<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
RCN Corporation
- - --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- - --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF RCN APPEARS HERE]
April 24, 1998
Dear Shareholder:
The telecommunications landscape has been changing rapidly and your Company,
RCN, is at the forefront of those changes. The Telecommunications Act coupled
with the growth of the Internet has allowed RCN to assume a leadership
position in delivering facilities-based residential phone, cable and Internet
services in the Northeast.
A WINNING COMBINATION OF TECHNOLOGY AND CUSTOMER FOCUS
Our network strategy is built around the Internet and the current and future
needs of our customers. No other residential provider can match our full-
service offering or the speed and reliability of our fiber-rich network. RCN
brings fiber closer to the home than any other telecom provider in the
industry which means that we can provide the clearest, most reliable telephone
and data connections, as well as more cable television channels to our
customers.
We are currently delivering our fiber-based services in Boston and its
surrounding suburbs; New York City; and Lehigh Valley, Pennsylvania. In
addition, we have announced our entry into the Washington DC market in
conjunction with a subsidiary of Potomoc Electric Power Company (PEPCO) and
look forward to the same positive reception there that we have received in our
other markets.
RCN'S BRIGHT FUTURE
We are optimistic about the future of RCN because our business plan is
grounded by three important factors--a network with virtually unlimited
capacity, a densely populated market and a solid management team. In addition,
our optimism is built on a solid foundation of results. In the six months
since RCN became a separate publicly traded company, we have:
. acquired two major Internet providers in the Northeast--Erol's Internet
and UltraNet Communications;
. added over 800 skilled employees to the RCN team;
. grown our customer base by over 150% through expansion of our operations;
and
. raised $1 billion in bonds to fund our growth.
ENHANCING SHAREHOLDER VALUE
Our efforts to create value for our shareholders have been recognized by Wall
Street. Several leading brokerage firms initiated coverage of our Company,
raising our visibility in the financial markets. This visibility, combined
with our marketing and advertising efforts, has also given us an advantage in
acquiring new customers.
In order to improve the liquidity and marketability of RCN's shares, RCN
announced a two-for-one stock split which was effected as a 100% stock
dividend on April 3, 1998. All shareholders of record as of March 20, 1998
received one additional share of RCN Common Stock for each share held.
As a result of the stock dividend, the number of authorized shares has been
significantly reduced. In order to bring the level of authorized shares up to
the level that existed prior to the stock dividend, the Board of Directors has
adopted a resolution unanimously approving and recommending to the Company's
shareholders, approval to increase the number of authorized shares
outstanding.
The Board believes the increase in the number of authorized shares is in the
best interest of the Company and believes it advisable to have them available
for possible issuances in connection with such activities as public or private
offerings of shares for cash, dividends payable in Company stock, acquisitions
of other companies or properties, or implementation of employee incentive
plans.
Our annual meeting of shareholders will be held on May 19 at the Nassau Inn in
Princeton, New Jersey at 11 am. We appreciate the support you have given us
and look forward to updating you on our progress as we continue to build our
advanced fiber-optic network throughout the Northeast.
Sincerely yours,
/s/ David C. McCourt
<PAGE>
[LOGO OF RCN CORPORATION APPEARS HERE]
105 CARNEGIE CENTER
PRINCETON, NEW JERSEY 08540
(609) 734-3700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
The Annual Meeting of Stockholders of RCN Corporation ("RCN" or the
"Company") will be held at the Nassau Inn at Palmer Square, 10 Palmer Square,
Princeton, New Jersey on Tuesday, May 19, 1998, at 11:00 A.M., local time. The
meeting will be held for the following purposes:
1. To elect five (5) Directors to Class I to serve for a term of three (3)
years;
2. To consider and act upon a proposal to amend the Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock and Class B Non-voting Common Stock;
3. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors of the Company for the fiscal year ending December 31, 1998; and
4. To act upon such other matters as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on April 21, 1998, will
be entitled to vote at the meeting either in person or by proxy. Each of these
stockholders is cordially invited to be present and vote at the meeting in
person.
In order to insure that your shares are represented and are voted in
accordance with your wishes, IT WILL BE APPRECIATED IF YOU WILL DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. If you
attend the meeting, you may personally vote your shares regardless of whether
you have signed a proxy.
/s/ Bruce C. Godfrey
-------------------------------
Bruce C. Godfrey,
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
Dated: April 24, 1998
<PAGE>
RCN CORPORATION
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON TUESDAY, MAY 19, 1998
This Proxy Statement is being mailed to stockholders on or about April 24,
1998, in connection with the solicitation of proxies by the Board of Directors
of RCN Corporation ("RCN" or the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Tuesday, May 19, 1998, at
11:00 A.M., local time, at the Nassau Inn at Palmer Square, 10 Palmer Square,
Princeton, New Jersey 08542, and at any adjournment or postponement thereof.
At the Annual Meeting, stockholders of RCN eligible to vote will consider
and vote upon proposals (i) to elect five (5) Class I Directors to serve for a
term of three (3) years; (ii) to consider and act upon a proposal to amend the
Certificate of Incorporation of the Company to increase the number of
authorized shares of Common Stock, par value $1.00 per share ("Common Stock")
and Class B Non-voting Common Stock, par value $1.00 per share ("Class B Non-
voting Common Stock"); (iii) to ratify the appointment of Coopers & Lybrand
L.L.P. as independent auditors of RCN for the fiscal year ending December 31,
1998; and (iv) to transact such other business as may properly come before the
meeting.
Any proxy may be revoked at any time prior to its exercise by notifying the
Corporate Secretary in writing, by delivering a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement in connection with the
solicitation made hereby, and if given or made, such information or
representation should not be relied upon as having been authorized by RCN.
----------------
The date of this Proxy Statement is April 24, 1998.
1
<PAGE>
THE ANNUAL MEETING
PLACE, DATE AND TIME
The Annual Meeting will be held at the Nassau Inn at Palmer Square, 10
Palmer Square, Princeton, New Jersey 08542, on Tuesday, May 19, 1998, at 11:00
A.M., local time.
