the
RCN Partner; (2) the making of any advance or loan of any cash or other
property by such person or any of its Subsidiaries to the Company or any of the
Restricted Subsidiaries; (3) the incurrence of any Indebtedness by such person
or any of its Subsidiaries; or (4) any other material operating or financial
decision with respect to the business of such person or any of its
Subsidiaries; provided that customary financial and other restrictive
covenants in any loan or advances made by the RCN Partner and the Other
Partners to such person or any of its Subsidiaries and not entered into with
purpose of influencing the management of such person or any of its
Subsidiaries shall not, by itself, cause such person to not constitute a Joint
Venture.
"Kiewit Holders" means Peter Kiewit Sons' Inc., Kiewit
Diversified Group, Inc. and Kiewit Telecom Holdings, Inc. and any of their
respective controlled Affiliates.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Material Restricted Subsidiary" means any Restricted
Subsidiary of the Company, which, at any date of determination, is a
"Significant Subsidiary" (as that term is defined in Regulation S-X issued
under the Securities Act), but shall, in any event, include (x) any Guarantor
or (y) any Restricted Subsidiary of the Company which, at any date of
determination, is an obligor under any Indebtedness in an aggregate principal
amount equal to or exceeding $10.0 million.
"Maturity Date" means, with respect to any Note, the date
specified in such Note as the fixed date on which the principal of such Note
is due and payable.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash (including assumed liabilities and other
items deemed to be cash under the proviso to the first sentence of Section
10.15 hereof) or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary or any Restricted Affiliate) net
of (i) brokerage commissions and other fees and expenses (including fees and
expenses of legal counsel, accountants, consultants and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result
of such Asset Sale, (iii) amounts required to be paid to any person (other
than the Company or any Restricted Subsidiary or any Restricted Affiliate)
owning a beneficial interest in or having a Permitted Lien on the assets
subject to the Asset Sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary or any Restricted Affiliate, as the case
may be, as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary or any Restricted Affiliate, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.
"New Joint Venture" means any Joint Venture (excluding in any
event the BECO Joint Venture and the PEPCO Joint Venture) formed after the
Issue Date and in which no Investment has been made on or prior to the Issue
Date.
"Non-U.S. Person" has the meaning assigned to such term in
Regulation S.
"Notes" shall have the meaning specified in the recitals of
this Indenture.
"Offering Memorandum" means the Offering Memorandum dated
October 10, 1997 pursuant to which the Notes were offered.
"Officer" means, with respect to the Company, the Chairman of
the Board, a Vice Chairman, the President, a Vice President, the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman, the President or a Vice President, and
by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer, of the Company and delivered to the Trustee.
"144A Global Note" means a permanent global note in registered
form representing the aggregate principal amount of Notes sold in reliance on
Rule 144A under the Securities Act.
"Opinion of Counsel" means a written opinion of counsel who may
be counsel for the Company or the Trustee, and who shall be reasonably
acceptable to the Trustee.
"Other Partners" has the meaning set forth in the definition of
"Joint Venture."
"Other Senior Debt Pro Rata Share" means the amount of the
applicable Excess Proceeds obtained by multiplying the amount of such Excess
Proceeds by a fraction, (i) the numerator of which is the aggregate accreted
value and/or principal amount, as the case may be, of all Indebtedness (other
than (x) the Notes and (y) Subordinated Indebtedness) of the Company
outstanding at the time of the applicable Asset Sale with respect to which the
Company is required to use Excess Proceeds to repay or make an offer to
purchase or repay and (ii) the denominator of which is the sum of (a) the
aggregate principal amount of all Notes outstanding at the time of the offer to
purchase or repay with respect to the applicable Asset Sale and (b) the
aggregate principal amount or the aggregate accreted value, as the case may
be, of all other Indebtedness (other than Subordinated Indebtedness) of the
Company outstanding at the time of the applicable Asset Sale Offer with
respect to which the Company is required to use the applicable Excess Proceeds
to offer to repay or make an offer to purchase or repay.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Notes, or portions thereof, for whose
payment or redemption money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent
(other than the Company or any Affiliate thereof) in trust or
set aside and segregated in trust by the Company or any
Affiliate thereof (if the Company or such Affiliate shall act as
Paying Agent) for the Holders of such Notes; provided, however,
that if such Notes are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(c) Notes with respect to which the Company has
effected defeasance or covenant defeasance as provided in
Article Four, to the extent provided in Sections 4.02 and 4.03
hereof; and
(d) Notes in exchange for or in lieu of which
other Notes have been authenticated and delivered pursuant to
this Indenture, other than any such Notes in respect of which
there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide
purchaser in whose hands the Notes are valid obligations of the
Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that a Responsible Officer of the
Trustee actually knows to be so owned shall be so disregarded. The Company
shall notify the Trustee, in writing, when it repurchases or otherwise acquires
Notes, of the aggregate principal amount of such Notes so repurchased or
otherwise acquired. Notes so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Notes and that
the pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or such other obligor. If the Paying Agent holds, in
its capacity as such, on any Maturity Date or on any optional redemption date
money sufficient to pay all accrued interest and principal with respect to
such Notes payable on that date and is not prohibited from paying such money
to the Holders thereof pursuant to the terms of this Indenture, then on and
after that date such Notes cease to be Outstanding and interest on them ceases
to accrue. Notes may also cease to be Outstanding to the extent expressly
provided in Article Four.
"PEPCO Joint Venture" means the joint venture to be formed
pursuant to the binding letter of intent dated August 1, 1997 between RCN
Telecom Services, Inc. and Potomac Capital Investment Corporation.
"Permitted Business" means any telecommunications business
(including, without limitation, the development and provision of voice, video
and data transmission products, services and systems), and any business
reasonably related to the foregoing.
"Permitted Credit Facility" means (i) any senior commercial
term loan and/or revolving credit facility (including any letter of credit
subfacility) entered into principally with commercial banks and/or other
financial institutions typically party to commercial loan agreements and (ii)
any senior credit facility entered into with any vendor or supplier (or any
financial institution acting on behalf of or for the purpose of directly
financing purchases from such vendor or supplier) to the extent the
Indebtedness thereunder is incurred for the purpose of financing the cost
(including the cost of design, development, construction, manufacture or
acquisition) of personal property or fixtures, used, or to be used, in a
Permitted Business.
"Permitted Indebtedness" means the following Indebtedness (each
of which shall be given independent effect):
(a) Indebtedness under the Notes, this Indenture
and the Senior Notes Indenture;
(b) Indebtedness of the Company and/or any
Restricted Subsidiary and/or any Restricted Affiliate
outstanding on the Issue Date;
(c) (i) Indebtedness of any Restricted
Subsidiary or Restricted Affiliate owed to and held by the
Company or a Restricted Subsidiary or Restricted Affiliate and
(ii) Indebtedness of the Company, not secured by any Lien, owed
to and held by any Restricted Subsidiary or Restricted
Affiliate; provided that an incurrence of Indebtedness shall be
deemed to have occurred upon (x) any sale or other disposition
(excluding assignments as security to financial institutions) of
any Indebtedness of the Company or a Restricted Subsidiary or
Restricted Affiliate referred to in this clause (c) to a person
(other than the Company or a Restricted Subsidiary or Restricted
Affiliate) or (y) any sale or other disposition by the Company
or any Restricted Subsidiary of Capital Stock of a Restricted
Subsidiary or Restricted Affiliate, or Designation of an
Unrestricted Subsidiary or JV Revocation of a Restricted
Affiliate, which holds Indebtedness of the Company or Restricted
Subsidiary or Restricted Affiliate such that such Restricted
Subsidiary or Restricted Affiliate, in any such case, ceases to
be a Restricted Subsidiary or Restricted Affiliate, as the case
may be;
(d) Interest Rate Obligations of the Company
and/or any Restricted Subsidiary and/or any Restricted Affiliate
relating to Indebtedness of the Company and/or such Restricted
Subsidiary and/or Restricted Affiliate, as the case may be
(which Indebtedness (x) bears interest at fluctuating interest
rates and (y) is otherwise permitted to be incurred under
Section 10.11 hereof), but only to the extent that the notional
principal amount of such Interest Rate Obligations does not
exceed the principal amount of the Indebtedness (and/or
Indebtedness subject to commitments) to which such Interest Rate
Obligations relate;
(e) Indebtedness of the Company and/or any
Restricted Subsidiary and/or any Restricted Affiliate in respect
of performance bonds of the Company or any Restricted Subsidiary
or Restricted Affiliate or surety bonds provided by the Company
or any Restricted Subsidiary or Restricted Affiliate incurred in
the ordinary course of business;
(f) Indebtedness of the Company and/or any
Restricted Subsidiary and/or any Restricted Affiliate to the
extent it represents a replacement, renewal, refinancing or
extension (a "Refinancing") of outstanding Indebtedness of the
Company and/or any Restricted Subsidiary and/or any Restricted
Affiliate incurred or outstanding pursuant to clause (a), (b),
(g), or (h) of this definition or the proviso of Section 10.11
hereof, provided that (1) Indebtedness of the Company may not be
Refinanced to such extent under this clause (f) with
Indebtedness of any Restricted Subsidiary or Restricted
Affiliate, (2) Indebtedness of a Restricted Affiliate may not be
Refinanced with Indebtedness of the Company or a Restricted
Subsidiary in an amount exceeding the RCN Share of such
Indebtedness and (3) any such Refinancing shall only be
permitted under this clause (f) to the extent that (x) it does
not result in a lower Average Life to Stated Maturity of such
Indebtedness as compared with the Indebtedness being Refinanced
and (y) it does not exceed the sum of the principal amount (or,
if such Indebtedness provides for a lesser amount to be due and
payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being
Refinanced plus the amount of accrued interest thereon and the
amount of any reasonably determined prepayment premium necessary
to accomplish such Refinancing and such reasonable fees and
expenses incurred in connection therewith;
(g) Buildout Indebtedness (including under one
or more Permitted Credit Facilities); provided that no
Indebtedness may be incurred under this clause (g) on any date
on or after October 15, 2002;
(h) Indebtedness of the Company and/or any
Restricted Subsidiary and/or any Restricted Affiliate incurred
under one or more Permitted Credit Facilities, and any
Refinancings (whether an initial Refinancing or one or more
successive Refinancings) of the foregoing otherwise incurred in
compliance with clause (f), such that the aggregate principal
amount of the Indebtedness of the Company and the Restricted
Subsidiaries and the RCN Share of any Indebtedness of a
Restricted Affiliate does not exceed $150 million at any time
outstanding; provided, however, such amount shall be increased
to $200 million if the Company shall designate as a Restricted
Affiliate pursuant to Section 10.22 a Joint Venture formed to
develop a Permitted Business in a Metropolitan Statistical Area
which contains greater than 400,000 households;
(i) Subordinated Indebtedness of any Restricted
Affiliate owed to and held by any of the Other Partners in such
Restricted Affiliate to the extent (x) such Indebtedness is
incurred to fund the proportionate share (based upon equity
ownership) of the Company or any Restricted Subsidiary of any
mandatory capital call made by such Restricted Affiliate and in
respect to which the Company or such Restricted Subsidiary has
defaulted and (y) such Indebtedness is not secured by any Lien;
and
(j) in addition to the items referred to in
clauses (a) through (i) above, Indebtedness of the Company
and/or the Restricted Subsidiaries having an aggregate principal
amount not to exceed $10 million at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection
and lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Obligations incurred in compliance with Section
10.11 hereof; and (d) Investments in the Company or any Restricted Subsidiary
or Investments made in any person as a result of which such person becomes a
Restricted Subsidiary.
"person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however
designated) of such person's preferred or preference stock whether now
outstanding, or issued after the Issue Date, and including, without
limitation, all classes and series of preferred or preference stock of such
person.
"Private Exchange Notes" shall have the meaning specified in
the Registration Rights Agreement.
"Private Placement Legend" shall mean the first paragraph of
the legend initially set forth in the Notes in the form set forth on Exhibit
A-1.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"RCN Share" means, with respect to the Indebtedness of any
Restricted Affiliate, an amount of such Indebtedness determined by reference
to the percentage common equity interest of the Company and the Restricted
Subsidiaries in such Restricted Affiliate.
"Redemption Date" means, with respect to any Note to be
redeemed, the date fixed by the Company for such redemption pursuant to this
Indenture and the Notes.
"Redemption Price" means, with respect to any Note to be
redeemed, the price fixed for such redemption pursuant to the terms of this
Indenture and the Notes.
"Refinancing" has the meaning set forth in clause (f) of the
definition of "Permitted Indebtedness."
"Registrable Securities" shall have the meaning specified in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of October 17, 1997 by and among the Company and the
Initial Purchasers, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Regular Record Date" means the Regular Record Date specified
in the Notes.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a permanent global note in
registered form representing the aggregate principal amount of Notes sold in
reliance on Regulation S under the Securities Act.
"Responsible Officer" means, when used with respect to the
Trustee, any officer within the Corporate Trust Office including any Vice
President, Managing Director, Assistant Vice President, Secretary, Assistant
Secretary or Assistant Treasurer or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also, with respect to a particular matter, any
other officer to whom such matter is referred because of such officer's
knowledge and familiarity with the particular subject.
"Restricted Affiliate" means any Joint Venture designated as
such pursuant to and in compliance with Section 10.22 hereof until an
effective JV Revocation in respect thereof has been made.
"Restricted Affiliate Group" means, collectively, any
Restricted Affiliate whose Capital Stock is owned directly by the Company or a
Restricted Subsidiary and all of its Subsidiaries.
"Restricted Note" means a Note that constitutes a "restricted
security" within the meaning of Rule 144(a)(3) under the Securities Act;
provided, however, that the Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether any Note
constitutes a Restricted Note.
"Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company other than dividends
or distributions payable solely in Capital Stock (other than Disqualified
Stock) of the Company or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Stock) of the Company; (ii) the
purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company (other than any such Capital Stock owned by the
Company or a Wholly Owned Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to
any scheduled repayment, sinking fund or maturity of any Subordinated
Indebtedness (other than any Subordinated Indebtedness held by a Wholly Owned
Restricted Subsidiary); or (iv) the making by the Company or any Restricted
Subsidiary or any Restricted Affiliate of any Investment (other than a
Permitted Investment) in any person.
"Restricted Subsidiary" means any Subsidiary of the Company
that has not been designated by the Board, by a Board Resolution delivered to
the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 10.21 hereof. Any such designation may be revoked by a Board
Resolution delivered to the Trustee, subject to the provisions of such
covenant.
"Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness
of such Restricted Subsidiary and (ii) in respect of which the Company is not
also obligated (by means of a guarantee or otherwise) other than, in the case
of this clause (ii), Indebtedness under any Permitted Credit Facilities.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Corporation.
"SEC" means the Securities and Exchange Commission, as from
time to time constituted, or if at any time after the execution of this
Indenture such Commission is not existing and performing the applicable duties
now assigned to it, then the body or bodies performing such duties at such
time.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Senior Debt Securities" means any unsubordinated debt
securities (including any guarantee of such securities) issued by the Company
and/or any Restricted Subsidiary and/or any Restricted Affiliate, whether in a
public offering or a private placement; it being understood that the term
"Senior Debt Securities" shall not include any Permitted Credit Facility or
other commercial bank borrowings or similar borrowings, recourse transfers of
financial assets, capital leases or other types of borrowings issued in a
manner not customarily viewed as a "securities offering."
"Senior Notes" means the 10% Senior Notes due 2007 of the
Company.
"Senior Notes Indenture" means the indenture governing the
Senior Notes dated as of October 17, 1997, by and among the Company and The
Chase Manhattan Bank, as Trustee, as amended or supplemented from time to time.
"Special Record Date" means, with respect to the payment of any
Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.07
hereof.
"Stated Maturity" means, with respect to any Note or any
installment of interest thereon, the dates specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest, is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the
Company or any Guarantor which is expressly subordinated in right of payment
to any other Indebtedness of the Company or such Guarantor; provided that, for
purposes of Section 10.16 and Section 10.18, "Subordinated Indebtedness" means
any Indebtedness of the Company or any Restricted Subsidiary or Restricted
Affiliate that is expressly subordinated in right of payment to any other
Indebtedness of such person.
"Subsidiary" means, with respect to any person, (i) any
corporation of which the outstanding Capital Stock having at least a majority
of the votes entitled to be cast in the election of directors shall at the
time be owned, directly or indirectly, by such person, or (ii) any other
person of which at least a majority of voting interest is at the time, directly
or indirectly, owned by such person. In no event shall "Subsidiary" include
any Joint Venture.
"Total Affiliate Indebtedness" means, at any date of
determination, with respect to any Restricted Affiliate, the aggregate
consolidated amount of all Indebtedness of such Restricted Affiliate and its
Subsidiaries outstanding as of the date of determination.
"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the sum of (i) the aggregate amount of all
Indebtedness of the Company and the Restricted Subsidiaries and (ii) the sum
of the RCN Share of the Indebtedness of each of the Restricted Affiliates, in
each case outstanding as of the date of determination and determined on a
consolidated basis.
"Total Invested Equity Capital" means, at any time of
determination, the sum of, without duplication, (i) $216.6 million plus (ii)
the aggregate cash proceeds received by the Company from capital contributions
in respect of existing Capital Stock (other than Disqualified Stock) or the
issuance or sale of Capital Stock (other than Disqualified Stock but including
Capital Stock issued upon conversion of convertible Indebtedness or from the
exercise of options, warrants or rights to purchase Capital Stock (other than
Disqualified Stock)) on or subsequent to the Issue Date, other than to a
Restricted Subsidiary or to a Restricted Affiliate; plus (iii) the aggregate
cash proceeds received by the Company or any Restricted Subsidiary from the
sale, disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment (other than any Investments made pursuant to
clause (d) of the second paragraph of Section 10.13 in an amount equal to the
lesser of (a) the return of capital with respect to such Investment and (b)
the initial amount of such Investment, in either case, less the cost of the
disposition of such Investment, plus (iv) in the case of the Revocation of the
Designation of a Subsidiary as an Unrestricted Subsidiary, an amount equal to
the consolidated net Investment in such Subsidiary on the date of Revocation
but not in an amount exceeding the net amount of any Investments constituting
Restricted Payments made (or deemed made) in such Subsidiary after the Issue
Date plus (v) in the case of the JV Designation after the Issue Date of a New
Joint Venture as a Restricted Affiliate, an amount equal to the consolidated
net Investment in such New Joint Venture on the date of such JV Designation
but not in an amount exceeding the net amount of any Investments constituting
Restricted Payments made (or deemed made) in such New Joint Venture after the
Issue Date minus (vi) the aggregate amount of all Restricted Payments (other
than Restricted Payments referred to in clause (d) or clause (c)(B) of the
second paragraph of Section 10.13) declared or made on and after the Issue
Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939, as amended.
"Trustee" means the person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Notes" means one or more Notes that do not and
are not required to bear the Private Placement Legend in the form set forth in
Exhibit A, including, without limitation, the Exchange Notes.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 10.21 hereof.
Any such designation may be revoked by a Board Resolution delivered to the
Trustee, subject to the provisions of such covenant.
"U.S. Government Securities" means securities that are direct
non-callable obligations of the United States of America or securities the
timely payment of whose principal and interest is unconditionally guaranteed
by the full faith and credit of the United States of America.
"Voting Stock" means, with respect to any person, the Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary of which all of the outstanding Capital Stock is owned by the
Company or another Wholly Owned Restricted Subsidiary. For the purposes of
this definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
Section 1.02. Other Definitions.
Defined in
Term Section
---- ----------
"Act" 1.05
"Affiliate Transaction" 10.14
"Agent Member" 3.16
"Asset Sale Offer" 10.15
"Asset Sale Offer Purchase Date" 10.15
"assumed liabilities" 10.15
"Change of Control Date" 10.10
"Change of Control Offer" 10.11
"Change of Control Payment Date" 10.11
"covenant defeasance" 4.03
"Defaulted Interest" 3.07
"defeasance" 4.02
"Defeased Notes" 4.01
"Designation" 10.21
"Event of Default" 5.01
"Excess Proceeds" 10.15
"incur" 10.11
"insolvent person" 4.04
"JV Designation" 10.22
"JV Revocation" 10.22
"JV Revocation Amount" 10.22
"Note Register" 3.05
"Offer Excess Proceeds" 10.15
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Registrar" 3.02
"Replacement Assets" 10.15
"Restricted Period" 3.17
"Revocation" 10.21
"surviving entity" 8.01
"US Designation Amount" 10.21
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) all references to "$" or "dollars" refer to the lawful
currency of the United States of America; and
(f) the words "include," "included" and "including" as used
herein are deemed in each case to be followed by the phrase "without
limitation."
Section 1.04. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified person, it is not necessary
that all such matters be certified by, or covered by the opinion of, only one
such person, or that they be so certified or covered by only one document, but
one such person may certify or give an opinion with respect to some matters
and one or more other persons as to other matters, and any such person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous.
Where any person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated, with proper identification of each matter covered therein, and
form one instrument.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution (as
provided below in subsection (b) of this Section 1.05) of any such instrument
or of a writing appointing any such agent shall be sufficient for any purpose
of this Indenture and (subject to Section 6.01 hereof) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind every
future Holder of the same Note or the Holder of every Note issued upon the
transfer thereof or in exchange therefor or in lieu thereof to the same extent
as the original Holder, in respect of anything done, suffered or omitted to be
done by the Trustee, any Paying Agent or the Company in reliance thereon,
whether or not notation of such action is made upon such Note.
Section 1.06. Notices, etc., to the Trustee and the Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed, in
writing, to or with the Trustee at the Corporate Trust Office, 450 West 33rd
Street, 15th Floor, New York, New York 10001, Attention: Global Trust
Services or at any other address previously furnished in writing to the
Holders and the Company by the Trustee; or
(b) the Company by the Trustee or by any Holder shall be
sufficient for every purpose (except as otherwise expressly provided herein)
hereunder if in writing and mailed, first-class postage prepaid, to the
Company addressed to it at RCN Corporation, 105 Carnegie Center, Princeton,
New Jersey, 08540-6215, Attention: Chief Executive Officer, or at any other
address previously furnished in writing to the Trustee by the Company.
Section 1.07. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise expressly
provided herein) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at the address of such Holder as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any
notice when mailed to a Holder in the aforesaid manner shall be conclusively
deemed to have been received by such Holder whether or not actually received
by such Holder. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of
giving such notice as shall be satisfactory to the Trustee shall be deemed to
be a sufficient giving of such notice.
Section 1.08. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or
excluded, as the case may be.
Section 1.09. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Notes issued
pursuant hereto shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Notes issued pursuant
hereto, express or implied, shall give to any person (other than the parties
hereto and their successors hereunder, any Paying Agent and the Holders) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation.
Section 1.15. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or
condition exists.
Section 1.16. Exhibits.
All exhibits attached hereto are by this reference made a part
hereof with the same effect as if herein set forth in full.
Section 1.17. Counterparts.
This Indenture may be executed in any number of counterparts
and by telecopier, each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
Section 1.18. Duplicate Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication with
respect thereto shall be in substantially the forms set forth, or referenced,
in Exhibit A-1 and Exhibit A-2, respectively, annexed hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon
as may be required to comply with any applicable law or with the rules of the
Depository, any clearing agency or any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof.
The definitive Notes shall be printed, typewritten,
lithographed or engraved or produced by any combination of these methods or
may be produced in any other manner permitted by the rules of any securities
exchange on which the Notes may be listed, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its issuance and shall
show the date of its authentication. The terms and provisions contained in
the Notes shall constitute, and are expressly made, a part of this Indenture.
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms.
The aggregate principal amount at maturity of the Notes which
may be authenticated and delivered under this Indenture is limited to
$601,045,000, except for Notes authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.10 or 10.15 hereof.
The Notes will mature on October 15, 2007. The Notes shall be
issued at a discount to yield gross proceeds of $350,000,524. The Notes shall
not bear cash interest prior to October 15, 2002. Commencing on April 15,
2003, interest on the Notes will be payable in cash at a rate of 11 1/8% per
annum, semi-annually in arrears from the most recent Interest Payment Date to
which interest has been paid or, if no interest has been paid from October 15,
2002. Interest on any overdue principal, interest (to the extent lawful) or
premium, if any, shall be payable on demand.
Section 3.02. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in The City of New York, State of New
York) where Notes may be presented for registration of transfer or for
exchange (the "Registrar"), an office or agency (which shall be located in the
Borough of Manhattan in The City of New York, State of New York) where Notes
may be presented for payment (the "Paying Agent" or "Agent") and an office or
agency where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may have one or
more co-registrars and one or more additional paying agents. The term "Paying
Agent" or "Agent" includes any additional paying agent. The Company may act
as its own Paying Agent, except for the purposes of payments on account of
principal on the Notes pursuant to Sections 10.10 and 10.15 hereof.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the Trust Indenture Act. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any such Agent. If the Company
fails to maintain a Registrar or Paying Agent, or fails to give the foregoing
notice, the Trustee shall act as such and shall be entitled to appropriate
compensation in accordance with Section 6.07 hereof.
The Company initially appoints the Trustee as the Registrar and
Paying Agent and agent for service of notices and demands in connection with
the Notes.
Section 3.03. Execution and Authentication.
The Initial Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 hereto.
The Exchange Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of Exhibit A-2 hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Company shall approve the form of the Notes
and any notation, legend or endorsement thereon. Each Note shall be dated
the date of issuance and shall show the date of its authentication.
The terms and provisions contained in the Notes annexed hereto
as Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Global Notes, substantially in the form set forth in
Exhibit A-1, deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided and shall bear the legend set forth in Exhibit B. The aggregate
principal amount of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
Notes issued in exchange for interests in a Global Note
pursuant to Section 3.17 hereof may be issued in the form of permanent
certificated Notes in registered form in substantially the form set forth in
Exhibit A-1 (the "Physical Notes").
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign, and one Officer or an Assistant Secretary
(each of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Notes for the Company by manual or
facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note was an Officer or Assistant Secretary at the time of such execution but
no longer holds that office or position at the time the Trustee authenticates
the Note, the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for aggregate
principal amount of the Notes at maturity not to exceed $601,045,000 at any
time, (ii) Private Exchange Notes from time to time only in exchange for a
like principal amount of Initial Notes and (iii) Unrestricted Notes from time
to time only in exchange for (A) a like principal amount of Initial Notes or
(B) a like principal amount of Private Exchange Notes, in each case upon a
written order of the Company in the form of an Officers' Certificate of the
Company. Each such written order shall specify the amount of Notes to be
authenticated and the date on which the Notes are to be authenticated, whether
the Notes are to be Initial Notes, Private Exchange Notes or Unrestricted
Notes and whether (subject to this Section 3.03) the Notes are to be issued as
Physical Notes or Global Notes and such other information as the Trustee may
reasonably request. The aggregate principal amount of the Notes at maturity
outstanding at any time may not exceed $601,045,000, except as provided in
Section 3.06 hereof.
Notwithstanding the foregoing, all Notes issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Notes may vote or consent) as one class and no series of Notes will have
the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Notes. Unless otherwise provided in
the appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
Section 3.04. Temporary Notes.
Until definitive Notes are prepared and ready for delivery, the
Company may execute and upon a Company Order the Trustee shall authenticate
and deliver temporary Notes. Temporary Notes shall be substantially in the
form of definitive Notes, in any authorized denominations, but may have
variations that the Company reasonably considers appropriate for temporary
Notes as conclusively evidenced by the Company's execution of such temporary
Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay but in no event
later than the date that the Exchange Offer is consummated. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 10.02 hereof,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Notes, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of like tenor and of authorized denominations. Until so
exchanged the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
Section 3.05. Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 10.02 hereof
being sometimes referred to herein as the "Note Register") in which, subject
to such reasonable regulations as the Registrar may prescribe, the Company
shall provide for the registration of Notes and of transfers and exchanges of
Notes. The Trustee is hereby initially appointed Registrar for the purpose of
registering Notes and transfers of Notes as herein provided.
When Notes are presented to the Registrar or a co-Registrar
with a request from the Holder of such Notes to register the transfer or
exchange for an equal principal amount of Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange
as requested; provided, however, that every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed or be accompanied
by a written instrument of transfer or exchange in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. Whenever any Notes are so presented for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Notes which the Holder making the exchange is entitled to receive. No service
charge shall be made to the Noteholder for any registration of transfer or
exchange. The Company may require from the Noteholder payment of a sum
sufficient to cover any transfer taxes or other governmental charge that may
be imposed in relation to a transfer or exchange, but this provision shall not
apply to any exchange pursuant to Section 10.10, 10.15 or 9.06 hereof (in which
events the Company will be responsible for the payment of all such taxes which
arise solely as a result of the transfer or exchange and do not depend on the
tax status of the Holder). The Trustee shall not be required to exchange or
register the transfer of any Note for a period of 15 days immediately
preceding the first mailing of notice of redemption of Notes to be redeemed or
of any Note selected, called or being called for redemption except, in the
case of any Note where public notice has been given that such Note is to be
redeemed in part, the portion thereof not to be redeemed.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests
in such Global Notes may be effected only through a book-entry system
maintained by the Holder of such Global Note (or its agent), and that
ownership of a beneficial interest in the Note shall be required to be
reflected in a book-entry system.
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note of any series claims that the Note has been lost, destroyed
or wrongfully taken, the Company shall execute and upon a Company Order, the
Trustee shall authenticate and deliver a replacement Note of like tenor and
principal amount, bearing a number not contemporaneously outstanding if the
Holder of such Note furnishes to the Company and to the Trustee evidence
reasonably acceptable to them of the ownership and the destruction, loss or
theft of such Note and an indemnity bond shall be posted by such Holder,
sufficient in the judgment of the Company or the Trustee, as the case may be,
to protect the Company, the Trustee or any Agent from any loss that any of
them may suffer if such Note is replaced. The Company may charge such Holder
for the Company's expenses in replacing such Note (including (i) expenses of
the Trustee charged to the Company and (ii) any tax or other governmental
charge that may be imposed) and the Trustee may charge the Company for the
Trustee's expenses in replacing such Note.
Every replacement Note issued pursuant to this Section in lieu
of any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the person
in whose name that Note (or one or more Predecessor Notes) is registered at
the close of business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date and
interest on such defaulted interest at the then applicable interest rate
borne by the Notes, to the extent lawful (such defaulted interest and interest
thereon herein collectively called "Defaulted Interest") shall forthwith cease
to be payable to the Holder on the Regular Record Date; and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid
in respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit on or prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
persons entitled to such Defaulted Interest as provided in this subsection
(a). Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less than
10 days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company in writing of such Special Record
Date. In the name and at the expense of the Company, the Trustee shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each Holder
at its address as it appears in the Note Register, not less than 10 days prior
to such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the persons in whose names the Notes (or
their respective Predecessor Notes) are registered on such Special Record Date
and shall no longer be payable pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, if, after written notice given by the
Company to the Trustee of the proposed payment pursuant to this subsection
(b), such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Note.
Section 3.08. Persons Deemed Owners.
Prior to and at the time of due presentment for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name any Note is registered in the Note Register
as the owner of such Note for the purpose of receiving payment of principal
of, premium, if any, and (subject to Section 3.07 hereof) interest on such
Note and for all other purposes whatsoever, whether or not such Note shall be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
Section 3.09. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. The Registrar and the Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer or exchange, redemption
or payment. The Trustee and no one else shall cancel all Notes surrendered
for registration of transfer, exchange, payment, replacement or cancellation.
