<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO. 333-96397
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RCN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 4813 22-3498533
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
105 CARNEGIE CENTER
PRINCETON, NJ 08540-6215
(609) 734-3700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN J. JONES, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY
105 CARNEGIE CENTER
PRINCETON, NJ 08540-6215
(609) 734-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
HOWARD L. ELLIN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NY 10036-6522
(212) 735-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: as soon as
practicable after this Registration Statement is declared effective in
connection with the merger and the exchange offer and consent solicitation
described in the prospectus contained in this Registration Statement.
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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per share... 4,673,107(1) NA $17,622,514(4) $4,653
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Common Stock, par value $1.00 per share... $65,837,760(2) NA $21,728,634(5) $5,737
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $1.00 per share... $50,000,000(3)(6) NA $50,000,000(6) $13,200
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Total $23,590(7)
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</TABLE>
(1) Based on the product of (i) 10,517,909, the total fully diluted number of
shares of common stock, no par value, of 21st Century Telecom Group, Inc.
("21st Century") and (ii) .4443, the maximum fraction of a share of the
Registrant's common stock issuable for each share of common stock of 21st
Century in the merger (the "Merger") described in the prospectus contained
in this Registration Statement.
(2) In accordance with Rule 457(o) under the Securities Act of 1933, as amended
(the "Securities Act"), the number of shares of the Registrant's common
stock to be issued in exchange for 21st Century's 13 3/4% Subordinated
Exchange Debentures due 2010 (the "Debentures") in the exchange offer and
consent solicitation (the "Exchange Offer") described in the prospectus
contained in this Registration Statement is not included in this table. The
dollar value included in the amount to be registered is based on 101% of the
total principal amount, plus accrued and unpaid interest up to the date of
this Registration Statement, of the Debentures to be exchanged in the
Exchange Offer.
(3) In accordance with Rule 457(o) under the Securities Act, the number of
shares of the Registrant's common stock to be issued to 21st Century
shareholders as an "earn-out" payment in the Merger if 21st Century achieves
specific performance targets is not included in this table.
(4) Estimated solely for purposes of calculating the registration fee. As there
is no market for the securities of 21st Century to be received by the
Registrant, and as 21st Century has an accumulated capital deficit, the
proposed maximum aggregate offering price is calculated, pursuant to Rule
457(f)(2) under the Securities Act, as the sum of: (i) $3,859,399, one-third
of the stated value of the 4,280,938 shares of 21st Century common stock
outstanding as of December 31, 1999; (ii) $4,221,059, one-third of the
stated value of 4,682,099.72 shares of 21st Century common stock reserved
for issuance as of December 31, 1999; and (iii) $9,542,056, one-third of the
stated value of 1,554.8710 shares of 21st Century class A preferred stock
outstanding as of December 31, 1999.
(5) As there is no market for the securities of 21st Century to be received by
the Registrant, and as 21st Century has an accumulated capital deficit, the
proposed maximum aggregate offering price is calculated, pursuant to Rule
457(f)(2) under the Securities Act, using one-third of the principal amount,
plus accrued and unpaid interest up to the date of this Registration
Statement, of the maximum amount of Debentures to be received by the
Registrant in the Exchange Offer.
(6) Based on the maximum amount payable in shares of the Registrant's common
stock to 21st Century shareholders as an "earn-out" payment in the Merger if
all required performance targets are achieved by 21st Century.
(7) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
The form of prospectus filed as part of this registration statement
contains two sets of cover pages, question and answer pages and the portion of
the summary pages preceding the caption "Selected Financial Data." The first
set, with the page numbers preceded by the letter "A," forms part of a
prospectus relating to the issuance of shares of RCN common stock in the merger
of a wholly owned subsidiary of RCN into 21st Century Telecom Group, Inc. The
second set of cover pages, with page numbers preceded by the letter "B," forms
part of a prospectus and consent solicitation relating to an offer to exchange
RCN common stock for outstanding debentures of 21st Century and the solicitation
of related consents to amend the indenture governing the debentures. The
exchange offer and consent solicitation are being made in connection with RCN's
acquisition of 21st Century.
The prospectus distributed to holders of 21st Century's common stock, class
A preferred stock and warrants will contain the first set of pages (i.e., pages
A-1 through A-9, followed by page 10 and the remainder of the prospectus). The
prospectus distributed to holders of 21st Century's debentures will contain the
second set of pages (i.e., pages B-1 through B-9, followed by page 10 and the
remainder of the prospectus, followed by page B-10 as the back cover page).
<PAGE> 3
PROSPECTUS
RCN CORPORATION
COMMON STOCK
------------------
On December 12, 1999, we agreed to acquire 21st Century Telecom Group,
Inc., an Illinois corporation, by means of a merger, in which a wholly owned
subsidiary of RCN will be merged into 21st Century. This prospectus relates to
the issuance of shares of RCN common stock to be issued to 21st Century in the
merger.
Under the terms of the merger agreement, for each share of 21st Century
common stock that you own, you will receive an amount of RCN common stock equal
to the exchange ratio, which is described in this prospectus. For each share of
21st Century class A preferred stock that you own, you will receive an amount of
RCN common stock equal to the exchange ratio multiplied by 1,000, which is the
number of shares of 21st Century common stock that each share of class A
preferred stock would be convertible into immediately prior to the merger. In
each case, a portion of the shares of RCN common stock that you would otherwise
receive will be held in escrow as security for your indemnification obligations
to RCN, as described in this prospectus. In addition, you may be entitled to
receive additional shares of RCN common stock in the future if specific revenue
and other performance targets are achieved by 21st Century, as described in this
prospectus.
The common stock of RCN Corporation is quoted on the Nasdaq National Market
under the symbol "RCNC." On March 30, 2000, RCN common stock closed at $54.75
per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF RISK FACTORS
YOU SHOULD CONSIDER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THIS PROSPECTUS OR
THE RCN COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER, OR DETERMINED
IF THIS PROSPECTUS IS ADEQUATE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The date of this prospectus is March 31, 2000.
A-1
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... A-2
SUMMARY..................................................... A-3
The Companies............................................. A-3
General................................................... A-3
The Merger................................................ A-6
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT
SOLICITATION.............................................. B-2
SUMMARY..................................................... B-4
The Companies............................................. B-4
The Merger................................................ B-4
The Exchange Offer and Consent Solicitation............... B-5
Selected Financial Data................................... 10
Unaudited Comparative Per Share Information............... 12
Comparative Market Price Information...................... 13
RISK FACTORS................................................ 14
The number of shares of RCN common stock you will receive
in the merger will not change despite fluctuations in
market value of RCN common stock....................... 14
Trading prices of RCN common stock may be volatile........ 14
The number of shares of RCN common stock you receive in
the merger may be reduced in the event 21st Century
does not obtain franchises for which it has
applications pending................................... 14
Unless 21st Century's operations achieve substantial
growth following the merger, 21st Century shareholders
will receive little or no "earn-out" consideration..... 14
The portion of the merger consideration held in escrow is
subject to forfeiture if representations by 21st
Century in the merger agreement are not true........... 14
Although we expect that the merger will result in
benefits, those benefits may not be realized........... 15
21st Century's officers and directors have conflicts of
interest that may influence them to support or approve
the merger............................................. 15
The merger may be a fully taxable transaction............. 15
Common stock is subject to greater risks than are
debentures............................................. 15
The calculation of the amount of RCN common stock to be
issued to be used in the exchange offer may prove to be
unfavorable to you..................................... 16
Trading prices of RCN common stock may be volatile........ 16
The exchange offer may be a fully taxable transaction..... 16
If the proposed amendments become effective, debentures
that you do not tender will enjoy fewer rights......... 16
There will be less information available about 21st
Century after the exchange offer is completed.......... 17
There will be a limited trading market for the debentures
after the exchange offer is completed.................. 17
There could be an adverse effect on the market value and
liquidity of the debentures if the exchange offer is
not completed.......................................... 17
We have a limited operating history and have incurred
negative cash flow and operating losses................ 17
Additional growth will require additional capital, and our
total capital needs may be substantial................. 18
Our substantial indebtedness limits our business
flexibility............................................ 18
There may be possible limitations on our tax loss
carryforwards.......................................... 19
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
We may not be able to manage our growth or integrate our
acquisitions........................................... 19
Our business is dependent upon acceptance of fiber optic
technology as the platform of choice................... 20
We are dependent on our strategic relationships and joint
ventures............................................... 20
We may encounter difficulties in competing in the highly
competitive telecommunications industry................ 20
Existing 21st Century customers may not accept our planned
services............................................... 21
Our business plan depends upon continued application of
regulations that have been challenged in the past...... 21
We may not be able to procure programming services from
the third parties we depend on......................... 21
The expansion of our Internet services business has
subjected us to additional risks....................... 21
Our management may have conflicts of interest with other
companies.............................................. 22
THE COMPANIES............................................... 23
RCN....................................................... 23
21st Century.............................................. 24
THE MERGER.................................................. 25
Background of the Merger.................................. 25
RCN's Reasons for the Merger.............................. 26
21st Century's Reasons for the Merger..................... 26
Interests of Certain 21st Century Directors, Officers and
Affiliates in the Merger............................... 27
Completion and Effectiveness of the Merger................ 28
Form of Merger............................................ 28
Vote Required to Approve the Merger....................... 28
Merger Consideration...................................... 28
Exchange of 21st Century Stock Certificates for RCN Stock
Certificates........................................... 29
Material United States Federal Income Tax Consequences of
the Merger............................................. 30
Accounting Treatment of the Merger........................ 32
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 32
Restrictions on Sales of Shares by Affiliates of 21st
Century and RCN........................................ 33
Listing on the Nasdaq National Market of RCN Common Stock
to be Issued in the Merger............................. 33
Appraisal Rights.......................................... 33
The Merger Agreement...................................... 35
Additional Agreements..................................... 41
THE EXCHANGE OFFER AND CONSENT SOLICITATION................. 42
Terms of the Exchange Offer and Consent Solicitation...... 42
Risk Factors Relating to Holders Who Do Not Tender Their
Debentures............................................. 43
Background and Purpose.................................... 43
Proposed Amendments to the Indenture...................... 43
Acceptance For Exchange of Debentures; Acceptance of
Consents............................................... 45
Procedures for Exchanging Debentures and Delivering
Consents............................................... 46
Withdrawal of Tendered Debentures and Revocation of
Consents............................................... 50
Conditions to the Exchange Offer and Consent
Solicitation........................................... 51
Material United States Federal Income Tax Consequences of
the Exchange Offer and the Proposed Amendments......... 52
The Dealer Manager, the Information Agent and the Exchange
Agent.................................................. 54
Fees and Expenses......................................... 54
Restrictions on Sales of Shares by Affiliates of 21st
Century and RCN........................................ 55
No Appraisal Rights....................................... 55
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Use of Proceeds........................................... 55
Listing on the Nasdaq National Market of RCN Common Stock
to be Issued in the Exchange Offer..................... 55
Accounting Treatment of the Exchange Offer................ 55
Miscellaneous............................................. 55
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 56
DESCRIPTION OF RCN CAPITAL STOCK............................ 57
RCN Common Stock.......................................... 57
RCN Preferred Stock....................................... 57
Series A Preferred Stock.................................. 57
Series B Preferred Stock.................................. 58
COMPARISON OF RIGHTS OF RCN STOCKHOLDERS AND 21ST CENTURY
SHAREHOLDERS.............................................. 59
Authorized Capital........................................ 59
Voting Rights............................................. 59
Cumulative Voting......................................... 60
Number and Election of Directors.......................... 60
Removal of Directors...................................... 60
Filling Vacancies on the Board of Directors............... 60
Interested Directors...................................... 61
Action by Written Consent................................. 62
Ability to Call Special Meetings.......................... 62
Advance Notice Provisions for Shareholder Meetings and
Proposals.............................................. 62
Amendment of Certificate of Incorporation and Articles of
Incorporation.......................................... 63
Amendment of By-Laws...................................... 64
Standard of Conduct for Directors......................... 64
Limitation of Liability and Indemnification of Directors
and Officers........................................... 64
Dividends................................................. 65
Conversion Rights......................................... 66
Liquidation Rights........................................ 66
Appraisal Rights.......................................... 66
Preemptive Rights......................................... 67
Vote on Certain Fundamental Issues........................ 67
State Anti-Takeover Provisions............................ 67
LEGAL MATTERS............................................... 68
EXPERTS..................................................... 68
WHERE YOU CAN FIND MORE INFORMATION......................... 69
FORWARD-LOOKING STATEMENTS.................................. 70
Annex 1 -- Agreement and Plan of Merger
Annex 2 -- Illinois Business Corporation Act Provisions
Relating to Dissenter's Rights
</TABLE>
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: RCN will acquire 21st Century by merging a wholly owned subsidiary of RCN
into 21st Century, and 21st Century will become a wholly owned subsidiary of
RCN.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Holders of 21st Century common stock, class A preferred stock and warrants to
acquire common stock will receive RCN common stock in the merger. The number
of shares of RCN common stock you will receive is described in this
prospectus.