PURPOSE OF THE ANNUAL MEETING
Stockholders of RCN will consider and vote upon proposals (i) to elect five
(5) Class I Directors to serve for a term of three (3) years; (ii) to amend
the Certificate of Incorporation to (a) increase the authorized number of
shares of Common Stock from 100,000,000 to 200,000,000 and, (b) to increase
the authorized number of shares of Class B Non-voting Common Stock from
200,000,000 to 400,000,000; (iii) to ratify the appointment of Coopers &
Lybrand L.L.P. as independent auditors of RCN for the fiscal year ending
December 31, 1998; and (iv) to act upon such other matters as may properly
come before the meeting or any adjournment or postponement thereof.
RECORD DATE, QUORUM, REQUIRED VOTE
The close of business on April 21, 1998, has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and at any adjournment or postponement thereof. On April 21,
1998, there were 57,845,675 outstanding shares of Common Stock and no other
equity securities of RCN. The presence at the Annual Meeting, in person or by
proxy, of stockholders entitled to cast a majority of the votes entitled to be
cast at the Annual Meeting shall constitute a quorum at the Annual Meeting.
Stockholders will be entitled to one vote per share of Common Stock on all
matters to be submitted to a vote at the Annual Meeting. Stockholders do not
have cumulative voting rights with respect to the election of Directors.
In accordance with Delaware law, a stockholder entitled to vote for the
election of directors can withhold authority to vote for all nominees for
directors or can withhold authority to vote for certain nominees for
directors.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. Abstentions and broker non-votes are not treated as votes cast, and
thus will not be the equivalent of votes against the election of a nominee.
The approval of Proposal 2 (regarding the amendment to the Certificate of
Incorporation to increase the authorized number of shares of Common Stock and
Class B Non-voting Common Stock) requires the affirmative vote of a majority
of the votes entitled to be cast by all holders of Common Stock. Abstentions
and broker non-votes are considered in determining the number of votes
required to pass Proposal 2 and thus will have the same legal effect as votes
against Proposal 2. The approval of Proposal 3 (regarding the ratification of
the appointment of independent auditors) requires the affirmative vote of a
majority of the votes cast by the holders of RCN Common Stock. Abstentions and
broker non-votes, because they are not treated as votes cast, will not be the
equivalent of votes against Proposal 3.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three (3) classes and is
currently comprised of thirteen (13) members. One class is elected each year
for a three-year term. Class I Directors whose term will expire at the Annual
Meeting include the following nominees, all of whom are presently Directors of
the Company: Stuart E. Graham, Michael J. Mahoney, Thomas J. May, Thomas P.
O'Neill, III and Dennis J. Spina. These five (5) nominees, if elected at the
1998 Annual Meeting, will serve for a term of three (3) years expiring at the
Annual Meeting of Stockholders to be held in 2001.
It is not anticipated that any of these nominees will become unavailable for
any reason, but, if that should occur before the Annual Meeting, the persons
named on the enclosed Proxy reserve the right to substitute another person of
their choice as nominee in his place or to vote for such lesser number of
Directors as may be prescribed by the Board of Directors.
The Board of Directors recommends that the stockholders vote FOR the
election of these five (5) nominees as Class I Directors to serve for a term
of three (3) years.
DIRECTOR INFORMATION
Information as of April 1, 1998, concerning the nominees for election as
Class I Directors and for the other current Directors is set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE SINCE
---------------- --- --------
<C> <C> <S> <C>
James Q. Crowe 48 President and Chief Executive Officer of Level 1997
3 Communications, Inc. ("Level 3"), formerly
known as Peter Kiewit Sons' Inc. ("PKS"),
since August 1997 and a Director since June
1993; President and Chief Executive Officer of
MFS Communications Company, Inc.
("MFS/WorldCom") from June 1993 to June 1997
and Chairman of MFS/WorldCom from 1992 to
1996. Mr. Crowe has been a Director of
Commonwealth Telephone Enterprises, Inc.
("CTE") since 1993, Inacom Communications,
Inc. since 1997 and Chairman of the Board of
Directors of WorldCom, Inc. ("WorldCom") from
December 1996 to June 1997.
Alfred Fasola 48 Chairman and Chief Executive Officer of Hot 1997
Sports, L.L.C. since 1995; Chief Operating
Officer of Purolator Courier Corp. from 1986
to 1987; Chief Executive Officer of Pilot
Freight Carriers, Inc. from 1987 to 1989;
Chairman and Chief Executive Officer of Circle
Express/Internet from 1990 to 1992 and Chief
Executive Officer of Herman's Sporting Goods
from 1992 to 1995.
Bruce C. Godfrey 42 Executive Vice President, Chief Financial 1997
Officer and Corporate Secretary of the Company
since September 1997; Executive Vice President
and Chief Financial Officer of CTE since April
1994, Director since 1995 and Corporate
Secretary since September 1997; Director and
Corporate Secretary of Cable Michigan, Inc.
("Cable Michigan") since September 1997;
Executive Vice President and Chief Financial
Officer of Mercom, Inc. ("Mercom") from April
1994 to October 1997; Director of Mercom since
May 1994 and Corporate Secretary since October
1997; Senior Vice President and Principal of
Daniels and Associates from January 1984 to
April 1994.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE SINCE
---------------- --- --------
<C> <C> <S> <C>
Stuart E. Graham 52 President of Skanska USA Inc. since 1997
1994; Chief Executive Officer of several
Skanska USA Inc. subsidiaries, including
Sordoni Skanska, Slattery Skanska and
Skanska E&C; and Director of CTE since
1990.
Richard R. Jaros 46 President of Kiewit Diversifed Group 1997
Inc. and Executive Vice President and
Chief Financial Officer of PKS from 1980
to 1992 and from 1994 to 1997; Chairman
of CalEnergy Company, Inc. ("CECI") from
1993 to 1994 and President from 1992 to
1993. Mr. Jaros is a Director of CTE,
WorldCom, Level 3 and CECI.
Michael J. Mahoney 47 President and Chief Operating Officer of 1997
the Company since September 1997;
Director of CTE since 1995, President
and Chief Operating Officer from
February 1994 to September 1997;
President and Chief Operating Officer of
Mercom from February 1994 to September
1997 and a Director since January 1994;
Executive Vice President of CTE's Cable
Television Group from June 1991 to
February 1994; Executive Vice President
of Mercom from December 1991 to February
1994.
Thomas J. May 50 Chairman, President and Chief Executive 1997
Officer of Boston Edison Company since
1994, President and Chief Operating
Officer from 1993 to 1994 and Executive
Vice President from 1990 to 1993.