No Notes shall be authenticated in lieu of or in exchange for any Notes
canceled as provided in this Section 3.09 hereof, except as expressly
permitted by this Indenture. All canceled Notes held by the Trustee shall be
destroyed and certification of their destruction delivered to the Company
unless by a Company Order the Company shall timely direct that the canceled
Notes be returned to it. The Trustee shall provide the Company a list of all
Notes that have been canceled from time to time as requested by the Company.
Section 3.10. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
Section 3.11. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
date established for the payment of Defaulted Interest or Stated Maturity of
any Note shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Notes) payment of principal, premium, if
any, or interest need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or at the Stated Maturity, as the case may be. In such
event, no interest shall accrue with respect to such payment for the period
from and after such Interest Payment Date, Redemption Date, date established
for the payment of Defaulted Interest or Stated Maturity, as the case may be,
to the next succeeding Business Day and, with respect to any Interest Payment
Date, interest for the period from and after such Interest Payment Date shall
accrue with respect to the next succeeding Interest Payment Date.
Section 3.12. CUSIP and CINS Numbers.
The Company in issuing the Notes may use "CUSIP" and "CINS"
numbers (if then generally in use), and if so, the Trustee shall use the CUSIP
or CINS numbers, as the case may be, in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP or
CINS number, as the case may be, printed in the notice or on the Notes, and
that reliance may be placed only on the other identification numbers printed
on the Notes. The Company shall promptly notify the Trustee in writing of any
change in the CUSIP or CINS number of any type of Notes.
Section 3.13. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment
of principal of, premium, if any, or interest on the Notes, and shall notify
the Trustee of any default by the Company in making any such payment. Money
held in trust by the Paying Agent need not be segregated except as required by
law and in no event shall the Paying Agent be liable for any interest on any
money received by it hereunder. The Company at any time may require the
Paying Agent to pay all money held by it to the Trustee and account for any
funds disbursed and the Trustee may at any time during the continuance of any
Event of Default, upon a Company Order to the Paying Agent, require such
Paying Agent to pay forthwith all money so held by it to the Trustee and to
account for any funds disbursed. Upon making such payment, the Paying Agent
shall have no further liability for the money delivered to the Trustee.
Section 3.14. Treasury Notes.
In determining whether the Holders of the required aggregate
principal amount of Notes have concurred in any direction, waiver, consent or
notice, Notes owned by the Company or an Affiliate of the Company shall be
considered as though they are not outstanding, except that for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which a Responsible Officer of the
Trustee actually knows are so owned shall be so considered. The Company shall
notify the Trustee, in writing, when it or any of its Affiliates repurchases
or otherwise acquires Notes, of the aggregate principal amount of such Notes
so repurchased or otherwise acquired.
Section 3.15. Deposits of Monies.
Prior to 1:00 p.m. New York City time on each Interest Payment
Date, maturity date, Change of Control Payment Date and Asset Sale Offer
Purchase Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any,
due on such Interest Payment Date, maturity date, Change of Control Payment
Date and Asset Sale Offer Purchase Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date, maturity date, Change of Control Payment Date and Asset
Sale Offer Purchase Date, as the case may be.
Section 3.16. Book-Entry Provisions for Global Notes.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian,
or under the Global Note, and the Depository may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner
of the Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent
of the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be
transferred or exchanged for Physical Notes in accordance with the rules and
procedures of the Depository and the provisions of Sections 3.03 and 3.17
hereof. In addition, Physical Notes shall be transferred to all beneficial
owners, in exchange for their beneficial interests in Global Notes if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Note, or that it will cease to be a "Clearing
Agency" under the Exchange Act, and in either case a successor Depository is
not appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Registrar has received a
written request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount at maturity of the Global Note in an amount equal to the
principal amount at maturity of the beneficial interest in the Global Note to
be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and
principal amount of authorized denominations.
(d) In connection with the transfer of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Notes, an equal aggregate principal amount at maturity
of Physical Notes of like tenor of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered
in exchange for an interest in a Global Note pursuant to subparagraph (b), (c)
or (d) of this Section 3.16 shall, except as otherwise provided by Section
3.17 hereof, bear the Private Placement Legend.
(f) The Holder of any Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
Section 3.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following additional provisions shall apply with respect to the
registration of any proposed transfer of an Initial Note to any Institutional
Accredited Investor which is not a QIB:
(i) the Registrar shall register the transfer of
any Initial Note, whether or not such Note bears the Private
Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date; provided, however, that
neither the Company nor any Affiliate of the Company has held
any beneficial interest in such Note, or portion thereof, at
any time on or prior to the second anniversary of the Issue
Date and such transfer can otherwise be lawfully made under the
Securities Act without registering such Initial Notes
thereunder or (y) the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit C
hereto and any legal opinions and certifications required
thereby;
(ii) if the proposed transferor is an Agent Member
seeking to transfer an interest in a Global Note, upon receipt
by the Registrar of (x) written instructions given in accordance
with the Depository's and the Registrar's procedures and (y) the
appropriate certificate, if any, required by clause (y) of
paragraph (i) above, together with any required legal opinions
and certifications, the Registrar shall register the transfer
and reflect on its books and records the date and a decrease in
the principal amount at maturity of the Global Note from which
such interests are to be transferred in an amount equal to the
principal amount at maturity of the Notes to be transferred and
the Company shall execute and upon a Company Order, the Trustee
shall authenticate Physical Notes in a principal amount equal to
the principal amount of the Global Note to be transferred.
(b) Transfers to Non-U.S. Persons. The following additional
provisions shall apply with respect to the registration of any proposed
transfer of an Initial Note to any Non-U.S. Person:
(i) the Registrar shall register the transfer of
any Initial Note, whether or not such Note bears the Private
Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date; provided, however, that
neither the Company nor any Affiliate of the Company has held
any beneficial interest in such Note, or portion thereof, at any
time on or prior to the second anniversary of the Issue Date and
such transfer can otherwise be lawfully made under the
Securities Act without registering such Initial Notes thereunder
or (y) the proposed transferor has delivered to the Registrar a
certificate substantially in the form of Exhibit C hereto;
(ii) if the proposed transferee is an Agent Member
and the Notes to be transferred consist of Physical Notes which
after transfer are to be evidenced by an interest in a
Regulation S Global Note upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's
and the Registrar's procedures and (y) the appropriate
certificate, if any, required by clause (y) of paragraph (i)
above, together with any required legal opinions and
certifications, the Registrar shall register the transfer and
reflect on its books and records the date and an increase in the
principal amount at maturity of the Regulation S Global Note in
an amount equal to the principal amount at maturity of Physical
Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred;
(iii) if the proposed transferor is an Agent Member
seeking to transfer an interest in a Global Note, upon receipt
by the Registrar of (x) written instructions given in accordance
with the Depository's and the Registrar's procedures and (y) the
appropriate certificate, if any, required by clause (y) of
paragraph (i) above, together with any required legal opinions
and certifications, the Registrar shall register the transfer
and reflect on its books and records the date and (A) a decrease
in the principal amount of the Global Note from which such
interests are to be transferred in an amount equal to the
principal amount of the Notes to be transferred and (B) an
increase in the principal amount of the Regulation S Global Note
in an amount equal to the principal amount of the Global Note to
be transferred; and
(iv) until the 41st day after the Issue Date (the
"Restricted Period"), an owner of a beneficial interest in the
Regulation S Global Note may not transfer such interest to a
transferee that is a U.S. person or for the account or benefit
of a U.S. person within the meaning of Rule 902(o) of the
Securities Act. During the Restricted Period, all beneficial
interests in the Regulation S Global Note shall be transferred
only through Cedel or Euroclear, either directly if the
transferor and transferee are participants in such systems, or
indirectly through organizations that are participants.
(c) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of an Initial Note
to a QIB (excluding Non-U.S. Persons):
(i) the Registrar shall register the transfer
of any Initial Note, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is
after the second anniversary of the Issue Date; provided,
however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or
portion thereof, at any time on or prior to the second
anniversary of the Issue Date and such transfer can
otherwise be lawfully made under the Securities Act without
registering such Initial Note thereunder or (y) such
transfer is being made by a proposed transferor who has
checked the box provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Note for its own account
or an account with respect to which it exercises sole
investment discretion and that it and any such account is a
QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is
aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from
registration provided by Rule 144A;
(ii) if the proposed transferee is an Agent Member
and the Notes to be transferred consist of Physical Notes which
after transfer are to be evidenced by an interest in the 144A
Global Note, upon receipt by the Registrar of written
instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall register the
transfer and reflect on its book and records the date and an
increase in the principal amount at maturity of the 144A Global
Note in an amount equal to the principal amount at maturity of
Physical Notes to be transferred, and the Trustee shall cancel
the Physical Note so transferred; and
(iii) if the proposed transferor is an Agent Member
seeking to transfer an interest in a Global Note, upon receipt
by the Registrar of written instructions given in accordance
with the Depository's and the Registrar's procedures, the
Registrar shall register the transfer and reflect on its books
and records the date and (A) a decrease in the principal amount
of the Global Note from which interests are to be transferred in
an amount equal to the principal amount of the Notes to be
transferred and (B) an increase in the principal amount of the
144A Global Note in an amount equal to the principal amount of
the Global Note to be transferred.
(d) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Registrar shall deliver Notes that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or replacement
of Notes bearing the Private Placement Legend, the Registrar shall deliver
only Notes that bear the Private Placement Legend unless (i) the circumstances
contemplated by paragraphs (a)(i)(x) or (b)(i)(x) of this Section 3.17 exist,
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act or (iii) such
Note has been sold pursuant to an effective registration statement under the
Securities Act.
(e) Other Transfers. If a Holder proposes to transfer a Note
constituting a Restricted Note pursuant to any exemption from the registration
requirements of the Securities Act other than as provided for by Section
3.17(a) and (b) hereof, the Registrar shall only register such transfer or
exchange if such transferor delivers an Opinion of Counsel satisfactory to the
Company and the Registrar that such transfer is in compliance with the
Securities Act and the terms of this Indenture; provided, however, that the
Company may, based upon the opinion of its counsel, instruct the Registrar by
a Company Order not to register such transfer in any case where the proposed
transferee is not a QIB, or a Non-U.S. person or Institutional Accredited
Investor.
(f) General. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 3.16 hereof or this
Section 3.17. The Company shall have the right to inspect and make copies of
all such letters, notices or other written communications at any reasonable
time upon the giving of reasonable prior written notice to the Registrar.
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Notes, elect to have either Section 4.02 or Section
4.03 hereof be applied to all of the Outstanding Notes (the "Defeased Notes"),
upon compliance with the conditions set forth below in this Article Four.
Section 4.02. Defeasance and Discharge.
Upon the Company's exercise under Section 4.01 hereof of the
option applicable to this Section 4.02, the Company shall be deemed to have
been discharged from its obligations with respect to the Defeased Notes on the
date the conditions set forth below are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the Defeased
Notes, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 4.05 and the other Sections of this Indenture referred to
in (a) and (b) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, and, upon Company Request, shall
execute proper instruments acknowledging the same), except for the following,
which shall survive until otherwise terminated or discharged hereunder: (a)
the rights of Holders of Defeased Notes to receive, solely from the trust fund
described in Section 4.04 hereof and as more fully set forth in such Section,
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (b) the Company's obligations with respect
to such Defeased Notes under Sections 3.04, 3.05, 3.06, 10.02 and 10.03
hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, including, without limitation, the Trustee's rights under Sections
4.05 and 6.07 hereof, and (d) this Article Four. Subject to compliance with
this Article Four, the Company may exercise its option under this Section 4.02
notwithstanding the prior exercise of its option under Section 4.03 hereof with
respect to the Notes.
Section 4.03. Covenant Defeasance.
Upon the Company's exercise under Section 4.01 hereof of the
option applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained in Sections 10.06
through 10.23 hereof and the provisions of clause (c) of Section 8.01 shall
not apply, with respect to the Defeased Notes, on and after the date the
conditions set forth below are satisfied (hereinafter, "covenant defeasance"),
and the Defeased Notes shall thereafter be deemed not to be "Outstanding" for
the purposes of any direction, waiver, consent or declaration or Act of Holders
(and the consequences of any thereof) in connection with such covenants, but
shall continue to be deemed "Outstanding" for all other purposes hereunder.
For this purpose, such covenant defeasance means that, with respect to the
Defeased Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any
such Section or Article, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or Article or by reason of any
reference in any such Section or Article to any other provision herein or in
any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 5.01(iii) or (iv) hereof, but, except as
specified above, the remainder of this Indenture and such Defeased Notes shall
be unaffected thereby.
Section 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 4.02 or Section 4.03 hereof to the Defeased Notes:
(1) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee satisfying
the requirements of Section 6.09 hereof who shall agree to
comply with the provisions of this Article Four applicable to
it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes,
(a) money in an amount, or (b) U.S. Government Obligations which
through the scheduled payment of principal, premium, if any, and
interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an
amount, or (c) a combination thereof, in any such case,
sufficient without reinvestment, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay
and discharge the entire Indebtedness in respect of, and which
shall be applied by the Trustee (or other qualifying trustee) to
pay and discharge, the principal of, premium, if any, and
interest on the Defeased Notes at the Stated Maturity of such
principal or installment of principal, premium, if any, or
interest or (if the Company has made irrevocable arrangements
satisfactory to such Trustee for the giving of notice of
redemption by such Trustee in the name and at the expense of the
Company) the redemption date thereof, as the case may be, in
accordance with the terms of the Indenture and the Notes;
provided, however, that the Trustee shall have been irrevocably
instructed to apply such cash or the proceeds of such U.S.
Government Obligations to said payments with respect to the
Notes;
(2) No Default with respect to the Outstanding Notes shall
have occurred and be continuing on the date of such deposit or,
insofar as Section 4.02 hereof is concerned, at any time during
the period ending on the ninety-first day after the date of such
deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period) no Default
relating to Section 5.01(viii), (ix) or (x) hereof;
(3) Neither the Company nor any Subsidiary of the Company
is an "insolvent person" within the meaning of any applicable
Bankruptcy Law on the date of such deposit or at any time during
the period ending on the ninety-first day after the date of such
deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period);
(4) Such defeasance or covenant defeasance shall not cause
the Trustee for the Notes to have a conflicting interest in
violation of Section 6.08 hereof and for purposes of the Trust
Indenture Act with respect to any securities of the Company;
(5) Such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default
under, this Indenture or any other material agreement or
instrument to which the Company is a party or by which it is
bound;
(6) In the case of an election under Section 4.02 hereof,
the Company shall have delivered to the Trustee an Opinion of
Counsel stating that (x) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or
(y) since the date hereof, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge to be effected with respect to
the Notes and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not
occurred;
(7) In the case of an election under Section 4.03 hereof,
the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Notes
will not recognize income, gain or loss for federal income tax
purposes as a result of the deposit and covenant defeasance to
be effected with respect to the Notes and will be subject to
Federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and
covenant defeasance had not occurred;
(8) The Company shall have delivered to the Trustee, an
Opinion of Counsel to the effect that, immediately following the
ninety-first day after the deposit, the trust funds established
pursuant to this Article will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally under any applicable
U.S. Federal or state law;
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit made by the
Company pursuant to its election under Section 4.02 or 4.03
hereof was not made by the Company with the intent of preferring
the Holders over the other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding creditors
of the Company or others;
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that (i) all conditions precedent (other than conditions
requiring the passage of time) provided for relating to either
the defeasance under Section 4.02 or the covenant defeasance
under Section 4.03 (as the case may be) have been complied with
as contemplated by this Section 4.04 and (ii) if any other
Indebtedness of the Company shall then be outstanding or
committed, such defeasance or covenant defeasance will not
violate the provisions of the agreements or instruments
evidencing such Indebtedness; and
(11) Such defeasance or covenant defeasance shall not
result in a trust arising from such deposit constituting an
investment company within the meaning of the Investment Company
Act of 1940, as amended, unless such trust shall be registered
under the Act or exempt from registration thereunder.
Opinions required to be delivered under this Section may have
such qualifications as are customary for opinions of the type required and
reasonably acceptable to the Trustee.
Section 4.05. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous
Provisions.
Subject to the proviso of the last paragraph of Section 10.03,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 4.05, the "Trustee") pursuant to Section 4.04 in
respect of the Defeased Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture,
to the payment, either directly or through any Paying Agent (other than the
Company) as the Trustee may determine, to the Holders of such Notes of all sums
due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee, its officers,
directors and agents and hold such harmless against any tax, fee or other
charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 4.04 or the principal, premium, if any, and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Defeased Notes.
Anything in this Article Four to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 4.04 which, in the opinion of an internationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would
then be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
Section 4.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 4.02 or 4.03 hereof, as
the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 4.02 or 4.03 hereof, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money and U.S.
Government Obligations in accordance with Section 4.02 or 4.03 hereof, as the
case may be; provided, however, that if the Company makes any payment of
principal, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money and
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) default in the payment of interest on the Notes
when it becomes due and payable and continuance of such default
for a period of 30-days or more; or
(ii) default in the payment of the principal of, or
premium, if any, on the Notes when due; or
(iii) default in the performance, or breach, of any
covenant described under Section 10.10, Section 10.15 or Article
Eight; or
(iv) default in the performance, or breach, of any
covenant in this Indenture (other than defaults specified in
clause (i), (ii) or (iii) above), and continuance of such
default or breach for a period of 30 days or more after written
notice to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Notes (in each case, when such notice
is deemed received in accordance with this Indenture); or
(v) failure to perform any term, covenant,
condition or provision of one or more classes or issues of
Indebtedness in an aggregate principal amount of $10.0 million
or more under which the Company or a Material Restricted
Subsidiary is obligated, and either (a) such Indebtedness is
already due and payable in full or (b) such failure results in
the acceleration of the maturity of such Indebtedness; or
(vi) any holder of at least $10.0 million in
aggregate principal amount of Indebtedness of the Company or any
Material Restricted Subsidiary shall commence judicial
proceedings or take any other action to foreclose upon or
dispose of assets of the Company or any Material Restricted
Subsidiary having an aggregate Fair Market Value, individually
or in the aggregate, of $10.0 million or more or shall have
exercised any right under applicable law or applicable security
documents to take ownership of any such assets in lieu of
foreclosure; provided that, in any such case, the Company or any
Material Restricted Subsidiary shall not have obtained, prior to
any such foreclosure or disposition of assets, a stay of all
such actions that remains in effect; or
(vii) one or more non-appealable judgments, orders or
decrees for the payment of money of $10.0 million or more,
either individually or in the aggregate, shall be entered into
against the Company or any Material Restricted Subsidiary or any
of their respective properties and shall not be discharged and
there shall have been a period of 60 days or more during which a
stay of enforcement of such judgment or order, by reason of
pending appeal or otherwise, shall not be in effect; or
(viii) the Company or any Material Restricted
Subsidiary of the Company pursuant to or under or within the
meaning of any Bankruptcy Law;
(a) commences a voluntary case or proceeding;
(b) consents to the making of a Bankruptcy
Order in an involuntary case or proceeding or the
commencement of any case against it;
(c) consents to the appointment of a Custodian
of it or for any substantial part of its property;
(d) makes a general assignment for the benefit
of its creditors;
(e) files an answer or consent seeking
reorganization or relief;
(f) shall admit in writing its inability to pay
its debts generally; or
(g) consents to the filing of a petition in
bankruptcy.
(ix) a court of competent jurisdiction in any
involuntary case or proceeding enters a Bankruptcy Order against
the Company or any Material Restricted Subsidiary, and such
Bankruptcy Order remains unstayed and in effect for 60
consecutive days; or
(x) a Custodian shall be appointed out of court
with respect to the Company or any Material Restricted
Subsidiary or with respect to all or any substantial part of the
assets or properties of the Company or any Material Restricted
Subsidiary.
Section 5.02. Acceleration of Maturity Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in clause (viii), (ix) or (x) of Section 5.01 hereof with respect to
the Company) occurs and is continuing, then the Trustee or the holders of at
least 25% in Accreted Value of the Outstanding Notes may, by written notice,
and the Trustee upon the request of the holders of not less than 25% in
Accreted Value of the Outstanding Notes shall, declare the Default Amount of
all Outstanding Notes to be immediately due and payable and upon any such
declaration such amounts shall become immediately due and payable. If an
Event of Default specified in clause (viii), (ix) or (x) above with respect to
the Company occurs and is continuing, then the Default Amount of all
Outstanding Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
After a declaration of acceleration or any ipso facto
acceleration as related to clause (viii), (ix) or (ix) of Section 5.01, the
holders of a majority in Accreted Value of the Outstanding Notes may, by
notice to the Trustee, rescind such declaration of acceleration and its
consequences if all existing Events of Default, other than nonpayment of the
principal of and accrued and unpaid interest on, the Notes that has become due
solely as a result of such acceleration, have been cured or waived and if the
rescission of acceleration would not conflict with any judgment or decree.
Section 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if an Event of Default specified in
Section 5.01(i), 5.01(ii) or 5.01(iii) (to the extent relating to a payment
required by Section 10.10 or Section 10.15) shall have occurred and be
continuing, the Company will, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders of such Notes, the whole amount then due and
payable on such Notes for principal, premium, if any, and interest, with
interest upon the overdue principal, premium, if any, and, to the extent that
payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate then borne by the Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may,
but is not obligated under this paragraph to, institute a judicial proceeding
for the collection of the sums so due and unpaid and may, but is not obligated
under this paragraph to, prosecute such proceeding to judgment or final
decree, and may, but is not obligated under this paragraph to, enforce the
same against the Company or any other obligor upon the Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Notes, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion, but is not obligated under this paragraph to, (i)
proceed to protect and enforce its rights and the rights of the Holders under
this Indenture by such appropriate private or judicial proceedings as the
Trustee shall deem most effectual to protect and enforce such rights, whether
for the specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted herein or (ii)
proceed to protect and enforce any other proper remedy. No recovery of any
such judgment upon any property of the Company shall affect or impair any
rights, powers or remedies of the Trustee or the Holders.
Section 5.04. Trustee May File Proofs of Claims.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor upon
the Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, fees, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any Custodian, in any such judicial proceeding, is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay the Trustee as administrative expenses associated with any such
proceeding, and in the event that the Trustee shall consent to the making of
such payments directly to Holders, any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07 hereof.
To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 6.07 hereof out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Notes or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession
of Notes.
All rights of action and claims under this Indenture, or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, fees,
expenses, disbursements and advances of the Trustee, its agents and counsel,
be for the ratable benefit of the Holders of the Notes in respect of which
such judgment has been recovered.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of
principal, premium, if any, or interest, upon presentation of the Notes and
the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
First: to the Trustee for amounts due under
Section 6.07;
Second: to Holders for interest accrued on the
Notes, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for
interest;
Third: to Holders of principal and premium, if
any, owing under the Notes, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Notes for principal; and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the
Company, may fix a record date and payment date for any payment
to Noteholders pursuant to this Section 5.06.
Section 5.07. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written
notice to the Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in
Accreted Value of the Outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the
Trustee indemnity satisfactory to it against the costs,
expenses and liabilities to be incurred in compliance with such
request;
(d) the Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such
written request has been given to the Trustee during such
60-day period by the Holders of a majority in aggregate
principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture or any Note,
except in the manner provided in this Indenture and for the equal and ratable
benefit of all the Holders.
Section 5.08. Unconditional Right of Holders To Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional,
to receive cash payment of the principal of, premium, if any, and (subject to
Section 3.07 hereof) interest on such Note on the respective Stated Maturities
expressed in such Note (or, in the case of redemption, on the respective
Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of
the Trustee and the Holders shall continue as though no such proceeding had
been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article Five or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
Section 5.12. Control by Majority.
The Holders of a majority in Accreted Value of the Outstanding
Notes shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee, provided, however, that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture or any Note or expose the Trustee to personal
liability; and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in Accreted Value of
the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past Default hereunder and its consequences, except a Default
(a) in the payment of the principal of, or interest on any
Outstanding Note or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder
of each Outstanding Note affected thereby.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 5.14 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in Accreted Value of the
Outstanding Notes, or to any suit instituted by any Holder for the enforcement
of the payment of the principal of, premium, if any, or interest on any Note
on or after the respective Stated Maturities expressed in such Note (or, in
the case of redemption, on or after the respective Redemption Dates).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law or any usury or other law wherever enacted, now or at any time hereafter
in force, which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium, if any, or interest on the Notes
contemplated herein or in the Notes or which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.16. Unconditional Right of Holders To Receive
Payment.
Notwithstanding any other provision in this Indenture and any
other provision of any Note, the right of any Holder of any Note to receive
payment of the principal of, premium, if any, and interest on such Note on or
after the respective Stated Maturities (or the respective Redemption Dates, in
the case of redemption) expressed in such Note, or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and
no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such
certificates or opinions which by provision hereof are
specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Indenture.
(b) During the existence of an Event of Default, the Trustee
is required to exercise such rights and powers vested in it under this
Indenture use the same degree of care and skill in its exercise thereof as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that no
provision of this Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the performance of any
of its duties hereunder, or in the exercise of any of its rights or powers, if
it shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions
of this Section 6.01.
Section 6.02. Notice of Defaults.
Within 45 days after the occurrence of any Default, the Trustee
shall transmit by mail to all Holders, as their names and addresses appear in
the Note Register, notice of such Default hereunder actually known to a
Responsible Officer, the Trustee, unless such Default shall have been cured or
waived; provided, however, that, except in the case of a Default in the
payment of the principal of, premium, if any, or interest on any Note or in
the case of any Default arising from the occurrence of a Change of Control,
the Trustee shall be protected in withholding such notice if and so long as a
trust committee of Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Holders.
Section 6.03. Certain Rights of Trustee.
Subject to Section 6.01 hereof and the provisions of Section
315 of the Trust Indenture Act:
(a) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board may be sufficiently evidenced by a Board Resolution
thereof;
(c) the Trustee may consult with counsel and any advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon in accordance
with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by the Trustee in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than
any liabilities arising out of its own negligence;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security, other evidence
of indebtedness or other paper or document unless requested in writing so to
do by the Holders of not less than a majority in aggregate principal amount of
the Notes then Outstanding; provided, however, that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security afforded to
it by the terms of this Indenture, the Trustee may require indemnity
satisfactory to it against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such investigation shall be paid
by the Company or, if paid by the Trustee or any predecessor Trustee, shall be
repaid by the Company upon demand; provided, further, the Trustee in its
discretion may make such further inquiry or investigation into such facts or
matters as it may deem fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents, attorneys, custodian or nominees and the Trustee shall not be
responsible for any misconduct or negligence on the part of any agent,
attorney, custodian or nominee appointed with due care by it hereunder;
(h) except with respect to Section 10.01, the Trustee shall
have no duty to inquire as to the performance of the Company's covenants in
Article Ten. In addition, the Trustee shall not be deemed to have knowledge
of any Default or Event of Default except (i) any Event of Default occurring
pursuant to Sections 5.01(i), 5.01(ii) and 10.01 or (ii) any Default or Event
of Default of which the Trustee shall have received written notification or a
Responsible Officer obtained actual knowledge; and
(i) if the Trustee is acting in the capacity of Registrar
and/or Paying Agent, then the rights afforded to the Trustee under this
Section 6.03 shall also be afforded to such Registrar and/or Paying Agent.
Section 6.04. Trustee Not Responsible for Recitals,
Dispositions of Notes or Application of
Proceeds Thereof.
The recitals contained herein and in the Notes, except the
Trustee's certificate of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1, if any, to be supplied
to the Company are true and accurate subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by
the Company of Notes or the proceeds thereof.
Section 6.05. Trustee and Agents May Hold Notes; Collections;
Etc.
The Trustee, any Paying Agent, Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Notes, with the same rights it would have if it were not the
Trustee, Paying Agent, Registrar or such other agent and, subject to Section
6.08 hereof and Sections 310 and 311 of the Trust Indenture Act, may otherwise
deal with the Company and receive, collect, hold and retain collections from
the Company with the same rights it would have if it were not the Trustee,
Paying Agent, Registrar or such other agent.
Section 6.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required herein or by law. The Trustee shall not be under any liability for
interest on any moneys received by it hereunder.
Section 6.07. Compensation and Indemnification of Trustee and
Its Prior Claim.
The Company covenants and agrees: (a) to pay to the Trustee
from time to time, and the Trustee shall be entitled to, reasonable
compensation for all services rendered by it hereunder (which shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust); (b) to reimburse the Trustee and each predecessor Trustee
upon its request for all reasonable expenses, fees, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the
provisions of this Indenture (including the reasonable compensation, fees, and
the expenses and disbursements of its counsel and of all agents and other
persons not regularly in its employ), except any such expense, disbursement or
advance as may arise from its negligence or bad faith; and (c) to indemnify
the Trustee and any of its officers, directors, employees and agents and each
predecessor Trustee for, and to hold it harmless against any loss, liability
or expense (including attorneys' fees and expenses incurred in defending
themselves) incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this Indenture or
the trusts hereunder and its duties hereunder, including enforcement of this
Section 6.07.
To secure the Company's payment obligations in this Section
6.07, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
The obligations of the Company under this Section to compensate
and indemnify the Trustee and each predecessor Trustee and to pay or reimburse
the Trustee and each predecessor Trustee for expenses, disbursements and
advances shall constitute an additional obligation hereunder and shall survive
the satisfaction and discharge of this Indenture or the rejection or
termination of this Indenture under bankruptcy law. Such additional
indebtedness shall be a senior claim to that of the Notes upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the benefit of the Holders of particular Notes, and the Notes are hereby
subordinated to such senior claim. If the Trustee renders services and incurs
expenses following an Event of Default under Section 5.01(viii), Section
5.01(ix) or Section 5.01(x) hereof, the parties hereto and the Holders by their
acceptance of the Notes hereby agree that such expenses are intended to
constitute expenses of administration under any bankruptcy law.
Section 6.08. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and
(2) and which shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of any Federal, state,
territorial or District of Columbia supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the
effect hereinafter specified in this Article.
Section 6.10. Resignation and Removal; Appointment of
Successor Trustee.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee, or any trustee or trustees hereinafter
appointed, may at any time resign by giving written notice thereof to the
Company at least 20 Business Days prior to the date of such proposed
resignation. Upon receiving such notice of resignation, the Company shall,
after all monies due and owing have been paid to the Trustee, promptly appoint
a successor trustee by written instrument executed by authority of the Board,
a copy of which shall be delivered to the resigning Trustee and a copy to the
successor Trustee. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 20 Business Days after the
giving of such notice of resignation, the resigning Trustee may, or any Holder
who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper, appoint a
successor Trustee.
(c) The Trustee may be removed at any time by an Act of the
Holders of a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions
of Section 310(b) of the Trust Indenture Act in accordance with
Section 6.08 hereof after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a
Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section
6.09 hereof and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Note for at least six months, or
(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose or rehabilitation,
conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, the Holder of any Note who has been
a bona fide Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders of the Notes and accepted appointment
in the manner hereinafter provided, the Holder of any Note who has been a bona
fide Holder for at least six months may, subject to Section 5.14, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Notes as their names and addresses appear in the Note Register.
Each notice shall include the name of the successor Trustee and the address of
its Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee as if
originally named as Trustee hereunder; but, nevertheless, on the written
request of the Company or the successor Trustee, upon payment of amounts due
to it pursuant to Section 6.07, such retiring Trustee shall duly assign,
transfer and deliver to the successor Trustee all moneys and property at the
time held by it hereunder and shall execute and deliver an instrument
transferring to such successor Trustee all the rights, powers, duties and
obligations of the retiring Trustee. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights
and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior
claim upon all property or funds held or collected by such Trustee to secure
any amounts then due it pursuant to the provisions of Section 6.07.