Q: CAN THE VALUE OF THE CONSIDERATION I RECEIVE CHANGE BETWEEN NOW AND THE TIME
THE MERGER IS COMPLETED?
A: Yes. The value of RCN common stock can change. The market value of the merger
consideration will increase or decrease as the price of RCN shares increases
or decreases. Changes in the business, operations or prospects of RCN,
general market and economic conditions, or other factors may affect the price
of RCN shares. Most of these factors are beyond our control. We urge you to
obtain a current market quotation for RCN shares.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: Yes. We describe the procedures for exercising appraisal rights in this
prospectus and we have attached the provisions of Illinois law that govern
appraisal rights as Annex 2.
Q: WHEN DO YOU ANTICIPATE THAT THE MERGER WILL BE COMPLETED?
A: We anticipate that the merger will be completed in the second quarter of
2000. We are working to complete the merger as quickly as possible and intend
to do so as soon as possible after 21st Century's shareholders approve the
merger at a special meeting of 21st Century shareholders that 21st Century
will notify you about and after we have obtained the 21st Century creditor
and regulatory approvals necessary for the merger.
Q: WILL MY RIGHTS AS A SHAREHOLDER CHANGE AS A RESULT OF THE MERGER?
A: Yes. Currently, 21st Century's shareholder rights are governed by Illinois
law and 21st Century's charter and by-laws, whereas RCN's stockholder rights
are governed by Delaware law and RCN's charter and by-laws, as described in
this prospectus.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send 21st Century shareholders and
warrant holders written instructions for exchanging their stock and warrant
certificates. 21st Century shareholders and warrant holders should not send
in their stock or warrant certificates now.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of this prospectus you should contact:
ChaseMellon Shareholder Services, L.L.C.
44 Wall Street, 7th Floor
New York, NY 10005
Toll Free: (888) 566-9474
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Attention: Investor Relations Department
Telephone: (609) 734-3700
A-2
<PAGE> 8
SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire prospectus and the other documents
to which we have referred you. See "Where You Can Find More Information"
beginning on page 69. For a description of any material differences between the
rights of RCN stockholders and 21st Century shareholders, see "Comparison of
Rights of RCN Stockholders and 21st Century Shareholders" beginning on page 59.
We have included page references parenthetically to direct you to a more
complete description of the topics presented in this summary.
THE COMPANIES
RCN CORPORATION (PAGE 23)
105 Carnegie Center
Princeton, NJ 08540-6215
(609) 734-3700
www.rcn.com
RCN Corporation is a provider of bundled local and long distance phone,
cable television and high-speed Internet services to dense residential markets.
RCN is currently delivering broadband services over its network and is designing
or building its network on both the east and west coasts. In addition, RCN is a
leading Internet service provider in its markets.
21ST CENTURY TELECOM GROUP, INC. (PAGE 24)
350 North Orleans, Suite 600
Chicago, Illinois 60654
(312) 955-2100
www.21stcentury.com
21st Century Telecom Group, Inc. is a provider of bundled
telecommunications services in Chicago. 21st Century's bundling strategy through
its fiber optic network delivers cable television, telephone services and
high-speed Internet services. 21st Century's 15-year cable franchise encompasses
Chicago Area One, which stretches along the Chicago Lakefront from Evanston,
Illinois to the Hyde Park area. 21st Century also has franchise agreements with
the Villages of Skokie and Northbrook, Illinois.
GENERAL
STRUCTURE OF THE TRANSACTION (PAGE 28)
We will acquire 21st Century by merging a wholly owned subsidiary of RCN
into 21st Century, and 21st Century will become a wholly owned subsidiary of
RCN. Following the merger, you will become a stockholder of RCN, in which event
you will have an equity stake in 21st Century's parent company.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 29)
HOLDERS OF 21ST CENTURY COMMON STOCK. The number of shares of RCN common
stock that will be received for each share of 21st Century common stock will be
equal to the exchange ratio. The exchange ratio is .4443, subject to adjustment
in the event that 21st Century does not obtain the three franchises in the
Chicago area for which it has applications pending prior to the merger. In
addition, whether you hold 21st Century common stock, class A preferred stock or
warrants, in each case:
- - ten percent (10%) of the shares of RCN common stock you would otherwise
receive will be held in escrow as security for your indemnification
obligations to RCN; and
- - you may be entitled to receive additional shares of RCN common stock in the
future as an "earn-out" payment in the event specific revenue and other
performance targets are achieved by 21st Century.
As of the date of this prospectus, 21st Century has not obtained any of the
three additional franchises for which it has applied. If none of the franchises
are obtained by the effective time of the merger, the exchange ratio will be
reduced to .3607.
Set forth below is a table showing a range of prices of RCN common stock,
along with entries showing the exchange ratio and the corresponding valuations
in the merger of a share of 21st Century common stock. The table does not take
into account any adjustments to the exchange ratio for the failure to obtain the
franchises nor does it take into account the reduction in the
A-3
<PAGE> 9
number of shares of RCN common stock you will actually receive as a result of a
portion of the shares being held in escrow.
<TABLE>
<CAPTION>
VALUE OF A
AVERAGE CLOSING SHARE OF
PRICE OF RCN EXCHANGE 21ST CENTURY
COMMON STOCK RATIO COMMON STOCK
- --------------- -------- ------------
<S> <C> <C>
$76.00 .4443 $33.77
74.00 .4443 32.88
72.00 .4443 31.99
70.00 .4443 31.10
68.00 .4443 30.21
66.00 .4443 29.32
64.00 .4443 28.44
62.00 .4443 27.55
60.00 .4443 26.66
58.00 .4443 25.77
56.00 .4443 24.88
54.00 .4443 23.99
52.00 .4443 23.10
50.00 .4443 22.22
48.00 .4443 21.33
46.00 .4443 20.44
</TABLE>
For example, if you own 100 shares of 21st Century stock, as a result of
the merger this would translate into 44.43 shares of RCN common stock. Less the
ten percent (10%) of such shares to be held in escrow, this would translate into
39.987 shares. Since cash will be paid instead of fractional shares, you would
receive 39 shares of RCN common stock and a check in an amount equal to the
fractional share multiplied by the average of the closing market prices of RCN
common stock as reported on the Nasdaq National Market on each of the 15 trading
days immediately preceding completion of the merger. In addition, you would be
entitled to receive additional shares of RCN common stock as an "earn-out"
payment in the event specific revenue and other performance targets are achieved
by 21st Century.
HOLDERS OF 21ST CENTURY CLASS A PREFERRED STOCK. The number of shares of
RCN common stock that will be received for each share of 21st Century class A
preferred stock will be equal to the exchange ratio, as it may be adjusted if
21st Century does not obtain its pending franchises, multiplied by 1,000. For
example, if you own 100 shares of 21st Century class A preferred stock, as a
result of the merger this would translate into 44,430 shares of RCN common
stock. As with the 21st Century common stock described above, a portion of the
shares of RCN common stock you would otherwise receive will be held in escrow
and you would be entitled to receive additional shares of RCN common stock as an
"earn-out" payment in the event specific revenue and other performance targets
are achieved by 21st Century.
HOLDERS OF 21ST CENTURY WARRANTS. The number of shares of RCN common stock
that will be received for each warrant to acquire 21st Century common stock will
be equal to the number of shares of RCN common stock you would have received had
you exercised you warrant immediately prior to the completion of the merger by
means of a cash-less exercise. As with the 21st Century common stock described
above, a portion of the shares of RCN common stock you would otherwise receive
will be held in escrow and you would be entitled to receive additional shares of
RCN common stock as an "earn-out" payment in the event specific revenue and
other performance targets are achieved by 21st Century.
HOLDERS OF 21ST CENTURY OPTIONS. Options to purchase 21st Century common
stock will automatically be converted into options to purchase a proportionate
number of shares of RCN common stock with a corresponding adjustment to the
exercise price based on the exchange ratio. In addition, if you still hold
options at the time that any indemnification claims are made by RCN against the
escrow amount described above or at the time any additional shares of RCN common
stock are issued as a result of 21st Century achieving specific performance
targets, then the number of options you hold at such time will be adjusted to
give effect to such events.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 30)
The merger has been structured in a manner that is intended to allow it to
be treated as generally tax-free to 21st Century shareholders for United States
federal income tax purposes (except with respect to cash received in lieu of
fractional shares or paid to dissenters and amounts treated as imputed interest
with respect to "earn-out" and other contingent payments, if any). However,
there is a significant risk that the merger will not qualify for tax-free
treatment, and it is not a condition to the consummation of the merger that
A-4
<PAGE> 10
it qualify for tax-free treatment. If the merger does not qualify for tax-free
treatment, it will be a fully taxable transaction to you.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your own
tax advisor for a full understanding of the tax consequences of the merger to
you.
PROCEDURE FOR EXCHANGING YOUR STOCK CERTIFICATES (PAGE 29)
After the merger is completed, we will send you written instructions for
exchanging your 21st Century stock certificates for RCN stock certificates. Do
not send your 21st Century stock certificates now.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 27)
When considering the recommendation of 21st Century's board of directors,
you should be aware that there are 21st Century directors and officers that have
interests in the merger that are different from or are in addition to yours.