David C. McCourt 41 Chairman and Chief Executive Officer of 1997
the Company since September 1997;
Chairman, Director and Chief Executive
Officer of CTE since October 1993;
Chairman, Director and Chief Executive
Officer of Cable Michigan since
September 1997; President and Director
of Level 3 Telecom Holdings, Inc.
("LTH"); Chairman, Director and Chief
Executive Officer of Mercom since
October 1993; Director of MFS/WorldCom
from July 1990 to December 1996;
President and Director of Metropolitan
Fiber Systems/McCourt, Inc., a
subsidiary of MFS Telecom, Inc., since
1988; Director of Cable Satellite Public
Affairs Network ("C-SPAN") since June
1995; Director of WorldCom from December
1996 to March 1998; and Director of
Level 3 since January 1998.
Thomas P. O'Neill, III 53 Chairman and founder of 1997
McDermott/O'Neill & Associates since
1991 and founder of Bay State Investors,
Inc. in 1983.
Eugene Roth 62 Senior Partner at Rosenn, Jenkins and 1997
Greenwald L.L.P. since 1964; Director of
the Pennsylvania Regional Board of
Directors of First Union National Bank;
and Director of CTE since October 1993.
Walter Scott, Jr. 66 Chairman of Level 3 since 1979 and 1997
Director since April 1964; Chairman and
Chief Executive Officer of PKS for over
nineteen years; Director of CTE,
Berkshire Hathaway, Inc., Burlington
Resources, Inc., CECI, ConAgra, Inc.,
U.S. Bancorp and Valmont Industries,
Inc. Mr. Scott served as a Director of
WorldCom from December 1996 to July
1997.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE SINCE
---------------- --- --------
<C> <C> <S> <C>
Dennis J. Spina 53 Vice-Chairman and President of Internet 1998
Services of the Company since February 1998;
Chief Executive Officer of Erols Internet,
Inc. from August 1996 to February 1998;
independent consultant in the service and
distribution industry from January 1996 to
July 1996; President and Chief Executive
Officer of International Service Systems from
November 1994 to December 1995; and President
and Chief Executive Officer of Suburban
Propane, Inc., a division of Hanson P.L.C.
from August 1990 to October 1994.
Michael B. Yanney 64 Chairman and Chief Executive Officer of 1997
America First Companies, L.L.C. since 1984;
Director of Burlington Northern Santa Fe
Corporation, Lozier Corporation, Forest Oil
Corporation, Freedom Communications, Inc.,
MidAmerica Apartment Communities, PKS
Information Services, Inc. and Level 3. Mr.
Yanney served as Director of WorldCom from
December 1996 to July 1997 and CTE from
August 1996 to September 1997.
</TABLE>
- - --------
The Board of Directors is divided into three classes. Stuart E. Graham,
Michael J. Mahoney, Thomas J. May, Thomas P. O'Neill, III and Dennis J. Spina
are members of Class I whose terms will expire at the Annual Meeting. Alfred
Fasola, Bruce C. Godfrey, Richard R. Jaros and Michael B. Yanney are members
of Class II with terms expiring in 1999. James Q. Crowe, David C. McCourt,
Eugene Roth and Walter Scott, Jr. are members of Class III with terms expiring
in 2000.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below is information as of April 1, 1998 with respect
to the number of shares of 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
executive 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. On March 9, 1998, RCN declared a one for one stock dividend
(the "Stock Dividend"). The record date for the Stock Dividend was March 20,
1998. Shareholders of record at the market close on that date received an
additional share of Common Stock for each share held. The distribution date
for the Stock Dividend was April 3, 1998. All share and per share data, stock
option data, and market prices (including historical trading prices) of Common
Stock have been restated to reflect this Stock Dividend.
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
NUMBER OF
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED(1) SHARES(%)
- - ------------------------ ------------ -----------
<S> <C> <C>
Directors and Named Executive Officers
Michael A. Adams(2).................................... 23,578 *
James Q. Crowe......................................... 1,464 *
Alfred Fasola.......................................... 798 *
Bruce C. Godfrey(2).................................... 54,832 *
Stuart E. Graham....................................... 10,806 *
Mark Haverkate(2)...................................... 66,708 *
Richard R. Jaros....................................... 6,638 *
Michael J. Mahoney(2).................................. 63,180 *
Thomas J. May.......................................... 2,798 *
David C. McCourt(2)(3)................................. 186,204 *
Thomas P. O'Neill, III................................. 2,798 *
Eugene Roth............................................ 14,240 *
Walter Scott, Jr....................................... 1,464 *
Dennis J. Spina........................................ -- --
Michael B. Yanney...................................... 5,520 *
All Directors and Executive Officers as a Group
(20 persons)(2)(3).................................... 445,835 *
Level 3 Telecom Holdings, Inc.(4)...................... 26,640,970 46
</TABLE>
- - --------
*Less than 1% of outstanding shares.
(1) Includes shares of Common Stock acquired with respect to Matching Shares
but excludes RCN Share Units (defined below).
(2) Under the RCN Executive Stock Purchase Plan ("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 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 three (3) years from the grant date, subject
to continued employment. Matching Shares, unless forfeited, have voting
and dividend rights. In connection with the September 1997 restructuring,
C-TEC Corporation ("C-TEC") distributed to the holders of C-TEC Common
Stock all of the outstanding shares of common stock of RCN and Cable
Michigan (the "Distribution"). Share Units and Matching Shares were
adjusted in an equitable manner so that participants were credited with an
aggregate equivalent value of restricted shares of CTE, RCN and Cable
Michigan Common Stock. The holdings indicated include Share Units and
Matching Shares. The
6
<PAGE>
table below shows with respect to each Named Executive Officer the number
of shares of Common Stock purchased outright, Share Units relating to the
Common Stock acquired by each such Named Executive Officer in lieu of
current compensation, and the forfeitable Matching Shares of Common Stock
held by each such Named Executive Officer:
<TABLE>
<CAPTION>
SHARE UNITS TOTAL SHARES
ACQUIRED UNDER PURCHASED AND
THE ESPP IN ACQUIRED AND
SHARES LIEU OF TOTAL SHARES RESTRICTED RESTRICTED
PURCHASED CURRENT PURCHASED MATCHING MATCHING
OUTRIGHT COMPENSATION AND ACQUIRED SHARES SHARES
--------- -------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Michael A. Adams........ 1,834 10,872 12,706 10,872 23,578
Bruce C. Godfrey........ 14,636 20,098 34,734 20,098 54,832
David C. McCourt........ 76,788 54,708 131,496 54,708 186,204
Michael J. Mahoney...... 23,732 19,724 43,456 19,724 63,180
Mark Haverkate.......... 46,416 10,146 56,562 10,146 66,708
</TABLE>
--------
(3) Includes 450 shares of Company Common Stock which are owned by Mr.