No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under
this Article.
Upon acceptance of appointment by any successor Trustee as
provided in this Section 6.11, the successor shall give notice thereof to the
Holders of the Notes, by mailing such notice to such Holders at their
addresses as they shall appear on the Note Register. If the acceptance of
appointment is substantially contemporaneous with the resignation, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 6.10. If the Company fails to give such notice within
10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be given at the expense of the
Company.
Section 6.12. Merger, Conversion, Amalgamation,
Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or amalgamated, or any
corporation resulting from any merger, conversion, amalgamation or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, provided such corporation shall be eligible under this Article Six to
serve as Trustee hereunder.
In case at the time such successor to the Trustee under this
Section 6.12 shall succeed to the trusts created by this Indenture any of the
Notes shall have been authenticated but not delivered, any such successor to
the Trustee may adopt the certificate of authentication of any predecessor
Trustee and deliver such Notes so authenticated; and, in case at that time any
of the Notes shall not have been authenticated, any successor to the Trustee
under this Section 6.12 may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor Trustee; and in all such
cases such certificate shall have the full force which it is anywhere in the
Notes or in this Indenture provided that the certificate of the Trustee shall
have been authenticated.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish
Trustee Names and Addresses of Holders.
(a) The Trustee shall preserve the names and addresses of the
Noteholders and otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause the Registrar to furnish
to the Trustee before each Interest Payment Date, and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the
Noteholders. Neither the Company nor the Trustee shall be under any
responsibility with regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the
Trustee
(i) semi-annually, not more than 15 days after each
Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as
of such Regular Record Date; and
(ii) at such other times as the Trustee may
reasonably request in writing, within 30 days after receipt by
the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time
such list is furnished;
provided, however, that if and so long as the Trustee shall be the Registrar,
no such list need be furnished pursuant to this Subsection 7.01(b).
Section 7.02. Communications of Holders.
Holders may communicate with other Holders with respect to
their rights under this Indenture or under the Notes pursuant to Section
312(b) of the Trust Indenture Act. The Company and the Trustee and any and
all other persons benefited by this Indenture shall have the protection
afforded by Section 312(c) of the Trust Indenture Act.
Section 7.03. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 following the date of this Indenture, the Trustee shall mail to
all Holders, as their names and addresses appear in the Note Register, a brief
report dated as of such May 15, in accordance with, and to the extent required
under Section 313 of the Trust Indenture Act. At the time of its mailing to
Holders, a copy of each such report shall be filed by the Trustee with the
Company, the SEC and with each stock exchange on which the Notes are listed.
The Company shall notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.04. Reports by Company.
The Company shall:
(a) file with the SEC the copies of annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may from time to time by rules and regulations
prescribe) required to be filed with the SEC pursuant to Section 13 or Section
15 of the Exchange Act, whether or not the Company has a class of securities
registered under the Exchange Act;
(b) file with the Trustee within 15 days after it files or
would be required to file the information specified in subsection (a) of this
Section 7.04 reports and documents with the SEC copies of such information;
(c) file with the Trustee and the SEC in accordance with rules
and regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from
time to time by such rules and regulations; and
(d) transmit by mail to all Holders, as their names and
addresses appear in the Note Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to subsections (a) and (c) of
this Section as may be required by rules and regulations prescribed from time
to time by the SEC.
Notwithstanding anything to the contrary herein, the Trustee
shall have no duty to review information provided pursuant to subsection (b)
of this Section 7.04 for purposes of determining compliance with any
provisions of this Indenture.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc.,
Only on Certain Terms.
The Company will not (i) consolidate or combine with or merge
with or into or, directly or indirectly, sell, assign, convey, lease, transfer
or otherwise dispose of all or substantially all of its properties and assets
to any person or persons in a single transaction or through a series of
transactions, or (ii) permit any of the Restricted Subsidiaries to enter into
any such transaction or series of transactions if it would result in the
disposition of all or substantially all of the properties or assets of the
Company and the Restricted Subsidiaries on a consolidated basis, unless, in
the case of either (i) or (ii), (a) the Company shall be the continuing person
or, if the Company is not the continuing person, the resulting, surviving or
transferee person (the "surviving entity") shall be a company organized and
existing under the laws of the United States or any State or territory thereof;
(b) the surviving entity shall expressly assume all of the obligations of the
Company under the Notes and this Indenture, and shall, if required by law to
effectuate such assumption, execute a supplemental indenture to effect such
assumption which supplemental indenture shall be delivered to the Trustee and
shall be in form and substance reasonably satisfactory to the Trustee; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Company or the surviving entity
(assuming such surviving entity's assumption of the Company's obligations
under the Notes and this Indenture), as the case may be, would be able to
incur $1.00 of Indebtedness under clause (A)(X) of the proviso of Section
10.11; (d) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing; and (e) the Company or the surviving entity, as
the case may be, shall have delivered to the Trustee an Officers' Certificate
and Opinion of Counsel stating that such transaction or series of
transactions, and, if a supplemental indenture is required in connection with
such transaction or series of transactions to effectuate such assumption, such
supplemental indenture, complies with this covenant and that all conditions
precedent in this Indenture relating to the transaction or series of
transactions have been satisfied.
Section 8.02. Successor Substituted.
Upon any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all
of the assets of the Company in accordance with the foregoing in which the
Company or the Restricted Subsidiary, as the case may be, is not the
continuing corporation, the successor corporation formed by such a
consolidation or into which the Company or such Restricted Subsidiary is
merged or to which such transfer is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company or such Restricted
Subsidiary, as the case may be, under this Indenture and the Notes with the
same effect as if such successor corporation had been named as the Company or
such Restricted Subsidiary therein; and thereafter, except in the case of (i)
any lease or (ii) any sale, assignment, conveyance, transfer, lease or other
disposition to a Restricted Subsidiary of the Company, the Company shall be
discharged from all obligations and covenants under this Indenture and the
Notes.
For all purposes of this Indenture and the Notes (including the
provision of this Article Eight and Section 10.11, Section 10.13 and Section
10.16), Subsidiaries of any surviving entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries as provided pursuant to Section 10.21 and all Indebtedness, and
all Liens on property or assets, of the Company and the Restricted
Subsidiaries in existence immediately prior to such transaction or series of
related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers
Without Consent of Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution of the Board, and the Trustee, at any time
and from time to time, may amend, waive, modify or supplement this Indenture
or the Notes for any of the following purposes:
(a) to evidence the succession of another person to the
Company, and the assumption by any such successor of the covenants of the
Company in the Notes;
(b) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company, herein, in the Notes;
(c) to cure any ambiguity, to correct or supplement any
provision herein, in the Notes which may be defective or inconsistent with any
other provision herein or to make any other provisions with respect to matters
or questions arising under this Indenture or the Notes; provided, however,
that, in each case, such provisions shall not materially adversely affect the
legal rights of the Holders;
(d) to comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 9.05 hereof or otherwise;
(e) to mortgage, pledge, hypothecate or grant a security
interest in any property or assets in favor of the Trustee for the benefit of
the Holders as security for the payment and performance of this Indenture
Obligations;
(f) to make any other change that does not materially
adversely affect the legal rights of any Holder; or
(g) to add Guarantors with respect to the Notes;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not materially
adversely affect the legal rights of any Holder.
Section 9.02. Supplemental Indentures, Agreements and Waivers
with Consent of Holders.
With the written consent of the Holders of not less than a
majority of Accreted Value of the Outstanding Notes delivered to the Company
and the Trustee, the Company when authorized by a Board Resolution, together
with the Trustee, may amend, waive, modify or supplement any other provision of
this Indenture or the Notes; provided, however, that no such amendment,
waiver, modification or supplement may, without the written consent of the
Holder of each Outstanding Note affected thereby:
(i) reduce the principal amount of, or extend the
fixed maturity of, or alter the redemption provisions of, the
Notes, (other than, subject to clause (vii) below, provisions
relating to repurchase of Notes upon the occurrence of an Asset
Sale or a Change at Control) or change the calculation of
"Accreted Value",
(ii) change the currency in which any Notes or
amounts owing thereon is payable,
(iii) reduce the percentage of Accreted Value
outstanding of Notes which must consent to an amendment,
supplement or waiver or consent to take any action under this
Indenture or the Notes,
(iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes,
(v) waive a default in payment with respect to the
Notes or any Guarantee,
(vi) reduce the rate or extend the time for payment
of interest on the Notes,
(vii) following the occurrence of a Change of Control
or an Asset Sale, alter the Company's obligation to purchase
Notes as a result thereof in accordance with this Indenture or
waive any default in the performance thereof,
(viii) affect the ranking of the Notes in a manner
adverse to the holder of the Notes,
(ix) release any Guarantor from any of its
obligations under its Guarantee or this Indenture except in
compliance with the terms of this Indenture, or
(x) permit the creation of any Lien (other than the
Lien as the Pledgee) created by the Escrow Agreement or
terminate the Lien created by the Escrow Agreement.
Upon the written request of the Company accompanied by a copy
of a Board Resolution of the Board authorizing the execution of any such
supplemental indenture or other agreement, instrument or waiver, and an
Officers' Certificate and an Opinion of Counsel upon which the Trustee shall
be fully protected in relying upon as conclusive evidence that such change,
agreement, supplement or waiver is permitted by this Indenture and upon the
filing with the Trustee of evidence of the consent of Holders as aforesaid,
the Trustee shall join with the Company in the execution of such supplemental
indenture or other agreement, instrument or waiver.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture
or other agreement, instrument or waiver, but it shall be sufficient if such
Act shall approve the substance thereof.
Section 9.03. Execution of Supplemental Indentures, Agreements
and Waivers.
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
from each obligor under the Notes entering into such supplemental indenture,
agreement, instrument or waiver, each stating that the execution of such
supplemental indenture, agreement, instrument or waiver (a) is authorized or
permitted by this Indenture and (b) does not violate the provisions of any
agreement or instrument evidencing any other Indebtedness of the Company or
any other Subsidiary of the Company. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture, agreement,
instrument or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture, the Notes or otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article Nine, this Indenture and/or the Notes, if applicable, shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture and/or the Notes, if applicable, as the case may be,
for all purposes; and every Holder of Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Board, to any such supplemental indenture may be prepared and executed
by the Company and authenticated and delivered by the Trustee upon a Company
Order in exchange for Outstanding Notes.
Section 9.07. Record Date.
The Company may, but shall not be obligated to, fix, a record
date for the purpose of determining the Holders entitled to consent to any
supplemental indenture, agreement or instrument or any waiver, and shall
promptly notify the Trustee of any such record date. If a record date is
fixed those persons who were Holders at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such supplemental indenture, agreement or instrument or waiver or to revoke
any consent previously given, whether or not such persons continue to be
Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
Section 9.08. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt
as the consenting Holder's Note, even if a notation of the consent is not made
on any Note. However, any such Holder, or subsequent Holder, may revoke the
consent as to his Note or portion of a Note if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. An
amendment or waiver shall become effective in accordance with its terms and
thereafter bind every Holder.
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
Section 10.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan in The
City of New York, State of New York, an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
office of the Trustee at its Corporate Trust Office will be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York, State of New
York) where the Notes may be presented or surrendered for any or all such
purposes, and may from time to time rescind such designation; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in The City of New
York, State of New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and any
change in the location of any such other office or agency.
Section 10.03. Money for Note Payments To Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of, premium, if any, or
interest on any of the Notes, segregate and hold in trust for the benefit of
the Holders entitled thereto a sum sufficient to pay the principal, premium,
if any, or interest so becoming due until such sums shall be paid to such
persons or otherwise disposed of as herein provided, and will promptly notify
the Trustee of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will,
on or before each due date of the principal of, premium, if any, or interest
on, any Notes, deposit with a Paying Agent a sum in same day funds sufficient
to pay the principal, premium, if any, or interest so becoming due, such sum
to be held in trust for the benefit of the Holders entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent will agree with the Trustee,
subject to the provisions of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on Notes in trust for the benefit of the
Holders entitled thereto until such sums shall be paid to such Holders or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or
any other obligor upon the Notes) in the making of any payment of principal
of, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights and
liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent will be released from all further liability
with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Note and remaining unclaimed for two years
after such principal, premium, if any, or interest has become due and payable
shall be paid to the Company upon receipt of a Company Request therefor, or
(if then held by the Company) will be discharged from such trust; and the
Holder of such Note will thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, will thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, at the
option of the Company in the New York Times or the Wall Street Journal
(national edition), notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining shall be
repaid to the Company.
Section 10.04. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory), licenses and franchises
of the Company and each of the Restricted Subsidiaries; provided, however,
that the Company will not be required to preserve any such right, license or
franchise if the Board shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries as a whole and that the loss thereof is not adverse in
any material respect to the Holders; provided, further, that the foregoing
will not prohibit a sale, transfer or conveyance of a Subsidiary of the
Company or any of its assets in compliance with the terms of this Indenture.
Section 10.05. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed (i) upon the Company or
any of its Restricted Subsidiaries or (ii) upon the income, profits or
property of the Company or any of the Restricted Subsidiaries and (b) all
material lawful claims for labor, materials and supplies, which, if unpaid,
could reasonably be expected to become a Lien upon the property of the Company
or any of the Restricted Subsidiaries; provided, however, that the Company
will not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim (x) whose amount, applicability or
validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted or (y) if the failure to so pay, discharge
or cause to be paid or discharged could not reasonably be expected to have a
Material Adverse Effect (as defined in the Purchase Agreement).
Section 10.06. Maintenance of Properties.
The Company shall cause all material properties owned by the
Company or any of the Restricted Subsidiaries or used or held for use in the
conduct of their respective businesses to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided, however, that
nothing in this Section 10.06 will prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any of the Restricted Subsidiaries and is not disadvantageous in
any material respect to the Holders.
Section 10.07. Insurance.
The Company shall at all times keep all of its and the
Restricted Subsidiaries' properties which are of an insurable nature insured
with insurers, believed by the Company in good faith to be financially sound
and responsible, against loss or damage to the extent that property of similar
character is usually and customarily so insured by corporations similarly
situated and owning like properties.
Section 10.08. Books and Records.
The Company shall keep proper books of record and account, in
which full and correct entries will be made of all financial transactions and
the assets and business of the Company and each Restricted Subsidiary and each
Restricted Affiliate of the Company in material compliance with GAAP.
Section 10.09. Provision of Financial Statements.
The Company shall file with the SEC (so long as the SEC will
accept any such filings), the Trustee and the Initial Purchasers the annual
reports, quarterly reports and other documents required to be filed with the
SEC pursuant to Sections 13 and 15 of the Exchange Act, whether or not the
Company has a class of securities registered under the Exchange Act. The
Company will also comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
Section 10.10. Change of Control.
Upon the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall make an
offer to purchase (the "Change of Control Offer"), on a business day (the
"Change of Control Payment Date") not later than 60 days following the Change
of Control Date, all Notes then outstanding at a purchase price equal to 101%
of the Accreted Value thereof on any Change of Control Payment Date, plus
accrued and unpaid interest, if any, to any Change of Control Payment Date.
Notice of a Change of Control Offer shall be given to Holders and the Trustee
not less than 25 days nor more than 45 days before the Change of Control
Payment Date. The Change of Control Offer is required to remain open for at
least 20 business days and until the close of business on the Change of
Control Payment Date. Failure to mail the notice of a Change of Control Offer
on the date specified below or to have satisfied the foregoing condition
precedent by the date that such notice is required to be mailed will
constitute a Default under Section 5.01(iv).
Notice of a Change of Control Offer shall be mailed by the
Company not more than 20 Business Days after the Change of Control Date to the
Holders of Notes at their last registered addresses with a copy to the Trustee
and the Paying Agent. The Change of Control Offer shall remain open from the
time of mailing for at least 20 Business Days and until 5:00 p.m., New York
City time, on the Change of Control Payment Date. The notice, which shall
govern the terms of the Change of Control Offer, shall include such
disclosures as are required by law and shall state:
(a) that the Change of Control Offer is being made pursuant to
this Section 10.10 and that all Notes tendered into the Change of Control
Offer will be accepted for payment;
(b) the purchase price (including the amount of accrued
interest, if any) for each Note, the Change of Control Payment Date and the
date on which the Change of Control Offer expires;
(c) that any Note not tendered for payment will continue to
accrete Accreted Value or accrue interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment of
the purchase price, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrete Accrued Interest or accrue interest after
the Change of Control Payment Date;
(e) that Holders electing to have Notes purchased pursuant to
a Change of Control Offer will be required to surrender their Notes to the
Paying Agent at the address specified in the notice prior to 5:00 p.m., New
York City time, on the Change of Control Payment Date and must complete any
form letter of transmittal proposed by the Company and acceptable to the
Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York City
time, on the Change of Control Payment Date, a facsimile transmission or
letter setting forth the name of the Holders, the principal amount of Notes the
Holders delivered for purchase, the Note certificate number (if any) and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
(g) that Holders whose Notes are purchased only in part will
be issued Notes of like tenor equal in principal amount to the unpurchased
portion of the Notes surrendered;
(h) the instructions that Holders must follow in order to
tender their Notes; and
(i) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the SEC
pursuant to the Exchange Act (or, if the Company is not required to file any
such reports with the SEC, the comparable reports prepared pursuant to Section
10.09), a description of material developments in the Company's business,
information with respect to pro forma historical financial information after
giving effect to such Change of Control and such other information concerning
the circumstances and relevant facts regarding such Change of Control and
Change of Control Offer as would, in the good faith judgment of the Company,
be material to a Holder of Notes in connection with the decision of such
Holder as to whether or not it should tender Notes pursuant to the Change of
Control Offer.
On the Change of Control Payment Date, the Company will (i)
accept for payment Notes or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Notes or portions
thereof so tendered and accepted and (iii) deliver to the Trustee the Notes so
accepted together with an Officers' Certificate setting forth the Notes or
portions thereof tendered to and accepted for payment by the Company. The
Paying Agent will promptly mail or deliver to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Note of like
tenor equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer not later than the first Business Day
following the Change of Control Payment Date. Except as described above with
respect to a Change of Control, this Indenture does not contain provisions
that permit the Holders to require that the Company repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction
which may be highly leveraged. If a Change of Control Offer is made, there
can be no assurance that the Company will have available funds sufficient to
pay for all of the Notes that might be delivered by holders of Notes seeking
to accept the Change of Control Offer. The Company shall not be required to
make a Change of Control Offer following a Change of Control if a third party
makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made
by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
If the Company is required to make a Change of Control Offer,
the Company will comply with all applicable tender offer laws and regulations,
including, to the extent applicable, Section 14(e) and Rule 14e-1 under the
Exchange Act, and any other applicable securities laws and regulations. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of this Section 10.10, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 10.10 by virtue thereof.
Section 10.11. Limitation on Additional Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, directly or indirectly, create, incur,
assume, issue, guarantee or in any manner become directly or indirectly liable
for or with respect to, contingently or otherwise, the payment of
(collectively to "incur") any Indebtedness (including any Acquired
Indebtedness), except for Permitted Indebtedness; provided, that (A)(i) the
Company will be permitted to incur Indebtedness (including Acquired
Indebtedness and Buildout Indebtedness) and (ii) a Restricted Subsidiary or
Restricted Affiliate will be permitted to incur Acquired Indebtedness or
Buildout Indebtedness, if, in either case, immediately after giving pro forma
effect to such incurrence (including the application of the net proceeds
therefrom), either (X) the ratio of Total Consolidated Indebtedness to
Consolidated Pro Forma Operating Cash Flow would not be greater than or equal
to 5.5 to 1.0 if such Indebtedness is incurred prior to October 15, 2000 or 5.0
to 1.0 if such Indebtedness is incurred on or after October 15, 2000 or (Y)
the ratio of Total Consolidated Indebtedness to Total Invested Equity Capital
would not exceed 2.0 to 1.0 and (B) on or after October 15, 2002, a Restricted
Affiliate will be permitted to incur Acquired Indebtedness or Buildout
Indebtedness, if, after giving pro forma effect to such incurrence (including
the application of the net proceeds therefrom), the ratio of Total Affiliate
Indebtedness to Affiliate Pro Forma Operating Cash Flow of such Restricted
Affiliate would not be greater than or equal to 4.0 to 1.0.
For purposes of determining compliance with this Section 10.11,
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness permitted by this covenant, the Company in its
sole discretion shall classify such item of Indebtedness and only be required
to include the amount of such Indebtedness as one of such types.
Section 10.12. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company ending after the date hereof, a
written statement signed by the chairman or a chief executive officer, the
principal financial officer or principal accounting officer of the Company,
stating (i) that a review of the activities of the Company during the
preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and (ii) that,
to the knowledge of each officer signing such certificate, the Company has
kept, observed, performed and fulfilled each and every covenant and condition
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions, conditions and covenants hereof
(or, if a Default shall have occurred, describing all such Defaults of which
such officers may have knowledge, their status and what action the Company is
taking or proposes to take with respect thereto). When any Default under this
Indenture has occurred and is continuing, or if the Trustee or any Holder or
the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Restricted Subsidiary gives any notice or takes any other
action with respect to a claimed default (other than with respect to
Indebtedness (other than Indebtedness evidenced by the Notes) in the principal
amount of less than $1.0 million), the Company will promptly notify the
Trustee of such Default, notice or action and will deliver to the Trustee by
registered or certified mail or by telegram, or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action within five Business Days after
the Company becomes aware of such occurrence and what action the Company is
taking or proposes to take with respect thereto.
Section 10.13. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of the
Restricted Subsidiaries or Restricted Affiliates to, make, directly or
indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be
continuing at the time of or upon giving effect to such
Restricted Payment;
(ii) immediately after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of
Indebtedness under clause (A)(X) of the proviso of Section 10.11
hereof; and
(iii) immediately after giving effect to such
Restricted Payment, the aggregate amount of all Restricted
Payments declared or made on or after the Issue Date and all
Designation Amounts does not exceed an amount equal to the sum
of, without duplication, (a) 50% of the cumulative Consolidated
Net Income accrued on a cumulative basis during the period
beginning on October 1, 1997 and ending on the last day of the
fiscal quarter of the Company immediately preceding the date of
such proposed Restricted Payment (or, if such cumulative
Consolidated Net Income for such period is a deficit, minus 100%
of such deficit), plus (b) the aggregate net cash proceeds
received by the Company from the issue or sale (other than to a
Restricted Subsidiary or Restricted Affiliate of the Company) of
its Capital Stock (other than Disqualified Stock) on or after
the Issue Date (including, without duplication, upon exercise
of warrants, options or rights), plus (c) the aggregate net
proceeds received by the Company from the issuance (other than
to a Restricted Subsidiary or to a Restricted Affiliate of the
Company) on or after the Issue Date of its Capital Stock (other
than Disqualified Stock) upon the conversion of, or exchange
for, Indebtedness of the Company or a Restricted Subsidiary,
plus (d) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made other than an
Investment made pursuant to clause (c), (f) or (g) of the
following paragraph made after the Issue Date, an amount equal
to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less
the cost of the disposition of such Investment, plus (e) in the
case of any Revocation of the Designation of a Subsidiary as an
Unrestricted Subsidiary, an amount equal to the consolidated net
Investment in such Subsidiary on the date of Revocation but not
in an amount exceeding the net amount of any Investments
constituting Restricted Payments made (or deemed made) in such
Subsidiary after the Issue Date plus (f) in the case of the JV
Designation after the Issue Date of a New Joint Venture as a
Restricted Affiliate, an amount equal to the consolidated net
Investment in such New Joint Venture on the date of such JV
Designation but not in an amount exceeding the net amount of any
Investments constituting Restricted Payments made (or deemed
made) in such New Joint Venture after the Issue Date. For
purposes of the preceding clauses (b) and (c) and without
duplication, the value of the aggregate net cash proceeds
received by the Company upon the issuance of Capital Stock
either upon the conversion of convertible Indebtedness or in
exchange for outstanding Indebtedness or upon the exercise of
options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options,
warrants or rights plus the incremental amount received by the
Company upon the conversion, exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other than
cash shall be valued at its Fair Market Value.
The provisions of this Section 10.13 shall not prohibit (each
of which shall be given independent effect):
(a) the payment of any dividend or other
distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would
comply with the provisions of this Indenture;
(b) so long as no Default shall have occurred
and be continuing, the purchase, redemption, retirement or other
acquisition of any shares of Capital Stock of the Company (A) in
exchange for or conversion into or (B) out of the net cash
proceeds of the substantially concurrent issue and sale (other
than to a Restricted Subsidiary or to a Restricted Affiliate) of
shares of Capital Stock of the Company (other than Disqualified
Stock); provided that any such net cash proceeds pursuant to the
immediately preceding subclause (B) are excluded from clause
(iii)(b) of the preceding paragraph;
(c) so long as no Default shall have occurred
and be continuing, the purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness
made by exchange for (including any such exchange pursuant to
the exercise of a conversion right or privilege in which cash is
paid in lieu of fractional shares or scrip), or out of the net
cash proceeds of, a substantially concurrent issue or sale
(other than to a Restricted Subsidiary or to a Restricted
Affiliate) of (A) Capital Stock (other than Disqualified Stock)
of the Company; provided that any such net cash proceeds, to the
extent so used, are excluded from clause (iii)(b) of the
preceding paragraph, and/or (B) other Subordinated Indebtedness,
having an Average Life to Stated Maturity that is equal to or
greater than the Average Life to Stated Maturity of the
Subordinated Indebtedness being purchased, redeemed, defeased or
otherwise acquired or retired;
(d) so long as no Default shall have occurred
and be continuing, any Investment constituting a Restricted
Payment made by the Company or any Restricted Subsidiary in any
Restricted Affiliate to fund the capital requirements for
financing or supporting a Permitted Business of such Restricted
Affiliate;
(e) so long as no Default shall have occurred
and be continuing, Investments constituting a Restricted Payment
made by the Company or any Restricted Subsidiary in any person
(including any Unrestricted Subsidiary or a Restricted
Affiliate) in an amount not to exceed $10 million in the
aggregate at any time outstanding;
(f) so long as no Default shall have occurred
and be continuing, the making of a direct or indirect Investment
constituting a Restricted Payment out of the proceeds of the
issue or sale (other than to a Subsidiary or to a Restricted
Affiliate) of Capital Stock (other than Disqualified Stock) of
the Company; provided that any such net cash proceeds are
excluded from clause (iii)(b) of the preceding paragraph; or
(g) so long as no Default shall have occurred
and be continuing, any Investment constituting a Restricted
Payment made in Megacable S.A. de C.V. not to exceed $20 million
in the aggregate at any time outstanding.
Restricted Payments of the type set forth in the preceding
clauses (e) and (g) shall be included in making the determination of available
amounts under clause (iii) of the preceding paragraph to the extent they are
outstanding.
In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with
GAAP be subject to rescission or constitute a Default by reason of any
requisite subsequent restatement of such financial statements which would have
made such Restricted Payment prohibited at the time that it was made.
Section 10.14. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit, cause or suffer
any Restricted Subsidiary to, conduct any business or enter into any
transaction (or series of related transactions which are similar or part of a
common plan) with or for the benefit of any of their respective Affiliates or
any beneficial holder of 10% or more of the Common Stock of the Company or any
officer or director of the Company (each, an "Affiliate Transaction"), unless
the terms of the Affiliate Transaction are set forth in writing, and are fair
and reasonable to the Company or such Restricted Subsidiary, as the case may
be. Each Affiliate Transaction involving aggregate payments or other Fair
Market Value in excess of $5 million shall be approved by a majority of the
Board, such approval to be evidenced by a Board Resolution stating that the
Board has determined that such transaction or transactions comply with the
foregoing provisions. In addition to the foregoing, each Affiliate
Transaction involving aggregate consideration of $10 million or more shall be
approved by a majority of the Disinterested Directors; provided that, in lieu
of such approval by the Disinterested Directors, the Company may obtain a
written opinion from an Independent Financial Advisor stating that the terms
of such Affiliate Transaction to the Company or the Restricted Subsidiary, as
the case may be, are fair from a financial point of view. In addition, a
Restricted Affiliate shall not enter into any transaction (or series of related
transactions which are similar or part of a common plan) with or for the
benefit of the Other Partner, unless the terms of such transaction or
transactions are in writing, and are fair and reasonable to such Restricted
Affiliate. For purposes of this covenant, any Affiliate Transaction approved
by a majority of the Disinterested Directors or as to which a written opinion
has been obtained from an Independent Financial Advisor, on the basis set
forth in the preceding sentence, shall be deemed to be on terms that are fair
and reasonable to the Company and the Restricted Subsidiaries, as the case may
be, and therefore shall be permitted under this covenant.
Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions with or among, or solely for
the benefit of, the Company and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) transactions among any of the Company or the Restricted
Subsidiaries, on the one hand, and any of the Restricted Affiliates, on the
other hand, provided that such transactions are in the ordinary course of
business and are related to or in furtherance of a Permitted Business, (iv)
dividends paid by the Company pursuant to and in compliance with this Section
10.13, (v) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries bonuses, employment
agreements and arrangements, compensation or employee benefit arrangements or
legal fees and (vi) grants of customary registration rights with respect to
securities of the Company.
Section 10.15. Disposition of Proceeds of Asset Sales.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, make any Asset Sale unless (a) the
Company or such Restricted Subsidiary or such Restricted Affiliate, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 75% of such consideration consists of cash or
Cash Equivalents; provided that the amount of any liabilities (other than
Subordinated Indebtedness or Indebtedness of a Restricted Subsidiary that
would not constitute Restricted Subsidiary Indebtedness) that are assumed by
the transferee of any such assets pursuant to an agreement that
unconditionally releases the Company or such Restricted Subsidiary or
Restricted Affiliate, as the case may be, from further liability shall be
treated as cash for purposes of this Section 10.15. The Company or the
applicable Restricted Subsidiary, as the case may be, may (i) apply the Net
Cash Proceeds from any such Asset Sale by the Company or a Restricted
Subsidiary and the Net Cash Proceeds of any Asset Sale by a Restricted
Affiliate to the extent distributed to the Company or a Restricted Subsidiary
within 365 days of the receipt thereof to repay an amount of Indebtedness
(other than Subordinated Indebtedness) of the Company in an amount not
exceeding the Other Senior Debt Pro Rata Share and elect to permanently reduce
the amount of the commitments thereunder by the amount of the Indebtedness so
repaid, (ii) apply the Net Cash Proceeds from such Asset Sale by the Company
or a Restricted Subsidiary and the Net Cash Proceeds of any Asset Sale by a
Restricted Affiliate to the extent distributed to the Company or a Restricted
Subsidiary to repay any Restricted Subsidiary Indebtedness and elect to
permanently reduce the commitments thereunder by the amount of the
Indebtedness so repaid or (iii) apply the Net Cash Proceeds from any Asset Sale
by the Company or a Restricted Subsidiary and the Net Cash Proceeds of any
Asset Sale by a Restricted Affiliate to the extent distributed to the Company
or a Restricted Subsidiary within 365 days thereof, to an investment in
properties and assets that will be used in a Permitted Business (or in Capital
Stock and other securities of any person that will become a Restricted
Subsidiary or Restricted Affiliate as a result of such investment to the
extent such person owns properties and assets that will be used in a Permitted
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding anything herein to the contrary, in the event of any Asset
Sale of all or substantially all of the properties or assets of any Restricted
Affiliate Group, whether in a single transaction or series of related
transactions, the Restricted Affiliate Group shall be required to distribute
the Net Cash Proceeds therefrom, after providing for all Indebtedness and
other liabilities of such Restricted Affiliate Group, to the Company or a
Restricted Subsidiary and the Other Partner on a pro rata basis in accordance
with their respective equity interests. Any Net Cash Proceeds from any Asset
Sale that are neither used to repay, and permanently reduce the commitments
under, any Restricted Subsidiary Indebtedness as set forth in clause (ii) of
the preceding sentence or invested in Replacement Assets within the 365-day
period as set forth in clause (iii) shall constitute "Excess Proceeds." Any
Excess Proceeds not used as set forth in clause (i) of the second preceding
sentence shall constitute "Offer Excess Proceeds" subject to disposition as
provided below.