SOME 21ST CENTURY SHAREHOLDERS HAVE ENTERED INTO VOTING AND LOCK-UP AGREEMENTS
(PAGE 41)
A number of 21st Century shareholders executed voting and lock-up
agreements containing irrevocable proxies giving RCN the right to vote their
shares in favor of the merger agreement as well as on other matters related to
the merger agreement. These 21st Century shareholders were not paid additional
consideration in connection with these agreements.
Specifically, these 21st Century shareholders collectively held
approximately 2,372,260.705 shares of 21st Century common stock, which
represented approximately 63.6% of the outstanding 21st Century common stock,
and held approximately 371,505.2 shares of 21st Century class A preferred stock,
which represented approximately 88.2% of the outstanding 21st Century class A
preferred stock and 70.8% of the outstanding common stock and class A preferred
stock taken together as a class, in each case as of the date the merger
agreement was executed.
RESTRICTIONS ON THE ABILITY TO SELL RCN STOCK (PAGE 33)
As part of the voting and lock-up agreements executed by the 21st Century
shareholders, they agreed to transfer restrictions on their RCN common stock
following the completion of the merger. Other than those restrictions, any
shares of RCN common stock received by you in connection with the merger will be
freely transferable unless you are considered an "affiliate" of either RCN or
21st Century under the Securities Act of 1933. Shares of RCN common stock held
by such affiliates may only be sold by means of a registration statement or
applicable exemption under the Securities Act.
VOTE REQUIRED TO APPROVE THE MERGER (PAGE 28)
The affirmative vote of holders of shares representing two-thirds of the
outstanding shares of 21st Century's voting common stock and class A preferred
stock, voting together as a class, and a majority of the outstanding shares of
class A preferred stock entitled to vote at the 21st Century special meeting is
required to adopt the merger agreement. The votes represented by the 21st
Century shareholders who executed voting and lock-up agreements are enough to
satisfy the required vote.
VOTING BY DIRECTORS AND EXECUTIVE OFFICERS (PAGE 27)
On the date the merger agreement was executed, directors and executive
officers of 21st Century and their affiliates owned and were entitled to vote
1,906,194.492 shares of common stock and 1,351,196.200 shares of class A
preferred stock. On that date, all of these shares together represented
approximately 51% of the total voting power of 21st Century common stock, 86.9%
of the total voting power of 21st Century class A preferred stock and 61.65% of
the total voting power of 21st Century's common stock and class A preferred
stock taken together as a class.
The directors and executive officers of 21st Century who are shareholders
have entered into voting and lock-up agreements in which they have agreed to
vote their shares of 21st Century capital stock in favor of the merger.
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APPRAISAL RIGHTS (PAGE 33)
Under Illinois law, if you are a 21st Century shareholder and you comply
with certain requirements of Illinois law, you are entitled to dissenters'
rights in the merger. However, it is a condition of 21st Century's obligation to
consummate the merger that less than five percent (5%) of 21st Century's
shareholders exercise dissenters' appraisal rights.
If you dissent, the fair value of your stock may be determined by a court
and paid to you in cash. To dissent, you must follow specific procedures,
including giving 21st Century specific written notices and not voting your
shares in favor of the merger. You will not receive any stock in RCN if you
dissent and follow all of the required procedures. Instead, if determined in
accordance with Illinois law, you will receive only the value of your stock in
cash. The relevant sections of Illinois law governing this process are attached
to this document as Annex 2.
SHAREHOLDER REPRESENTATIVE (PAGE 40)
If the merger is completed, the merger agreement provides that by accepting
RCN common stock in the merger, you are appointing Edward T. Joyce as your
shareholder representative. The shareholder representative will be authorized to
act on behalf of 21st Century shareholders in connection with any action
required or permitted by 21st Century shareholders under the merger agreement,
including the handling of all matters relating to indemnification and the
"earn-out" payment that will be made by RCN if specific revenue and other
performance targets are achieved by 21st Century.
THE MERGER
COMPLETION AND EFFECTIVENESS OF THE MERGER (PAGE 25)
We will complete the merger when all of the conditions to completion of the
merger are satisfied or waived. The merger will become effective when we file a
certificate of merger with the State of Illinois.
We are working toward completing the merger as quickly as possible. We hope
to complete the merger during the second quarter 2000. A copy of the merger
agreement is attached as Annex 1 to this prospectus.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 38)
The respective obligations of RCN and 21st Century to complete the merger
are subject to the prior satisfaction or waiver of conditions. The conditions
that must be satisfied or waived before the completion of the merger include the
following:
- - the merger agreement must be adopted by 21st Century shareholders;
- - the applicable waiting periods under antitrust laws must expire or be
terminated;
- - all governmental approvals shall have been obtained;
- - no injunction or order preventing the completion of the merger may be in
effect;
- - the registration statement shall have become effective under the securities
laws;
- - the shares of RCN common stock to be issued in the merger shall have been
approved for listing on the Nasdaq National Market;
- - the respective representations and warranties of RCN and 21st Century in the
merger agreement must be true and correct, including the absence of material
adverse changes in their respective businesses;
- - RCN and 21st Century must have complied with their respective agreements in
the merger agreement;
- - 21st Century must obtain any required consents from third parties and
regulatory authorities relating to the merger;
- - Holders of at least a majority in principal amount of 21st Century's 12 1/4%
Senior Discount Notes Due 2008 and 13 3/4% Subordinated Exchange Debentures
Due 2010 shall have tendered their notes and debentures to RCN and consented
to amendments to the indentures governing those securities;
- - 21st Century shall have terminated its bank credit agreement; and
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- - less than 5% of 21st Century's shareholders shall have demanded appraisal
under the Illinois Business Corporation Act.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 32)
We intend to account for the merger under the purchase method of accounting
for business combinations.
REGULATORY APPROVALS AND FILINGS REQUIRED TO COMPLETE THE MERGER (PAGE 32)
The merger is subject to antitrust laws. We have made the required filings
with the Department of Justice and the Federal Trade Commission and we received
early termination of the applicable waiting periods on February 14, 2000.
Under the Communications Act of 1934, as amended, the Federal
Communications Commission must approve, before the completion of the merger, the
transfer of control to RCN of 21st Century's FCC authorizations. RCN and 21st
Century filed transfer of control applications and/or notifications with the FCC
in January and February 2000 and have since received all such approvals.
21st Century holds cable television franchises issued by the City of
Chicago, Village of Northbrook and Village of Skokie, each of which must approve
the transfer of control of the 21st Century franchise to RCN. Applications to
approve the transfer of control were filed in January 2000, and 21st Century has
since notified us that it has received approval from the City of Chicago and the
Village of Northbrook. 21st Century has indicated to us that it expects to
receive approval by the Village of Skokie prior to completion of the merger. In
addition, 21st Century holds telecommunications service authorizations issued by
the Indiana Utility Commission and Illinois Commerce Commission which have
reviewed and approved the notice of transfer of control of these authorizations
to RCN.
TERMINATION OF THE MERGER AGREEMENT (PAGE 40)
The merger agreement may be terminated under the following circumstances at
any time before the completion of the merger:
- - by the mutual consent of RCN and 21st Century;
- - by either RCN or 21st Century if the conditions to completion of the merger
are not satisfied by May 31, 2000;
- - by RCN, if the 21st Century shareholders do not adopt the merger agreement by
May 31, 2000; and
- - by either RCN or 21st Century if the merger has not been completed by May 31,
2000.
Neither RCN nor 21st Century may exercise its right to terminate the merger
agreement if the failure to satisfy the conditions to completion of the merger,
or the failure of the merger to be completed by May 31, 2000, results from the
material breach of the merger agreement by the party seeking to terminate the
merger agreement.
NO OTHER NEGOTIATIONS INVOLVING 21ST CENTURY (PAGE 37)
Until the merger is completed or the merger agreement is terminated, 21st
Century has agreed not to directly or indirectly take any of the following
actions:
- - solicit, initiate or encourage a takeover proposal of the nature specified in
the merger agreement, such as an acquisition of 21st Century's common stock or
a merger or reorganization or sale of assets, involving 21st Century and a
party other than RCN; or
- - engage in discussions or negotiations with any person, entity or group
relating to a takeover proposal as described above.
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PROSPECTUS AND CONSENT SOLICITATION
RCN CORPORATION
COMMON STOCK
------------------------
We are offering to exchange RCN common stock for any and all outstanding
13 3/4% Subordinated Exchange Debentures due 2010 of 21st Century Telecom Group,
Inc. and are soliciting consents to amend the indenture under which the
debentures were issued. We are making the exchange offer and consent
solicitation in connection with a merger agreement that we entered into with
21st Century on December 12, 1999.
------------------------
Selected terms of the exchange offer and consent solicitation
- The exchange offer will expire at 12:00 Midnight New York City time on
April 27, 2000, unless we extend it.
- The consent solicitation will expire at 12:00 Midnight New York City time
on April 13, 2000, unless we extend it.
- The total consideration available for each of the debentures tendered in
the exchange offer is RCN common stock representing 101% of principal
amount, plus accrued and unpaid interest up to the date of exchange. Of
that amount, 4% is an early consent payment that is payable if you
consent to the proposed amendments and tender your debentures prior to
the expiration of the consent solicitation and 97% is the consideration
that is payable if you tender your debentures prior to the expiration of
the exchange offer.
- The number of shares of RCN common stock you will receive will be
calculated based on a volume weighted average of trading prices of RCN
common stock for the five trading days ending one day prior to completion
of the exchange offer.
- Our obligation to consummate the exchange offer and consent solicitation
is conditioned on the completion of the merger with 21st Century, in
addition to the other conditions described in this prospectus and in the
letter of transmittal accompanying this prospectus.
The common stock of RCN Corporation is quoted on the Nasdaq National Market
under the symbol "RCNC." On March 30, 2000, RCN common stock closed at $54.75
per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF RISK FACTORS
YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OFFER AND CONSENT SOLICITATION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THIS PROSPECTUS OR
THE RCN COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER, OR DETERMINED
IF THIS PROSPECTUS IS ADEQUATE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The dealer manager for the exchange offer and consent solicitation is:
SALOMON SMITH BARNEY
The date of this prospectus is March 31, 2000.
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QUESTIONS AND ANSWERS ABOUT THE EXCHANGE
OFFER AND CONSENT SOLICITATION
Q: WHAT ARE THE PROPOSED TRANSACTIONS?
A: In connection with RCN's proposed acquisition of 21st Century Telecom Group,
Inc., RCN is offering to exchange RCN common stock for any and all of 21st
Century's outstanding 13 3/4% Subordinated Exchange Debentures due 2010. In
addition, RCN is soliciting consents to amend the indenture under which the
debentures were issued.
Q: WHEN DOES THE EXCHANGE OFFER EXPIRE?
A: Unless RCN extends the offer, the exchange offer will expire at 12:00
Midnight New York City time on April 27, 2000.
Q: WHEN DOES THE CONSENT SOLICITATION EXPIRE?