McCourt's wife. Mr. McCourt disclaims beneficial ownership of such shares.
(4) As a result of PKS separating its construction and mining management
businesses ("Construction Group") from its other businesses on March 31,
1998 (the "Split-Off"), PKS no longer owns any interest in the
Construction Group. In conjunction with the Split-Off, PKS changed its
name to "Level 3 Communications, Inc." and the new PKS, the company formed
in the Split-Off to hold the Construction Group's business, changed its
name to "Peter Kiewit Sons', Inc." Level 3 holds 90% of the common stock
of LTH and all of the preferred stock of LTH. David C. McCourt owns the
remaining 10% of the common stock of LTH. The address of Level 3 is 3555
Farnam Street, Omaha, Nebraska 68131. The address of LTH is 100 Peter
Kiewit Plaza, Omaha, Nebraska 68131.
The information set forth above and in "Director Information" does not give
effect to the ownership of Company securities by LTH. Certain executive
officers or directors of the Company are directly or indirectly affiliated
with LTH. For information with respect to the beneficial ownership of
securities by LTH, see "Security of Ownership Certain Beneficial Owners and
Management."
7
<PAGE>
LEVEL 3 COMMUNICATIONS, INC.
Set forth below is certain information regarding the beneficial ownership of
equity securities of Level 3 Common Stock as of April 1, 1998, by each
director, the named executive officers and by all persons, as a group, who are
currently directors and executive officers of the Company.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME SHARES SHARES(%)
- - ---- ---------- ---------
<S> <C> <C>
Michael A. Adams....................................... -- --
James Q. Crowe......................................... 5,666,360 3.9
Alfred Fasola.......................................... -- --
Bruce C. Godfrey....................................... -- --
Stuart E. Graham....................................... -- --
Mark Haverkate......................................... -- --
Richard R. Jaros....................................... 748,749(1) *
Michael J. Mahoney..................................... 1,000 --
Thomas J. May.......................................... -- --
David C. McCourt....................................... 57,500 *
Thomas P. O'Neill, III................................. -- --
Eugene Roth............................................ -- --
Walter Scott, Jr. ..................................... 17,636,397 12.0
Dennis J. Spina........................................ -- --
Michael B. Yanney...................................... 50,000 --
All Directors and Executive Officers as a Group (20
persons).............................................. 24,162,161 16.4
</TABLE>
- - --------
(*) Less than 1% of the outstanding shares of the class.
(1) Includes 185,000 shares in the Jaros Family Limited Partnership.
8
<PAGE>
COMPENSATION INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ending December 31,
1995, 1996 and 1997, the cash compensation, as well as certain other
compensation, paid or accrued to the named executive officers. On March 9,
1998, RCN declared the Stock Dividend. The record date for the Stock Dividend
was March 20, 1998. Stockholders of record at the market close on that date
received an additional share of Common Stock for each share held. The
distribution date for the Stock Dividend was April 3, 1998. All share and per
share data, stock option data and market prices (including historical trading
prices) of Common Stock have been restated to reflect this stock dividend.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -------------------------------
AWARDS
----------
RESTRICTED ALL OTHER
STOCK SECURITIES COMPEN-
AWARDS UNDERLYING SATION
NAME AND POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)(2)
- - ----------------- ---- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt.................... 1997 500,000 1,400,000 380,000 1,000,000 2,703
Chairman and Chief 1996 491,154 700,000 238,333 -- 5,478
Executive Officer 1995 397,885 700,000 220,000 500,000 5,612
Michael J. Mahoney.................. 1997 248,654 500,000 149,731 400,000 5,871
President and Chief 1996 235,027 175,000 67,017 -- 5,478
Operating Officer 1995 222,462 100,000 65,000 -- 5,952
Bruce C. Godfrey.................... 1997 243,077 500,000 148,615 400,000 5,763
Executive Vice President and 1996 221,462 165,000 74,333 -- 4,965
Chief Financial Officer 1995 183,731 150,000 67,000 -- 4,790
Mark Haverkate...................... 1997 205,192 100,000 61,038 80,000 2,985
Executive Vice President 1996 158,231 135,000 51,667 -- 3,641
Business Development 1995 137,952 100,000 48,000 70,000 5,058
Michael A. Adams.................... 1997 203,269 150,000 70,654 230,000 16,045
President--Technology and 1996 138,673 155,000 36,950 -- 3,853
Network Development 1995 122,885 46,000 34,200 40,000 3,991
</TABLE>
- - --------
(1) Represents the market value on the date of grant of restricted stock
awards. In connection with the Distribution, shares of restricted CTE
Common Stock purchased under the CTE ESPP and share units awarded under
the CTE ESPP that relate to CTE Common Stock were adjusted so that
following the Distribution, each such participant was credited with an
aggregate equivalent value of restricted shares of common stock of CTE,
RCN and Cable Michigan. As of December 31, 1997, the aggregate holdings
and value of RCN restricted stock awards were as follows:
<TABLE>
<CAPTION>
AGGREGATE
SHARES VALUE($)
------ ---------
<S> <C> <C>
David C. McCourt............................................ 50,249 851,242
Michael J. Mahoney.......................................... 17,586 301,155
Bruce C. Godfrey............................................ 18,065 309,359
Mark Haverkate.............................................. 9,496 162,615
Michael A. Adams............................................ 8,960 153,442
</TABLE>
9
<PAGE>
Vesting of restricted shares is accelerated upon a change in control of the
Company. Dividends, if any, are paid on restricted shares. Subject to
continued employment, restricted share units credited to participants'
accounts vest in three calendar years following the date on which the share
units were initially credited to the participant's account.
(2) Includes the following amounts for the last fiscal year:
David C. McCourt: $486--Company paid life insurance; $2,217--401(k)
Company match;
Bruce C. Godfrey: $486--Company paid life insurance; $5,277--401(k)
Company match;
Michael J. Mahoney: $486--Company paid life insurance; $5,385--401(k)
Company match;
Mark Haverkate: $486--Company paid life insurance; $2,499--401(k)
Company match;
Michael A. Adams: $483--Company paid life insurance; $3,675--401(k)
Company match;
$11,887--Relocation costs.