When the aggregate amount of Offer Excess Proceeds equals or
exceeds $10.0 million, the Company shall make an offer to purchase (an "Asset
Sale Offer"), from all Holders issued under this Indenture, that aggregate
principal amount of Notes as can be purchased by application of such Offer
Excess Proceeds at a price in cash equal to 100% of the principal amount
thereof plus, in each case, accrued and unpaid interest, if any, to the
purchase date. Each Asset Sale Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the extent
that the aggregate purchase price for the applicable issue of Notes tendered
pursuant to an Asset Sale Offer is less than the Offer Excess Proceeds, the
Company or any Restricted Subsidiary may use such deficiency for general
corporate purposes. If the aggregate purchase price for the Notes validly
tendered and not withdrawn by holders thereof exceeds the amount of Notes which
can be purchased with the Offer Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Offer Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, the
Company, the Restricted Subsidiaries and the Restricted Affiliates will be
permitted to consummate an Asset Sale without complying with such paragraphs
to the extent (i) at least 75% of the consideration of such Asset Sale
constitutes Replacement Assets, cash or Cash Equivalents (including
obligations deemed to be cash under this covenant) and (ii) such Asset Sale is
for Fair Market Value; provided that any consideration constituting (or deemed
to constitute) cash or Cash Equivalents received by the Company, any of the
Restricted Subsidiaries or any of the Restricted Affiliates in connection with
any Asset Sale permitted to be consummated under this paragraph shall
constitute Net Cash Proceeds subject to the provisions of the two preceding
paragraphs.
Notice of an Asset Sale Offer shall be mailed by the Company
not more than 20 Business Days after the obligation to make such Asset Sale
Offer arises to the Holders of Notes at their last registered addresses with a
copy to the Trustee and the Paying Agent. The Asset Sale Offer shall remain
open from the time of mailing for at least 20 Business Days and until 5:00
p.m., New York City time, on the date fixed for Purchase of Notes validly
tendered and not withdrawn, which date shall be not later than the 30th
Business Day following the mailing of such Asset Sale Offer (the "Asset Sale
Offer Purchase Date"). The notice, which shall govern the terms of the Asset
Sale Offer, shall include such disclosures as are required by law and shall
state:
(a) that the Asset Sale Offer is being made
pursuant to this Section 10.15 and that the Asset Sale Offer
shall remain open for a period of 20 Business Days or such
longer period as may be required by law;
(b) the purchase price (including the amount
of accrued interest, if any) for each Note, the Asset Sale
Offer Purchase Date and the date on which the Asset Sale Offer
expires;
(c) that any Note not tendered for payment
will continue to accrue interest in accordance with the terms
thereof;
(d) that, unless the Company shall default in
the payment of the purchase price, any Note accepted for
payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Offer Purchase Date;
(e) that Holders electing to have Notes
purchased pursuant to an Asset Sale Offer will be required to
surrender their Notes to the Paying Agent at the address
specified in the notice prior to 5:00 p.m., New York City time,
on the Asset Sale Offer Purchase Date and must complete any
form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to
withdraw their election if the Paying Agent receives, not later
than 5:00 p.m., New York City time, on the Asset Sale Offer
Purchase Date, a facsimile transmission or letter setting forth
the name of the Holders, the principal amount of Notes the
Holders delivered for purchase, the Note certificate number (if
any) and a statement that such Holder is withdrawing his
election to have such Notes purchased;
(g) that Holders whose Notes are purchased
only in part will be issued Notes of like tenor equal in
principal amount to the unpurchased portion of the Notes
surrendered;
(h) the instructions that Holders must follow
in order to tender their Notes; and
(i) information concerning the business of the
Company, the most recent annual and quarterly reports of the
Company filed with the Commission pursuant to the Exchange Act
(or, if the Company is not required to file any such reports
with the SEC, the comparable reports prepared pursuant to
Section 10.24), a description of material developments in the
Company's business, information with respect to pro forma
historical financial information after giving effect to such
Asset Sale and such other information concerning the
circumstances and relevant facts regarding such Asset Sale and
Asset Sale Offer as would, in the good faith judgment of the
Company, be material to a Holder of Notes in connection with
the decision of such Holder as to whether or not it should
tender Notes pursuant to the Asset Sale Offer.
On the Asset Sale Offer Purchase Date, the Company will (i)
accept for payment Notes or portions thereof tendered pursuant to the Asset
Sale Offer, (ii) deposit with the Paying Agent money, in immediately available
funds, sufficient to pay the purchase price of all Notes or portions thereof
so tendered and accepted and (iii) deliver to the Trustee the Notes so
accepted together with an Officers' Certificate setting forth the Notes or
portions thereof tendered to and accepted for payment by the Company. The
Paying Agent will promptly mail or deliver to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Note of like
tenor equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company will publicly announce the
results of the Asset Sale Offer not later than the first Business Day
following the Asset Sale Offer Purchase Date.
If the Company is required to make an Asset Sale Offer, the
Company shall comply with all applicable tender offer rules, including to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations.
Section 10.16. Limitation on Liens Securing Certain
Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, create, incur, assume or suffer to
exist any Liens of any kind against or upon (i) any property or assets of the
Company or any Restricted Subsidiary or Restricted Affiliate, whether now
owned or hereafter acquired, or any proceeds therefrom, which secure either
(x) Subordinated Indebtedness, unless the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to the Liens securing
such Subordinated Indebtedness or (y) Senior Debt Securities, unless the Notes
are equally and ratably secured with the Liens securing the Senior Debt
Securities, or (ii) the Escrow Account other than the Lien in favor of the
Escrow Agent and Trustee.
Section 10.17. Limitation on Business.
The Company shall not, and will not permit any of the
Restricted Subsidiaries or Restricted Affiliates to, engage in a business
which is not substantially a Permitted Business.
Section 10.18. Limitation on Certain Guarantees and
Indebtedness of Restricted Subsidiaries and
Restricted Affiliates.
The Company shall not permit any Restricted Subsidiary or
Restricted Affiliate, directly or indirectly, to assume, guarantee or in any
other manner become liable whether as issuer, guarantor or co-obligor, with
respect to (i) any Subordinated Indebtedness or (ii) any Senior Debt Securities
unless, in each case, such Restricted Subsidiary or Restricted Affiliate
simultaneously executes and delivers a supplemental indenture providing for
the guarantee of payment of the Notes by such Restricted Subsidiary or
Restricted Affiliate, as the case may be, on a basis senior to any such
Subordinated Indebtedness or pari passu with any such Senior Debt Securities,
as the case may be. Each guarantee of the Notes created pursuant to such
provisions is referred to as a "Guarantee" and the issuer of each such
Guarantee, so long as the Guarantee remains outstanding, is referred to as a
"Guarantor."
Notwithstanding the foregoing, in the event of the
unconditional release of any Guarantor from its obligations in respect of the
Indebtedness which gave rise to the requirement that a Guarantee be given,
such Guarantor shall be released from all obligations under its Guarantee. In
addition, upon any sale or disposition (by merger or otherwise) of any
Guarantor by the Company or a Restricted Subsidiary to any person that is not
an Affiliate of the Company or any of the Restricted Subsidiaries which is
otherwise in compliance with the terms of this Indenture and as a result of
which such Guarantor ceases to be a Restricted Subsidiary of the Company, such
Guarantor will be deemed to be automatically and unconditionally released from
all obligations under its Guarantee; provided that each such Guarantor is sold
or disposed of in accordance with Section 10.15 hereof.
Section 10.19. Limitation on Issuances and Sales of Preferred
Stock by Restricted Sub-sidiaries and Restricted
Affiliates.
The Company (i) shall not permit any Restricted Subsidiary to
issue any Preferred Stock (other than to the Company or a Restricted
Subsidiary) and (ii) shall not permit any person (other than the Company or a
Restricted Subsidiary) to own any Preferred Stock of any Restricted
Subsidiary. In addition, the Company (i) shall not permit any Restricted
Affiliate to issue any Preferred Stock (other than (x) to the Company or a
Restricted Subsidiary or (y) to the holders of Common Stock in such Restricted
Affiliate on a pro rata basis based upon their ownership of Common Stock) or
(ii) will not permit any person not referred to in the preceding parenthetical
of clause (i) of this sentence to own any Preferred Stock of any Restricted
Affiliate.
Section 10.20. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted
Subsidiaries or Restricted Affiliates.
The Company shall not, and shall not permit any Restricted
Subsidiary or Restricted Affiliate to, directly or indirectly, create or
otherwise enter into or cause to become effective any consensual encumbrance
or consensual restriction of any kind on the ability of any Restricted
Subsidiary or Restricted Affiliate to (a) pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits to the extent owned by the
Company or any Restricted Subsidiary or Restricted Affiliate, (b) pay any
Indebtedness owed to the Company or any Restricted Subsidiary or Restricted
Affiliate, (c) make any Investment in the Company or any other Restricted
Subsidiary or Restricted Affiliate or (d) transfer any of its properties or
assets to the Company or to any Restricted Subsidiary or Restricted Affiliate,
except for (i) any encumbrance or restriction in existence on the Issue Date,
(ii) customary non-assignment provisions, (iii) any encumbrance or restriction
pertaining to an asset subject to a Lien to the extent set forth in the
security documentation governing such Lien, (iv) any encumbrance or
restriction applicable to a Restricted Subsidiary or Restricted Affiliate at
the time that it becomes a Restricted Subsidiary or Restricted Affiliate that
is not created in contemplation thereof, (v) any encumbrance or restriction
existing under any agreement that refinances or replaces an agreement
containing a restriction permitted by clause (iv) above; provided that the
terms and conditions of any such encumbrance or restriction are not materially
less favorable to the Holders than those under or pursuant to the agreement
being replaced or the agreement evidencing the Indebtedness refinanced, (vi)
any encumbrance or restriction imposed upon a Restricted Subsidiary or
Restricted Affiliate pursuant to an agreement which has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary or Restricted Affiliate or any Asset Sale
to the extent limited to the Capital Stock or assets in question, and (vii)
any customary encumbrance or restriction applicable to a Restricted Subsidiary
or Restricted Affiliate that is contained in an agreement or instrument
governing or relating to Indebtedness contained in any Permitted Credit
Facility; provided that (subject to customary net worth, leverage, invested
capital and other financial covenants) the provisions of such agreement permit
the payment of interest and principal and mandatory repurchases pursuant to
the terms of this Indenture and the Notes and other indebtedness that is
solely an obligation of the Company; provided further that such agreement may
contain customary covenants regarding the merger of or sale of all or any
substantial part of the assets of the Company or any Restricted Subsidiary or
Restricted Affiliate, customary restrictions on transactions with affiliates,
and customary subordination provisions governing indebtedness owed to the
Company or any Restricted Subsidiary or Restricted Affiliate.
Section 10.21. Designations of Unrestricted Subsidiaries.
The Company shall not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") unless:
(a) no Default shall have occurred and be
continuing at the time of or after giving effect to such
Designation;
(b) except in the case of a Permitted Investment
or an Investment made pursuant to clause (iii) or (iv) of the
second paragraph of Section 10.13 hereof, immediately after
giving effect to such Designation, the Company would be able to
incur $1.00 of Indebtedness under clause (A)(X) of the proviso
of Section 10.11 hereof; and
(c) the Company would not be prohibited under
this Indenture from making an Investment at the time of
Designation (assuming the effectiveness of such Designation) in
an amount (the "US Designation Amount") equal to the Fair Market
Value of the net Investment of the Company or any other
Restricted Subsidiary in such Restricted Subsidiary on such
date.
In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment pursuant
to Section 10.13 hereof for all purposes of this Indenture in the US
Designation Amount. Neither the Company nor any Restricted Subsidiary shall
at any time (x) provide a guarantee of, or similar credit support to, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness); provided that the
Company may pledge Capital Stock or Indebtedness of any Unrestricted
Subsidiary on a nonrecourse basis such that the pledgee has no claim whatsoever
against the Company other than to obtain such pledged property, (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or
both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of an Unrestricted Subsidiary, including any corresponding right
to take enforcement action against such Unrestricted Subsidiary, except in the
case of clause (x) or (y) to the extent permitted under Section 10.13 and
Section 10.14 hereof.
The Company will not revoke any Designation of a Subsidiary as
an Unrestricted Subsidiary (a "Revocation") unless:
(a) no Default shall have occurred and be
continuing at the time of and after giving effect to such
Revocation; and
(b) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately following such
Revocation would, if incurred at such time, have been permitted
to be incurred for all purposes of this Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.
Section 10.22. Designations of Restricted Affiliates.
The Company shall not designate any Joint Venture (other than a
newly created Joint Venture in which no Investment has previously been made)
or any of its Subsidiaries as a "Restricted Affiliate" under this Indenture (a
"JV Designation") unless:
(a) no Default shall have occurred and be
continuing at the time of and after giving effect to such JV
Designation; and
(b) all Liens and Indebtedness of such Joint
Venture outstanding immediately following such JV Designation
would, if incurred at such time, have been permitted to be
incurred for all purposes of this Indenture.
Notwithstanding the foregoing, the BECO Joint Venture and the
PEPCO Joint Venture shall initially constitute Restricted Affiliates at the
Issue Date. The Company and the Restricted Subsidiaries shall at all times
maintain a Restricted Affiliate so that it qualifies as a Joint Venture under
clauses (a) and (b) of the definition thereof, unless either (1) the Company
is able to, and does in fact, make an effective JV Revocation under the
provisions set forth below at the time of such event or (2) the Restricted
Affiliate ceases to qualify as a Joint Venture by reason of an Asset Sale by
the Company or a Restricted Subsidiary of all of the Company's or such
Restricted Subsidiary's interest in the Capital Stock of such Restricted
Affiliate to any person other than the Company or a Restricted Subsidiary or
any of their respective Affiliates, which, in the case of this clause (2),
shall be deemed an effective JV Revocation.
The Company will not revoke any JV Designation of a Joint
Venture as a Restricted Affiliate (a "JV Revocation") unless:
(1) no Default shall have occurred and be continuing at
the time of or after giving effect to such JV Revocation;
(2) except in the case of a Permitted Investment or an
Investment made pursuant to clause (e) or (f) of the second
paragraph of Section 10.13 hereof and except in the case in
which the Restricted Affiliate will become a Restricted
Subsidiary, immediately after giving effect to such JV
Revocation, the Company would be able to incur $1.00 of
Indebtedness under the proviso of clause (A)(X) of Section
10.11 hereof; and
(3) the Company would not be prohibited under the
Indenture from making an Investment at the time of such JV
Revocation (assuming the effectiveness of such JV Revocation) in
an amount (the "JV Revocation Amount") equal to the Fair Market
Value of the net Investment of the Company or any other
Restricted Subsidiary in such Restricted Subsidiary on such
date.
In the event of any such JV Revocation, except in the case in
which the Restricted Affiliate will become a Restricted Subsidiary, the
Company shall be deemed to have made an Investment constituting a Restricted
Payment pursuant to Section 10.13 hereof for all purposes of this Indenture in
the JV Revocation Amount.
All JV Designations and JV Revocations must be evidenced by
Board Resolutions delivered to the applicable Trustee certifying compliance
with the foregoing provisions.
Section 10.23. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company will
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenants
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with, and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any,
have been complied with, except that, in the case of any such application or
request as to which the furnishing of such documents, certificates and/or
opinions is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture will include:
(i) a statement that each individual signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to
whether such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been
complied with.
Section 10.24. Reports.
The Company shall, whether or not it has a class of securities
registered under the Exchange Act, furnish without cost to each Holder (in
sufficient quantities for distribution to beneficial holders) and file with
the Trustee and the SEC, (i) within the applicable time period required under
the Exchange Act, after the end of each fiscal year of the Company, the
information required by Form 10-K (or any successor form thereto) under the
Exchange Act with respect to such period, (ii) within the applicable time
period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of the Company, the information
required by Form 10-Q (or any successor form thereto) under the Exchange Act
with respect to such period and (iii) any current reports on Form 8-K (or any
successor forms) required to be filed under the Exchange Act.
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as
to surviving rights or registration of transfer or exchange of Notes herein
expressly provided for) and the Trustee, on written demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when:
(1) either (a) all Notes theretofore authenticated and
delivered (other than (i) Notes which have been destroyed, lost
or stolen and which have been replaced or paid as provided in
Section 3.06 hereof and (ii) Notes for whose payment money has
theretofore been irrevocably deposited or caused to be deposited
in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust,
as provided in Section 10.03) have been delivered to the Trustee
for cancellation; or (b) all such Notes not theretofore
delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to
be deposited with the Trustee in trust an amount of money in
dollars sufficient to pay and discharge the entire Indebtedness
on such issue of Notes not theretofore delivered to the Trustee
for cancellation, for the principal of, premium, if any, and
interest to the date of such deposit or maturity date of
redemption; and
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied
with; provided, that such Opinion of Counsel may rely, as to
matters of fact, upon an Officers' Certificate.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Sections 4.05 and 6.07 and, if
money shall have been deposited with the Trustee pursuant to subclause (1)(b)
of this Section 11.01, the obligations of the Trustee under Section 11.02 and
the last paragraph of Section 10.03 shall survive.
Section 11.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
10.03, all money deposited with the Trustee pursuant to Section 11.01 shall be
held in trust and applied by it, in accordance with the provisions of the
Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the persons entitled thereto, of the principal of,
premium, if any, and interest on the Notes for whose payment such money has
been deposited with the Trustee.
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 3
of the Initial Notes or Paragraph 2 of the Exchange Notes, it shall notify the
Trustee of the Redemption Date and principal amount of Notes to be redeemed.
The Company shall notify the Trustee of any redemption at least
45 days before the Redemption Date by an Officers' Certificate, stating that
such redemption will comply with the provisions hereof and of the Notes.
Section 12.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed
at any time, selection of such Notes for redemption will be made by the
Trustee in compliance with any applicable requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange (or if the Notes
are so listed but the exchange does not impose requirements with respect to
the selection of debt securities for redemption), on a pro rata basis, by lot
or by such method as the Trustee in its sole discretion shall deem fair and
appropriate; provided, however, that no Notes of a principal amount at
maturity of $1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount at maturity thereof to
be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall
relate, in the case of any Note redeemed or to be redeemed only in part, to
the portion of the principal amount of such Note which has been or is to be
redeemed.
Section 12.03. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed, at the address of
such Holder appearing in the Note register maintained by the Registrar.
All notices of redemption shall identify the Notes to be
redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price and the amount of
accrued interest, if any, to be paid;
(c) that, unless the Company defaults in making
the redemption payment, interest on Notes called for redemption
ceases to accrue on and after the Redemption Date, and the only
remaining right of the Holders of such Notes is to receive
payment of the Redemption Price plus unpaid interest on the
Notes through the Redemption Date, upon surrender to the Paying
Agent of the Notes redeemed;
(d) if any Note is to be redeemed in part, the
portion of the principal amount at maturity (equal to $1,000 or
any integral multiple thereof) of such Note to be redeemed and
that on and after the Redemption Date, upon surrender for
cancellation of such Note to the Paying Agent, a new Note or
Notes in the aggregate principal amount at maturity equal to the
unredeemed portion thereof will be issued without charge to the
Noteholder;
(e) that Notes called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price
and the name and address of the Paying Agent; and
(f) the CUSIP or CINS number, if any, relating
to such Notes.
Notice of redemption of Notes to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written
request, by the Trustee in the name and at the expense of the Company.
Section 12.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for
redemption become due and payable on the Redemption Date and at the Redemption
Price. Upon surrender to the Paying Agent, such Notes called for redemption
shall be paid at the Redemption Price plus accrued interest, if any, to the
Redemption Date, but interest installments whose maturity is on or prior to
such Redemption Date will be payable on the relevant Interest Payment Dates to
the Holders of record at the close of business on the relevant record dates
referred to in the Notes.
Section 12.05. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit
with the Paying Agent an amount of money in same day funds sufficient to pay
the Redemption Price of, and any accrued interest on, all the Notes or
portions thereof which are to be redeemed on that date, other than Notes or
portions thereof called for redemption on that date which have been delivered
by the Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such Redemption Price, interest
on the Notes to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Notes are presented for payment, and the
Holders of such Notes shall have no further rights with respect to such Notes
except for the right to receive the Redemption Price plus unpaid interest on
the Notes through the Redemption Date, upon surrender of such Notes. If any
Note called for redemption shall not be so paid upon surrender thereof for
redemption, the principal, premium, if any, and, to the extent lawful, accrued
interest thereon shall, until paid, bear interest from the Redemption Date at
the rate provided in the Notes.
Section 12.06. Notes Redeemed or Purchased in Part.
Upon surrender to the Paying Agent of a Note which is to be
redeemed in part, the Company shall execute and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to, and in exchange for, the unredeemed portion of the
principal of the Note so surrendered that is not redeemed.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
RCN CORPORATION
By:___________________________________
Name:
Title:
The Chase Manhattan Bank,
as Trustee
By:____________________________________
Name:
Title:
EXHIBIT A-1
[FORM OF NOTE]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE TRANSACTION"
PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X)
THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY
RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER)
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF
THIS SECURITY) OR THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY
BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"),
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE
TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
RCN CORPORATION
_________________
11 1/8% SENIOR DISCOUNT NOTES DUE 2007, SERIES A
CUSIP No. __________
No. ___________ $
This Note is issued with original issue discount for purposes of Section 1271
et seq. of the Internal Revenue Code. For each $1,000 of principal amount of
this Note, the issue price is $ and the amount of original issue discount is
$ . The issue date of this Note is October 17, 1997 and the yield to
maturity is 11 1/8%.
RCN CORPORATION, a corporation incorporated under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on October 15, 2007, at the office or
agency of the Company referred to below, and to pay interest thereon on April
15 and October 15 (each an "Interest Payment Date"), of each year, commencing
on April 15, 2003, accruing from October 15, 2002 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of 11 1/8% per annum, until the principal hereof is paid or duly
provided for. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture referred
to on the reverse hereof, be paid to the person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
April 1 and October 1 (each a "Regular Record Date"), whether or not a
Business Day, as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid, or duly provided for, and interest
on such defaulted interest at the then applicable interest rate borne by the
Notes, to the extent lawful, shall forthwith cease to be payable to the Holder
on such Regular Record Date, and may be paid to the person in whose name this
Note (or one or more Predecessor Notes) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be
fixed by the Trustee, notice of which shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, State of New
York, or at such other office or agency of the Company as may be maintained
for such purpose, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private
debts; provided, however, that payment of interest may be made at the option
of the Company by check mailed to the address of the person entitled thereto as
such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: RCN CORPORATION
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11 1/8% Senior Discount Notes due 2007,
Series A, referred to in the within-mentioned Indenture.
The Chase Manhattan Bank,
as Trustee
By:__________________________________
Authorized Signatory
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of
Notes of the Company designated as its 11 1/8% Senior Discount Notes due 2007,
Series A (herein called the "Initial Notes"). The Notes are limited (except
as otherwise provided in the Indenture referred to below) in aggregate
principal amount at maturity to $601,045,000, which may be issued under an
indenture (herein called the "Indenture") dated as of October 17, 1997, by and
between the Company and The Chase Manhattan Bank, as trustee (herein called
the "Trustee," which term includes any successor Trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The Notes include the Initial Notes, the
Private Exchange Notes and the Unrestricted Notes (including the Exchange
Notes referred to below), issued in exchange for the Initial Notes pursuant to
the Registration Rights Agreement. The Initial Notes and the Unrestricted
Notes are treated as a single class of securities under this Indenture.
All capitalized terms used in this Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S.C. Section Section 77aaa-77bbbb) (the "TIA"), as in effect on
the date of the Indenture. Notwithstanding anything to the contrary herein,
the Notes are subject to all such terms, and Holders of Notes are referred to
the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Registration Rights. Pursuant to the Registration Rights
Agreement by and among the Company and the Initial Purchasers, the Company
will be obligated to consummate an exchange offer pursuant to which the Holder
of this Note shall have the right to exchange this Note for 11 1/8% Senior
Discount Notes due 2007, Series B, of the Company (herein called the "Exchange
Notes"), which have been registered under the Securities Act, in like
principal amount and having identical terms as the Notes (other than as set
forth in this paragraph). The Holders of Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.
3. Redemption. The Notes will be redeemable, at the option
of the Company, in whole or in part, on or after October 15, 2002 upon not
less than 30 nor more than 60 days' written notice at the redemption prices
(expressed as percentages of principal amount at maturity) set forth below,
plus accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on October 15 of
each of the years indicated below:
Year Percentage
---- ----------
2002...................................... 105.562%
2003...................................... 103.708%
2004...................................... 101.854%
2005 and thereafter....................... 100.000%
Notwithstanding the foregoing, in the event that after the
Issue Date and prior to October 15, 2000 the Company issues, in one or more
Public Equity Offerings yielding gross cash proceeds of not less than $30.0
million, the Company may redeem, at its option, up to a maximum of 35% of the
aggregate principal amount at maturity of Notes from the net proceeds thereof
at a redemption price of 111.125% of the Accreted Value of the Notes; provided
that not less than 65% of the originally issued aggregate principal amount at
maturity of the Notes would remain outstanding immediately after such
redemption. To effect the foregoing redemption, the Company must mail a notice
of redemption not later than 60 days after the consummation of the Public
Equity Offering that resulted in the requisite gross proceeds. As used above,
"Public Equity Offering" means an underwritten public offering of Common Stock
of the Company effected on a primary basis and registered with the Commission
under the Securities Act.
4. Offers to Purchase. Sections 10.10 and 10.15 of this
Indenture provide that upon the occurrence of a Change of Control and
following certain Asset Sales, and subject to certain conditions and
limitations contained therein, the Company shall make an offer to purchase all
or a portion of the Notes in accordance with the procedures set forth in the
Indenture.
5. Defaults and Remedies. If an Event of Default occurs and
is continuing, the principal of all of the Outstanding Notes, plus all accrued
and unpaid interest, if any, to and including the date the Notes are paid, may
be declared due and payable in the manner and with the effect provided in the
Indenture.
6. Defeasance. The Indenture contains provisions (which
provisions apply to this Note) for defeasance at any time of (a) the entire
indebtedness of the Company on this Note and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance by
the Company with certain conditions set forth therein.
7. Amendments and Waivers. The Indenture permits, with
certain exceptions as provided therein, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of
the Holders under the Indenture at any time by the Company and the Trustee
with the consent of the Holders of not less than a majority of Accreted Value
of the Notes at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages of Accreted Value of the Notes
at the time Outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of this Indenture and certain
past Defaults under the Indenture and this Note and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
8. Denominations, Transfer and Exchange. The Notes are
issuable only in registered form without coupons in denominations of $1,000
principal amount at maturity and any integral multiple thereof. As provided
in the Indenture and subject to certain limitations therein set forth, the
Notes are exchangeable for a like aggregate principal amount of Notes of a
different authorized denomination, as requested by the Holder surrendering the
same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
9. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the person in
whose name this Note is registered as the owner hereof for all purposes,
whether or not this Note shall be overdue, and neither the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
10. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of this Indenture. Requests may be made to:
RCN CORPORATION, 105 Carnegie Center, Princeton, New Jersey 08540-6215.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
_______________________________________________________________________________
(Insert assignee's social security or tax ID number)___________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
_______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the
face of this Note (or any Predecessor Note) or the last date on which the
Company or any Affiliate of the Company was the owner of this Note (or any
Predecessor Note), the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer
and that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the
tion from registration under the Securities Act provided by Rule 144A
under.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents, including (i) a transferee certificate
substantially in the form of Exhibit C to this Indenture in the case
of a transfer to a non-QIB Accredited Investor or (ii) a transfer
certificate substantially in the form of Exhibit D to this Indenture
in the case of a transfer pursuant to Regulation S, are being
furnished which comply with the conditions of transfer set forth in
this Note and this Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if
the appropriate document is not attached or otherwise furnished to the
Trustee, the Trustee or Registrar shall not be obligated to register this Note
in the name of any person other than the Holder hereof unless and until the
conditions to any such transfer of registration set forth herein and in
Section 3.16 and Section 3.17 of this Indenture shall have been satisfied.
_______________________________________________________________________________
Date:_____________ Your signature:_______________________________________
(Sign exactly as your name appears on
the other side of this Note)
By:____________________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:___________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:_____________________ ______________________________________
NOTICE: To be executed by
an executive officer
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.10 or 10.15 of this Indenture, state the amount:
$______________________________________________________________________________
_______________________________________________________________________________
Date: ___________________ Your signature:______________________________
(Sign exactly as your name
appears on the other side of
this Note)
By:___________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee: ____________________
EXHIBIT A-2
RCN CORPORATION
_________________
11 1/8% SENIOR DISCOUNT NOTES DUE 2007, SERIES B
CUSIP No. __________
No. ___________ $
This Note is issued with original issue discount for purposes
of Section 1271 et seq. of the Internal Revenue Code. For each $1,000 of
principal amount of this Note, the issue price is $ and the amount of
original issue discount is $ . The issue date of this Note is
October 17, 1997 and the yield to maturity is 11 1/8%.
RCN CORPORATION, a corporation incorporated under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on October 15, 2007, at the office or
agency of the Company referred to below, and to pay interest thereon on April
15 and October 15 (each an "Interest Payment Date"), of each year, commencing
on April 15, 2003, accruing from October 15, 2002 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of 11 1/8% per annum, until the principal hereof is paid or duly
provided for. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture referred
to on the reverse hereof, be paid to the person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
April 1 and October 1 (each a "Regular Record Date"), whether or not a
Business Day, as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid, or duly provided for, and interest
on such defaulted interest at the then applicable interest rate borne by the
Notes, to the extent lawful, shall forthwith cease to be payable to the Holder
on such Regular Record Date, and may be paid to the person in whose name this
Note (or one or more Predecessor Notes) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be
fixed by the Trustee, notice of which shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, State of New
York, or at such other office or agency of the Company as may be maintained
for such purpose, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private
debts; provided, however, that payment of interest may be made at the option
of the Company by check mailed to the address of the person entitled thereto as
such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: RCN CORPORATION
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11 1/8% Senior Discount Notes due 2007,
Series B, referred to in the within-mentioned Indenture.