A: Unless RCN extends the consent solicitation, it will expire at 12:00 Midnight
New York City time on April 13, 2000.
Q: WHAT WILL I RECEIVE IN THE EXCHANGE OFFER IF I TENDER MY DEBENTURES?
A: If you tender your debentures prior to the expiration of the exchange offer,
you will receive shares of RCN common stock in exchange for your debentures.
The RCN common stock that you will receive in the exchange offer will be
worth either 97% or 101% of the principal amount of your debentures, plus
accrued and unpaid interest up to the date of the exchange. Whether you
receive 97% or 101% of the principal amount of your debentures depends on
whether you tender your debentures and consent to the proposed amendments to
the indenture on or prior to the expiration of the consent solicitation.
Q: IS THERE ANY SPECIAL ADVANTAGE IF I TENDER MY DEBENTURES AND CONSENT TO THE
PROPOSED AMENDMENTS BEFORE THE CONSENT SOLICITATION EXPIRES?
A: Yes. If you both tender your debentures and consent to the proposed
amendments to the indenture before the consent solicitation expires, and the
exchange offer is completed, you will receive RCN common stock worth 101% of
the principal amount of your debentures, plus accrued and unpaid interest up
to the date of the exchange. Otherwise, if you tender your debentures and
consent to the proposed amendments after the expiration of the consent
solicitation (but before the expiration of the exchange offer), you will
receive RCN common stock worth only 97% of the principal amount of your
debentures, plus accrued and unpaid interest up to the date of the exchange.
Q: HOW IS THE NUMBER OF SHARES OF RCN COMMON STOCK I RECEIVE IN EXCHANGE FOR MY
DEBENTURES CALCULATED?
A: The number of shares of RCN common stock you will receive will be calculated
based on a volume weighted average of trading prices of RCN common stock for
the five trading days ending one day prior to completion of the exchange
offer. Changes in the business, operations or prospects of RCN, general
market and economic conditions, or other factors may affect the price of RCN
shares. Most of these factors are beyond our control. We urge you to obtain a
current market quotation for RCN shares.
Q: WILL MY RIGHTS AS A HOLDER OF DEBENTURES CHANGE IF I TENDER MY SHARES IN THE
EXCHANGE OFFER?
A: Yes. Currently, your rights as a holder of the debentures are governed by the
indenture under which the debentures were issued. However, if you exchange
your debentures for shares of RCN common stock, you will become an RCN
stockholder and your rights will be governed by Delaware law and RCN's
charter and by-laws, as described in this prospectus.
Q: WHAT HAPPENS IF I FAIL TO TENDER MY DEBENTURES PRIOR TO THE EXPIRATION OF THE
EXCHANGE OFFER?
A: If you fail to tender your debentures and the indenture is not amended as
proposed in this prospectus, your rights as a holder of debentures will not
change. However, if you fail to tender your debentures and the indenture is
amended as proposed in this prospectus, your
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rights as a holder of the debentures will be governed by the terms and
conditions of the indenture as it becomes modified by the proposed
amendments.
Q: HOW WOULD THE PROPOSED AMENDMENTS TO THE INDENTURE MODIFY MY RIGHTS AS A
HOLDER OF ANY DEBENTURES THAT I FAIL TO TENDER?
A: As described in this prospectus, if the indenture is amended, debentures that
you do not tender will enjoy fewer rights and protections, you will have less
information available to you regarding 21st Century, and there will be a
diminished trading market for the debentures.
Q: WHAT DETERMINES WHETHER THE INDENTURE IS AMENDED?
A: Under the terms of the indenture, the proposed amendments will become
effective if the holders of at least a majority in aggregate principal amount
of the outstanding debentures consent to the amendments and the exchange
offer is completed.
Q: ONCE I TENDER MY DEBENTURES AND CONSENT TO THE PROPOSED AMENDMENTS, WILL I BE
ABLE TO REVOKE THESE DECISIONS IF I LATER CHANGE MY MIND?
A: Yes. You may revoke your consent to the proposed amendments and withdraw your
debentures at any time on or prior to the expiration of the consent
solicitation. In addition, you may withdraw your tender of debentures at any
time on or prior to the expiration of the exchange offer. In either case, by
withdrawing your debentures, you lose your right to receive either the
exchange offer consideration or the early consent payment.
Q: AM I ENTITLED TO APPRAISAL RIGHTS IN REGARDS TO THE EXCHANGE OFFER?
A: No. You will not have any right to dissent and receive an appraisal of your
debentures.
Q: ARE THERE ANY CONDITIONS THAT MIGHT PREVENT THE EXCHANGE OFFER OR CONSENT
SOLICITATION FROM BECOMING EFFECTIVE?
A: Yes. RCN's obligation to consummate the exchange offer and consent
solicitation is conditioned on the completion of its merger with 21st Century
and the receipt of a sufficient number of consents to amend the indenture, in
addition to the other conditions described in this prospectus.
Q: WHEN DO YOU ANTICIPATE THAT THE MERGER WILL BE COMPLETED?
A: We anticipate that the merger will be completed in the second quarter of
2000. We are working to complete the merger as quickly as possible and intend
to do so as soon as possible after 21st Century's shareholders approve the
merger at a special meeting of 21st Century shareholders and after we have
obtained the 21st Century debtholder approvals and regulatory approvals
necessary for the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the exchange offer or if you need additional
copies of this prospectus you should contact:
Salomon Smith Barney
388 Greenwich Street
New York, New York 10013
Telephone: (212) 816-6000
Toll Free: (800) 558-3745
ChaseMellon Shareholder Services, L.L.C.
44 Wall Street, 7th Floor
New York, NY 10005
Toll Free: (888) 566-9474
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Attention: Investor Relations Department
Telephone: (609) 734-3700
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SUMMARY
We are offering to exchange RCN common stock for 21st Century's outstanding
13 3/4% Subordinated Exchange Debentures due 2010 and are soliciting consents to
amend the indenture under which the debentures were issued. This summary
highlights selected information from this prospectus and may not contain all of
the information that is important to you. To understand the exchange offer and
consent solicitation fully and for a more complete description of the legal
terms of the exchange offer and consent solicitation, you should read carefully
this entire prospectus and the other documents to which we have referred you,
including the consent and letter of transmittal accompanying this prospectus.
See "Where You Can Find More Information" beginning on page 69. We have included
page references parenthetically to direct you to a more complete description of
the topics presented in this summary.
THE COMPANIES
RCN CORPORATION (PAGE 23)
105 Carnegie Center
Princeton, NJ 08540-6215
(609) 734-3700
www.rcn.com
RCN Corporation is a provider of bundled local and long distance phone,
cable television and high-speed Internet services to dense residential markets.
RCN is currently delivering broadband services over its network and is designing
or building its network on both the east and west coasts. In addition, RCN is a
leading Internet service provider in its markets.
21ST CENTURY TELECOM GROUP, INC. (PAGE 24)
350 North Orleans, Suite 600
Chicago, Illinois 60654
(312) 955-2100
www.21stcentury.com
21st Century Telecom Group, Inc. is a provider of bundled
telecommunications services in Chicago. 21st Century's bundling strategy through
its fiber optic network delivers cable television, telephone services and
high-speed Internet services. 21st Century's 15-year cable franchise encompasses
Chicago Area One, which stretches along the Chicago Lakefront from Evanston,
Illinois to the Hyde Park area. 21st Century also has franchise agreements with
the Villages of Skokie and Northbrook, Illinois.
THE MERGER
THE MERGER (PAGE 25)
On December 12, 1999, we entered into a merger agreement with 21st Century
under which we agreed to acquire 21st Century. In the merger, we will merge a
wholly owned subsidiary of RCN with 21st Century and as result of the merger
21st Century will become a wholly owned subsidiary of RCN. In connection with,
and as a condition to completion of the merger, we are making the exchange offer
and consent solicitation.
WHAT 21ST CENTURY SHAREHOLDERS WILL RECEIVE IN THE MERGER (PAGE 29)
The number of shares of RCN common stock that will be received for each
share of 21st Century common stock will be equal to the exchange ratio. The
exchange ratio is .4443, subject to adjustment in the event that 21st Century
does not obtain specific franchises for which it has applications pending prior
to the merger. In addition:
- - ten percent (10%) of the shares of RCN common stock 21st Century shareholders
would otherwise receive will be held in escrow as security for their
indemnification obligations to RCN; and
- - 21st Century shareholders may be entitled to receive additional shares of RCN
common stock in the future as an "earn-out" payment in the event specific
revenue and other performance targets are achieved by 21st Century.
Holders of 21st Century class A preferred stock and warrants will also
receive shares of RCN common stock in the merger on substantially the same
terms.
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THE EXCHANGE OFFER AND CONSENT SOLICITATION
(PAGE 42)
THE DEBENTURES: We are making the exchange offer and consent
solicitation with respect to 21st Century's
13 3/4% Subordinated Exchange Debentures due
2010. On January 14, 2000, 21st Century
provided notice to the holders of 21st
Century's 13 3/4% Senior Cumulative
Exchangeable Preferred Stock providing for the
automatic exchange on February 15, 2000 of all
outstanding shares of exchangeable preferred
stock into debentures in accordance with the
terms of the exchangeable preferred stock.
THE EXCHANGE OFFER:
(page 43) We are offering shares of RCN common stock in
exchange for all of the outstanding debentures
of 21st Century.
THE SOLICITATION:
(page 43) We are also soliciting consents to the proposed
amendments to the indenture under which the
debentures were issued. If you tender
debentures in the exchange offer on or prior to
the expiration of the consent solicitation, you
are obligated to consent to the proposed
amendments to the indenture, and to complete,
execute and deliver a consent and letter of
transmittal on or prior to the expiration of
the consent solicitation to effect delivery of
your consent with respect to the debentures
tendered by you. You may not deliver consents
in the consent solicitation without tendering
your debentures in the exchange offer.
CONSIDERATION:
(page 43) RCN common stock representing 101% of principal
amount, plus accrued and unpaid interest to the
date of exchange, per $1,000 principal amount
of debentures. Of that amount, 4% is an early
consent payment that is payable if you consent
to the proposed amendments and tender your
debentures prior to the expiration of the
consent solicitation and 97% is the
consideration that is payable if you tender
your tender debentures prior to the expiration
of the exchange offer.
The value of the RCN common stock that is
payable in the exchange offer and consent
solicitation will be computed based on a volume
weighted average of trading prices of RCN
common for the five trading days ending one day
prior to the date of completion of the exchange
offer as reported on the Nasdaq National
Market.
REQUISITE CONSENTS:
(page 44) Approval of the proposed amendments to the
indenture requires the consent of the holders
of at least a majority in aggregate principal
amount of debentures outstanding.
EFFECTIVENESS OF PROPOSED
AMENDMENTS:
(page 44) 21st Century and the trustee for the debentures
will execute the supplemental indenture
providing for the proposed amendments promptly
following the expiration of the consent
solicitation, assuming that the requisite
consents have been received. The proposed
amendments, however, will not become operative
until we have accepted for purchase all
debentures validly tendered (and not withdrawn)
in the exchange offer. If the proposed
amendments become operative, all persons who
continue to hold debentures thereafter will be
subject to the provisions of the indenture as
amended by the proposed amendments.