RCN OPTIONS/SAR GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED EXERCISE APPRECIATION FOR
OPTIONS TO EMP. IN OR BASE OPTION TERM(2)
GRANTED FISCAL YR. PRICE EXPIRATION --------------------
NAME (#) 1997 ($/SH) DATE(1) 5%($) 10%($)
- - ---- ---------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt........ 1,000,000 20.86 15.31 10/30/2007 9,627,500 24,402,500
Michael J. Mahoney...... 400,000 8.34 15.31 10/30/2007 3,851,000 9,761,000
Bruce C. Godfrey........ 400,000 8.34 15.31 10/30/2007 3,851,000 9,761,000
Mark Haverkate.......... 20,000 0.42 8.36 2/12/2007 105,190 266,490
60,000 1.25 15.31 10/30/2007 577,650 1,464,150
Michael A. Adams........ 30,000 0.63 8.36 2/12/2007 157,785 399,735
200,000 4.17 15.31 10/30/2007 1,925,500 4,880,500
</TABLE>
- - --------
(1) Options vest ratably five (5) years from the date of grant and expire ten
(10) years from the date of grant.
(2) The assumed rate of growth were selected by the Securities and Exchange
Commission for illustrative purposes only and are not intended to predict
or forecast future stock prices.
RCN FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(2) FISCAL YEAR END(2)(3)
------------------------------- -------------------------------
EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
David C. McCourt........ 500,000 1,500,000 5,116,300 6,971,950
Michael J. Mahoney...... 120,000 480,000 1,207,200 1,529,800
Bruce C. Godfrey........ 84,000 456,000 845,040 1,288,360
Michael A. Adams........ 58,000 282,000 578,128 1,140,527
Mark Haverkate.......... 58,000 142,000 574,114 893,711
</TABLE>
- - --------
(1) No RCN stock options were exercised by the Named Executive Officers during
the fiscal year ended December 31,1997.
(2) Denominated in shares of Common Stock.
(3) The fair market value of Common Stock at December 31, 1997 was $17.125 per
share.
10
<PAGE>
COMPENSATION COMMITTEE REPORT
The compensation programs for the Company's executive officers are
administered by the Compensation Committee, (the "Compensation Committee") of
the Company's Board of Directors. The Compensation Committee makes
recommendations and/or determinations with respect to all executive
compensation matters.
The Compensation Committee submits the following report on compensation for
the Company's executive officers for the 1997 fiscal year.
COMPENSATION PHILOSOPHY
Prior to September 30, 1997, the Company was a wholly-owned subsidiary of C-
TEC. On September 30, 1997, in the Distribution, C-TEC distributed 100 percent
of the outstanding shares of Common Stock of the Company and Cable Michigan,
another wholly-owned subsidiary of C-TEC, to the shareholders of C-TEC. In
connection with, and at the time of, the Distribution, the principal executive
officers of C-TEC became the principal executive officers of the Company. In
connection with the Distribution, the Company adopted executive compensation
policies, criteria and plans substantially comparable to those of C-TEC.
The philosophy of the Company's compensation program, which is consistent
with the philosophy of C-TEC (the "Former Parent"), is, generally, to provide
a performance-based executive compensation program that rewards executives
whose efforts enable the Company to achieve its business objectives and
enhance shareholder value. The Company's compensation plan policies and
philosophies are to:
1. Establish and implement the concept of Total Direct Compensation
("TDC"), which is intended to provide a base salary slightly below that of
the Company's peer group, a short term bonus opportunity equivalent to that
of the Company's peer group, and a long term opportunity bonus above that
of the Company's peer group;
2. Establish market-based levels or "bands" for the executive group and
develop a TDC profile for each band. The bands for the executive group are
based on those adopted by the Former Parent. An executive's placement in
the bands will be based on individual performance, level and scope of
responsibility, and impact on decision making;
3. Make a greater portion of an executive's potential total compensation
opportunity conditional on attainment of performance incentives, with a
smaller portion derived from base salary, as an executive's level of
responsibility increases;
4. Align the interests of executives with the interests of shareholders
through ownership of Company stock.
The Compensation Committee determines base salary and makes recommendations
with respect to short term incentive grants, and stock option grants as they
deem appropriate and consistent with the TDC guidelines and the compensation
philosophy of the Company. The base salary structure guidelines and short-term
incentive objectives adopted by the Former Parent were continued in effect
with respect to the Company after the Distribution.
The Company continues to utilize stock options as long term compensation. In
connection with the Distribution, all outstanding C-TEC stock options held by
Company executives were, in part, converted into stock options of the Company
on a basis intended to maintain the same aggregate option value for each stock
option holder after the Distribution as the stock option holder had before the
Distribution.
To further align the interests of the Company's executives with that of
shareholders, the Company requires that executives acquire and maintain a
significant equity stake in the Company. Generally, executives of the Company
are required to own, by the year 2000, Company stock with a value ranging,
depending on an executive's position, from 100% to 300% of their annual base
salary. To assist executives in accumulating this
11
<PAGE>
equity position on a pre-tax basis, the Company implemented the Executive
Stock Purchase Plan pursuant to which an executive may purchase Company stock
through deferral of earned and otherwise payable compensation, which is
matched by the Company.
EXECUTIVE OFFICER COMPENSATION
The salaries paid to executive officers by the Company during the fourth
quarter of 1997, the period in which the Company became publicly traded, were
consistent with the salaries received by such persons from the Former Parent.
Such salaries were targeted to be slightly below that of executive officers in
the Former Parent's peer group and were based upon the consideration of
certain employment data, an assessment of the Company's and the officers'
performance during the prior year, and certain subjective criteria.
The amount of cash bonuses paid to executive officers for 1997 pursuant to
the bonus plan, as adopted by the Company was determined through a combination
of factors including the attainment of certain corporate, business unit and
individual objectives (financial and non-financial), the compensation
practices of the Company's peer group, results of corporate and business unit
financial performances and certain subjective criteria. Special emphasis was
placed on the officers' contribution to the restructuring.