The Chase Manhattan Bank,
as Trustee
By:_______________________________
Authorized Signatory
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of
Notes of the Company designated as its 11 1/8% Senior Discount Notes due 2007,
Series B (herein called the "Initial Notes"). The Notes are limited (except
as otherwise provided in the Indenture referred to below) in aggregate
principal amount at maturity to $601,045,000, which may be issued under an
indenture (herein called the "Indenture") dated as of October 17, 1997, by and
between the Company and The Chase Manhattan Bank, as trustee (herein called the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee, and the
Holders of the Notes, and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The Notes include the Initial Notes, the
Private Exchange Notes and the Unrestricted Notes (including the Exchange
Notes), issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes and the Unrestricted Notes are treated as
a single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S.C. Section Section 77aaa-77bbb) (the "TIA"), as in effect on
the date of the Indenture. Notwithstanding anything to the contrary herein,
the Notes are subject to all such terms, and Holders of Notes are referred to
the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Redemption. The Notes will be redeemable, at the option of
the Company, in whole or in part, on or after October 15, 2002 upon not less
than 30 nor more than 60 days' written notice at the redemption prices
(expressed as percentages of principal amount at maturity) set forth below,
plus accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on October 15 of
each of the years indicated below:
Year Percentage
---- ----------
2002................................. 105.562%
2003................................. 103.708%
2004................................. 101.854%
2005 and thereafter.................. 100.000%
Notwithstanding the foregoing, in the event that after the
Issue Date and prior to October 15, 2000 the Company issues, in one or more
Public Equity Offerings yielding gross proceeds of not less than $30.0
million, the Company may redeem, at its option, up to a maximum of 35% of the
aggregate principal amount at maturity of the Notes originally issued from the
net proceeds thereof at a redemption price of 111.125% of the Accreted Value
of the Notes provided that not less than 65% of the originally issued
aggregate principal amount at maturity of the Notes would remain outstanding
immediately after such redemption. To effect the foregoing redemption, the
Company must mail a notice of redemption not later than 60 days after the
consummation of the Public Equity Offering that resulted in the requisite
gross proceeds. As used above, "Public Equity Offering" means an underwritten
public offering of Common Stock of the Company effected on a primary basis and
registered with the Commission under the Securities Act.
3. Offers to Purchase. Sections 10.10 and 10.15 of the
Indenture provide that upon the occurrence of a Change of Control and
following certain Asset Sales, and subject to certain conditions and
limitations contained therein, the Company shall make an offer to purchase all
or a portion of the Notes in accordance with the procedures set forth in the
Indenture.
4. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued
and unpaid interest, if any, to and including the date the Notes are paid, may
be declared due and payable in the manner and with the effect provided in the
Indenture.
5. Defeasance. The Indenture contains provisions (which
provisions apply to this Note) for defeasance at any time of (a) the entire
indebtedness of the Company on this Note and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance by
the Company with certain conditions set forth therein.
6. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority of Accreted Value of the Notes at the
time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages of Accreted Value of the Notes at the time
Outstanding, on behalf of the Holders of all the Notes, to waive compliance
by the Company with certain provisions of the Indenture and certain past
Defaults under this Indenture and this Note and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
7. Denominations, Transfer and Exchange. The Notes are
issuable only in registered form without coupons in denominations of $1,000
principal amount at maturity and any integral multiple thereof. As provided
in the Indenture and subject to certain limitations therein set forth, the
Notes are exchangeable for a like aggregate principal amount of Notes of a
different authorized denomination, as requested by the Holder surrendering the
same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
8. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the person in
whose name this Note is registered as the owner hereof for all purposes,
whether or not this Note shall be overdue, and neither the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
RCN CORPORATION, 105 Carnegie Center, Princeton, New Jersey 08540-6215.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
_______________________________________________________________________________
(Insert assignee's social security or tax ID number) __________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date: ______________ Your signature:____________________________
(Sign exactly as your name
appears on the other side of
this Note)
By:__________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 10.10 or 10.15 of the Indenture, check the appropriate box:
Section 10.10 [ ]
Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.10 or 10.15 of the Indenture, state the amount:
$_______________________________________________________________
_______________________________________________________________________________
Date: ______________ Your signature:____________________________
(Sign exactly as your name
appears on the other side of
this Note)
By:_________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE
MEANING OF THIS INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A
DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THIS INDENTURE, AND
NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE
AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY
OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THIS INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of the 11 1/8% Senior Discount Notes due 2007 (the "Notes")
of RCN Corporation (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and,
unless so registered, may not be sold except as permitted in the
following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to (x) the date which is two years
(or such shorter period of time as permitted by Rule 144 under the
Securities Act) after the later of the date of original issue of the
Notes and (y) such later date, if any, as may be required by any
subsequent change in applicable law (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the
Securities Act, (c) so long as the Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a "qualified institutional buyer" under Rule
144A (a "QIB") that purchases for its own account or for the account
of a QIB and to whom notice is given that the transfer is being made
in reliance on Rule 144A, (d) pursuant to offers and sales that occur
outside the United States to "foreign purchasers" (as defined below)
in offshore transactions meeting the requirements of Rule 904 of
Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2),
(3) or (7) of Rule 501 under the Securities Act (an "Accredited
Investor") that is purchasing for its own account or for the account
of such an institutional "accredited investor," or (f) pursuant to any
other available exemption from the registration requirements of the
Securities Act, subject, in each of the foregoing cases, to any
requirement of law that the disposition of our property or the
property of such investor account or accounts be at all times within
our or their control and to compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale
or other transfer of the Notes is proposed to be made pursuant to
clause (c) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in
the form of this letter to the Trustee, which shall provide, among
other things, that the transferee is an Accredited Investor within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company, the Trustee and the
Transfer Agent and Registrar reserve the right prior to any offer,
sale or other transfer prior to the Resale Restriction Termination
Date of the Notes pursuant to clause (d), (e) or (f) above to require
the delivery of an opinion of counsel, certification and/or other
information satisfactory to the Company and the Trustee.
2. We are an Accredited Investor or a QIB purchasing Notes for
our own account or for the account of one or more Accredited
Investors, and we are acquiring the Notes for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act or the securities laws
of any state of the United States and we have such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Notes, and we
and any accounts for which we are acting are each able to bear the
economic risk of our or its investment in the Notes for an indefinite
period.
3. We are acquiring the Notes purchased by us for our own
account or for one or more accounts as to each of which we exercise
sole investment discretion and we and any such account are (a) a QIB,
aware that the sale is being made in reliance on Rule 144A under the
Securities Act, (b) an Accredited Investor, or (c) a person other than
a U.S. person ("foreign purchasers"), which term shall include dealers
or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an
estate or trust) in offshore transactions meeting the requirements of
Rules 903 and 904 of Regulation S under the Securities Act.
4. We have received a copy of the Offering Memorandum and
acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such
questions of representatives of the Company and receive answers
thereto, as we deem necessary in order to verify the information
contained in the Offering Memorandum.
5. We are not purchasing the Notes for or on behalf of, and
will not transfer the Notes to, any pension or welfare plan (as
defined in Section 3 of ERISA), except as may be permitted under ERISA
and as described under "Notice to Investors" in the Offering
Memorandum.
6. In the event that we purchase any Notes, we will acquire
Notes having an outstanding principal amount of at least $250,000 for
our own account and $250,000 for each account for which we are acting.
We understand that the Trustee and the Transfer Agent will not
be required to accept for registration of transfer any Notes acquired by us,
except upon presentation of evidence satisfactory to the Company and the
Trustee that the foregoing restrictions on transfer have been complied with.
We further understand that the Notes purchased by us will be in the form of
definitive physical certificates and that such certificates will bear a legend
reflecting the substance of this paragraph. We further agree to provide to
any person acquiring any of the Notes from us a notice advising such person
that transfers of such Notes are restricted as stated herein and that
certificates representing such Notes will bear a legend to that effect.
We represent that you, the Company, the Trustee and others are
entitled to rely upon the truth and accuracy of our acknowledgments,
representations and agreements set forth herein, and we agree to notify you
promptly in writing if any of our acknowledgments, representations or
agreements herein cease to be accurate and complete. You are also irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
We represent to you that we have full power to make the
foregoing acknowledgments, representations and agreements on our own behalf
and on behalf of any investor account for which we are acting as fiduciary
agent.
As used herein, the terms "offshore transaction," "United
States" and "U.S. person" have the respective meanings given to them in
Regulation S under the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By:________________________________
Date:______________________________
Upon transfer, the Notes would be registered in the name of the
new beneficial owner as follows:
Name:______________________________
Address: __________________________
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
________________, ____
The Chase Manhattan Bank
Global Trust Services
450 West 33rd St.
15th Floor
New York, New York 10001-2697
Attention: Corporate Trust Department
Re: RCN CORPORATION
(the "Company") 11 1/8% Senior Discount
Notes due 2007 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate
principal amount at maturity of the Securities, we confirm that such sale has
been effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated,
the transferee was outside the United States or we and any person
acting on our behalf reasonably believed that the transferee was
outside the United States, or (b) the transaction was executed in, on
or through the facilities of a designated off-shore securities market
and neither we nor any person acting on our behalf knows that the
transaction has been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities;
(6) if the circumstances set forth in Rule 904(c) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation
or other notice stating that the Securities may be offered and sold
during the restricted period specified in Rule 903(c)(2) or (3), as
applicable, in accordance with the provisions of Regulation S;
pursuant to registration of the Securities under the Securities Act;
or pursuant to an available exemption from the registration
requirements under the Securities Act; and
(7) if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) are applicable thereto, we confirm that
such sale has been made in accordance with such provisions.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________
Authorized Signature
EXHIBIT 4.5
==============================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of October 17, 1997
by and among
RCN CORPORATION
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON BROTHERS INC
and
NATIONSBANC MONTGOMERY SECURITIES, INC.
as Initial Purchasers
==============================================================================
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of October 17, 1997 by and among RCN CORPORATION, a
Delaware corporation (the "Company"), and MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED ("Merrill Lynch"), SALOMON BROTHERS INC ("Salomon") and
NATIONSBANC MONTGOMERY SECURITIES, INC. ("Montgomery" and, together with
Merrill Lynch and Salomon, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
as of October 17, 1997 by and among the Company, and the Initial Purchasers
(the "Purchase Agreement"), which provides for, among other things, the sale
by the Company to the Initial Purchasers of an aggregate of $601,045,000
aggregate principal amount at maturity of the Company's 11 1/8% Senior
Discount Notes due 2007 (the "Notes"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to the Initial Purchasers and their direct and indirect transferees the
registration rights set forth in this Agreement. The execution and delivery
of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Additional Interest," see Section 2(e) hereof.
"Advice" see the last paragraph Section 3 hereof.
"Applicable Period" see Section 3(s) hereof.
"Business Day" shall mean a day that is not a Saturday, a
Sunday, or a day on which banking institutions in New York, New York
are required to be closed.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble to
this Agreement and also includes the Company's successors and permitted
assigns.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; provided, however, that
such depositary must have an address in the Borough of Manhattan, in
The City of New York.
"Effectiveness Period" see Section 2(b) hereof.
"Effectiveness Target Date" see Section 2(e) hereof.
"Event Date" see Section 2(e) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Notes for Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-1, S-3 or S-4 (or, if
applicable, on another appropriate form), and all amendments and
supplements to such registration statement, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Exchange Period" see Section 2(a) hereof.
"Exchange Notes" shall mean the 11 1/8% Senior Discount Notes
due 2007, issued by the Company under the Indenture containing terms
identical to the Notes (except that (i) the transfer restrictions with
respect to the Notes and all registration rights in respect thereof
shall be eliminated and (ii) the provisions relating to Additional
Interest shall be eliminated) to be offered to Holders of Notes in
exchange for Notes pursuant to the Exchange Offer.
"Holders" shall mean the Initial Purchasers, for so long as
they own any Transfer Restricted Notes, each of their direct and
indirect successors, assigns and transferees who become registered
owners of Transfer Restricted Notes under the Indenture and each
Participating Broker-Dealer that holds Exchange Notes for so long as
such Participating Broker-Dealer is required to deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes.
"Indenture" shall mean the Indenture relating to the Notes
dated as of October 17, 1997 between the Company, and The Chase
Manhattan Bank, as trustee, as the same may be amended from time to
time in accordance with the terms thereof.
"Initial Purchasers" see the preamble to this Agreement.
"Inspectors" see Section 3(m) hereof.
"Issue Date" shall mean the date on which the Notes are
originally issued.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Transfer Restricted Notes.
"Merrill Lynch" shall have the meaning set forth in the
preamble to this agreement.
"Notes" see the preamble of this Agreement.
"Participating Broker-Dealer" shall have the meaning set forth
in Section 3(s) hereof.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Private Exchange" see Section 2(a) hereof.
"Private Exchange Notes" see Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the
terms of the offering of any portion of the Transfer Restricted Notes
covered by a Shelf Registration Statement, and by all other amendments
and supplements to a prospectus, including post-effective amendments,
and in each case including all material incorporated by reference
therein.
"Purchase Agreement" see the preamble to this Agreement.
"Records" see Section 3(m) hereof.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all applicable SEC,
stock exchange or National Association of Securities Dealers, Inc.
(the "NASD") registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of one counsel
for Holders that are Initial Purchasers in connection with blue sky
qualification of any of the Exchange Notes or Transfer Restricted
Notes) and compliance with the rules of the NASD, (iii) all applicable
expenses incurred by the Company in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto,
and in preparing or assisting in preparing any other documents
relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees, if any, (v) the fees and disbursements of
counsel for the Company, (vii) all fees and expenses incurred in
connection with the listing, if any, of any of the Transfer Restricted
Notes on any securities exchange or exchanges, if the Company, in its
discretion, elects to make any such listing; but excluding fees of
counsel to the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of
Transfer Restricted Notes by a Holder.
"Registration Statement" shall mean any registration statement
(including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement) of the Company which
covers any of the Exchange Notes or Transfer Restricted Notes pursuant
to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-
effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Event Date" see Section 2(b).
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 2(b) hereof which covers all of the Transfer Restricted Notes
or all of the Private Exchange Notes, as the case may be, on an
appropriate form under Rule 415 under the Securities Act, or any
similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Target Consummation Date" see Section 2(a).
"Target Effectiveness Date" see Section 2(a).
"TIA" shall have the meaning set forth in Section 3(k) hereof.
"Transfer Restricted Notes" means each Note until (i) the date
on which such has been exchanged by a person other than a broker-
dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for an
Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement, (iv) the date on
which such Note is distributed to the public pursuant to Rule 144(k)
under the Securities Act (or any similar provision then in force, but
not Rule 144A under the Securities Act), (v) such Note shall have been
otherwise transferred by the holder thereof and a new Note not bearing
a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of such Note shall not require
registration or qualification under the Securities Act or any similar
state law then in force or (vi) such Note ceases to be outstanding.
"Trustee" shall mean the trustee with respect to the Notes
under the Indenture.
2. Registration Under the Securities Act.
(a) Exchange Offer. The Company shall, for the benefit of the
Holders, at the Company's cost, (i) unless the Exchange Offer would
not be permitted by applicable law or SEC policy, file with the SEC
within 45 days after the Closing Time an Exchange Offer Registration
Statement on an appropriate form under the Securities Act covering the
offer by the Company to the Holders to exchange all of the Transfer
Restricted Notes (other than Private Exchange Notes (as defined
below)) for a like principal amount of Exchange Notes, (ii) unless the
Exchange Offer would not be permitted by applicable law or SEC policy,
use its best efforts to have such Exchange Offer Registration
Statement declared effective under the Securities Act by the SEC not
later than 90 days after the Closing Time (the "Target Effectiveness
Date"), (iii) have such Registration Statement remain effective until
the closing of the Exchange Offer and (iv) unless the Exchange Offer
would not be permitted by applicable law or SEC policy, commence the
Exchange Offer and use its best efforts to issue, on or prior to the
30th Business Day after the date on which the Exchange Offer
Registration Statement was declared effective by the SEC (the "Target
Consummation Date"), Exchange Notes in exchange for all Notes tendered
prior thereto in the Exchange Offer. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company shall promptly
commence the Exchange Offer, it being the objective of such Exchange
Offer to enable each Holder eligible and electing to exchange Transfer
Restricted Notes for Exchange Notes (assuming that such Holder is not
an affiliate of the Company within the meaning of Rule 405 under the
Securities Act and is not a broker-dealer tendering Transfer
Restricted Notes acquired directly from the Company for its own
account, acquires the Exchange Notes in the ordinary course of such
Holder's business and has no arrangements or understandings with any
Person to participate in the Exchange Offer for the purpose of
distributing (within the meaning of the Securities Act) the Exchange
Notes) and to transfer such Exchange Notes from and after their
receipt without any limitations or restrictions under the Securities
Act and under state securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with
an appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a
period of not less than 20 Business Days after the date notice
thereof is mailed to the Holders (or longer if required by
applicable law) (such period referred to herein as the "Exchange
Period");
(iii) utilize the services of the Depositary for the
Exchange Offer;
(iv) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last
Business Day of the Exchange Period, by sending to the
institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for exchange, and a statement
that such Holder is withdrawing his election to have such Notes
exchanged; and
(v) otherwise comply in all material respects with all
applicable laws relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer the Initial
Purchasers hold any Notes acquired by them and having the status of an unsold
allotment in the initial distribution, the Company upon the request of any
Initial Purchaser shall, simultaneously with the delivery of the Exchange
Notes in the Exchange Offer, issue and deliver to such Initial Purchaser in
exchange (the "Private Exchange") for the Notes held by such Initial
Purchaser, a like principal amount of debt securities of the Company that are
identical (except that such securities shall bear appropriate transfer
restrictions) to the Exchange Notes (the "Private Exchange Notes").
The Exchange Notes and the Private Exchange Notes shall be
issued under (i) the Indenture or (ii) an indenture identical to all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the
Exchange Notes shall not be subject to the transfer restrictions set forth in
the Indenture. The Indenture or such indenture shall provide that the
Exchange Notes, the Private Exchange Notes and the Notes shall vote and
consent together on all matters as one class and that none of the Exchange
Notes, the Private Exchange Notes or the Notes will have the right to vote or
consent as a separate class on any matter. The Private Exchange Notes shall
be of the same series as and the Company shall use all commercially reasonable
efforts to have the Private Exchange Notes bear the same CUSIP number as the
Exchange Notes. The Company shall not have any liability under this Agreement
solely as a result of such Private Exchange Notes not bearing the same CUSIP
number as the Exchange Notes.
The Exchange Offer and the Private Exchange shall not be
subject to any conditions, other than that (i) the Exchange Offer or Private
Exchange, as the case may be, does not violate applicable law or any
applicable interpretation of the staff of the SEC (ii) no action or proceeding
shall have been instituted or threatened in any court or by any governmental
agency which might materially impair the ability of the Company to proceed
with the Exchange Offer or the Private Exchange, and no material adverse
development shall have occurred in any existing action or proceeding with
respect to the Company and (iii) all governmental approvals shall have been
obtained, which approvals the Company deems necessary for the consummation of
the Exchange Offer or Private Exchange. As soon as practicable after the
close of the Exchange Offer and/or the Private Exchange, as the case may be,
the Company shall:
(i) accept for exchange all Transfer Restricted Notes or
portions thereof properly tendered and not validly withdrawn
pursuant to the Exchange Offer in accordance with the terms of
the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) accept for exchange all Notes properly tendered pursuant
to the Private Exchange; and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Transfer Restricted Notes or portions thereof so
accepted for exchange by the Company, and issue, and cause the
Trustee under the Indenture to promptly authenticate and deliver
to each Holder, a new Exchange Note or Private Exchange Note, as
the case may be, equal in principal amount to the principal
amount of the Transfer Restricted Notes surrendered by such
Holder and accepted for exchange.
To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, the Company shall use its best efforts
to complete the Exchange Offer as provided above, and shall comply with the
applicable requirements of the Securities Act, the Exchange Act and other
applicable laws in connection with the Exchange Offer. The Exchange Offer
shall not be subject to any conditions, other than those set forth in the
immediately preceding paragraph. Each Holder of Transfer Restricted Notes who
wishes to exchange such Transfer Restricted Notes for Exchange Notes in the
Exchange Offer will be required to make certain customary representations in
connection therewith, including representations that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act, that any Exchange Notes to be received by it will be acquired in the
ordinary course of business and that at the time of the commencement of the
Exchange Offer it has no arrangement with any Person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
The Company shall inform the Initial Purchasers of the names and addresses of
the Holders to whom the Exchange Offer is made, and the Initial Purchasers
shall have the right to contact such Holders and otherwise facilitate the
tender of Transfer Restricted Notes in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Transfer Restricted Notes that are
Private Exchange Notes and Exchange Notes held by Participating
Broker-Dealers, and the Company shall have no further obligation to register
Transfer Restricted Notes (other than Private Exchange Notes) pursuant to
Section 2(b) hereof.
(b) Shelf Registration. If (i) the Company is not permitted
to file the Exchange Offer Registration Statement or to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law
or SEC policy, (ii) the Exchange Offer is not for any other reason consummated
by the Target Consummation Date, (iii) any holder of Notes notifies the
Company within a specified time period that (a) due to a change in law or
policy, in the opinion of counsel, it is not entitled to participate in the
Exchange Offer, (b) due to a change in law or policy, in the opinion of
counsel, it may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and (x) the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such holder and (y) such prospectus is not
promptly amended or modified in order to be suitable for use in connection with
such resales for such holder and all similarly situated holders or (c) it is a
broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, (iv) the holders of a majority of the Notes may not
resell the Exchange Notes acquired by them in the Exchange Offer to the public
without restriction under the Securities Act and without restriction under
applicable blue sky or state securities laws or (v) the Exchange Offer shall
not have been consummated within 120 days after the Issue Date (the date of
any of (i)-(v), the "Shelf Registration Event Date"), then the Company
shall, at its cost, use its best efforts to cause to be filed a Shelf
Registration Statement prior to the later of (A) 30 days after the Shelf
Registration Event Date or (B) 150 days after the Issue Date and use its
best efforts to cause the Shelf Registration Statement to be declared
effective by the SEC on or prior to 60 days after such obligation arises.
Each Holder as to which any Shelf Registration is being effected agrees to
furnish to the Company all information with respect to such Holder
necessary to make any information previously furnished to the Company by
such Holder not materially misleading.
The Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective for a period of two years from
the effective date of the Shelf Registration Statement (subject to extension
pursuant to the last paragraph of Section 3 hereof) (or such shorter period
that will terminate when all of the Transfer Restricted Notes covered by such
Shelf Registration Statement have been sold pursuant thereto) or cease to be
outstanding (the "Effectiveness Period"); provided, however, that the
Effectiveness Period in respect of the Shelf Registration Statement shall be
extended to the extent required to permit dealers to comply with the
applicable prospectus delivery requirements of Rule 174 under the Securities
Act and as otherwise provided herein. The Company shall not permit any
securities other than Transfer Restricted Notes to be included in the Shelf
Registration. The Company further agrees, if necessary, to supplement or
amend the Shelf Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form used by the Company for
such Shelf Registration Statement or by the Securities Act or by any other
rules and regulations thereunder for shelf registrations, and the Company
agrees to furnish to the Holders of Transfer Restricted Notes copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) or 2(b) hereof
and the reasonable fees and expenses of one counsel, if any, designated in
writing by the Majority Holders to act as counsel for the Holders of the
Transfer Restricted Notes in connection with a Shelf Registration Statement.
Except as provided in the preceding sentence, each Holder shall pay all
expenses of its counsel, underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Transfer
Restricted Notes pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
that if, after it has been declared effective, the offering of Transfer
Restricted Notes pursuant to a Shelf Registration Statement is interfered with
by any stop order, injunction or other order or requirement of the SEC or any
other governmental agency or court, such Registration Statement will be deemed
not to have been effective during the period of such interference, until the
offering of Transfer Restricted Notes may legally resume. The Company will be
deemed not to have used its best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, to become, or to remain, effective during the requisite period if it
voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the Holders of Transfer
Restricted Notes covered thereby not being able to exchange or offer and sell
such Transfer Restricted Notes during that period, unless such action is
required by applicable law and except as otherwise provided in the second
paragraph of Section 2(e) below.
(e) Additional Interest. In the event that (i) the applicable
Registration Statement is not filed with the SEC on or prior to the date
specified herein for such filing, (ii) the applicable Registration Statement
is not declared effective on or prior to the date specified herein for such
effectiveness after such obligation arises (the "Effectiveness Target Date"),
(iii) if the Exchange Offer is required to be consummated hereunder, the
Company fails to consummate the Exchange Offer within 30 Business Days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) the applicable Registration Statement is filed and declared
effective during the period effectiveness is required by Section 2(e) and 3(a)
but shall thereafter cease to be effective or usable without being succeeded
immediately by an additional Registration Statement covering the Transfer
Restricted Notes which has been filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), then the
interest rate on the Transfer Restricted Notes as to which such Registration
Default relates will increase ("Additional Interest"), with respect to the each
90-day period while a Registration Default is continuing immediately following
the occurrence of such Registration Default in an amount equal to 0.25% per
annum of the principal amount of the Notes until all Registration Defaults
have been cured, subject to a maximum amount of 1.00% of the principal amount
of the Notes. Upon (w) the filing of the applicable Registration Statement
(in the case of clause (i) of the preceding sentence), (x) the effectiveness
of the applicable Registration Statement (in the case of clause (ii) of the
preceding sentence), (y) the issuance of Exchange Notes in exchange for all
Notes properly tendered and not withdrawn in the Exchange Offer (in the case
of clause (iii) of the preceding sentence) or (z) the effectiveness of the
applicable Registration Statement which has ceased to be effective (in the
case of clause (iv) of the preceding sentence, Additional Interest as a result
of the Registration Default described in such clause shall cease to accrue
(but any accrued amount shall be payable) and the interest rate on the
applicable Notes will revert to the original rate if no other Registration
Default has occurred and is continuing. Additional Interest shall be computed
based on the actual number of days elapsed during which any such Registration
Defaults exist.
The Company shall notify the Trustee within three Business Days
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Additional
Interest shall be paid by depositing with the Trustee, in trust, for the
benefit of the Holders of Transfer Restricted Notes, on or before the
immediately following April 15 or October 15, immediately available funds in
sums sufficient to pay the Additional Interest then due. The Additional
Interest due shall be payable on each April 15 and October 15 to the record
Holder of Notes entitled to receive the interest payment to be paid on such
date as set forth in the Indenture. Each obligation to pay Additional
Interest shall be deemed to accrue from and including the day following the
applicable Event Date.
3. Registration Procedures. In connection with the
obligations of the Company with respect to the Registration Statements
pursuant to Sections 2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement
or Registration Statements as prescribed by Sections 2(a) and
2(b) hereof within the relevant time period specified in Section
2 hereof on the appropriate form under the Securities Act, which
form (i) shall be selected by the Company, (ii) shall, in the
case of a Shelf Registration, be available for the sale of the
Transfer Restricted Notes by the selling Holders thereof and
(iii) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith; and use
their best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2
hereof. The Company shall not file any Registration Statement or
Prospectus or any amendments or supplements thereto in respect of
which the Holders must provide information for inclusion therein
without the Holders being afforded an opportunity to review such
documentation a reasonable time prior to the filing of such
document if the Majority Holders or such Participating Broker-
Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-
effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
Effectiveness Period or the Applicable Period, as the case may
be; and cause each Prospectus to be supplemented by any required
prospectus supplement and as so supplemented to be filed pursuant
to Rule 424 (or any similar provision then in force) under the
Securities Act, and comply with the provisions of the Securities
Act, the Exchange Act and the rules and regulations promulgated
thereunder applicable to it with respect to the disposition of
all securities covered by each Registration Statement during the
Effectiveness Period or the Applicable Period, as the case may
be, in accordance with the intended method or methods of
distribution by the selling Holders thereof described in this
Agreement (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder of Transfer Restricted Notes, at least three Business Days
prior to filing, that a Shelf Registration Statement with respect
to the Transfer Restricted Notes is being filed and advising such
Holder that the distribution of Transfer Restricted Notes will be
made in accordance with the method selected by the Majority
Holders; and (ii) furnish to each Holder of Transfer Restricted
Notes, without charge, as many copies of each Prospectus, and any
amendment or supplement thereto and such other documents as such
Holder may reasonably request, in order to facilitate the
disposition of the Transfer Restricted Notes; and (iii) subject
to the last paragraph of Section 3 hereof, hereby consent to the
use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Transfer Restricted Notes in
connection with the offering and sale of the Transfer Restricted
Notes covered by such Prospectus or any amendment or supplement
thereto subject to the limitations on the use thereof provided in
Sections 2(b) and 2(c);
(d) in the case of a Shelf Registration, use its best
efforts to register or qualify, as may be required by applicable
law, the Transfer Restricted Notes under all applicable state
securities or "blue sky" laws of such jurisdictions by the time
the applicable Registration Statement is declared effective by
the SEC as any Holder of Transfer Restricted Notes covered by a
Registration Statement shall reasonably request in advance of
such date of effectiveness, and do any and all other acts and
things which may be reasonably necessary or advisable to enable
such Holder to consummate the disposition in each such
jurisdiction of such Transfer Restricted Notes owned by such
Holder; provided, however, that the Company shall not be required
to (i) qualify as a foreign corporation or as a broker or dealer
in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any
general consent to service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of (1) a Shelf Registration or (2)
Participating Broker-Dealers who have notified the Company that
they will be utilizing the Prospectus contained in the Exchange
Offer Registration Statement as provided in Section 3(t) hereof,
notify each Holder of Transfer Restricted Notes, or such
Participating Broker-Dealers, as the case may be, their counsel,
if any, promptly and confirm such notice in writing (i) when a
Registration Statement has become effective and when any post-
effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority
for amendments and supplements to a Registration Statement or
Prospectus or for additional information after the Registration
Statement has become effective, (iii) of the issuance by the SEC
or any state securities authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if the Company receives
any notification with respect to the suspension of the
qualification of the Transfer Restricted Notes or the Exchange
Notes to be sold by any Participating Broker-Dealer for offer or
sale in any jurisdiction or the initiation of any proceeding for
such purpose, (v) of the happening of any event or the failure of
any event to occur or the discovery of any facts or otherwise,
during the period a Shelf Registration Statement is effective
which makes any statement made in such Registration Statement or
the related Prospectus untrue in any material respect or which
causes such Registration Statement or Prospectus to omit to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading and (vi) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration
Statement as soon as practicable;
(g) in the case of a Shelf Registration, furnish to each
Holder of Transfer Restricted Notes, without charge, at least one
conformed copy of each Registration Statement relating to such
Shelf Registration and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits
thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Transfer Restricted Notes to facilitate the
timely preparation and delivery of certificates not bearing any
restrictive legends representing Notes covered by such Shelf
Registration to be sold and relating to the subsequent transfer
of such Notes; and cause such Transfer Restricted Notes to be in
such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders
may reasonably request at least two Business Days prior to the
closing of any sale of Transfer Restricted Notes;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance
contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or
3(e)(vi) hereof, use their best efforts to prepare a supplement
or post-effective amendment to a Registration Statement or the
related Prospectus or any document incorporated therein by
reference or file any other required document so that, as
thereafter delivered to the purchasers of the Transfer Restricted
Notes, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; and to notify each Holder
to suspend use of the Prospectus as promptly as practicable after
the occurrence of such an event, and each Holder hereby agrees to
suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or
omission;
(j) obtain a CUSIP number for all Exchange Notes or Transfer
Restricted Notes, as the case may be, not later than the
effective date of a Registration Statement, and provide the
Trustee with certificates for the Exchange Notes or the Transfer
Restricted Notes, as the case may be, in a form eligible for
deposit with the Depositary;
(k) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended, (the "TIA") in connection with
the registration of the Exchange Notes or Transfer Restricted
Notes, as the case may be, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with
the terms of the TIA and execute, and use its best efforts to
cause the Trustee to execute, all documents as may be required to
effect such changes, and all other forms and documents required
to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(l) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) and take all such
other appropriate actions as are reasonably requested in order to
expedite or facilitate the registration or the disposition of
such Transfer Restricted Notes, and in such connection, (i) make
such representations and warranties to Holders of such Transfer
Restricted Notes with respect to the business of the Company and
its subsidiaries as then conducted and the Registration
Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as
are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when requested; (ii)
obtain opinions of counsel to the Company and updates thereof in
form and substance reasonably satisfactory to the Holders of a
majority in principal amount of the Transfer Restricted Notes
being sold, addressed to each selling Holder covering the matters
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested
by such Holders; (iii) obtain "cold comfort" letters and updates
thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the
Registration Statement, addressed to the selling Holders of
Transfer Restricted Notes, such letters to be in customary form
and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and
such other matters as reasonably requested by such selling
Holders; and (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures
no less favorable than those set forth in Section 4 hereof (or
such other provisions and procedures acceptable to the Company
and the Holders of a majority in aggregate principal amount of
Transfer Restricted Notes covered by such Registration with
respect to all parties to be indemnified pursuant to said Section
(including, without limitation, such selling Holders). The above
shall be done at each closing in respect of the sale of Transfer
Restricted Notes, or as and to the extent required thereunder;
(m) if (1) a Shelf Registration is filed pursuant to Section
2(b) or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by each such
person who would be an "underwriter" as a result of either (i)
the sale by such person of Notes covered by such Shelf
Registration Statement or (ii) the sale during the Applicable
Period by a Participating Broker-Dealer of Exchange Notes
(provided that a Participating Broker-Dealer shall not be deemed
to be an underwriter solely as a result of it being required to
deliver a prospectus in connection with any resale of Exchange
Notes) and any attorney, accountant or other agent retained by
any such person (collectively, the "Inspectors"), at the offices
where normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Company and its
subsidiaries to supply all information in each case reasonably
requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in
good faith, to be confidential and any Records which it notifies
the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary
to avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) the information in such Records
has been made generally available to the public. Each selling
Holder of such Transfer Restricted Notes and each such
Participating Broker-Dealer will be required to agree that
information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis
for any market transactions in the securities of the Company
unless and until such is made generally available to the public.