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EXPIRATION OF CONSENT
SOLICITATION: 12:00 Midnight, New York City time on April 13,
2000, unless extended. The supplemental
indenture will be executed promptly following
the expiration of the consent solicitation,
assuming that the requisite consents have been
received.
EXPIRATION OF THE EXCHANGE
OFFER: 12:00 Midnight, New York City time, on April
27, 2000, unless extended.
EXCHANGE DATE:
(page 42) The exchange of debentures for RCN common stock
representing the exchange offer consideration
and the early consent payment will be made
promptly following the expiration of the
exchange offer and the satisfaction or waiver
of all conditions.
CONDITIONS TO THE EXCHANGE
OFFER AND CONSENT
SOLICITATION:
(page 51) The exchange offer and consent solicitation are
conditioned upon satisfaction of: (i) the
receipt of the requisite consents for the
proposed amendments to the indenture and the
execution of the supplemental indenture, (ii)
the consummation of the merger and (iii) the
other general conditions described in this
prospectus.
PROPOSED AMENDMENTS TO
THE INDENTURE:
(page 43) By consenting to the proposed amendments you
would be agreeing to delete the following
covenants from the indenture, listed by the
section in the indenture in which they appear,
as well as the references to each of these
covenants in the indenture: Sections 4.02 (SEC
Reports), 4.03 (Limitation on Indebtedness),
4.04 (Limitation on Restricted Payments), 4.05
(Limitation on Restrictions on Distributions
from Restricted Subsidiaries), 4.06 (Limitation
on Sales of Assets and Subsidiary Stock), 4.07
(Limitation on Affiliate Transactions), 4.08
(Limitation on the Sale or Issuance of Capital
Stock of Certain Restricted Subsidiaries), 4.09
(Change of Control), 4.10 (Limitation on Market
Swaps), 4.11 (Limitation on Lines of Business),
5.01 (When Company may Merge or Transfer
Assets), 6.01(3), (4), (6), (9) (Events of
Default).
PROCEDURES FOR TENDERING
DEBENTURES AND DELIVERING
CONSENTS:
(page 46) If you want to tender your debentures in the
exchange offer and/or deliver your consent in
the solicitation you should either:
- if you hold physical certificates evidencing
your debentures, complete and sign the
enclosed consent and letter of transmittal
(or a manually signed facsimile thereof) in
accordance with the instructions in that
document, have your signature guaranteed if
required by Instruction 1 of the consent and
letter of transmittal, and send or deliver
your manually signed consent and letter of
transmittal (or manually signed facsimile),
together with the certificates evidencing the
debentures being tendered and any other
required documents to the exchange agent; or
- if you hold your debentures in book-entry
form, request your broker, dealer, commercial
bank, trust company or other nominee to
effect the transaction for you.
If you own debentures that are registered in
the name of a broker, dealer, commercial bank,
trust company or other
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nominee, you must contact that broker, dealer,
commercial bank, trust company or other nominee
if you desire to tender your debentures and
deliver consents.
If you are tendering your debentures by
book-entry transfer to the exchange agent's
account at Depositary Trust Company (which we
refer to as the "DTC"), you can execute the
tender through the DTC's Automated Tender Offer
Program (which we refer to as "ATOP"), for
which the transaction will be eligible. DTC
participants that are accepting the exchange
offer must transmit their acceptance to DTC,
which will verify the acceptance and execute a
book-entry delivery to the exchange agent's
account at DTC. DTC will then send an agent's
message to the exchange agent for its
acceptance. DELIVERY OF THE AGENT'S MESSAGE BY
DTC WILL SATISFY THE TERMS OF THE EXCHANGE
OFFER AS TO THE TENDER OF DEBENTURES; HOWEVER,
IF YOU ARE CONSENTING TO THE PROPOSED
AMENDMENTS AND WISH TO RECEIVE THE EARLY
CONSENT PAYMENT, YOU MUST ALSO EXECUTE AND
DELIVER A CONSENT AND LETTER OF TRANSMITTAL ON
OR PRIOR TO THE EXPIRATION OF THE CONSENT
SOLICITATION.
If you desire to tender debentures in the
exchange offer and cannot comply with the
procedures described in this prospectus for
tender or delivery on a timely basis or if your
debentures are not immediately available, you
may tender your debentures using the procedures
for guaranteed delivery described in this
prospectus.
REVOCATION OF CONSENTS:
(page 50) You may revoke your consents at any time prior
to the expiration of the consent solicitation,
but not thereafter. If you validly revoke your
consent, it will render your tender of
debentures prior to the expiration of the
consent solicitation defective, and, unless RCN
waives such defect (or unless you withdraw and
re-tender your debentures), you will not be
eligible to receive the exchange offer
consideration with respect to your debentures.
WITHDRAWAL OF TENDERS OF
DEBENTURES:
(page 50) You may withdraw your tender of debentures at
any time prior to the expiration of the
exchange offer, but neither the exchange offer
consideration nor the early consent payment
will be payable in respect of any debentures so
withdrawn. If you withdraw your tendered
debentures prior to the expiration of the
consent solicitation, however, it shall be
deemed a revocation of the related consent.
UNTENDERED DEBENTURES:
(page 43) If you do not tender your debentures and they
are not exchanged in the exchange offer, they
will remain outstanding. If the requisite
consents to amend the indenture are received
and the proposed amendments become operative
under the supplemental indenture, untendered
debentures will no longer have the benefits of
the restrictive covenants that will be
eliminated from the indenture by the proposed
amendments. In addition, as a result of the
consummation of the exchange offer, the
aggregate principal amount of the debentures
that are outstanding will be significantly
reduced, which may adversely affect the
liquidity of
B-7
<PAGE> 22
and, consequently, the market price for the
debentures, if any, that remain outstanding
after consummation of the exchange offer.
ACCEPTANCE OF TENDERED
DEBENTURES
AND EXCHANGE:
(page 45) Upon the terms of the exchange offer and the
consent solicitation and upon satisfaction or
our waiver of the conditions to the exchange
offer and consent solicitation, we will accept
for exchange debentures validly tendered on or
prior to the expiration of the exchange offer.
Only if you validly tender your debentures
(including a properly completed, executed and
delivered consent) on or prior to the
expiration of the consent solicitation (and do
not withdraw your tender and revoke your
consent) will you receive the total
consideration, which includes the early consent
payment. We will make payment of the total
consideration or the offer consideration, as
applicable, for debentures validly tendered and
accepted for payment, by deposit of the
appropriate number of shares of RCN common
stock with the exchange agent who will act as
agent for the tendering and consenting holders
of debentures for the purpose of exchanging
shares of RCN common stock for debentures. We
expect such exchange to be made on the exchange
date described in this prospectus promptly
following our acceptance of the debentures in
the exchange offer.
MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS:
(page 52) The exchange offer has been structured in a
manner that is intended to allow it to be
treated as generally tax-free to holders of
21st Century debentures for United States
federal income tax purposes (except with
respect to cash received in lieu of fractional
shares and, possibly, shares of RCN common
stock treated as consent payments). However,
there is a significant risk that the exchange
offer will not qualify for tax-free treatment,
and it is not a condition to the consummation
of the exchange offer that it qualify for
tax-free treatment. If the exchange offer does
not qualify for tax-free treatment, it will be
a fully taxable transaction to you.
Tax matters are very complicated and the tax
consequences of the exchange offer to you will
depend on the facts of your own situation. You
should consult your own tax advisor for a full
understanding of the tax consequences of the
exchange offer and adoption of the proposed
amendments to you.
NO APPRAISAL RIGHTS:
(page 55) In connection with the exchange offer, you will
not have any right to dissent and receive an
appraisal of your debentures, either under
Illinois law or under the indenture.
USE OF PROCEEDS:
(page 55) The RCN common stock issued in connection with
the exchange offer is being issued only in
exchange for your debentures. We will not
receive any cash proceeds from the issuance of
RCN common stock in the exchange offer.
FRACTIONAL SHARES:
(page 29) We will not issue fractional shares of RCN
common stock. Instead you will receive cash in
lieu of any fractional shares your debentures
may convert into.
B-8
<PAGE> 23
DEALER MANAGER:
(page 54) Salomon Smith Barney, Inc. is serving as dealer
manager in connection with the exchange offer
and the consent solicitation. Its address and
telephone number are set forth on the back
cover of this prospectus.
EXCHANGE AGENT:
(page 54) ChaseMellon Shareholder Services, L.L.C. is
serving as exchange agent in connection with
the exchange offer and the consent
solicitation. Its address and telephone numbers
are located on the back cover of this
prospectus.
INFORMATION AGENT:
(page 54) ChaseMellon Shareholder Services, L.L.C. is
serving as the information agent in connection
with the exchange offer and the consent
solicitation. Its address and telephone numbers
are located on the back cover of this
prospectus.
B-9
<PAGE> 24
SELECTED FINANCIAL DATA
SUMMARY HISTORICAL FINANCIAL DATA OF RCN
In the table below, we provide you with selected historical consolidated
financial data of RCN for the five years ended December 31, 1999. During those
periods, RCN has never paid dividends on its common stock. We derived this
information from the audited consolidated financial statements of RCN. The
information is for illustrative purposes only and you should read it together
with RCN's historical financial statements and related notes contained in the
annual reports, quarterly reports and other information that we have filed with
the SEC and incorporated by reference. To obtain copies of these documents, see
"Where You Can Find More Information" on page 69.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................................... $ 275,993 $ 210,940 $ 127,297 $104,910 $ 91,997
(Loss) income before extraordinary
charge and cumulative effect of change
in accounting principles.............. $ (354,604) $ (204,801) $ (49,181) $ (5,989) $ 2,114
Basic and diluted (loss) earnings per
average common share before
extraordinary charge and cumulative
effect of change in accounting
principle............................. $ (5.11) $ (3.35) $ (0.89) $ (0.11) $ 0.04
BALANCE SHEET DATA
(as of the end of the period)
Total assets............................ $3,192,114 $1,907,615 $1,150,992 $628,085 $649,610
Long-term debt, net of current
maturities............................ $2,143,096 $1,263,036 $ 686,103 $131,250 $135,250
Total redeemable preferred
stock................................. $ 253,438 -- -- -- --
</TABLE>
10
<PAGE> 25
SUMMARY HISTORICAL FINANCIAL DATA OF 21ST CENTURY
In the table below, we provide you with selected historical consolidated
financial data of 21st Century for the five years ended March 31, 1998, for the
nine months ended December 31, 1998 and for the year ended December 31, 1999.
During those periods, 21st Century has never paid dividends on its common stock.