Stock options were granted, after the Distribution, to the executive
officers named in the Summary Compensation Table. The Compensation Committee
believes that such stock options provide an incentive for retention of
executive talent and the creation of shareholder value in the long term since
the full benefit of the compensation package cannot be realized unless the
price of the Company's stock appreciates over a specified number of years and
the executive continues to perform services for the Company. The number of
stock options granted to each executive officer and/or mid-level management
employee was based on the individual's salary band, title and the evaluation
of each executive's individual performance and contribution to the Company's
performance as presented to the Compensation Committee.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. McCourt was paid a base salary and bonus of $500,000 and $1.4 million,
respectively for services rendered in 1997. This sum includes compensation he
received for serving as Chief Executive Officer of the Former Parent. Mr.
McCourt's compensation for 1997 was structured so that his base compensation
was slightly below the level paid to persons holding similar positions at
similarly situated companies. Mr. McCourt's short-term incentive award for
1997, which was earned under the short-term plan adopted by the Company,
reflects the extraordinary corporate activity that took place in 1997, the
accomplishment of certain strategic corporate objectives, and attainment of
certain corporate financial and non-financial goals including the
restructuring of the Former Parent into three (3) separate publicly traded
enterprises, a reorganization intended to increase shareholder value.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
denies a deduction by an employer for certain compensation in excess of $1
million per year paid by a publicly traded corporation to the chief executive
officer and the four most highly compensated executive officers other than the
chief executive officer unless such compensation is awarded pursuant to a
qualified performance-based program. Subject to the needs of the Company, the
Company's compensation plans are generally intended to qualify for such
qualified performance-based exemption. Consistent with the Former Parent, the
Company adopted the 1996 Bonus Plan, which is intended to serve as a qualified
performance-based compensation program under Section 162(m).
COMPENSATION COMMITTEE
Eugene Roth, Chairman
Alfred Fasola
Michael B. Yanney
April 8, 1998
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Eugene Roth, Esq., Chairman,
Alfred Fasola, and Michael B. Yanney.
Eugene Roth, Esq. is a senior partner at Rosenn, Jenkins and Greenwald,
which serves as counsel to the Company from time to time.
OTHER RELATED INFORMATION
Level 3, the Company's controlling stockholder, and/or its affiliates has a
substantial stock ownership in LTH and the Company. These companies share
mutual director representation on their respective boards.
For information regarding certain potential or contemplated transactions
between the Company, including its subsidiaries and other affiliates of Level
3, see "Transactions with Management and Certain Concerns."
13
<PAGE>
Performance Graph
The following performance graph compares the performance of RCN's Common
Stock to the Nasdaq Stock Market Index and the Nasdaq Telecommunications Index.
The graph assumes that the value of the investment in the Company's Common
Stock and each index was $100 at September 22, 1997.
COMPARISON OF 3 MONTH CUMULATIVE TOTAL RETURN*
AMONG RCN CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
[LINE GRAPH APPEARS HERE]
NASDAQ STOCK NASDAQ
DATE RCN CORPORATION MARKET (U.S.) TELECOMMUNICATIONS
---- --------------- ------------- ------------------
9/22/97 $100 $100 $100
9/97 116 106 113
10/97 116 100 116
11/97 120 101 117
12/97 126 99 123
. $100 INVESTED ON 9/2297 IN STOCK OR ON
8/31/97 IN INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
14
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND CERTAIN CONCERNS
David C. McCourt, Chairman, Chief Executive Officer and Director of the
Company, is a director of C-SPAN. In 1997, the Company paid $236,563 to C-SPAN
for programming services.
David C. McCourt served as a director of MFS/WorldCom from December 1996 to
March 1998. In 1997, the Company paid $2,959,306 to MFS/WorldCom for telephone
usage, circuit charges and network access charges. The Company earned $519,485
in revenue from MFS/WorldCom, primarily for engineering and construction
management services.
In September 1996, RCN and Boston Edison Company ("BECO"), through wholly
owned subsidiaries, entered into a joint venture ("joint venture") to utilize
126 fiber miles of BECO's fiber optic network to deliver RCN's comprehensive
communications package in Greater Boston. In 1997, the Company paid $91,674 to
BECO for utility expenses. The joint 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, providing for the organization and
operation of the joint venture. RCN contributed cash in the amount of
$10,445,000 and assets in the amount of $13,446,000 to the joint venture in
1997.
Each of CTE, RCN and Cable Michigan are effectively controlled by Level 3.
In addition, the majority of the Company's directors and executive officers
also are directors and/or executive officers of CTE and/or Cable Michigan. Set
forth below is a brief description of certain aspects of the relationship
among CTE, RCN and Cable Michigan.
RELATIONSHIP AMONG CTE, RCN AND CABLE MICHIGAN
The Distribution Agreement dated September 5, 1997, among C-TEC, RCN and
Cable Michigan entered into in connection with the Distribution defines
certain aspects of the relationship among CTE, RCN and Cable Michigan,
including the provision of services described below, and provides for the
allocation of certain assets and liabilities among CTE, RCN and Cable
Michigan. CTE, RCN and Cable Michigan have also entered into a Tax Sharing
Agreement dated as of September 5, 1997, to define certain aspects of their
relationship with respect to taxes and to provide for the allocation of tax
assets and liabilities.
RCN has agreed to provide or cause to be provided to CTE certain specified
services for a transitional period after the Distribution. The transitional
services to be provided include the following: (i) accounting; (ii) payroll;
(iii) management supervision; (iv) cash management; (v) human resources; (vi)
insurance administration; (vii) legal; (viii) tax; (ix) internal audit; and
(x) other miscellaneous administrative services. The fee per year for these
services will be 3.5% of the first $175 million of revenue of CTE and 1.75% of
any additional revenue.
RCN has also agreed to provide or cause to be provided to Cable Michigan
certain specified services for a transitional period after the Distribution.
The transitional services to be provided include 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 for services listed in items
(ii)--(xiii), (xv) and (xvii) will be 4.0% of the revenues of Cable Michigan
plus a direct allocation of certain consolidated cable administration
functions. The fee 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 RCN to
provide such customer billing services and fees to RCN and Cable Michigan. 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, are reimbursed to RCN by Cable Michigan and no additional fee is
charged with respect thereto.
15
<PAGE>
CTE has agreed to provide or cause to be provided to RCN and Cable Michigan
the financial data processing applications, lockbox services, storage
facilities, local area network and wide area network support services,
building maintenance and other miscellaneous administrative services for a
transitional period after the Distribution. The fees for such services and
arrangements are an allocated portion (based on relative usage) of the cost
incurred by the Company to provide such services and arrangements to all three
(3) companies.