Each selling Holder of such Transfer Restricted Notes and each
such Participating Broker-Dealer will be required to further
agree that it will, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company at its expense to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(n) comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 60 days after
the end of any 12-month period (or 135 days after the end of any
12-month period if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Transfer Restricted
Notes are sold to underwriters in a firm commitment or best
efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date
of a Registration Statement, which statements shall cover said
12-month periods;
(o) upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company addressed
to the Trustee for the benefit of all Holders of Transfer
Restricted Notes participating in the Exchange Offer or the
Private Exchange, as the case may be, and which includes an
opinion that (i) the Company has duly authorized, executed and
delivered the Exchange Notes and Private Exchange Notes, and (ii)
each of the Exchange Notes or the Private Exchange Notes, as the
case may be, constitute a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with
its respective terms (in each case, with customary exceptions);
(p) if an Exchange Offer or a Private Exchange is to be
consummated, upon proper delivery of the Transfer Restricted
Notes by Holders to the Company (or to such other Person as
directed by the Company) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall
mark, or cause to be marked, on such Transfer Restricted Notes
and on the books of the Trustee, the Transfer Agent, the
Registrar and the Depositary delivered by such Holders that such
Transfer Restricted Notes are being canceled in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be;
but in no event shall such Transfer Restricted Notes be marked as
paid or otherwise satisfied solely as a result of being exchanged
for Exchange Notes or Private Exchange Notes in the Exchange
Offer or the Private Exchange, as the case may be;
(q) cooperate with each seller of Transfer Restricted Notes
covered by any Registration Statement participating in the
disposition of such Transfer Restricted Notes and one counsel
acting on behalf of all such sellers in connection with the
filings, if any, required to be made with the NASD;
(r) use its best efforts to take all other steps necessary
to effect the registration of the Transfer Restricted Notes
covered by a Registration Statement contemplated hereby; and
(s) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration
Statement a section entitled "Plan of Distribution," which
section shall be reasonably acceptable to Merrill Lynch, as
representative of the Initial Purchasers, and which shall contain
a summary statement of the positions taken or policies made by
the staff of the SEC with respect to the potential "underwriter"
status of any broker-dealer (a "Participating Broker-Dealer")
that holds Transfer Restricted Notes acquired for its own account
as a result of market-making activities or other trading
activities and that will be the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of Exchange Notes to be
received by such broker-dealer in the Exchange Offer, whether
such positions or policies have been publicly disseminated by the
staff of the SEC or such positions or policies, in the reasonable
judgment of Merrill Lynch, as representative of the Initial
Purchasers or such other representative, represent the prevailing
views of the staff of the SEC, including a statement that any
such broker-dealer who receives Exchange Notes for Transfer
Restricted Notes pursuant to the Exchange Offer may be deemed a
statutory underwriter and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale
of such Exchange Notes, (ii) furnish to each Participating
Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies of
each Prospectus included in the Exchange Offer Registration
Statement, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request; (iii) hereby
consent to the use of the Prospectus forming part of the Exchange
Offer Registration Statement or any amendment or supplement
thereto, by any Person subject to the prospectus delivery
requirements of the SEC, including all Participating Broker-
Dealers, in connection with the sale or transfer of the Exchange
Notes covered by the Prospectus or any amendment or supplement
thereto, (iv) use their best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus
to be lawfully delivered by all Persons subject to the prospectus
delivery requirements of the Securities Act for such period of
time as such Persons must comply with such requirements in order
to resell the Exchange Notes; provided, however, that such period
shall not be required to exceed 90 days (or such longer period if
extended pursuant to the last sentence of Section 3 hereof) (the
"Applicable Period"), and (iv) include in the transmittal letter
or similar documentation to be executed by an exchange offeree in
order to participate in the Exchange Offer (x) the following
provision:
"If the exchange offeree is a broker-dealer holding Transfer
Restricted Notes acquired for its own account as a result of
market-making activities or other trading activities, it
will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange
Notes received in respect of such Transfer Restricted Notes
pursuant to the Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making
the acknowledgment described in clause (x) and by delivering a
Prospectus in connection with the exchange of Transfer Restricted
Notes, such broker-dealer will not be deemed to admit that it is
an underwriter within the meaning of the Securities Act; and
(B) in the case of any Exchange Offer Registration
Statement, the Company agrees to deliver, upon request, to the
Trustee or to Participating Broker-Dealers upon consummation of
the Exchange Offer (i) an opinion of counsel substantially in the
form attached hereto as Exhibit A, and (ii) an officers'
certificate containing certifications substantially similar to
those set forth in Section 7(d) of the Purchase Agreement.
The Company may require each seller of Transfer Restricted
Notes as to which any registration is being effected to furnish to the Company
such information regarding such seller and the proposed distribution of such
Transfer Restricted Notes, as the Company may from time to time reasonably
request in writing. The Company may exclude from such registration the
Transfer Restricted Notes of any seller who fails to furnish such information
within a reasonable time (not to exceed 10 Business Days) after receiving such
request and shall be under no obligation to compensate any such seller for any
lost income, interest or other opportunity forgone, or any liability incurred,
as a result of the Company's decision to exclude such seller.
In the case of (1) a Shelf Registration Statement or (2)
Participating Broker-Dealers who have notified the Company that they will be
utilizing the Prospectus contained in the Exchange Offer Registration
Statement as provided in Section 3(t) hereof, that are seeking to sell
Exchange Notes and are required to deliver Prospectuses, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v), 3(e)(vi)
or 3(e)(vii) hereof, such Holder will forthwith discontinue disposition of
Transfer Restricted Notes pursuant to a Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies in such Holder's possession,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Transfer Restricted Notes or Exchange Notes, as the
case may be, current at the time of receipt of such notice. If the Company
shall give any such notice to suspend the disposition of Transfer Restricted
Notes or Exchange Notes, as the case may be, pursuant to a Registration
Statement, the Company shall use its best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement
to the Registration Statement and, in the case of an amendment, have such
amendment declared effective as soon as practicable and shall extend the
period during which such Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days in the period from and
including the date of the giving of such notice to and including the date when
the Company shall have made available to the Holders (x) copies of the
supplemented or amended Prospectus necessary to resume such dispositions or
(y) the Advice.
4. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Initial Purchaser, each Holder, each
Participating Broker-Dealer, each underwriter who participates in an offering
of Transfer Restricted Notes, their respective affiliates, each Person, if
any, who controls any of such parties within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of
any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment or
supplement thereto), covering Transfer Restricted Notes or
Exchange Notes, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent
of the aggregate amount paid in settlement of any litigation, or
any investigation or proceeding by any court or governmental
agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that
(subject to Sections 4(c) and 4(d) below) any such settlement is
effected with the prior written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of one counsel (in
addition to any local counsel) chosen by Merrill Lynch, such
Holder, such Participating Broker-Dealer or any underwriter
(except to the extent otherwise expressly provided in Section
4(c) hereof)), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) of this Section 4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in reliance upon and
in conformity with written information furnished in writing to the Company by
or on behalf of such Initial Purchaser, such Holder, such Participating
Broker-Dealer or any underwriter with respect to such Initial Purchaser,
Holder, Participating Broker-Dealer or underwriter, as the case may be,
expressly for use in the Registration Statement (or any amendment or
supplement thereto) or any Prospectus (or any amendment or supplement thereto)
or (ii) contained in any preliminary prospectus if such Initial Purchaser,
such Holder, such Participating Broker-Dealer or such underwriter failed to
send or deliver a copy of the Prospectus (in the form it was first provided to
such parties for confirmation of sales) to the Person asserting such losses,
claims, damages or liabilities on or prior to the delivery of written
confirmation of any sale of securities covered thereby to such Person in any
case where the Company shall have previously furnished copies thereof to such
Initial Purchaser, such Holder, such Participating Broker-Dealer or such
underwriter, as the case may be, in accordance with this Agreement, at or
prior to the written confirmation of the sale of such Notes to such Person
and the untrue statement contained in or the omission from the preliminary
prospectus was corrected in the Final Prospectus (or any amendment or
supplement thereto). Any amounts advanced by the Company to an indemnified
party pursuant to this Section 4 as a result of such losses shall be
returned to the Company if it shall be finally determined by a court of
competent jurisdiction in a judgment not subject to appeal or final review
that such indemnified party was not entitled to indemnification by the
Company.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, each Initial Purchaser, each
underwriter who participates in an offering of Transfer Restricted Notes and
the other selling Holders and each of their respective directors and each
Person, if any, who controls any of the Company, any Initial Purchaser, any
underwriter or any other selling Holder within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, against any and all loss,
liability, claim, damage and expense whatsoever described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in
the Registration Statement (or any amendment or supplement thereto) or any
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of such selling Holder with respect to such Holder expressly for use in the
Registration Statement (or any supplement thereto), or any such Prospectus (or
any amendment thereto); provided, however, that, in the case of the Shelf
Registration Statement, no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Transfer Restricted Notes pursuant to the Shelf Registration
Statement; provided, further, however, that for purposes of Section 4(a)(iii),
such counsel shall (subject to Section 4(c) hereof) be chosen by the Company.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as
a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. In
the case of parties indemnified pursuant to Section 4(a) above, one counsel to
all the indemnified parties shall be selected by Merrill Lynch, and, in the
case of parties indemnified pursuant to Section 4(b) above, counsel to all the
indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except
with the consent of the indemnified party) also be counsel to the indemnified
party. Notwithstanding the foregoing, if it so elects within a reasonable
time after receipt of such notice, an indemnifying party, jointly with any
other indemnifying parties receiving such notice, may assume the defense of
such action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 4 (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes a full and unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and the offer and sale of any Notes and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for reasonable fees
and expenses of counsel pursuant to Section 4(a)(iii) above, then such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 4(a)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least 30 days
prior to such settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Initial
Purchasers and the Holders, as applicable, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated
by such indemnity agreement incurred by the Company, the Initial Purchasers
and the Holders; provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person that was not guilty of such
fraudulent misrepresentation. As between the Company and the Initial
Purchasers and the Holders, such parties shall contribute to such aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated
by such indemnity agreement in such proportion as shall be appropriate to
reflect the relative fault of the Company on the one hand and of the Holder of
Transfer Restricted Notes, the Participating Broker-Dealer or Initial
Purchaser, as the case may be, on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and the
Holder of Transfer Restricted Notes, the Participating Broker-Dealer or the
Initial Purchasers, as the case may be, on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, or by the Holder
of Transfer Restricted Notes, the Participating Broker-Dealer or the Initial
Purchasers, as the case may be, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Holders of the Transfer Restricted Notes
and the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 4.
For purposes of this Section 4, each affiliate of any Person,
if any, who controls a Holder of Transfer Restricted Notes, an Initial
Purchaser or a Participating Broker-Dealer within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such other Person, and each director of the Company,
each affiliate of the Company, each executive officer of the Company who
signed the Registration Statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act shall have the same rights to contribution as the Company.
5. Miscellaneous.
(a) Rule 144 and Rule 144A. The Company shall provide to each
Holder such reports as are required under Section 10.24 of the Indenture and,
upon the request of any Holder of Transfer Restricted Notes (a) make publicly
available such information as is necessary to permit sales pursuant to Rule
144 under the Securities Act, (b) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the
Securities Act and it will take such further action as any Holder of Transfer
Restricted Notes may reasonably request, and (c) take such further action, if
any, that is reasonable in the circumstances, in each case, to the extent
required from time to time to enable such Holder to sell its Transfer
Restricted Notes without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such rule may be amended from time to time, (ii) Rule 144A under the
Securities Act, as such rule may be amended from time to time, or (iii) any
similar rules or regulations hereafter adopted by the SEC. Upon the
reasonable request of any Holder of Transfer Restricted Notes, the Company
will deliver to such Holder a written statement as to whether they have
complied with such requirements.
(b) No Inconsistent Agreements. The rights granted to the
Holders hereunder do not, and will not for the term of this Agreement in any
way conflict with and are not, and will not during the term of this Agreement
be inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any other agreements entered into by
the Company.
(c) Amendments and Waivers. The provisions of this Agreement,
including provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Company
and the Majority Holders; provided, however, that no amendment, modification,
or supplement or waiver or consent to the departure with respect to the
provisions of Section 4 hereof shall be effective as against any Holder of
Transfer Restricted Notes or the Company unless consented to in writing by such
Holder of Transfer Restricted Notes or the Company, as the case may be.
(d) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery (i) if to a Holder, at the most current address given by
such Holder to the Company by means of a notice given in accordance with the
provisions of this Section 5(d), which address initially is, with respect to
the Initial Purchasers, the address set forth in the Purchase Agreement; and
(ii) if to the Company, initially at the Company's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 5(d).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next Business Day, if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee,
at the address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchasers, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Transfer Restricted Notes in violation of the terms of the Purchase Agreement
or the Indenture. If any transferee of any Holder shall acquire Transfer
Restricted Notes, in any manner, whether by operation of law or otherwise,
such Transfer Restricted Notes shall be held subject to all of the terms of
this Agreement, and by taking and holding such Transfer Restricted Notes, such
Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement and such Person
shall be entitled to receive the benefits hereof.
(f) Third Party Beneficiary. Each of the Initial Purchasers
and each Holder shall be a third party beneficiary of the agreements made
hereunder between the Company, on the one hand, and the Initial Purchasers, on
the other hand, and shall have the right to enforce such agreements directly
to the extent it deems such enforcement necessary or advisable to protect its
rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. Specified times of day
refer to New York City time.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Notes Held by the Company or any of its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Transfer Restricted Notes is required hereunder, Transfer Restricted Notes
held by the Company or any of their affiliates (as such term is defined in
Rule 405 under the Securities Act) shall not be counted in determining whether
such consent or approval was given by the Holders of such required percentage.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
RCN CORPORATION
By:
-------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:
---------------------------------
Name:
Title:
Exhibit A
---------
Form of Opinion of Counsel
--------------------------
1. Each of the Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto
and other financial and statistical information and supplemental schedules
included or referred to therein or omitted therefrom and the Form T-1, as to
which such counsel need express no opinion), complies as to form in all
material respects with the applicable requirements of the Securities Act and
the applicable rules and regulations promulgated under the Securities Act.
2. In the course of such counsel's review and discussion of the
contents of the Exchange Offer Registration Statement and the Prospectus with
certain officers and other representatives of the Company and representatives
of the independent certified public accountants of the Company, but without
independent check or verification or responsibility for the accuracy,
completeness or fairness of the statements contained therein, on the basis of
the foregoing (relying as to materiality to a large extent upon
representations and opinions of officers and other representatives of the
Company), no facts have come to such counsel's attention which cause such
counsel to believe that the Exchange Offer Registration Statement (other than
the financial statements, notes and schedules thereto and other financial and
statistical information contained or referred to therein and the Form T-1, as
to which such counsel need express no belief), at the time the Exchange Offer
Registration Statement became effective and at the time of the consummation of
the Exchange Offer, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading, or that the Prospectus
(other than the financial statements, notes and schedules thereto and other
financial and statistical information contained or referred to therein, as to
which such counsel need express no belief) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements contained therein, in the light of the circumstances under which
they were made, not misleading.
EXHIBIT 4.6
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement"), dated as of October
17, 1997, among The Chase Manhattan Bank, as escrow agent (in such capacity,
the "Escrow Agent"), The Chase Manhattan Bank, as Trustee (in such capacity,
the "Trustee") under the Indenture (as defined herein), and RCN Corporation, a
Delaware corporation (the "Company").
R E C I T A L S :
-----------------
A. Pursuant to the Indenture, dated as of October 17, 1997 (the
"Indenture"), between the Company and the Trustee, the Company is issuing
$225,000,000 aggregate principal amount of its 10% Senior Notes Due 2007 (the
"Series A Securities") and authorizing the issuance of 10% Senior Notes Due
2007, Series B (the "Series B" Securities," and together with the Series A
Securities, the "Securities").
B. As security for its obligations under the Securities and the
Indenture, the Company hereby grants to the Trustee, for the benefit of the
Trustee, any predecessor Trustee under the Indenture and the holders of the
Securities, a security interest in and lien upon the Escrow Account (as
defined herein).
C. The parties have entered into this Agreement in order to set
forth the conditions upon which, and the manner in which, funds will be
disbursed from the Escrow Account and released from the security interest and
lien described above.
A G R E E M E N T :
-------------------
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. All capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Indenture. In
addition to any other defined terms used herein, the following terms shall
constitute defined terms for purposes of this Agreement and shall have the
meanings set forth below:
"Affiliate" of any specified person means any other person
which, directly or indirectly, controls, is controlled by or is under
common control with such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Applied" means that disbursed funds have been applied (i) to
the payment of interest on the Securities, (ii) pursuant to Section 3(c) or
(iii) pursuant to Section 6(b)(iii).
"Available Funds" means (A) the sum of (i) the Initial Escrow
Amount and (ii) interest earned or dividends paid on the funds in the Escrow
Account (including holdings of U.S. Government Securities), less (B) the
aggregate disbursements previously made pursuant to this Agreement.
"Collateral" shall have the meaning given in Section 6(a)
hereof.
"Escrow Account" shall mean the escrow account established
pursuant to Section 2.
"Escrow Account Statement" shall have the meaning given in
Section 2(f).
"Initial Escrow Amount" shall mean $61,250,000.00.
"Interest Payment Date" means April 15 and October 15 of each
year, commencing on April 15, 1998 until the Securities are paid in full.
"Issue Date" has the meaning set forth in the Indenture.
"Payment Notice and Disbursement Request" means a notice sent
by the Trustee to the Escrow Agent requesting a disbursement of funds from the
Escrow Account, in substantially the form of Exhibit A hereto. Each Payment
Notice and Disbursement Request shall be signed by an officer of the Trustee.
"U.S. Government Securities" means securities that are direct
non-callable obligations of the United States of America or securities the
timely payment of whose principal and interest is unconditionally guaranteed
by the full faith and credit of the United States of America.
2. Escrow Account; Escrow Agent.
(a) Appointment of Escrow Agent. The Company and the Trustee
hereby appoint the Escrow Agent, and the Escrow Agent hereby accepts
appointment, as escrow agent, under the terms and conditions of this
Agreement.
(b) Establishment of Escrow Account. On the Issue Date, the
Escrow Agent shall establish an escrow account entitled the "Escrow Account
pledged by the Company to The Chase Manhattan Bank, as Trustee" at its office
located at 450 West 33rd Street, New York, New York 10001, Attention Global
Trust Services. All funds accepted by the Escrow Agent pursuant to this
Agreement shall be held for the exclusive benefit of the Trustee, any
predecessor Trustee under the Indenture and holders of the Securities, as
secured parties hereunder (collectively, the "Beneficiaries"). All such funds
shall be held in the Escrow Account until disbursed or paid in accordance with
the terms hereof. The Escrow Account, the funds held therein and any U.S.
Government Securities held by the Escrow Agent shall be under the sole
dominion and control of the Escrow Agent for the benefit of the Beneficiaries.
On the Issue Date, the Company shall deliver the Initial Escrow Amount to the
Escrow Agent for deposit into the Escrow Account against the Escrow Agent's
written acknowledgment and receipt of the Initial Escrow Amount.
(c) Escrow Agent Compensation. The Company shall pay to the
Escrow Agent such compensation for services to be performed by it under this
Agreement as the Company and the Escrow Agent may agree in writing from time
to time. The Escrow Agent shall be paid any compensation owed to it directly
by the Company and shall not disburse from the Escrow Account any such
amounts.
The Company shall reimburse the Escrow Agent upon request for
all reasonable expenses, disbursements, and advances incurred or made by the
Escrow Agent in implementing any of the provisions of this Agreement,
including compensation and the reasonable expenses and disbursements of its
counsel. The Escrow Agent shall be paid any such expenses owed to it directly
by the Company and shall not disburse from the Escrow Account any such
amounts.
(d) Investment of Funds in Escrow Account. Funds deposited in
the Escrow Account shall be invested and reinvested only upon the following
terms and conditions:
(i) Acceptable Investments. All funds deposited or held in
the Escrow Account at any time shall be invested by the Escrow Agent
in U.S. Government Securities in accordance with the Initial
Instructions annexed hereto as Schedule A and thereafter, if
necessary, the Company's written instructions from time to time to the
Escrow Agent; provided, however, that the Company shall only designate
investment of funds in U.S. Government Securities maturing in an
amount sufficient to and/or generating interest income sufficient to,
when added to the balance of funds held in the Escrow Account, provide
for the payment of interest on the outstanding Securities on each
Interest Payment Date beginning on and including April 15, 1998 and
through and including the Interest Payment Date on October 15, 2000;
provided, further, however, that any such written instruction shall
specify the particular investment to be made, shall state that such
investment is authorized to be made hereby and in particular satisfies
the requirements of the preceding proviso and Section 2(d)(v), shall
contain the certification referred to in Section 2(d)(ii), if
required, and shall be executed by an Officer of the Company. All
U.S. Government Securities shall be assigned to and held in the
possession of, or, in the case of U.S. Government Securities
maintained in book entry form with the Federal Reserve Bank (i.e.,
TRADES), transferred to a book entry account in the name of, the
Escrow Agent, for the benefit of the Trustee, with such guarantees as
are customary, except that U.S. Government Securities maintained in
book entry form with the Federal Reserve Bank shall be transferred to
a book entry account in the name of the Escrow Agent at the Federal
Reserve Bank that includes only U.S. Government Securities held by
the Escrow Agent for its customers and segregated by separate
recordation in the books and records of the Escrow Agent. The Escrow
Agent shall not be liable for losses on any investments made by it
pursuant to and in compliance with such instructions. In the absence
of qualifying written instructions from the Company that meet the
requirements of this Section 2(d)(i), the Escrow Agent shall have no
obligation to invest funds held in the Escrow Account.
(ii) Security Interest in Investments. Promptly after the
Issue Date (but in no event later than five business days), and on
each anniversary of the Issue Date thereafter until the date upon
which the balance of the Available Funds shall have been reduced to
zero, each of the Trustee and the Escrow Agent shall receive an
Opinion of Counsel to the Company, dated each such date as applicable,
to the effect that the Trustee has a perfected security interest in
the Collateral, which opinion shall meet the requirements of Section
314(b) of the Trust Indenture Act of 1939, as amended (the "TIA") and
shall comply with Section 13.02 of the Indenture.
(iii) Interest and Dividends. All interest earned and
dividends paid on funds invested in U.S. Government Securities shall
be deposited in the Escrow Account as additional Collateral for the
exclusive benefit of the Beneficiaries and, if not required to be
disbursed in accordance with the terms hereof, shall be reinvested in
accordance with the terms hereof at the Company's written instruction.
(iv) Limitation on Escrow Agent's Responsibilities. The
Escrow Agent's sole responsibilities under this Section 2 shall be (A)
to retain possession of certificated U.S. Government Securities
(except, however, that the Escrow Agent may surrender possession to
the issuer of any such U.S. Government Security for the purposes of
effecting assignment, crediting interest, or reinvesting such security
or reducing such security to cash) and to be the registered or
designated owner of U.S. Government Securities which are not
certificated, (B) to follow the Company's written instructions given
in accordance with Section 2(d)(i), (C) to invest and reinvest funds
pursuant to this Section 2(d) and (D) to use reasonable efforts to
reduce to cash such U.S. Government Securities as may be required to
fund any disbursement or payment in accordance with Section 3. In
connection with clause (A) above, the Escrow Agent will maintain
continuous possession in the State of New York of certificated U.S.
Government Securities and cash included in the Collateral and will
cause uncertificated U.S. Government Securities to be registered in
the book-entry system of, and transferred to an account of the Escrow
Agent or a sub-agent of the Escrow Agent at, the Federal Reserve Bank
of New York. Except as provided in Section 6, the Escrow Agent shall
have no other responsibilities with respect to perfecting or
maintaining the perfection of the Trustee's security interest in the
Collateral and shall not be required to file any instrument, document
or notice in any public office at any time or times. In connection
with clause (D) above and subject to the following sentence, the
Escrow Agent shall not be required to reduce to cash any U.S.
Government Securities to fund any disbursement or payment in
accordance with Section 3 in the absence of written instructions
signed by an Officer of the Company specifying the particular
investment to liquidate. If no such written instructions are
received, the Escrow Agent may liquidate those U.S. Government
Securities having the lowest interest rate per annum or if none such
exist, those having the nearest maturity.
(v) Manner of Investment. Funds deposited in the Escrow
Account shall initially be invested in accordance with the Initial
Instructions (attached hereto as Schedule A), which is in a manner
such that there will be sufficient funds available without any further
investment by the Company to cover all interest due on the outstanding
Securities, as such interest becomes due, for each Interest Payment
Date occurring from the Issue Date and ending on (and including)
October 15, 2000, provided that such investments shall have such
maturities and/or interest payment dates such that funds will be
available with respect to each such Interest Payment Date no later
than the time the Escrow Agent is required to disburse such funds to
the Trustee pursuant to Section 3(a). The Escrow Agent shall have no
responsibility for determining whether funds held in the Escrow
Account shall have been invested in such a manner so as to comply with
the requirements of this clause (v).
(e) Substitution of Escrow Agent. The Escrow Agent may resign
by giving no less than 20 Business Days prior written notice to the Company
and the Trustee. Such resignation shall take effect upon the later to occur
of (i) delivery of all funds and U.S. Government Securities maintained by the
Escrow Agent hereunder and copies of all books, records, plans and other
documents in the Escrow Agent's possession relating to such funds or U.S.
Government Securities or this Agreement to a successor escrow agent mutually
approved by the Company and the Trustee (which approvals shall not be
unreasonably withheld or delayed) and (ii) the Company, the Trustee and such
successor escrow agent entering into this Agreement or any written successor
agreement no less favorable to the interests of the holders of the Securities
and the Trustee than this Agreement; and the Escrow Agent shall thereupon be
discharged of all obligations under this Agreement and shall have no further
duties, obligations or responsibilities in connection herewith, except as set
forth in Section 4. If a successor escrow agent has not been appointed or has
not accepted such appointment within 20 Business Days after notice of
resignation is given to the Company, the Escrow Agent may apply to a court of
competent jurisdiction for the appointment of a successor escrow agent.
(f) Escrow Account Statement. At least 30 days prior to each
Interest Payment Date, the Escrow Agent shall deliver to the Company and the
Trustee a statement setting forth with reasonable particularity the balance of
funds then in the Escrow Account and the manner in which such funds are
invested ("Escrow Account Statement"). The parties hereto irrevocably
instruct the Escrow Agent that on the first date upon which the balance in the
Escrow Account (including the holdings of all U.S. Government Securities) is
reduced to zero, the Escrow Agent shall deliver to the Company and to the
Trustee a notice that the balance in the Escrow Account has been reduced to
zero.
3. Disbursements.
(a) Payment Notice and Disbursement Request; Disbursements.
The Trustee shall, at least five business days prior to an Interest Payment
Date, submit to the Escrow Agent a completed Payment Notice and Disbursement
Request substantially in the form of Exhibit A hereto.
The Escrow Agent's disbursement pursuant to any Payment Notice
and Disbursement Request shall be subject to the satisfaction of the
applicable conditions set forth in Section 3(b). Provided such Payment Notice
and Disbursement Request is not rejected by it, the Escrow Agent, as soon as
reasonably practicable on the Interest Payment Date, but in no event later
than 12:00 Noon (New York City time) on the Interest Payment Date, shall
disburse the funds requested in such Payment Notice and Disbursement Request
by wire or book-entry transfer of immediately available funds to the account
of the Trustee for the benefit of the Beneficiaries. The Escrow Agent shall
notify the Trustee as soon as reasonably possible (but not later than two (2)
business days from the date of receipt of the Payment Notice and Disbursement
Request) if any Payment Notice and Disbursement Request is rejected and the
reason(s) therefor. In the event such rejection is based upon nonsatisfaction
of the condition in Section 3(b)(I) below, the Trustee shall thereupon
resubmit the Payment Notice and Disbursement Request with appropriate changes.
(b) Conditions Precedent to Disbursement. The Escrow Agent's
payment of any disbursement shall be made only if: (I) the Trustee shall have
submitted, in accordance with the provisions of Section 3(a) herein, a
completed Payment Notice and Disbursement Request to the Escrow Agent
substantially in the form of Exhibit A with blanks appropriately filled in and
(II) the Escrow Agent shall not have received any notice from the Trustee that
as a result of an Event of Default the indebtedness represented by the
Securities has been accelerated and has become due and payable (in which event
the Escrow Agent shall apply all Available Funds as required by Section
6(b)(iii)).
(c) Retired Securities. In the event a portion of the
Securities has been retired by the Company and submitted to the Trustee for
cancellation and there is no Default or Event of Default under the Indenture,
funds representing the lesser of (A) any funds remaining in the Escrow Account
that are in excess of the amount sufficient to pay interest through and
including October 15, 2000 on the Securities not so retired and (B) the
interest payments which have not previously been made on such retired
Securities for each Interest Payment Date through the Interest Payment Date to
occur on October 15, 2000 shall, upon the written request of the Company to
the Escrow Agent and the Trustee, be paid to the Company upon compliance with
the release of collateral provisions of the TIA and upon receipt by the Escrow
Agent of a notice relating thereto from the Trustee.