We derived this information from the audited consolidated financial statements
of 21st Century. The information is for illustrative purposes only and you
should read it together with 21st Century's historical financial statements and
related notes contained in the annual reports, quarterly reports and other
information that 21st Century has filed with the SEC and we have incorporated by
reference. To obtain copies of these documents, see "Where You Can Find More
Information" on page 69.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31, YEARS ENDED MARCH 31,
------------ ------------ ----------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Operating revenues......... $ 11,320,134 $ 873,898 $ 189,023 $ 27,480 -- -- --
Net loss................... $(65,071,616) $(32,788,712) $(15,030,544) $(2,817,292) $(1,026,609) $(779,314) $(303,030)
Net loss attributable to
common shares............ $(78,135,081) $(41,717,419) $(19,265,007) $(3,296,273) $(1,026,609) $(779,314) $(303,030)
Basic and diluted loss per
common share............. $ (18.93) $ (11.94) $ (7.37) $ (1.66) $ (0.64) $ (0.52) $ (0.21)
BALANCE SHEET DATA
(as of the end of the
period)
Total Assets............... $238,506,408 $254,343,973 $262,732,604 $14,396,708 $ 1,664,877 $ 847,659 $ 428,914
Long-term debt............. $255,010,575 $222,453,777 $203,549,069 $ 185,227 $ 149,884 $ 625,243 $ 235,608
Total redeemable preferred
stock.................... $ 61,666,268 $ 52,617,006 $ 46,492,812 $16,794,963 -- -- --
</TABLE>
11
<PAGE> 26
UNAUDITED COMPARATIVE PER SHARE INFORMATION
In the table below, we provide you with the earnings and book value per
share data for RCN and 21st Century on a historical basis, for the combined
company on a pro forma basis and for 21st Century on a historical per share
equivalent basis. We derived the pro forma data for the combined company by
combining the historical consolidated financial information of RCN and 21st
Century using the purchase method of accounting for business combinations.
Under Pro Forma 21st Century Historical Per Share Equivalents below, we
show the effect of the merger from the perspective of an owner of shares of 21st
Century common stock. We computed the information set out under that caption by
multiplying the corresponding pro forma financial data by the exchange ratio of
.4443.
You should read the information below together with the historical
financial statements and related notes contained in the annual reports,
quarterly reports and other information that we and 21st Century have filed with
the SEC and we have incorporated herein by reference. To obtain copies of these
documents, see "Where You Can Find More Information" on page 69 . The unaudited
pro forma combined data below is for illustrative purposes only. The companies
may have performed differently had they always been combined. You should not
rely on the information as being indicative of the historical results that would
have been achieved had the companies always been combined or the future results
of operation or financial condition that the combined company will experience
after the merger.
<TABLE>
<CAPTION>
YEAR
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1999 1998
------------ ------------
<S> <C> <C>
RCN HISTORICAL PER COMMON SHARE DATA
Basic and diluted loss per common share..................... $ (5.12) $ (3.36)
Book value per common share................................. 6.88 6.54
21ST CENTURY HISTORICAL PER COMMON SHARE DATA
Basic and diluted loss per common share..................... $(18.93) (14.82)
Book value per common share................................. (34.45) (20.92)
PRO FORMA COMBINED
Basic and diluted loss per common share..................... $ (6.17) $ (4.40)
Book value per common share................................. 9.04 7.65
PRO FORMA 21ST CENTURY PER SHARE EQUIVALENTS
Basic and diluted loss per common share..................... $ (2.74) $ (1.96)
Book value per common share................................. 4.02 3.40
</TABLE>
12
<PAGE> 27
COMPARATIVE MARKET PRICE INFORMATION
RCN's common stock is traded on the Nasdaq National Market under the symbol
"RCNC." 21st Century's common stock, class A preferred stock and debentures are
not traded publicly. Because the market price of RCN common stock that you will
receive in the merger may increase or decrease before the merger, you are urged
to obtain current market quotations. You may call 1 (888) 566-9474 during normal
business hours at any time before the special meeting to obtain the prior day's
closing market quotation of RCN common stock.
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices per share of RCN common stock as reported on the Nasdaq
National Market. The sales prices listed on the following table are adjusted to
reflect a 2:1 stock split of RCN common stock on April 6, 1998.
<TABLE>
<CAPTION>
RCN COMMON STOCK
------------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1997
Third Quarter............................................. $16.63 $12.44
Fourth Quarter............................................ 21.63 12.50
FISCAL 1998
First Quarter............................................. $30.63 $15.88
Second Quarter............................................ 29.38 19.25
Third Quarter............................................. 24.31 12.38
Fourth Quarter............................................ 25.00 8.75
FISCAL 1999
First Quarter............................................. $39.75 $17.75
Second Quarter............................................ 54.50 33.75
Third Quarter............................................. 51.50 32.25
Fourth Quarter............................................ 54.25 37.31
FISCAL 2000
First Quarter (through March 30, 2000).................... $74.87 $44.75
</TABLE>
On December 10, 1999, the business day preceding the public announcement
that RCN and 21st Century had entered into the merger agreement, the closing
price of RCN common stock was $41.625. On March 30, 2000, the last full trading
day for which closing prices were available at the time of the printing of this
prospectus, the closing price of RCN common stock was $54.75.
13
<PAGE> 28
RISK FACTORS
By receiving RCN common stock in the merger or exchanging your debentures
for RCN common stock in the exchange offer and consent solicitation, you will be
choosing to invest in RCN common stock. An investment in RCN common stock
involves a high degree of risk. In addition to the other information contained
in or incorporated by reference into this prospectus, you should carefully
consider the following risk factors in deciding whether to invest in RCN common
stock.
RISK FACTORS RELATING TO THE MERGER
THE NUMBER OF SHARES OF RCN COMMON STOCK YOU WILL RECEIVE IN THE MERGER WILL
NOT CHANGE DESPITE FLUCTUATIONS IN THE MARKET VALUE OF RCN COMMON STOCK.
There will be no adjustment to the merger consideration for changes in the
market price of RCN common stock, and 21st Century is not permitted to "walk
away" from the merger or resolicit the vote of its shareholders solely because
of changes in the market price of RCN common stock. Accordingly, the specific
dollar value of RCN common stock you receive upon completion of the merger will
depend on the market value of RCN common stock at the time of completion of the
merger.
TRADING PRICES OF RCN COMMON STOCK MAY BE VOLATILE
The price of RCN common stock at the closing of the merger may differ from
its price on the date of this prospectus and the date of the 21st Century
special meeting to vote on the merger. These variances may be due to a number of
factors, including the risk factors set forth in this prospectus, as well as
prevailing economic and financial trends and conditions in the public securities
markets. The trading price of RCN's shares may be affected by developments which
may not have any direct relationship with RCN's business or long-term prospects.
These include reported financial results and fluctuations in the trading prices
of the shares of other publicly held companies in the telephone, cable
television or Internet industry.
THE NUMBER OF SHARES OF RCN COMMON STOCK YOU RECEIVE IN THE MERGER MAY BE
REDUCED IN THE EVENT 21ST CENTURY DOES NOT OBTAIN FRANCHISES FOR WHICH IT HAS
APPLICATIONS PENDING.
Part of the consideration that you receive in the merger will be based on
whether 21st Century obtains the three franchises for which it has applications
pending with the City of Chicago. Delays or conditions imposed by the City of
Chicago that 21st Century is unable to satisfy or the failure of the City of
Chicago to grant those franchises may result in none of the consideration tied
to the grant of those franchise being paid. See "The Merger-Merger
Consideration."
UNLESS 21ST CENTURY'S OPERATIONS ACHIEVE SUBSTANTIAL GROWTH FOLLOWING THE
MERGER, 21ST CENTURY SHAREHOLDERS WILL RECEIVE LITTLE OR NO "EARN-OUT"
CONSIDERATION.
Part of the consideration that you receive in the merger will be based on
whether 21st Century achieves specific revenue and other performance targets
following the merger. Those revenues and other performance targets are in excess
of those achieved by 21st Century in the past and there is a significant risk
that 21st Century will not be able to achieve them in the future. Achieving
those targets is subject to a number of risks, including competition, the
ability of 21st Century to operate as a part of RCN, economic, financial and
industrial conditions and the other risk factors described in this prospectus.
Accordingly, there is a significant risk that little or no part of the
"earn-out" consideration will be paid. See "The Merger-Merger Consideration."
THE PORTION OF THE MERGER CONSIDERATION HELD IN ESCROW IS SUBJECT TO
FORFEITURE IF REPRESENTATIONS BY 21ST CENTURY IN THE MERGER AGREEMENT ARE NOT
TRUE.
If representations and warranties made by 21st Century in the merger
agreement are not true and RCN suffers any loss as a result, or if specific
categories of liabilities in the merger agreement materialize, RCN will be
permitted to deduct its losses from the 10% portion of the merger consideration
that will be held in escrow as security for your indemnification obligations. If
RCN's indemnification claims equal or exceed the amount held in escrow, you will
receive none of that consideration. In addition, if RCN's losses
14
<PAGE> 29
exceed the escrow amount, RCN will be entitled to withhold that excess from any
"earn-out" payment that might otherwise be payable. See "The Merger-The Merger
Agreement -- Indemnification."
ALTHOUGH WE EXPECT THAT THE MERGER WILL RESULT IN BENEFITS, THOSE BENEFITS MAY
NOT BE REALIZED.
We entered into the merger agreement with 21st Century with the expectation
that the merger will result in benefits to RCN, including strengthening our
position in the provision of Internet, cable and telephone services, delivering
low-cost bundled services and creating the opportunity for potential operating
cost savings. Although our corporate objectives and operating philosophy are
similar to 21st Century's, achieving the benefits of the merger will depend in
part on the integration of our technology, operations and personnel in a timely
and efficient manner so as to minimize the risk that the merger will result in
the loss of customers or key employees or the continued diversion of the
attention of management. There can be no assurance that 21st Century can be
successfully integrated into RCN or that any of the anticipated benefits will be
realized, and failure to do so could have a material adverse effect on our
business, financial condition and operating results.
21ST CENTURY'S OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of 21st Century participate in arrangements that
provide them with interests in the merger that are different from, or are in
addition to, yours.
In particular, Robert J. Currey, Ronald D. Webster, Glenn W. Milligan and
John A. Brouse have employment contracts with 21st Century that by their terms
will continue to be in effect after the merger. In addition, we have agreed to
grant options to acquire a yet to be determined number of shares of RCN common
stock to Mr. Currey in the event the merger is completed. In addition, we are
currently in the process of negotiating an employment arrangement with Mr.
Currey to provide him with a level of compensation and benefits consistent with
similarly situated RCN employees. As part of that negotiation, we expect Mr.
Currey to execute an agreement relating to the waiver of the automatic vesting
of his stock options that might have occurred as a result of the merger. It is a
condition to our obligation to complete the merger that he execute such an
agreement. We have agreed to grant options to acquire up to 30,000 shares of RCN
common stock to Mr. Webster and to pay him a $100,000 bonus on March 31, 2001 in
the event that he is employed by RCN at that time and the merger is completed.
We have agreed to grant options to acquire up to 20,000 shares of RCN common
stock to Mr. Brouse in the event that the merger is completed. As a result,
these directors and officers could have been more likely to support the merger
agreement than if they did not hold these interests. Each has already signed an
agreement to vote in favor of the merger agreement. 21st Century shareholders
should consider whether these interests may have influenced these directors and
officers to support or recommend the merger.