OTHER MATTERS
Prior to September 30, 1997, the Company was operated as part of C-TEC. On
September 30, 1997, C-TEC distributed 100 percent of the outstanding shares of
common stock of its wholly owned subsidiaries, RCN and 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. In connection with the Distribution, C-
TEC changed its name to Commonwealth Telephone Enterprises, Inc. RCN consists
primarily of CTE's former 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. and Cable Michigan consists of CTE's former Michigan Cable operations,
including its 62% ownership in Mercom, Inc.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Following the restructuring, the Board of Directors of the Company held two
(2) meetings during 1997, the Audit Committee did not meet and the
Compensation Committee met two (2) times.
EXECUTIVE COMMITTEE
The Executive Committee exercises, to the maximum extent permitted by law,
all powers of the Board of Directors between board meetings, except those
functions assigned to specific committees. The current Executive Committee
consists of David C. McCourt, Chairman, James Q. Crowe, Michael J. Mahoney and
Walter Scott, Jr.
AUDIT COMMITTEE
The Audit Committee will review and consider the overall scope and approach
of the annual audit and make 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. The current Audit
Committee consists of Alfred Fasola, Chairman, Stuart E. Graham, Thomas J. May
and Thomas P. O'Neill, III.
COMPENSATION COMMITTEE
The Committee made recommendations to the Board of Directors on matters
related to employee compensation and plans concerning the orderly succession
of officers and key management personnel. The current Compensation Committee
consists of Eugene Roth, Chairman, Alfred Fasola and Michael B. Yanney.
DIRECTORS' COMPENSATION
Directors of RCN who are employees of the Company and its subsidiaries do
not receive any directors' fees. Non-employee Directors of the Company receive
on January 1 an annual directors' compensation of $10,800 in Common Stock
based upon the average fair market value of the RCN Common Stock during the
ten (10) trading days prior to such date, plus $1,000 per Board of Directors
meeting. The Committee Chairman and other committee members are paid $1,500
and $1,000, respectively, for each committee meeting attended. Pursuant to the
Company's 1997 Stock Plan for non-employee directors, each non-employee
director will receive an annual grant of a non-qualified option covering 4,000
shares of RCN Common Stock on the date of the meeting of stockholders based
upon the fair market value of the RCN Common Stock on the date the option is
granted.
16
<PAGE>
PROPOSAL 2
AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED COMMON STOCK AND CLASS B NON-VOTING COMMON STOCK
The Board has adopted a resolution unanimously approving and recommending to
the Company's stockholders for their approval an amendment (the "Amendment")
to the Certificate of Incorporation to provide therein for an increase in the
authorized number of shares of Common Stock from 100,000,000 to 200,000,000
and an increase in the authorized number of Class B Non-voting Common Stock
(the "Class B Stock", and together with the Common Stock, the "Common Equity")
from 200,000,000 to 400,000,000. The text of the Amendment is attached hereto
as Annex A and is incorporated herein by reference.
As of April 4, 1998, there were 57,779,168 shares of Common Stock
outstanding and no shares of Class B Stock outstanding. In addition, 7,120,060
shares of Common Stock were reserved for issuance in connection with stock
options granted under the Company's 1997 Equity Incentive Plan, Savings and
Stock Ownership Plan, 1997 Stock Plan for Non-Employee Directors and Executive
Stock Purchase Plan.
The Board believes the increase in the authorized amount of Common Equity is
in the best interests of the Company and believes it advisable to authorize
such shares to have them available for, among other things, possible issuance
in connection with such activities as public or private offerings of shares
for cash, dividends payable in stock of the Company, acquisitions of other
companies or properties and implementation of employee incentive plans.
On March 9, 1998, the Board of Directors of the Company approved a two-for-
one stock split of the Common Stock. The split was effected as a 100% stock
dividend. All stockholders as of the close of business on March 20, 1998
received one additional share of Common Stock for each share owned. The shares
being distributed in the stock dividend were issued on April 3, 1998. As a
result of the stock dividend, the number of authorized but unissued shares of
Common Stock has been significantly reduced. The increase in the authorized
shares of Common Stock would essentially restore the ratio of authorized but
unissued shares to authorized shares to the level that existed prior to the
stock dividend. Because each share of Common Stock is convertible into Class B
Stock, it is proposed that the number of authorized shares of Class B Stock be
increased proportionately.
The Company has entered into a Merger Agreement with Lancit Media
Entertainment, Ltd. ("Lancit"), pursuant to which the Company has, subject to
the conditions set forth therein, agreed to issue approximately 331,738 shares
of Common Stock in connection with the acquisition of Lancit. The Company is
also, on a regular basis, in discussions or negotiations regarding
acquisitions that could involve the issuance of Common Stock as consideration
in amounts that are not material to the Company. The Company currently has a
sufficient number of authorized but unissued shares of Common Stock to satisfy
the obligations it would have to issue Common Stock in connection with the
Lancit transaction and any other transactions that may currently be under
consideration, and consequently, such transactions or possible transactions
will not be affected by the outcome of the vote on this Proposal.
The additional shares of Common Stock and Class B Stock that would be
available for issuance if this Proposal is approved could be issued for any
proper corporate purpose by the Board at any time without further shareholder
approval, subject to applicable law and to the rules of the National
Association of Securities Dealers, Inc. (the "NASD") that apply to the Company
as a result of the quotation of the Common Stock on The Nasdaq Stock Market
National Market ("Nasdaq") so long as the Common Stock is so quoted. Except as
described above, further authorization from the Company's shareholders will
not be solicited prior to the issuance of such securities. The voting and
equity ownership rights of the Company's shareholders may be diluted by such
issuance. Stockholders will not have preemptive rights to subscribe for shares
of Common Equity unless the Company grants such rights at the time of issue.
The Company currently has no plans or proposals to issue any of the additional
shares of Common Equity except as described herein.