4. Escrow Agent.
(a) Limitation of the Escrow Agent's Liability;
Responsibilities of the Escrow Agent. The Escrow Agent's responsibility and
liability under this Agreement shall be limited as follows: (i) the Escrow
Agent does not represent, warrant or guaranty to the holders of the Securities
from time to time the performance of the Company; (ii) the Escrow Agent shall
have no responsibility to the Company or the holders of the Securities or the
Trustee from time to time as a consequence of performance or non-performance
by the Escrow Agent hereunder, except for any gross negligence or willful
misconduct of the Escrow Agent; (iii) the Company shall remain solely
responsible for all aspects of the Company's business and conduct; and (iv)
the Escrow Agent is not obligated to supervise, inspect or inform the Company
or any third party of any matter referred to above.
No implied covenants or obligations shall be inferred from this
Agreement against the Escrow Agent, nor shall the Escrow Agent be bound by the
provisions of any agreement beyond the specific terms hereof. Specifically
and without limiting the foregoing, the Escrow Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the terms hereof, of any funds or U.S.
Government Securities held by it hereunder, including without limitation any
liability for any delay not resulting from gross negligence or willful
misconduct in such investment, reinvestment or liquidation, or for any loss of
principal or income incident to any such delay.
The Escrow Agent and its agents shall be entitled to rely upon
any judicial order or judgment, upon any written opinion of counsel or upon
any certification, instruction, notice, or other writing delivered to it by
the Company or the Trustee in compliance with the provisions of this Agreement
without being required to determine the authenticity or the correctness of any
fact stated therein or the propriety or validity of service thereof. The
Escrow Agent may act in reliance upon any instrument comporting with the
provisions of this Agreement or signature believed by it to be genuine and may
assume that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.
At any time the Escrow Agent may request in writing an
instruction in writing from the Company, and may at its own option include in
such request the course of action it proposes to take and the date on which it
proposes to act, regarding any matter arising in connection with its duties
and obligations hereunder; provided, however, that the Escrow Agent shall state
in such request that it believes in good faith that such proposed course of
action is consistent with another identified provision of this Agreement. The
Escrow Agent shall not be liable to the Company for acting without the
Company's consent in accordance with such a proposal on or after the date
specified therein if (i) the specified date is at least two business days
after the Company receives the Escrow Agent's request for instructions and its
proposed course of action, and (ii) prior to so acting, the Escrow Agent has
not received the written instructions requested from the Company.
The Escrow Agent may act pursuant to the advice of counsel
chosen by it with respect to any matter relating to this Agreement and
(subject to clause (ii) of the first paragraph of this Section 4(a)) shall not
be liable for any action taken or omitted in accordance with such advice. The
Escrow Agent may act through agents, attorneys, custodians and nominees and is
not responsible for the actions of such agents, attorneys, custodians and
nominees if chosen by it with due care.
The Escrow Agent shall not be called upon to advise any party
as to selling or retaining, or taking or refraining from taking any action
with respect to, any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this
Agreement with respect to any funds or property deposited hereunder, the
Escrow Agent shall be entitled to refuse to comply with any and all claims,
demands or instructions with respect to such funds or property, and the Escrow
Agent shall not be or become liable for its failure or refusal to comply with
conflicting claims, demands or instructions. The Escrow Agent shall be
entitled to refuse to act until either any conflicting or adverse claims or
demands shall have been finally determined by a court of competent
jurisdiction or settled by agreement between the conflicting claimants as
evidenced in a writing, satisfactory to the Escrow Agent, or the Escrow Agent
shall have received security or an indemnity satisfactory to the Escrow Agent
sufficient to save the Escrow Agent harmless from and against any and all
loss, liability or expense which the Escrow Agent may incur by reason of its
acting. The Escrow Agent may in addition elect in its sole option to commence
an interpleader action or seek other judicial relief or orders as the Escrow
Agent may deem necessary.
No provision of this Agreement shall require the Escrow Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder.
5. Indemnity. The Company shall indemnify, hold harmless
and defend the Escrow Agent and its directors, officers, agents, employees and
controlling persons, from and against any and all claims, actions,
obligations, liabilities and expenses, including defense costs and expenses,
investigative fees and costs, legal fees and expenses, and claims for damages,
arising from the Escrow Agent's performance or non-performance, or in
connection with its acceptance or appointment as Escrow Agent, under this
Agreement, except to the extent that such liability, expense or claim is
solely and directly attributable to the gross negligence or willful misconduct
of any of the foregoing persons. The provisions of this Section 5 shall
survive any termination, satisfaction or discharge of this Agreement as well
as the resignation or removal of the Escrow Agent.
6. Grant of Security Interest; Instructions to Escrow
Agent.
(a) The Company hereby irrevocably grants a first priority
security interest in and lien on, and pledges, assigns and sets over to the
Trustee for the ratable benefit of the Beneficiaries, all of the Company's
right, title and interest in the Escrow Account, and all property now or
hereafter placed or deposited in, or delivered to the Escrow Agent for
placement or deposit in, the Escrow Account, including, without limitation,
all funds held therein, all U.S. Government Securities held by (or
otherwise maintained in the name of) the Escrow Agent pursuant to Section
2, and all proceeds thereof as well as all rights of the Company under this
Agreement (collectively, the "Collateral"), in order to secure all
obligations and indebtedness of the Company under the Indenture, the
Securities and any other obligation, now or hereafter arising, of every
kind and nature, owed by the Company under the Indenture to the holders of
the Securities or to the Trustee or any predecessor Trustee. The Escrow
Agent hereby acknowledges the Trustee's security interest and lien as set
forth above. The Company shall take all actions necessary on its part to
insure the continuance of a first priority security interest in the
Collateral in favor of the Trustee in order to secure all such obligations
and indebtedness.
(b) The Company and the Trustee hereby irrevocably instruct the
Escrow Agent to, and the Escrow Agent shall: (i) (A) maintain sole dominion
and control over funds and U.S. Government Securities in the Escrow Account
for the benefit of the Trustee to the extent specifically required herein, (B)
maintain, or cause its agent within the State of New York to maintain,
possession of all certificated U.S. Government Securities purchased hereunder
that are physically possessed by the Escrow Agent in order for the Trustee to
enjoy a continuous perfected first priority security interest therein under
the law of the State of New York (the Company hereby agreeing that in the
event any certificated U.S. Government Securities are in the possession of the
Company or a third party, the Company shall use its best efforts to deliver all
such certificates to the Escrow Agent), (C) take all steps specified by the
Company pursuant to paragraph (a) of this Section 6 to cause the Trustee to
enjoy a continuous perfected first priority security interest under any
applicable Federal and State of New York law in all U.S. Government Securities
purchased hereunder that are not certificated and (D) maintain the Collateral
free and clear of all liens, security interests, safekeeping or other charges,
demands and claims against the Escrow Agent of any nature now or hereafter
existing in favor of anyone other than the Trustee; (ii) promptly notify the
Trustee if the Escrow Agent receives written notice that any Person other than
the Trustee has a lien or security interest upon any portion of the Collateral;
and (iii) in addition to disbursing amounts held in escrow pursuant to any
Payment Notice and Disbursement Requests given to it by the Trustee pursuant
to Section 3, upon receipt of written notice from the Trustee of the
acceleration of the maturity of the Securities, and direction from the Trustee
to disburse all Available Funds to the Trustee, as promptly as practicable,
after following, if it so chooses, the procedures set forth in the fourth
paragraph of Section 4(a), disburse all funds held in the Escrow Account to
the Trustee and transfer title to all U.S. Government Securities held by the
Escrow Agent hereunder to the Trustee. The lien and security interest
provided for by this Section 6 shall automatically terminate and cease as to,
and shall not extend or apply to, and the Trustee shall have no security
interest in, any funds disbursed by the Escrow Agent to the Company pursuant
to this Agreement to the extent not inconsistent with the terms hereof.
Notwithstanding any other provision contained in this Agreement, the Escrow
Agent shall act solely as the Trustee's agent in connection with its duties
under this Section 6 or any other duties herein relating to the Escrow Account
or any funds or U.S. Government Securities held thereunder. The Escrow Agent
shall not have any right to receive compensation from the Trustee and shall
have no authority to obligate the Trustee or to compromise or pledge its
security interest hereunder. Accordingly, the Escrow Agent is hereby directed
to cooperate with the Trustee in the exercise of its rights in the Collateral
provided for herein.
(c) Any money and U.S. Government Securities collected by the
Trustee pursuant to Section 6(b)(iii) shall be applied as provided in Section
5.06 of the Indenture. Any surplus of such cash or cash proceeds held by the
Trustee and remaining after indefeasible payment in full of all the
obligations under the Indenture shall be paid over to the Company or to
whomsoever may be lawfully entitled to receive such surplus or as a court of
competent jurisdiction may direct.
(d) Upon demand, the Company will execute and deliver to the
Trustee such instruments and documents as the Trustee may deem necessary or
advisable to confirm or perfect the rights of the Trustee under this Agreement
and the Trustee's interest in the Collateral. The Trustee shall be entitled
to take all necessary action to preserve and protect the security interest
created hereby as a lien and encumbrance upon the Collateral.
(e) The Company hereby appoints the Trustee as its
attorney-in-fact with full power of substitution to do any act which the
Company is obligated hereto to do, and the Trustee may exercise such rights as
the Company might exercise with respect to the Collateral and take any action
in the Company's name to protect the Trustee's security interest hereunder. In
addition to the rights provided under Section 6(b)(iii) hereof, upon an Event
of Default as defined in the Indenture and for so long as such Event of
Default continues, the Trustee may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party under the UCC
or other applicable law, and the Trustee may also upon obtaining possession of
the Collateral as set forth herein, without notice to the Company except as
specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at any
of the Trustee's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Trustee may deem commercially
reasonable. The Company acknowledges and agrees that any such private sale
may result in prices and other terms less favorable to the seller than if such
sale were a public sale. The Company agrees that, to the extent notice of
sale shall be required by law, at least ten (10) days' notice to the Company
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Trustee
shall not be obligated to make any sale regardless of notice of sale having
been given. The Trustee may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
7. Termination. This Agreement shall terminate
automatically ten (10) days following disbursement of all funds remaining
in the Escrow Account (including U.S. Government Securities), unless
sooner terminated by agreement of the parties hereto (in accordance with
the terms hereof and not in violation of the Indenture; provided, that the
Trustee may not agree to terminate unless it has received the consent of
100% of the holders of all of the Securities outstanding); provided,
however, that the obligations of the Company under Section 2(c) and Section
5 (and any existing claims thereunder) shall survive termination of this
Agreement and the resignation of the Escrow Agent; provided, further,
however, that until such tenth day, the Company will cause this Agreement
(or any permitted successor agreement) to remain in effect and will cause
there to be an escrow agent (including any permitted successor thereto)
acting hereunder (or under any such permitted successor agreement).
8. Miscellaneous.
(a) Waiver. Any party hereto may specifically waive any breach
of this Agreement by any other party, but no such waiver shall be deemed to
have been given unless such waiver is in writing, signed by the waiving party
and specifically designating the breach waived, nor shall any such waiver
constitute a continuing waiver of similar or other breaches.
(b) Invalidity. If for any reason whatsoever any one or more
of the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other
provisions of this Agreement inoperative, unenforceable or invalid, and the
inoperative, unenforceable or invalid provision shall be construed as if it
were written so as to effectuate, to the maximum extent possible, the parties'
intent.
(c) Assignment. This Agreement is personal to the parties
hereto, and the rights and duties of any party hereunder shall not be
assignable except with the prior written consent of the other parties.
Notwithstanding the foregoing, this Agreement shall inure to and be binding
upon the parties and their successors and permitted assigns.
(d) Benefit. The parties hereto and their successors and
permitted assigns, but no others, shall be bound hereby and entitled to the
benefits hereof; provided, however, that the Beneficiaries (including holders
of the Securities) and their assigns shall be entitled to the benefits hereof
and to enforce this Agreement.
(e) Time. Time is of the essence with respect to each
provision of this Agreement.
(f) Entire Agreement; Amendments. This Agreement and the
Indenture contain the entire agreement among the parties with respect to the
subject matter hereof and supersede any and all prior agreements,
understandings and commitments, whether oral or written. This Agreement may be
amended only in accordance with Article Nine of the Indenture and further by a
writing signed by a duly authorized representative of each party hereto.
(g) Notices. All notices and other communications required or
permitted to be given or made under this Agreement shall be in writing and
shall be deemed to have been duly given and received when actually received,
including: (a) on the day of hand delivery; (b) three business days following
the day sent, when sent by United States certified mail, postage and
certification fee prepaid, return receipt requested, addressed as set forth
below; (c) when transmitted by telecopy with verbal confirmation of receipt by
the telecopy operator to the telecopy number set forth below; or (d) one
business day following the day timely delivered to a next-day air courier
addressed as set forth below:
To Escrow Agent:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Global Trust Services
Telecopy: (212) 946-8157
Telephone: (212) 946-3358
To Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Global Trust Services
Telecopy: (212) 946-8157
Telephone: (212) 946-3358
To the Company:
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Attention: Chief Executive Officer
Telecopy: (609) 734-3830
Telephone: (609) 734-3700
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(j) Choice of Law. The existence, validity, construction,
operation and effect of any and all terms and provisions of this Agreement
shall be determined in accordance with and governed by the laws of the State
of New York, without regard to principles of conflicts of laws, except to the
extent United States federal law is applicable to the perfection and priority
of security interests in U.S. Government Securities. The parties to this
Agreement hereby agree that jurisdiction over such parties and over the subject
matter of any action or proceeding arising under this Agreement may be
exercised by a competent Court of the State of New York, or by a United States
Court, sitting in New York City. The Company hereby submits to the personal
jurisdiction of such courts, hereby waives personal service of process upon
it and consents that any such service of process may be made by certified or
registered mail, return-receipt requested, directed to the Company at its
address last specified for notices hereunder, and service so made shall be
deemed completed five (5) days after the same shall have been so mailed, and
hereby waives the right to a trial by jury in any action or proceeding with
the Escrow Agent. All actions and proceedings brought by the Company against
the Escrow Agent relating to or arising from, directly or indirectly, this
Agreement shall be litigated only in courts within the State of New York.
(k) Representations and Warranties. (i) The Company hereby
represents and warrants that this Agreement has been duly authorized, executed
and delivered on its behalf and constitutes the legal, valid and binding
obligation of the Company. The execution, delivery and performance of this
Agreement by the Company does not violate any applicable law or regulation to
which the Company is subject and does not require the consent of any
governmental or other regulatory body to which the Company is subject, except
for such consents and approvals as have been obtained and are in full force
and effect.
(ii) Each of the Escrow Agent and the Trustee hereby
represents and warrants that this Agreement has been duly authorized,
executed and delivered on its behalf and constitutes its legal, valid and
binding obligation.
IN WITNESS WHEREOF, the parties have executed and delivered
this Escrow Agreement as of the day first above written.
ESCROW AGENT: THE CHASE MANHATTAN BANK,
as Escrow Agent
By:
----------------------------
Name:
Title:
TRUSTEE: THE CHASE MANHATTAN BANK,
as Trustee
By:
----------------------------
Name:
Title:
COMPANY: RCN CORPORATION
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
EXHIBIT A
Form of Payment Notice and Disbursement Request
[Letterhead of the Trustee]
[Date]
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Corporate Trust Department
Re: Disbursement Request No. ____
[indicate whether revised]
Ladies and Gentlemen:
We refer to the Escrow Agreement, dated as of October 17, 1997
(the "Escrow Agreement") among you (the "Escrow Agent"), the undersigned as
Trustee, and RCN Corporation, a Delaware corporation (the "Company").
Capitalized terms used herein shall have the meaning given in the Escrow
Agreement.
This letter constitutes a Payment Notice and Disbursement
Request under the Escrow Agreement.
[choose one of the following, as applicable]
[The undersigned hereby notifies you that a scheduled interest
payment in the amount of $__________ is due and payable on ____________, ____
and requests a disbursement of funds contained in the Escrow Account in such
amount to the Trustee.]
[The undersigned hereby notifies you that Securities equalling
$__________ in aggregate principal amount have been retired and authorizes you
to release $__________ of funds in the Escrow Account to the Company (to an
account designated by the Company in writing), which amount represents the
amount permitted to be released in accordance with Section 3(c) of the Escrow
Agreement.]
[The undersigned hereby notifies you that there has been an
acceleration of the maturity of the Securities. Accordingly, you are hereby
requested to disburse all remaining funds contained in the Escrow Account to
the Trustee such that the balance in the Escrow Account is reduced to zero.]
In connection with the requested disbursement, the undersigned
hereby notifies you that:
1. [The Securities have not, as a result of an Event of
Default (as defined in the Indenture), been accelerated and become due and
payable.]
2. All prior disbursements from the Escrow Account have been
Applied.
3. [add wire instructions]
The Escrow Agent is entitled to rely on the foregoing in
disbursing funds relating to this Payment Notice and Disbursement Request.
The Chase Manhattan Bank, as
Trustee
By:
----------------------------
Name:
Title:
Schedule A
[initial investment instructions]
November 26, 1997
RCN Corporation
105 Carnegie Center
Princeton, New Jersey 08540-6215
Ladies and Gentlemen:
We have acted as special counsel to RCN Corporation, a Delaware
company (the "Company"), in connection with the preparation of a Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the proposed exchange (i) of 10% Senior Notes
Due 2007, Series B of the Company (the "New Senior Notes") for any and all of
the Company's issued and outstanding 10% Senior Notes Due 2007, Series A (the
"Old Senior Notes") and (ii) of 11 1/8% Senior Discount Notes Due 2007, Series
B of the Company (the "New Discount Notes", and together with the New Senior
Notes, the "New Notes") for any and all of the Company's issued and outstanding
11 1/8% Senior Discount Notes Due 2007, Series A (the "Old Discount Notes", and
together with the Old Senior Notes, the "Old Notes") . Capitalized terms used
herein have the meanings set forth in the Registration Statement, unless
otherwise defined herein.
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and
documents as we have deemed relevant or necessary as the basis for the
opinions hereinafter expressed. In all such examinations, we have relied upon
the genuineness of all signatures, the authenticity of all original or
certified copies and the conformity to original or certified copies of all
copies submitted to us as conformed or reproduction copies. We also have
assumed, with respect to all parties to agreements or instruments relevant
hereto other than the Company, that such parties had the requisite power and
authority (corporate or otherwise) to execute, deliver and perform such
agreements or instruments, that such agreements or instruments have been duly
authorized by all requisite action (corporate or otherwise), executed and
delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. As to various
questions of fact relevant to such opinions, we have relied upon, and have
assumed the accuracy of, certificates and oral or written statements and other
information of or from public officials, officers or representatives of the
Company and others.
Based upon the foregoing and subject to the other limitations,
qualifications and assumptions set forth herein, we are of the opinion that,
(i) the Company has duly authorized, executed and delivered the New Notes and
(ii) when the Registration Statement has become effective under the Securities
Act and the New Notes have been duly authenticated by the Trustee in accordance
with the terms of the relevant Indenture and delivered in exchange for the Old
Notes in accordance with the terms of the relevant Indenture, the New Notes
will constitute valid and binding obligations of the Company, enforceable in
accordance with their terms and entitled to the benefits of the relevant
Indenture, subject to (A) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other laws now or hereafter in effect affecting
creditors' rights generally, and (B) general principles of equity (including,
without limitation, standards of materiality, good faith, fair dealing and
reasonableness) whether considered in a proceeding in equity or at law.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of
the United States of America.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus that is included in the Registration
Statement.
The opinions expressed herein are solely for your benefit and
may not be relied upon for any purpose except as specifically provided for
herein, or relied upon by any other person, firm or corporation for any
purpose, without our prior written consent.
Very truly yours,
DAVIS POLK & WARDWELL
<TABLE>
EXHIBIT 12.1
RCN CORPORATION
RATIO EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<CAPTION>
Nine Months
For the Years Ended December 31, Ended
------------------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing $13,704 $10,711 $6,171 $6,838 $(4,068) $(45,253)
operations before income taxes.....
Minority interest in income of (43) (85) (95) (144) -- --
consolidted entities...............
Fixed Charges:
Interest on long-term and
short-term debt including 3,007 1,167 16,669 16,517 16,046 10,460
amoritization of debt expense...
Total fixed charges................ 3,007 1,167 16,669 16,517 16,046 10,460
Earnings before income taxes and $16,668 $11,793 $22,745 $23,211 $11,978 $(34,793)
fixed charges....................
Ratio of earnings to fixed charges.. 5.54 10.11 1.36 1.41 0.75 (3.33)
</TABLE>
For purposes of computing the ratio, earnings are income from continuing
operations less minority interest in income of consolidated entities and plus
fixed charges. Fixed charges consist of interest on long- and short-term debt
including amortization of debt expense. The ratio of earnings to fixed
charges for the year ended December 31, 1996 and the nine months ended
September 30, 1997 are less than 1 and therefore the earnings are inadequate
to cover the fixed charges by $4,068 and $45,253, respectively.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of RCN Corporation on Form S-4 of our report dated June 30, 1997, on our
audits of the consolidated financial statements of RCN Corporation as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995
and 1994, which report is included in RCN Corporation's Registration
Statement on Form S-4. We also consent to the reference to our Firm under
the caption "Experts."
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
November 25, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement of RCN
Corporation on Form S-4 of our report dated February 14, 1997, on our
audits of the consolidated financial statements of Megacable, S.A. de C.V.
and Subsidiaries as of December 31, 1996 and 1995, and for the years ended
December 31, 1996 and 1995, which report is included in RCN Corporation's
Registration Statement on Form S-4.
COOPERS & LYBRAND
Guadalajara, Jalisco, Mexico
November 25, 1997
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
RCN Corporation:
We consent to the use of our report herein with respect to the combined
balance sheets of Liberty Cable Television, Inc. and Affiliates as of
December 31, 1994 and 1995 and the related combined statements of
operations, stockholders' deficit and cash flows for the year then ended.
KPMG Peat Marwick LLP
New York, New York
November 26, 1997
EXHIBIT 25.1
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
________________________________________
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
____________________________________________
RCN Corporation
(Exact name of obligor as specified in its charter)
Delaware 22-3498533
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
105 Carnegie Center
Princeton, NJ 08540-6215
(Address of principal executive offices) (Zip Code)
______
10% Senior Notes due 2007, Series B
11-1/8% Senior Discount Notes due 2007, Series B
(Title of the indenture securities)
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department, State House, Albany, New York 12110.
Board of Governors of the Federal Reserve System, Washington, D.C.,
20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New
York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 10th day
of November, 1997.
THE CHASE MANHATTAN BANK
By__________________________________
F. J. Grippo
Vice President
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 10th day
of November, 1997.
THE CHASE MANHATTAN BANK
By /s/ F. J. Grippo
---------------------------------
F.J. Grippo
Vice President
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1997, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar
Amounts
in Millions
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ............................................ $ 13,892
Interest-bearing balances .................................... 4,282
Securities: ........................................................
Held to maturity securities......................................... 2,857
Available for sale securities....................................... 34,091
Federal funds sold and securities purchased under agreements
to resell..................................................... 29,970
Loans and lease financing receivables:
Loans and leases, net of unearned income .......... $124,827
Less: Allowance for loan and lease losses ......... 2,753
Less: Allocated transfer risk reserve ............. 13
--------
Loans and leases, net of unearned income,
allowance, and reserve ....................................... 122,061
Trading Assets ..................................................... 56,042
Premises and fixed assets (including capitalized leases)............ 2,904
Other real estate owned ............................................ 306
Investments in unconsolidated subsidiaries and
associated companies.......................................... 232
Customers' liability to this bank on acceptances outstanding ....... 2,092
Intangible assets .................................................. 1,532
Other assets ....................................................... 10,448
--------
TOTAL ASSETS ....................................................... $280,709
========
LIABILITIES
Deposits
In domestic offices ........................................... $ 91,249
Noninterest-bearing ............................... $38,157
Interest-bearing .................................. 53,092
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's ..................................................... 70,192
Noninterest-bearing ............................... $ 3,712
Interest-bearing .................................. 66,480
Federal funds purchased and securities sold under agreements
to repurchase ........................................................ 35,185
Demand notes issued to the U.S. Treasury ............................. 1,000
Trading liabilities .................................................. 42,307
Other borrowed money (includes mortgage indebtedness
and obligations under calitalized leases):
With a remaining maturity of one year or less .................. 4,593
With a remaining maturity of more than one year - through three
years ..................................................... 260
With a remaining maturity of more than three years.............. 146
Bank's liability on acceptances executed and outstanding.............. 2,092
Subordinated notes and debentures .................................... 5,715
Other liabilities .................................................... 11,373
TOTAL LIABILITIES .................................................... 264,112
--------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ........................ 0
Common stock ......................................................... 1,211
Surplus (exclude all surplus related to preferred stock)............. 10,283
Undivided profits and capital reserves ............................... 5,280
Net unrealized holding gains (losses) on
available-for-sale securities ........................................ (193)
Cumulative foreign currency translation adjustments .................. 16
TOTAL EQUITY CAPITAL ................................................. 16,597
--------
TOTAL LIABILITIES AND EQUITY CAPITAL ................................. $280,709
========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the in- structions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
EXHIBIT 99.1
[YELLOW]
LETTER OF TRANSMITTAL
Offer to Exchange
10% Senior Notes due 2007, Series B (CUSIP # 749361AC5)
(Registered under The Securities Act of 1933)
for Any and All Outstanding
10% Senior Notes due 2007, Series A (CUSIP #749361AA9)
of
RCN CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00P.M.,
NEW YORK CITY TIME ON [ ], 1997
(THE "EXPIRATION DATE")
UNLESS EXTENDED BY RCN CORPORATION
EXCHANGE AGENT:
THE CHASE MANHATTAN BANK
By Mail, by Overnight
Courier or by Hand
55 Water Street
Room 234
North Building
New York, New York 10041
Attn: Carlos Esteves
By Facsimile:
212-638-7375
212-344-9367
Confirm by Telephone:
Carlos Esteves: 212-638-0828
Delivery of this Letter of Transmittal to an address other than
as set forth above or transmission of Instructions via a facsimile
transmission to a number other than as set forth above will not constitute a
valid delivery.
The undersigned acknowledges receipt of the Prospectus dated
November , 1997 (the "Prospectus") of RCN Corporation (the "Company")
which, together with this Letter of Transmittal (the "Letter of Transmittal"),
describes the Company's offer (the "Exchange Offer") to exchange $1,000 in
principal amount of a new series of 10% Senior Notes due 2007, Series B (CUSIP
# 749361AC5) (the "New Senior Notes") for each $1,000 in principal amount of
outstanding 10% Senior Notes due 2004, Series A (CUSIP #749361AA9) (the "Old
Senior Notes"). The terms of the New Senior Notes are identical in all
material respects (including principal amount, interest rate and maturity) to
the terms of the Old Senior Notes for which they may be exchanged pursuant to
the Exchange Offer, except that the offering of the New Senior Notes will have
been registered under the Securities Act of 1933, as amended and, therefore,
the New Senior Notes will not bear legends restricting the transfer thereof.
The undersigned has checked the appropriate boxes below and
signed this Letter of Transmittal to indicate the action the undersigned
desires to take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST
BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES
OF THE PROSPECTUS AND THIS LETTER OR TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT.
List below the Old Senior Notes to which this Letter of
Transmittal relates. If the space provided below is inadequate, the
Certificate Numbers and Principal Amounts should be listed on a separate
signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD SENIOR NOTES TENDERED HEREWITH
- -----------------------------------------------------------------------------------------------------------------
Aggregate
Principal
Name(s) and Address(es) Amount Principal
of Registered Holder(s) Certificate Represented Amount
(Please fill in) Number(s)* by Notes* Tendered**
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
Total
_________________________________________________________________________________________________________________
*Need not be completed by book-entry holders.
**Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal
amount represented by Old Senior Notes. See Instruction 2.
_________________________________________________________________________________________________________________
</TABLE>
This Letter of Transmittal is to be used either if certificates
for Old Senior Notes are to be forwarded herewith or if delivery of Old Senior
Notes is to be made by book-entry transfer to an account maintained by the
Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in "The Exchange OfferBook-Entry Transfer" in the
Prospectus. Delivery of documents to a book-entry transfer facility does
not constitute delivery to the Exchange Agent.
Unless the context requires otherwise, the term "Holder" for
purposes of this Letter of Transmittal means any person in whose name Old
Senior Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Senior Notes are held of record by DTC who desires to
deliver such Old Senior Notes by book-entry transfer at DTC.
Holders whose Old Senior Notes are not immediately available or
who cannot deliver their Old Senior Notes and all other documents required
hereby to the Exchange Agent on or prior to the Expiration Date may tender
their Old Senior Notes according to the guaranteed delivery procedure set
forth in the Prospectus under the caption "The Exchange OfferGuaranteed
Delivery Procedures."
[ ] CHECK HERE IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________
____________________________________________________________________
The Depository Trust Company
Account Number______________________________________________________
Transaction Code Number_____________________________________________
[ ] CHECK HERE IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)________________________________________
____________________________________________________________________
Name of Eligible Institution that Guaranteed Delivery
____________________________________________________________________
If Delivered by Book-Entry Transfer:
Account Number______________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name:_______________________________________________________________
Address:____________________________________________________________
____________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange
Offer, the undersigned hereby tenders to the Company the above-described
principal amount of Old Senior Notes. Subject to, and effective upon, the
acceptance for exchange of the Old Senior Notes tendered herewith, the
undersigned hereby exchanges, assigns and transfers to, or upon the order or,
the Company all right, title and interest in and to such Old Senior Notes.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
as the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that said Exchange Agent acts as the agent of the undersigned in
connection with the Exchange Offer) to cause the Old Senior Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Senior Notes and to acquire New Senior Notes issuable upon the
exchange of such tendered Old Senior Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Senior Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Senior Notes or transfer ownership of such Old Senior Notes on
the account books maintained by the Depository Trust Company.
The Exchange Offer is subject to certain conditions as set
forth in the Prospectus under the caption "The Exchange Offer." The
undersigned recognizes that as a result of these conditions (which may be
waived, in whole or in part, by the Company), as more particularly set forth
in the Prospectus, the Company may not be required to exchange any of the Old
Senior Notes tendered hereby and, in such event, the Old Senior Notes not
exchanged will be returned to the undersigned at the address shown below the
signature of the undersigned.
By tendering, each holder of Old Senior Notes represents to the
Company that (i) the New Senior Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Senior Notes, whether or not such person is such holder, (ii) neither
the holder of Old Senior Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Senior Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer
but will not receive New Senior Notes for its own account in exchange for Old
Senior Notes, neither the holder nor any such other person is engaged in or
intends to participate in a distribution of the New Senior Notes and (iv)
neither the holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended
(the "Act"). If the exchange offeree is a broker-dealer (whether or not it is
also an "affiliate") holding Old Senior Notes acquired for its own account as
a result of market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the Act in connection with any
resale of New Senior Notes received in respect of such Old Senior Notes
pursuant to the Exchange Offer. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Act in connection with
any resale of such New Senior Notes, the undersigned is not deemed to admit
that it is an "underwriter" within the meaning of the Act.
All authority herein conferred or agreed to be conferred shall
survive the death, bankruptcy or incapacity of the undersigned and every
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Tendered
Old Senior Notes may be withdrawn at any time prior to the Expiration Date.
Certificates for all New Senior Notes delivered in exchange for
tendered Old Senior Notes and any Old Senior Notes delivered herewith but not
exchanged, in each case registered in the name of the undersigned, shall be
delivered to the undersigned at the address shown below the signature of the
undersigned.