THE MERGER MAY BE A FULLY TAXABLE TRANSACTION.
The merger presents novel and complex issues of federal income taxation.
The merger has been structured in a manner that is intended to allow it to
qualify to be treated as a generally tax-free "reorganization" within the
meaning of the Internal Revenue Code of 1986, as amended (which we refer to as
the "Code"). However, there is a significant risk that the merger will not
qualify as such a reorganization, and it is not a condition to the consummation
of the merger that it qualify to be treated as a reorganization. Consequently,
the merger may be a fully taxable transaction to you. See "The Merger --
Material United States Federal Income Tax Consequences of the Merger."
RISK FACTORS RELATING TO THE EXCHANGE OFFER
COMMON STOCK IS SUBJECT TO GREATER RISKS THAN ARE DEBENTURES.
RCN's common stock is a common equity security of RCN and is therefore
subordinate to any preferred securities or indebtedness of RCN. Consequently, in
the event of bankruptcy, dissolution, liquidation, reorganization or similar
proceeding we will be obligated to satisfy the obligations of our
15
<PAGE> 30
indebtedness and preferred securities before any payment can be made on our
common stock. In addition, common stock lacks the protective covenants that are
typically associated with a debt security, including the debentures. Instead of
benefitting from the provisions of these covenants, the rights of RCN
stockholders are governed by Delaware law and RCN's charter and by-laws.
THE CALCULATION OF THE AMOUNT OF RCN COMMON STOCK TO BE ISSUED IN THE EXCHANGE
OFFER MAY PROVE TO BE UNFAVORABLE TO YOU.
The number of shares of RCN common stock to be issued in the exchange offer
is directly related to the performance of RCN common stock as reported on the
Nasdaq National Market. The value per share of RCN common stock is calculated
based on the average volume weighted trading prices of RCN common stock over the
five trading days ending one day prior to the date of the exchange offer as
reported on the Nasdaq National Market. There can be no assurance that the
market value of the shares of common stock issued in the exchange offer will not
be below their current market value or below the valuation that results from
this calculation, either during the period between the time you tender your
debenture and the time you take delivery of the common stock, or at any time
afterwards.
TRADING PRICES OF RCN COMMON STOCK MAY BE VOLATILE
The trading price of RCN common stock for the five trading days ending one
day prior to the exchange offer and following the closing of the exchange offer
and the merger will be affected by numerous factors. These include the risk
factors set forth in this prospectus, as well as prevailing economic and
financial trends and conditions in the public securities markets. The trading
price of RCN's shares may be affected by developments which may not have any
direct relationship with RCN's business or long-term prospects. These include
reported financial results and fluctuations in the trading prices of the shares
of other publicly held companies in the telephone, cable television or Internet
industry.
THE EXCHANGE OFFER MAY BE A FULLY TAXABLE TRANSACTION.
The exchange offer presents novel and complex issues of federal income
taxation. The merger and exchange offer have been structured in a manner that is
intended to allow the merger and exchange offer to qualify to be treated as
parts of a generally tax-free "reorganization" within the meaning of the Code.
However, there is a significant risk that the merger and exchange offer will not
qualify as such a reorganization, and it is not a condition to the consummation
of the exchange offer that it qualify to be treated as part of a reorganization.
Consequently, the exchange offer may be a fully taxable transaction to you. See
"The Exchange Offer and Consent Solicitation -- Material United States Federal
Income Tax Consequences of the Exchange Offer and the Proposed Amendments."
RISK FACTORS RELATING TO HOLDERS WHO DO NOT TENDER THEIR DEBENTURES IN THE
EXCHANGE OFFER
IF THE PROPOSED AMENDMENTS BECOME EFFECTIVE, DEBENTURES THAT YOU DO NOT TENDER
WILL ENJOY FEWER RIGHTS.
If the proposed amendments become effective, the debentures that you do not
tender and that are not purchased in the exchange offer will remain outstanding
and will be subject to the terms of the indenture as modified by the
supplemental indenture. As a result of the adoption of the proposed amendments,
substantially all of the covenants contained in the indenture will be deleted
and if you elect to continue to hold your debentures you will no longer be
entitled to the benefits of those deleted covenants that are currently contained
in the indenture. In addition, events which would have constituted a violation
of those covenants will no longer constitute events of default under the
indenture. The modification or deletion of restrictive covenants will permit
21st Century and its subsidiaries to take certain actions previously prohibited
that could increase the credit risks with respect to 21st Century, adversely
affect the market price and credit rating of the remaining debentures or
otherwise be adverse to your interests if you do not tender your debentures.
16
<PAGE> 31
THERE WILL BE LESS INFORMATION AVAILABLE ABOUT 21ST CENTURY AFTER THE EXCHANGE
OFFER IS COMPLETED.
We intend, as promptly as practicable after the consummation of the
exchange offer, to suspend 21st Century's reporting obligations under the
Securities Exchange Act of 1934 and will thereby discontinue making periodic
filings of financial statements with the SEC for 21st Century. Under the
indenture as currently in effect, if 21st Century were to cease to be subject to
the reporting obligations under the Exchange Act, it still would be obligated to
make filings under Sections 13 and 15(d) of the Exchange Act and to provide that
information to you. That obligation, however, would be eliminated upon the
operation of the proposed amendments contained in the supplemental indenture.
This would adversely affect the amount of information about 21st Century
publicly available and might affect the liquidity and trading prices of the
debentures.
THERE WILL BE A LIMITED TRADING MARKET FOR THE DEBENTURES AFTER THE EXCHANGE
OFFER IS COMPLETED.
The debentures were issued in 1998 and are not listed on any national or
regional securities exchange. To the extent that the debentures are tendered and
accepted in the exchange offer, any existing trading market for the remaining
debentures will become more limited. A debt security with a smaller outstanding
principal amount available for trading (a smaller "float") may command a lower
price than would a comparable debt security with a greater float. Consequently,
the liquidity, market value and price volatility of debentures which remain
outstanding may be adversely affected. If you hold unpurchased debentures, you
may attempt to obtain quotations for them from you broker; however, there can be
no assurance that any trading market will exist for your debentures following
the consummation of the exchange offer. The extent of the public market for the
debentures following consummation of the exchange offer would depend upon the
number of holders of debentures remaining at such time, the interest in
maintaining a market in debentures on the part of securities firms and other
factors.
No reliable pricing information for the debentures is available. You are
urged to contact your broker to obtain the best available information as to
potential current market prices.
THERE COULD BE AN ADVERSE EFFECT ON THE MARKET VALUE AND LIQUIDITY OF THE
DEBENTURES IF THE EXCHANGE OFFER IS NOT COMPLETED.
The consummation of the exchange offer and consent solicitation are subject
to the satisfaction of several conditions, including the requirement that we
obtain the requisite consents for the proposed amendments to the indenture. See
"The Exchange Offer and Consent Solicitation -- Conditions to the Exchange Offer
and Consent Solicitation." There can be no assurance that such conditions will
be met or that, in the event the exchange offer and consent solicitation are not
consummated, the market value and liquidity of the debentures will not be
materially adversely affected.
RISK FACTORS RELATING TO RCN'S BUSINESSES
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED NEGATIVE CASH FLOW AND
OPERATING LOSSES.
We have only recently begun operating a voice, video and data services
business. Accordingly, you will need to evaluate our performance based on a
limited operating history. In connection with entering this business, we have
incurred operating and net losses and negative cash flows and expect to continue
to do so for the next five to seven years as we expand our network and customer
base. Whether we continue to have negative cash flow in the future will be
affected by a variety of factors including:
- our pace of entry into new markets;
- the time and expense required for constructing our fiber optic network as
we planned;
- our success in marketing services;
- the intensity of competition; and
- the availability of additional capital to pursue our business plans.
We had operating losses after depreciation and amortization and
nonrecurring charges of $278,010,000, $158,793,000 and $70,875,000 for the years
ended December 31, 1999, 1998, and 1997. We
17
<PAGE> 32
cannot assure you that we will achieve or sustain profitability or positive cash
flows from operating activities in the future.
ADDITIONAL GROWTH WILL REQUIRE ADDITIONAL CAPITAL, AND OUR TOTAL CAPITAL NEEDS
MAY BE SUBSTANTIAL.
Based on our current growth plan, we expect that we will require a
substantial amount of capital to expand the development of our network and
operations into new areas within our larger target markets. We need capital to
fund the construction of our advanced fiber optic networks, upgrade our hybrid
fiber/coaxial plant and fund operating losses and repay our debts. We currently
estimate that our capital requirements for the period from January 1, 2000
through 2001 will be approximately $3.6 billion, which include capital
expenditures of approximately $1.4 billion in 2000 and approximately $1.6
billion in 2001. These capital expenditures will be used principally to fund
additional construction of our fiber optic network in high density areas in the
Boston, New York City, Washington, D.C. and San Francisco Bay area markets as
well as to expand into new markets (including selected markets in the western
United States) and to develop our information technology systems. See "The
Companies -- RCN." We are obligated to pay our portion of any capital
contributions required by the joint ventures' annual budgets or capital
contribution schedules. If our joint venture partner(s) fail to make anticipated
capital contributions, it could have a material adverse effect on our business.
We may seek additional sources of funding from vendor financing, public
offerings or private placements of equity and/or debt securities, and bank
loans. We cannot assure you that additional financing will be available to us
or, if available, that it can be obtained on a timely basis and on acceptable
terms. If we fail to obtain such financing, it could result in the delay or
curtailment of our development and expansion plans and expenditures and could
have a material adverse effect on our business.
Our estimates of capital requirements are forward-looking statements that
are subject to change. The actual timing and amount of capital required to
develop our network and to fund operating losses may vary materially from our
estimates if there are significant departures from the current business plan,
unforeseen delays, cost overruns, engineering design changes or other
unanticipated expenses or occurrences.
OUR SUBSTANTIAL INDEBTEDNESS LIMITS OUR BUSINESS FLEXIBILITY.
We have indebtedness that is substantial in relation to our shareholders'
equity and cash flow. Part of this indebtedness arises from the $1 billion
senior secured credit facility that we have with the Chase Manhattan Bank and
other lenders. The credit facility is comprised of a $250 million seven-year
revolving credit facility, a $250 million seven-year multi-draw term loan
facility and a $500 million eight-year term loan facility. All three facilities
are governed by a single credit agreement dated as of June 3, 1999.
As of December 31, 1999, we had an aggregate of approximately $2.1 billion
of indebtedness outstanding, including indebtedness arising under the Chase
Manhattan credit facility.
As a result of our substantial indebtedness, fixed charges are expected to
exceed earnings for the foreseeable future, and our operating cash flow may not
be sufficient to pay principal and interest on our various debt securities. The
extent of our leverage may also have the following consequences:
- limit our ability to obtain necessary financing in the future for working
capital, capital expenditures, debt service requirements or other
purposes;
- require that a substantial portion of our cash flows from operations be
dedicated to paying principal and interest on our indebtedness and
therefore not be available for other purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business;
- limit our ability to pay dividends;
- place us at a competitive disadvantage as compared with our competitors
who do not have as much debt; and
- render us more vulnerable in the event of a downturn in our business.