17
<PAGE>
The Board is required to make any determination to issue shares of Common
Equity based on its judgment as to the best interests of the Company. Although
the Board has no present intention of doing so, it could issue shares of
Common Equity (within the limits imposed by applicable laws and the rules of
the NASD as described above) that could, depending on the circumstances, make
more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise. When in the
judgment of the Board such use would be in the best interest of the Company,
such shares could be used to create voting or other impediments or to
discourage persons seeking to gain control of the Company. Such shares could
be privately placed with purchasers favorable to the Board in opposing such
action. The issuance of new shares of Common Equity also could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company should the Board consider the action of such entity or person not
to be in the best interest of the Company. Any such issuance could also have
the effect of diluting the earnings per share, book value per share and/or
voting power of the Common Stock.
The approval of this Proposal to amend the Certificate of Incorporation to
increase the authorized amount of Common Equity requires the approval of a
majority of the votes entitled to be cast by all of the holders of the Common
Stock.
The Board of Directors recommends a vote FOR the proposal to amend the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock and Class B Stock.
18
<PAGE>
PROPOSAL 3
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the appointment of Coopers
& Lybrand L.L.P. as the Company's independent auditors for the fiscal year
ending December 31, 1998.
If the stockholders do not ratify this appointment, other independent
auditors will be considered by the Board of Directors. Notwithstanding the
stockholders' ratification of the selection of the independent auditors, the
Board reserves the right to select other independent auditors at its
discretion.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they
desire to do so and will be able to respond to appropriate questions.
Ratification of Coopers & Lybrand L.L.P. as the Company's independent auditors
for the year ending December 31, 1998, requires the affirmative vote of a
majority of the votes cast by holders of Common Stock.
The Board of Directors recommends that the stockholders vote FOR the
proposal to ratify the appointment of Coopers & Lybrand L.L.P. to serve as
independent auditors of the Company for the fiscal year ending December 31,
1998.
OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
GENERAL INFORMATION
FINANCIAL INFORMATION
A copy of the Company's 1997 Annual Report to Stockholders containing the
Consolidated Financial Statements of the Company, including the report thereon
dated March 13, 1998, of Coopers & Lybrand L.L.P., independent accountants,
accompanies this Proxy Statement.
Upon the written request of any person who on April 21, 1998, was a record
owner of Common Stock or who represents in good faith that he was on such date
a beneficial owner of such Common Stock entitled to vote at the Annual
Meeting, the Company will furnish, without charge, a copy of the Company's
1998 annual report on Form 10-K, including the financial statements,
schedules, and exhibits, filed with the Securities and Exchange Commission.
Written requests for the Annual Report should be directed to: Investor
Relations Department, RCN Corporation, Inc., 105 Carnegie Center, Princeton,
New Jersey 08540, Attn: Valerie Haertel, Director of Investor Relations.
SOLICITATION OF PROXIES
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mail, proxies may be solicited by officers, directors and
regular employees of the Company, personally or by telephone, telecopy or
telegraph, and the Company may reimburse persons holding stock in their names
or those of their nominees for their expenses in forwarding soliciting
materials to their principals.
It is important that proxies be returned promptly. Therefore, stockholders
are urged to promptly fill in, date, sign and return the enclosed proxy in the
enclosed envelope, to which no postage need be affixed if mailed in the United
States.
19
<PAGE>
STOCKHOLDERS' PROPOSALS
Any stockholder who desires to submit a proposal to be considered for
inclusion in the proxy statement and proxy of the Company relating to the 1999
Annual Meeting of Stockholders must submit such proposal in writing to the
Company by December 25, 1998. Such proposals should be hand delivered or
mailed, return receipt requested, to the Secretary of the Company.
By order of the Board of Directors.
/s/ Bruce C. Godfrey
--------------------------------
Bruce C. Godfrey,
Executive Vice President,
Chief Financial Officer, and
Corporate Secretary
Dated: April 24, 1998
20
<PAGE>
ANNEX A
AMENDMENT TO CERTIFICATE OF
INCORPORATION OF RCN CORPORATION
RCN Corporation (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "GCL"), does hereby amend the Amended and Restated Certificate of
Incorporation of the Corporation, which was filed on September 26, 1997.
The undersigned hereby certifies that this Amendment to the Certificate of
Incorporation has been duly adopted in accordance with Section 242 of the GCL.
Article 4 of the Certificate of Incorporation is hereby amended by deleting
the first paragraph of Article 4 and replacing it in its entirety with the
following:
FOURTH: (a) Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is 625,000,000, consisting of
200,000,000 shares of Common Stock, par value $1.00 per share (the "Common
Stock"), 400,000,000 shares of Class B Non-voting Common Stock, par value
$1.00 per share (the "Class B Common Stock" and, together with the Common
Stock, the "Common Equity") and 25,000,0000 shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock").
21
<PAGE>
RCN CORPORATION
105 CARNEGIE CENTER
PRINCETON, NEW JERSEY 08540
PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- MAY 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby revoking any contrary proxy previously given, hereby
appoints David C. McCourt, James Q. Crowe and Richard R. Jaros, and each of
them, his true and lawful agents and proxies, with full power of substitution
and revocation, to vote as indicated below, all the Common Stock of the
undersigned in RCN CORPORATION (the "Company") entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Nassau Inn at Palmer
Square, 10 Palmer Square, Princeton, New Jersey, on May 19, 1998, at 11:00
a.m., local time, and at any adjournment or postponement thereof, all as set
forth in the related notice of proxy statement for the 1998 Annual Meeting.
1. To elect five FOR all nominees listed WITHHOLD AUTHORITY to
(5) Directors to below (except as marked to vote for all nominees
Class I to serve the contrary) [_] listed below [_]
for a term of
three (3) years;
and
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Stuart E. Graham, Michael J. Mahoney, Thomas J. May, Thomas P. O'Neill,III and
Dennis J. Spina
2. To consider and act upon a proposal to amend the Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock and Class B Non-voting Common Stock; and
FOR [_] AGAINST [_] ABSTAIN [_]
3. To ratify the selection of Coopers & Lybrand L.L.P., as independent auditors
of the Company for the fiscal year ending December 31, 1998; and
FOR [_] AGAINST [_] ABSTAIN [_]
4. To act upon such other matters as may properly come before the meeting or
any adjournment or postponement thereof.
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued, and to be Signed and Dated, on Reverse Side)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS
LISTED ON THE REVERSE SIDE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF
THE PROPOSALS ON THE REVERSE SIDE.
The undersigned acknowledges receipt of the notice and proxy statement
relating to the 1998 Annual Meeting and the Company's annual report for 1997.
Dated: _____________________________
____________________________________
Signature
____________________________________
Signature, if held jointly
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