TENDERING HOLDER(S) SIGN HERE
_____________________________________________________________________________
_____________________________________________________________________________
Signature(s) of Holder(s)
Dated:_______________________________, 199_
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Senior Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith or, if
the Old Senior Notes are held of record by DTC, the person in whose name such
Old Senior Notes are registered on the books of DTC. If signature by a
trustee, executor, administrator, guardian, attorney-in-
fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, please set forth the full title of such person.) See
Instruction 3.
Name(s):______________________________________________________________________
______________________________________________________________________________
(Please Print)
Capacity (full title):________________________________________________________
Address:______________________________________________________________________
______________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.___________________________________________________
______________________________________________________________________________
Tax Identification No.
GUARANTEE OF SIGNATURE(S)
(If Required--See Instruction 3)
Authorized Signature:_________________________________________________________
Name:_________________________________________________________________________
Title:________________________________________________________________________
Address:______________________________________________________________________
Name of Firm:_________________________________________________________________
Area Code and Telephone No.___________________________________________________
Dated:_________________, 199_
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1 Delivery of this Letter of Transmittal and Certificates.
Certificates for all physically delivered Old Senior Notes or confirmation
of any book-entry transfer to the Exchange Agent's account at The
Depository Trust Company of Old Senior Notes tendered by book-entry
transfer, as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange
Agent at any of its addresses set forth herein on or prior to the
Expiration Date.
The method of delivery of this Letter of Transmittal, the Old
Senior Notes and any other required documents is at the election and risk of
the holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. If such
delivery is by mail, it is suggested that registered mail with return receipt
requested, properly insured, be used.
Holders whose Old Senior Notes are not immediately available or
who cannot deliver their Old Senior Notes and all other required documents to
the Exchange Agent on or prior to the Expiration Date or comply with
book-entry transfer procedures on a timely basis may tender their Old Senior
Notes pursuant to the guaranteed delivery procedure set forth in the
Prospectus under "The Exchange OfferGuaranteed Delivery Procedures." Pursuant
to such procedure: such tender must be made by or through an Eligible
Institution (as defined therein); on or prior to the Expiration Date the
Exchange Agent must have received from such Eligible Institution, a letter,
telegram or facsimile transmission setting forth the name and address of the
tendering holder, the names in which such Old Senior Notes are registered,
and, if possible, the certificate numbers of the Old Senior Notes to be
tendered; and all tendered Old Senior Notes (or a confirmation of any
book-entry transfer of such Old Senior Notes into the Exchange Agent's account
at The Depository Trust Company) as well as this Letter of Transmittal and all
other documents required by this Letter of Transmittal must be received by the
Exchange Agent within five New York Stock Exchange trading days after the date
of execution of such letter, telegram or facsimile transmission, all as
provided in the Prospectus under the caption "The Exchange OfferGuaranteed
Delivery Procedures."
No alternative, conditional, irregular or contingent tenders
will be accepted. All tendering holders, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Senior Notes for exchange.
2 Partial Tenders; Withdrawals. Tenders of Old Senior
Notes will be accepted in all denominations of $1,000 and integral
multiples in excess thereof. If less than the entire principal amount of
Old Senior Notes evidenced by a submitted certificate is tendered, the
tendering holder must fill in the principal amount tendered in the box
entitled "Principal Amount Tendered." A newly issued certificate for the
principal amount of Old Senior Notes submitted but not tendered will be
sent to such holder as soon as practicable after the Expiration Date. All
Old Senior Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
Tenders of Old Senior Notes pursuant to the Exchange Offer are
irrevocable, except that Old Senior Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date. To be
effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as
having tendered Old Senior Notes to be withdrawn, the certificate numbers of
the Old Senior Notes to be withdrawn, the principal amount of Old Senior Notes
delivered for exchange, a statement that such a holder is withdrawing its
election to have such Old Senior Notes exchanged, and the name of the
registered holder of such Old Senior Notes, and must be signed by the holder
in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Old Senior Notes being withdrawn.
The Exchange Agent will return the properly withdrawn Old Senior Notes
promptly following receipt of notice of withdrawal. If Old Senior Notes have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at The Depository
Trust Company to be credited with the withdrawn Old Senior Notes or otherwise
comply with The Depository Trust Company's procedures.
3 Signature on this Letter of Transmittal; Written
Instruments and Endorsements; Guarantee of Signatures. If this Letter of
Transmittal is signed by the registered holder(s) of the Old Senior Notes
tendered hereby, the signature must correspond with the name(s) as written
on the face of certificates without alteration, enlargement or any change
whatsoever.
If any of the Old Senior Notes tendered hereby are owned of
record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of Old Senior Notes registered in different names
are tendered, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of Old Senior Notes.
When this Letter of Transmittal is signed by the registered
holder or holders of Old Senior Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than
the registered holder or holders of the Old Senior Notes listed, such Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the
registered holder, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Old Senior Notes.
If this Letter of Transmittal, any certificates or separate
written instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed
by an Eligible Institution, provided the Old Senior Notes are tendered: (i) by
a registered holder of such Old Senior Notes and the certificates for New
Senior Notes to be issued in exchange therefor are to be issued (or any
untendered amount of Old Senior Notes are to be reissued) to the registered
holder; or (ii) for the account of any Eligible Institution.
4 Transfer Taxes. The Company shall pay all transfer taxes,
if any, applicable to the transfer and exchange of Old Senior Notes to it
or its order pursuant to the Exchange Offer. If, however, New Senior Notes
are to be delivered to, or are to be registered or issued in the name of,
any person other than the registered holder of the Old Senior Notes
tendered hereby, or if a transfer tax is imposed for any reason other than
the transfer of Old Senior Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed
on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exception therefrom is not submitted herewith the amount of such transfer
taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be
necessary for transfer tax stamps to be affixed to the Old Senior Notes listed
in this Letter of Transmittal.
5 Waiver of Conditions. The Company reserves the absolute
right to waive, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
6 Mutilated, Lost, Stolen or Destroyed Notes. Any holder
whose Old Senior Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated below for
further instructions.
7 Requests for Assistance or Additional Copies. Questions
relating to the procedure for tendering, as well as requests for additional
copies of the Prospectus and this Letter of Transmittal, may be directed to
the Exchange Agent at the address and telephone number set forth below. In
addition, all questions relating to the Exchange Offer, as well as requests
for assistance or additional copies of the Prospectus and this Letter of
Transmittal, may be directed to the Company at 105 Carnegie Center,
Princeton, NJ 08540-6215. Attention: Bruce Godfrey (609) 734-3700.
8 Irregularities. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Old Senior Notes will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute
right to reject any or all Letters of Transmittal or tenders that are not
in proper form or the acceptance of which would, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the right to
waive any irregularities or conditions of tender as to the particular Old
Senior Notes covered by any Letter of Transmittal or tendered pursuant to
such letter. None of the Company, the Exchange Agent or any other person
will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any
such notification. The Company's interpretation of the terms and
conditions of the Exchange Offer shall be final and binding.
9 Definitions. Capitalized terms used in this Letter of
Transmittal and not otherwise defined have the meanings given in the
Prospectus.
IMPORTANT: This Letter of Transmittal or a facsimile thereof
(together with certificates for Old Senior Notes or confirmation of book-entry
transfer and all other required documents) or a Notice of Guaranteed Delivery
must be received by the Exchange Agent on or prior to the Expiration Date.
EXHIBIT 99.2
[PINK]
LETTER OF TRANSMITTAL
Offer to Exchange
11 1/8% Senior Discount Notes due 2007, Series B (CUSIP #749361AD3)
(Registered under the Securities Act of 1933)
for Any and All Outstanding
11 1/8% Senior Discount Notes due 2007, Series A (CUSIP #479361AB7)
of
RCN CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00P.M.,
NEW YORK CITY TIME ON [ ], 1997
(THE "EXPIRATION DATE")
UNLESS EXTENDED BY RCN CORPORATION
EXCHANGE AGENT:
THE CHASE MANHATTAN BANK
By Mail, by Overnight
Courier or by Hand
55 Water Street
Room 234
North Building
New York, New York 10041
Attn: Carlos Esteves
By Facsimile:
212-638-7375
212-344-9367
Confirm by Telephone:
Carlos Esteves: 212-638-0828
Delivery of this Letter of Transmittal to an address other than
as set forth above or transmission of Instructions via a facsimile
transmission to a number other than as set forth above will not constitute a
valid delivery.
The undersigned acknowledges receipt of the Prospectus dated
November , 1997 (the "Prospectus") of RCN Corporation (the "Company")
which, together with this Letter of Transmittal (the "Letter of Transmittal"),
describes the Company's offer (the "Exchange Offer") to exchange $1,000 in
principal amount of a new series of 11 1/8% Senior Discount Notes due 2007,
Series B (CUSIP # 749361AD3) (the "New Discount Notes") for each $1,000 in
principal amount of outstanding 11 1/8% Senior Discount Notes due 2007, Series
A (CUSIP #749361AB7) (the "Old Discount Notes"). The terms of the New
Discount Notes are identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Old Discount Notes for
which they may be exchanged pursuant to the Exchange Offer, except that the
offering of the New Discount Notes will have been registered under the
Securities Act of 1933, as amended and, therefore, the New Discount Notes will
not bear legends restricting the transfer thereof.
The undersigned has checked the appropriate boxes below and
signed this Letter of Transmittal to indicate the action the undersigned
desires to take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST
BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES
OF THE PROSPECTUS AND THIS LETTER OR TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT.
List below the Old Discount Notes to which this Letter of
Transmittal relates. If the space provided below is inadequate, the
Certificate Numbers and Principal Amounts should be listed on a separate
signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD DISCOUNT NOTES TENDERED HEREWITH
- -----------------------------------------------------------------------------------------------------------------
Aggregate
Principal
Name(s) and Address(es) Amount Principal
of Registered Holder(s) Certificate Represented Amount
(Please fill in) Number(s)* by Notes* Tendered**
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
Total
_________________________________________________________________________________________________________________
*Need not be completed by book-entry holders.
**Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal
amount represented by Old Senior Notes. See Instruction 2.
_________________________________________________________________________________________________________________
</TABLE>
This Letter of Transmittal is to be used either if certificates
for Old Discount Notes are to be forwarded herewith or if delivery of Old
Discount Notes is to be made by book-entry transfer to an account maintained
by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in "The Exchange OfferBook-Entry Transfer" in the
Prospectus. Delivery of documents to a book-entry transfer facility does not
constitute delivery to the Exchange Agent.
Unless the context requires otherwise, the term "Holder" for
purposes of this Letter of Transmittal means any person in whose name Old
Discount Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Discount Notes are held of record by DTC who desires to
deliver such Old Discount Notes by book-entry transfer at DTC.
Holders whose Old Discount Notes are not immediately available
or who cannot deliver their Old Discount Notes and all other documents
required hereby to the Exchange Agent on or prior to the Expiration Date may
tender their Old Discount Notes according to the guaranteed delivery procedure
set forth in the Prospectus under the caption "The Exchange OfferGuaranteed
Delivery Procedures."
[ ] CHECK HERE IF TENDERED OLD DISCOUNT NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH THE DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_______________________________________
____________________________________________________________________
The Depository Trust Company________________________________________
Account Number______________________________________________________
Transaction Code Number_____________________________________________
[ ] CHECK HERE IF TENDERED OLD DISCOUNT NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s)_______________________________________
____________________________________________________________________
Name of Eligible Institution that Guaranteed Delivery
____________________________________________________________________
If Delivered by Book-Entry Transfer:
Account Number______________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:_______________________________________________________________
Address:____________________________________________________________
____________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange
Offer, the undersigned hereby tenders to the Company the above-described
principal amount of Old Discount Notes. Subject to, and effective upon, the
acceptance for exchange of the Old Discount Notes tendered herewith, the
undersigned hereby exchanges, assigns and transfers to, or upon the order or,
the Company all right, title and interest in and to such Old Discount Notes.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
as the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that said Exchange Agent acts as the agent of the undersigned in
connection with the Exchange Offer) to cause the Old Discount Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Discount Notes and to acquire New Discount Notes issuable upon the
exchange of such tendered Old Discount Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Discount Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Discount Notes or transfer ownership of such Old Discount Notes
on the account books maintained by the Depository Trust Company.
The Exchange Offer is subject to certain conditions as set
forth in the Prospectus under the caption "The Exchange Offer." The
undersigned recognizes that as a result of these conditions (which may be
waived, in whole or in part, by the Company), as more particularly set forth
in the Prospectus, the Company may not be required to exchange any of the Old
Discount Notes tendered hereby and, in such event, the Old Discount Notes not
exchanged will be returned to the undersigned at the address shown below the
signature of the undersigned.
By tendering, each holder of Old Discount Notes represents to
the Company that (i) the New Discount Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such New Discount Notes, whether or not such person is such holder,
(ii) neither the holder of Old Discount Notes nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Discount Notes, (iii) if the holder is not a
broker-dealer or is a broker-dealer but will not receive New Discount Notes
for its own account in exchange for Old Discount Notes, neither the holder nor
any such other person is engaged in or intends to participate in a
distribution of the New Discount Notes and (iv) neither the holder nor any
such other person is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act of 1933, as amended (the "Act"). If the exchange
offeree is a broker-dealer (whether or not it is also an "affiliate") holding
Old Discount Notes for its own account acquired for its own account as a result
of market-making activities or other trading activities, it will deliver a
prospectus meeting the requirements of the Act in connection with any resale
of New Discount Notes received in respect of such Old Discount Notes pursuant
to the Exchange Offer. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Act in connection with
any resale of such New Discount Notes, the undersigned is not deemed to admit
that it is an "underwriter" within the meaning of the Act.
All authority herein conferred or agreed to be conferred shall
survive the death, bankruptcy or incapacity of the undersigned and every
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Tendered
Old Discount Notes may be withdrawn at any time prior to the Expiration Date.
Certificates for all New Discount Notes delivered in exchange
for tendered Old Discount Notes and any Old Discount Notes delivered herewith
but not exchanged, in each case registered in the name of the undersigned,
shall be delivered to the undersigned at the address shown below the signature
of the undersigned.
TENDERING HOLDER(S) SIGN HERE
_____________________________________________________________________________
_____________________________________________________________________________
Signature(s) of Holder(s)
Dated:_______________________________, 199_
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Discount Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith or, if
the Old Discount Notes are held of record by DTC, the person in whose name
such Old Discount Notes are registered on the books of DTC. If signature by a
trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, please set forth the full title of such person.) See
Instruction 3.
Name(s):_____________________________________________________________________
_____________________________________________________________________________
(Please Print)
Capacity (full title):_______________________________________________________
Address:_____________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.__________________________________________________
______________________________________________________________________________
Tax Identification No.
GUARANTEE OF SIGNATURE(S)
(If Required--See Instruction 3)
Authorized Signature:________________________________________________________
Name:________________________________________________________________________
Title:_______________________________________________________________________
Address:_____________________________________________________________________
Name of Firm:________________________________________________________________
Area Code and Telephone No.__________________________________________________
Dated:_________________, 199_
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1 Delivery of this Letter of Transmittal and Certificates.
Certificates for all physically delivered Old Discount Notes or
confirmation of any book-entry transfer to the Exchange Agent's account at
The Depository Trust Company of Old Discount Notes tendered by book-entry
transfer, as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange
Agent at any of its addresses set forth herein on or prior to the
Expiration Date.
The method of delivery of this Letter of Transmittal, the Old
Discount Notes and any other required documents is at the election and risk of
the holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. If such
delivery is by mail, it is suggested that registered mail with return receipt
requested, properly insured, be used.
Holders whose Old Discount Notes are not immediately available
or who cannot deliver their Old Discount Notes and all other required
documents to the Exchange Agent on or prior to the Expiration Date or comply
with book-entry transfer procedures on a timely basis may tender their Old
Discount Notes pursuant to the guaranteed delivery procedure set forth in the
Prospectus under "The Exchange OfferGuaranteed Delivery Procedures." Pursuant
to such procedure: such tender must be made by or through an Eligible
Institution (as defined therein); on or prior to the Expiration Date the
Exchange Agent must have received from such Eligible Institution, a letter,
telegram or facsimile transmission setting forth the name and address of the
tendering holder, the names in which such Old Discount Notes are registered,
and, if possible, the certificate numbers of the Old Discount Notes to be
tendered; and all tendered Old Discount Notes (or a confirmation of any
book-entry transfer of such Old Discount Notes into the Exchange Agent's
account at The Depository Trust Company) as well as this Letter of Transmittal
and all other documents required by this Letter of Transmittal must be
received by the Exchange Agent within five New York Stock Exchange trading days
after the date of execution of such letter, telegram or facsimile
transmission, all as provided in the Prospectus under the caption "The
Exchange OfferGuaranteed Delivery Procedures."
No alternative, conditional, irregular or contingent tenders
will be accepted. All tendering holders, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Discount Notes for exchange.
2 Partial Tenders; Withdrawals. Tenders of Old Discount
Notes will be accepted in all denominations of $1,000 and integral
multiples in excess thereof. If less than the entire principal amount of
Old Discount Notes evidenced by a submitted certificate is tendered, the
tendering holder must fill in the principal amount tendered in the box
entitled "Principal Amount Tendered." A newly issued certificate for the
principal amount of Old Discount Notes submitted but not tendered will be
sent to such holder as soon as practicable after the Expiration Date. All
Old Discount Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
Tenders of Old Discount Notes pursuant to the Exchange Offer
are irrevocable, except that Old Discount Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. To
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as
having tendered Old Discount Notes to be withdrawn, the certificate numbers of
the Old Discount Notes to be withdrawn, the principal amount of Old Discount
Notes delivered for exchange, a statement that such a holder is withdrawing
its election to have such Old Discount Notes exchanged, and the name of the
registered holder of such Old Discount Notes, and must be signed by the holder
in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Old Discount Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Discount
Notes promptly following receipt of notice of withdrawal. If Old Discount
Notes have been tendered pursuant to the procedure for book-entry transfer,
any notice of withdrawal must specify the name and number of the account at
The Depository Trust Company to be credited with the withdrawn Old Discount
Notes or otherwise comply with The Depository Trust Company's procedures.
3 Signature on this Letter of Transmittal; Written
Instruments and Endorsements; Guarantee of Signatures. If this Letter of
Transmittal is signed by the registered holder(s) of the Old Discount Notes
tendered hereby, the signature must correspond with the name(s) as written
on the face of certificates without alteration, enlargement or any change
whatsoever.
If any of the Old Discount Notes tendered hereby are owned of
record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of Old Discount Notes registered in different names
are tendered, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of Old Discount Notes.
When this Letter of Transmittal is signed by the registered
holder or holders of Old Discount Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than
the registered holder or holders of the Old Discount Notes listed, such Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the
registered holder, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Old Discount Notes.
If this Letter of Transmittal, any certificates or separate
written instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed
by an Eligible Institution, provided the Old Discount Notes are tendered: (i)
by a registered holder of such Old Discount Notes and the certificates for New
Discount Notes to be issued in exchange therefor are to be issued (or any
untendered amount of Old Discount Notes are to be reissued) to the registered
holder; or (ii) for the account of any Eligible Institution.
4 Transfer Taxes. The Company shall pay all transfer taxes,
if any, applicable to the transfer and exchange of Old Discount Notes to it
or its order pursuant to the Exchange Offer. If, however, New Discount
Notes are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Discount Notes
tendered hereby, or if a transfer tax is imposed for any reason other than
the transfer of Old Discount Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed
on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exception therefrom is not submitted herewith the amount of such transfer
taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be
necessary for transfer tax stamps to be affixed to the Old Discount Notes
listed in this Letter of Transmittal.
5 Waiver of Conditions. The Company reserves the absolute
right to waive, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
6 Mutilated, Lost, Stolen or Destroyed Notes. Any holder
whose Old Discount Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated below for
further instructions.
7 Requests for Assistance or Additional Copies. Questions
relating to the procedure for tendering, as well as requests for additional
copies of the Prospectus and this Letter of Transmittal, may be directed to
the Exchange Agent at the address and telephone number set forth below. In
addition, all questions relating to the Exchange Offer, as well as requests
for assistance or additional copies of the Prospectus and this Letter of
Transmittal, may be directed to the Company at 105 Carnegie Center,
Princeton, NJ 08540-6215. Attention: Bruce Godfrey (609) 734-3700.
8 Irregularities. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Old Discount Notes will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute
right to reject any or all Letters of Transmittal or tenders that are not
in proper form or the acceptance of which would, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the right to
waive any irregularities or conditions of tender as to the particular Old
Discount Notes covered by any Letter of Transmittal or tendered pursuant to
such letter. None of the Company, the Exchange Agent or any other person
will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any
such notification. The Company's interpretation of the terms and
conditions of the Exchange Offer shall be final and binding.
9 Definitions. Capitalized terms used in this Letter of
Transmittal and not otherwise defined have the meanings given in the
Prospectus.
IMPORTANT: This Letter of Transmittal or a facsimile thereof
(together with certificates for Old Discount Notes or confirmation of
book-entry transfer and all other required documents) or a Notice of
Guaranteed Delivery must be received by the Exchange Agent on or prior to the
Expiration Date.
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
Offer to Exchange
10% Senior Notes Due 2007, Series B (CUSIP # 749361AC5)
(Registered Under The Securities Act of 1933)
For Any and All of Its Outstanding
10% Senior Notes Due 2007, Series A (CUSIP #749361AA9)
and
11 1/8% Senior Discount Notes Due 2007, Series B (CUSIP # 749361AD3)
(Registered Under The Securities Act of 1933)
For Any and All of Its Outstanding
11 1/8% Senior Notes Due 2007, Series A (CUSIP #749361AB7)
of
RCN CORPORATION
This Notice of Guaranteed Delivery or one substantially equivalent hereto
may be used to accept the Exchange Offer (as defined below) if (i)
certificates for the 10% Senior Notes due 2007, Series A (CUSIP #749361AA9) or
the 11 1/8 Senior Discount Notes due 2007, Series A (CUSIP #749361AB7)
(together, the "Old Notes") of RCN Corporation, a Delaware corporation (the
"Company"), are not immediately available, (ii) time will not permit the
holder's Old Notes or other required documents to reach The Chase Manhattan
Bank (the "Exchange Agent") before the Expiration Date (as defined in the
Prospectus referred to below) or (iii) the procedures for book-entry transfer
cannot be completed on a timely basis. This Notice of Guaranteed Delivery may
be delivered by hand or sent by facsimile transmission, overnight courier,
telex, telegram or mail to the Exchange Agent. See "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus dated _________, 1997
(which, together with the related Letter of Transmittal, constitutes the
"Exchange Offer") of the Company.
The Exchange Agent for the Exchange Offer is:
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail:
(Eligible Institutions Only)
The Chase Manhattan Bank The Chase Manhattan Bank
55 Water Street 212-638-7375 55 Water Street
Room 234 212-344-9367 Room 234
North Building North Building
New York, New York 10041 New York, New York 10041
To Confirm by Telephone
Attention: or for Information Call: Attention:
Carlos Esteves 212-638-0828 Carlos Esteves
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL.
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for Signature Guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the
certificates for all physically tendered Old Notes, in proper form for
transfer, or confirmation of the book-entry transfer of such Old Notes to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s)
of Transmittal (or facsimile thereof) and any other documents required by such
Letter of Transmittal, within New York Stock Exchange trading days after the
date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm:_______________________ ___________________________________
(Authorized Signature)
Address:____________________________ Title:_____________________________
____________________________________ Name:______________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number:
____________________________________ Date:______________________________
Principal Amount of 10% Senior Notes due
2007, Series A (CUSIP # 749361AA9): $ _______________________________________
Principal Amount of 11 1/8% Senior Discount Notes due
2007, Series A (CUSIP # 749361AB7): $ _______________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
EXHIBIT 99.4
Offer to Exchange
10% Senior Notes due 2007, Series B (CUSIP # 749361AC5)
(Registered under the Securities Act of 1933)
for Any and All Outstanding
10% Senior Notes due 2007, Series A (CUSIP #749361AA9)
and
11 1/8% Senior Discount Notes due 2007, Series B (CUSIP # 749361AD3)
(Registered under the Securities Act of 1933)
for Any and All Outstanding
11 1/8% Senior Discount Notes due 2007, Series A (CUSIP #749361AB7)
of
RCN CORPORATION
To Registered Holders and The Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to
the offer by RCN Corporation, a Delaware corporation (the "Company"), to
exchange its 10% Senior Notes due 2007, Series B (CUSIP # 749361AC5) and 11
1/8% Senior Discount Notes due 2007, Series B (CUSIP # 749361AD3) (together,
the "New Notes"), pursuant to an offering registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 10% Senior Notes due 2007, Series A (CUSIP #749361AA9)
and 11 1/8% Senior Discount Notes due 2007, Series A (CUSIP #749361AB7)
(together, the "Old Notes"), respectively, upon the terms and subject to the
conditions set forth in the Company's Prospectus, dated ___________, 1997, and
the related Letter of Transmittal (which together constitute the "Exchange
Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated ____________, 1997;
2. Letter of Transmittal to the 10% Senior Exchange Notes due 2007;
3. Letter of Transmittal to the 11 1/8% Senior Discount Exchange
Notes due 2007;
4. Notice of Guaranteed Delivery;
5. Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner; and
6. Letter which may be sent to your clients for whose account
you hold Old Notes in your name or in the name of your
nominee, to accompany the instruction form referred to above,
for obtaining such client's instruction with regard to the
Exchange Offer.
We urge you to contact your clients promptly. Please note that
the Exchange Offer will expire at 5:00 p.m., New York City time, on
_____________, 1997 unless extended.
The Exchange Offer is not conditioned upon any minimum number
of Old Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes
will represent to the Company that (i) the holder is not an "affiliate" of the
Company, (ii) any New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder and (iii) neither the holder
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes. If the tendering holder
is a broker-dealer that will receive New Notes for its own account in exchange
for Old Notes, you will represent on behalf of such broker-dealer that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on
behalf of such broker-dealer that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
New Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection
with any resale of such New Notes, such broker-dealer is not deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The enclosed Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Owner contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or
dealer or to any other persons (other than the Exchange Agent) in connection
with the solicitation of tenders of Old Notes pursuant to the Exchange Offer.
The Company will pay or cause to be paid any transfer taxes payable on the
transfer of Old Notes to it, except as otherwise provided in Instruction 4 of
the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from
the undersigned.
Very truly yours,
THE CHASE MANHATTAN BANK
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF RCN CORPORATION OR THE CHASE MANHATTAN BANK OR AUTHORIZE YOU TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
EXHIBIT 99.5
Offer to Exchange
10% Senior Notes Due 2007, Series B (CUSIP # 749361AC5)
(Registered Under The Securities Act of 1933)
For Any and All of Its Outstanding
10% Senior Notes Due 2007, Series A (CUSIP #749361AA9)
and
11 1/8% Senior Discount Notes Due 2007, Series B (CUSIP # 749361AD3)
(Registered Under The Securities Act of 1933)
For Any and All of Its Outstanding
11 1/8% Senior Discount Notes Due 2007, Series A (CUSIP 749361AB7)
of
RCN CORPORATION
To Our Clients:
We are enclosing herewith a Prospectus, dated _________ __,
1997, of RCN Corporation, a Delaware corporation (the "Company"), and a
related Letter of Transmittal (which together constitute the "Exchange Offer")
relating to the offer by the Company to exchange its 10% Senior Notes due
2007, Series B (CUSIP # 749361AC5) and its 11 1/8% Senior Discount Notes Due
2007, Series B (CUSIP # 749361AD3) (together, the "New Notes"), pursuant to an
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding
10% Senior Notes due 2007, Series A (CUSIP #749361AA9) and 11 1/8% Senior
Discount Notes Due 2007, Series A (CUSIP #749361AB7) (together, the "Old
Notes"), respectively, upon the terms and subject to the conditions set forth
in the Exchange Offer.
Please note that the Exchange Offer will expire at 5:00 p.m.,
New York City time, on _________ __, 1997, unless extended.
The Exchange Offer is not conditioned upon any minimum number
of Old Notes being tendered.
We are the holder of record and/or participant in the
book-entry transfer facility of Old Notes held by us for your account. A
tender of such Old Notes can be made only by us as the record holder and/or
participant in the book-entry transfer facility and pursuant to your
instructions. The Letter of Transmittal is furnished to you for your
information only and cannot be used by you to tender Old Notes held by us for
your account.
We request instructions as to whether you wish to tender any or
all of the Old Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we
may on your behalf make the representations contained in the Letter of
Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes
will represent to the Company that (i) the holder is not an "affiliate" of the
Company, (ii) any New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder and (iii) neither the holder
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes. If the tendering holder
is a broker-dealer that will receive New Notes for its own account in exchange
for Old Notes, we will represent on behalf of such broker-dealer that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on
behalf of such broker-dealer that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Notes, such broker-dealer is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
EXHIBIT 99.6
[YELLOW]
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
RCN CORPORATION
10% Senior Notes due 2007, Series A
(CUSIP #749361AA9)
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1997 (the "Prospectus") of RCN Corporation, a
Delaware corporation (the "Company"), and the accompanying yellow Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer"). Capitalized terms used but not
defined herein have the meaning as ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$___________ of the 10% Senior Notes due 2007, Series A
(CUSIP #749361AA9).
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account
of the undersigned (insert principal amount of Old Notes to be
tendered, if any):
$___________ of the 10% Senior Notes due 2007, Series A
(CUSIP #749361AA9).
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations, that
(i) the holder is not an "affiliate" of the Company, (ii) any New Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the holder and (iii) neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Notes. If the undersigned is a broker-dealer that
will receive New Notes for its own account in exchange for Old Notes, it
represents that such Old Notes were acquired as a result of market-
making activities or other trading activities, and it acknowledges that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933, as amended.
SIGN HERE
Name of beneficial owner(s):__________________________________________________
Signature(s):_________________________________________________________________
Name(s) (please print):_______________________________________________________
Address:______________________________________________________________________
Telephone Number:_____________________________________________________________
Taxpayer Identification or Social Security Number:____________________________
______________________________________________________________________________
Date:_________________________________________________________________________
EXHIBIT 99.7
[PINK]
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
RCN CORPORATION
11 1/8% Senior Discount Notes due 2007, Series A
(CUSIP #749361AB7)
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1997 (the "Prospectus") of RCN Corporation, a
Delaware corporation (the "Company"), and the accompanying pink Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer"). Capitalized terms used but not
defined herein have the meaning as ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$___________ of the 11 1/8% Senior Discount Notes due 2007,
Series A (CUSIP #749361AB7).
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account
of the undersigned (insert principal amount of Old Notes to be
tendered, if any):
$___________ of the 11 1/8% Senior Discount Notes due 2007,
Series A (CUSIP #749361AB7).
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations, that
(i) the holder is not an "affiliate" of the Company, (ii) any New Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the holder and (iii) neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Notes. If the undersigned is a broker-dealer that
will receive New Notes for its own account in exchange for Old Notes, it
represents that such Old Notes were acquired as a result of market-
making activities or other trading activities, and it acknowledges that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933, as amended.
SIGN HERE
Name of beneficial owner(s):__________________________________________________
Signature(s):_________________________________________________________________
Name(s) (please print):_______________________________________________________
Address:______________________________________________________________________
Telephone Number:_____________________________________________________________
Taxpayer Identification or Social Security Number:____________________________
______________________________________________________________________________
Date:_________________________________________________________________________