Our outstanding debt securities and our credit agreement with Chase
Manhattan contain customary covenants limiting our flexibility, including
covenants limiting our ability to incur additional debt, make
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<PAGE> 33
liens, make investments, consolidate, merge or acquire other businesses, sell
assets, pay dividends and other distributions, make capital expenditures and
enter into transactions with affiliates.
THERE MAY BE LIMITATIONS ON OUR TAX LOSS CARRYFORWARDS.
We have generated, and may continue to generate, certain net operating
losses (commonly referred to as "NOLs" for federal income tax purposes) that
generally may be carried forward to offset taxable income realized in future
years. However, if an ownership change (as defined in Section 382 of the Code)
occurs with respect to our capital stock, our ability to utilize NOLs generated
before the date of the ownership change generally would be limited to specific
annual amounts. RCN's ability to utilize new NOLs arising after the date of an
ownership change would not be affected.
Generally an ownership change occurs if certain persons or groups increase
their aggregate ownership of a corporation's capital stock by more than 50
percentage points in any three-year period. We expect that we will incur an
ownership change this year upon the closing of the Vulcan Ventures investment,
or may incur an ownership change in the future. See "The
Companies -- RCN -- Recent Developments." In that event, our utilization of NOL
carryforwards generated before any such ownership change would be subject to
limitation as described above.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH OR INTEGRATE OUR ACQUISITIONS.
The expansion and development of our operations, including the construction
and development of additional networks, will depend on several factors,
including our ability to:
- access 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 government
authorizations, franchises and permits,
all in a timely manner, at reasonable costs and on satisfactory terms and
conditions.
In addition to the Chicago market and other markets we are presently
developing, we continually evaluate other potential markets. These markets may
be within the Boston to Washington, D.C. corridor, the San Francisco to Los
Angeles corridor or in other non contiguous areas. As is the case in our present
markets, we intend to evaluate potential markets in terms of population density
and favorable demographics, and to apply a strategy of building network
facilities to meet the needs of targeted subscribers in new markets. We cannot
assure you that we will be able to expand our existing network or to identify
and develop new markets. Furthermore, our ability to manage our expansion
effectively will also require us to continue to implement and improve our
operating and administrative systems and attract and retain qualified management
and professional and technical personnel. If we are not able to manage our
planned expansion effectively, it could have a material adverse effect on our
business.
In addition to announcing our proposed acquisition of 21st Century, we
recently announced our intention to begin developing advanced fiber optic
networks in selected high density markets outside of the Boston to Washington,
D.C. corridor, initially in the San Francisco to Los Angeles corridor. Our
proposed expansion into non-contiguous markets could place additional strain on
management resources. Furthermore, although we believe that our experience in
the Northeast will provide us with strategic advantages in developing new
markets, we cannot assure you that our experience in our current markets will be
replicated in the western United States.
We have experienced significant growth through acquisitions and will
continue to consider acquisition opportunities that arise from time to time.
Acquisitions may place a significant strain on our resources, and we may incur
additional expenses during the integration of any acquired companies with our
business. For instance, the process of integrating the Internet service provider
businesses that we acquire may take a significant period of time and require
significant expenditures, including costs to upgrade the systems and
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<PAGE> 34
internal controls of these businesses. As a result, we cannot assure you that we
will be able to integrate these businesses successfully or in a timely manner.
OUR BUSINESS IS DEPENDENT UPON ACCEPTANCE OF FIBER OPTIC TECHNOLOGY AS THE
PLATFORM OF CHOICE.
The telecommunications industry has been and will continue to be subject to
rapid and significant changes in technology. The effect of technological changes
on our business cannot be predicted, and we cannot assure you that the fiber
optic technology that we use will not be supplanted by new or different
technologies.
WE ARE DEPENDENT ON OUR STRATEGIC RELATIONSHIPS AND JOINT VENTURES.
We have entered into a number of strategic alliances and relationships
which allowed us to enter into the market for telecommunications services
earlier than if we had made the attempt independently. As our network is further
developed, we will be dependent on some of these arrangements to provide a full
range of telecommunications service offerings. Our key strategic relationships
include:
- our joint venture with Boston Edison Company under which we have access
to its extensive fiber optic network in the greater Boston area;
- our joint venture with Pepco Communications to develop and operate an
advanced fiber optic network in the Washington, D.C. market;
- our agreement with Level 3 to provide us with access to its cross-country
fiber network; and
- our agreement with Southern California Edison to develop an advanced
fiber optic network that provides us with access to the greater Los
Angeles market.
Our joint venture agreements with Boston Edison Company and Pepco
Communications contain provisions for the management, governance and ownership
of the RCN-BECOCOM and Starpower joint ventures, respectively. Certain matters
require the approval of our joint venture partner, including some matters beyond
our control, such as a change of control. In addition, although certain
covenants contained in our indentures apply to the joint venture companies that
we have formed with our joint venture partners, neither the joint venture
companies nor our joint venture partners are parties to these indentures and are
not bound to comply with the indentures. A disagreement with our joint venture
partners over certain business actions, including actions related to compliance
with these indentures, could impede our ability to conduct our business. It may
also trigger deadlock provisions in the joint venture agreements which could
force us to sell our interest in the relevant joint venture or buy out the
interest of the other joint venturer.
In addition, any disruption of our relationships or arrangements with
incumbent local phone companies, such as Bell Atlantic, could have a material
adverse effect on our company. We cannot assure you that we will successfully
negotiate agreements with the incumbent local phone company in new markets or
renew existing agreements. Our failure to negotiate or renew required
interconnection and resale agreements could have a material adverse effect on
our business.
WE MAY ENCOUNTER DIFFICULTIES IN COMPETING IN THE HIGHLY COMPETITIVE
TELECOMMUNICATIONS INDUSTRY.
In each of the markets where we offer our services, we face significant
competition from larger, better-financed telephone carriers and cable companies.
Virtually all markets for voice, video and data services are extremely
competitive, and we expect that competition will intensify in the future. Our
principal competitors include:
- traditional telephone companies, including Bell Atlantic, AT&T, Sprint,
and MCI WorldCom, some of which are constructing extensive fiber optic
networks and expanding into data services;
- cable television service operators such as Time Warner, some of which are
beginning to offer telephone and data services through cable networks
using fiber optic networks and high-speed modems;
- established online services, such as America Online and Internet services
of other telecommunications companies;
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- companies providing a combination of the services listed above, such as
the companies that would result from the announced merger of Time Warner
and America Online and the announced merger of AT&T and Media One;
- alliances and combinations of telephone companies, cable service
providers and Internet companies, including the recently announced
alliance that will combine services of AT&T, TCI and At Home; and
- developing technologies such as Internet-based telephony and satellite
communications services.
It may be difficult to gain customers from the incumbent providers which have
historically dominated their markets.
Other new technologies may become competitive with services that we offer.
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. We
cannot predict the extent to which competition from such developing and future
technologies or from such future competitors will impact our operations.
EXISTING 21ST CENTURY CUSTOMERS MAY NOT ACCEPT OUR PLANNED SERVICES.
The success of our business strategy will depend upon consumer acceptance
of our planned offerings. Subscriber acceptance could be hurt by customer
loyalty to more established competitors and unfamiliarity with RCN. In addition,
we cannot be sure that technical problems will not impede or delay subscriber
acceptance of our services.
OUR BUSINESS PLAN DEPENDS UPON CONTINUED APPLICATION OF REGULATIONS THAT HAVE
BEEN CHALLENGED IN THE PAST.
Our ability to provide telephone and video programming transmission
services was made possible by important changes in government regulations which
have been subsequently challenged and may be subject to change in the future.
These regulations often have a direct or indirect impact on the costs of
operating our networks, and therefore the profitability of our services. In
addition, we will continue to be subject to other regulations at the federal,
state and local levels, all of which may change in the future. We cannot assure
you that we will be able to obtain all of the authorizations we need to
construct advanced fiber optic network facilities or to retain the
authorizations we have already acquired. It is possible that changes in existing
regulations could have an adverse impact on our ability to obtain or retain
authorizations and on our business.
WE MAY NOT BE ABLE TO PROCURE PROGRAMMING SERVICES FROM THE THIRD PARTIES WE
DEPEND ON.
Our video programming services are dependent upon our management's ability
to procure programming that is attractive to our customers at reasonable
commercial rates. We are dependent upon third parties for the development and
delivery of programming services. These programming suppliers charge us for the
right to distribute the channels to our customers. The costs to us 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 our future success. We cannot assure you
that we will have access to programming services or that management can secure
rights to such programming on commercially acceptable terms.
THE EXPANSION OF OUR INTERNET SERVICES BUSINESS HAS SUBJECTED US TO ADDITIONAL
RISKS.
The expansion of our Internet services business has subjected us to
additional risks. These risks will affect our ability to develop a profitable
Internet services business. These risks include:
- evolving industry standards which have the potential to make our services
obsolete by replacing or providing lower-cost alternatives to our
services;
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- constraints on server capacity or supply of equipment (such as modems and
servers) which could result in a strain on incoming access lines and
cause busy signals and/or delays for our subscribers;
- network infrastructure and risk of system failure, such as viruses, which
could lead to interruptions, delays, or cessation of our services, as
well as corruption of our or our subscribers' computer systems;
- possible claims of liability against us as a result of computer viruses
or security breaches; and
- the evolving competitive and regulatory environment concerning Internet
services.
OUR MANAGEMENT MAY HAVE CONFLICTS OF INTEREST WITH OTHER COMPANIES.
Based upon a review of documents filed with the SEC, we believe that Level
3 Telecom, Inc. beneficially owned approximately 34.9% of our common stock as of
October 1, 1999. Level 3 Telecom effectively has the power to elect a majority
of our directors and to decide the outcome of substantially all matters voted on
by shareholders. This may tend to deter non-negotiated tender offers or other
efforts to obtain control of our company and thereby deprive shareholders of
opportunities to sell shares at prices higher than the prevailing market price.
Moreover, a disposition by Level 3 Telecom of a significant portion of our
common stock, or the perception that such a disposition may occur, could affect
the trading price of our common stock and the control of our company. Level 3
Telecom holds our common stock through Level 3 Telecom Holdings, Inc. Level 3
Telecom owns 90% of the common stock and all of the preferred stock of Level 3
Holdings and David C. McCourt, our Chairman and Chief Executive Officer, owns
10% of the common stock of Level 3 Holdings. Mr. McCourt has been a member of
the board of directors and President of Level 3 Telecom since September 1992.
Based upon a review of documents filed with the SEC, we believe that as of
February 2, 2000, 19.9% of the common stock of Level 3 Telecom was owned by
directors and executive officers of Level 3 Telecom, five of whom (Walter Scott,
Jr., Richard R. Jaros, David C. McCourt, James Q. Crowe and Michael B. Yanney)
are executive officers or directors of RCN. The remaining shares of Level 3
Telecom common stock are owned by other persons, none of whom own more than 5%
of outstanding shares.
As a result of the September 30, 1997 spin-off of our shares to holders of
common equity of Commonwealth Telephone Enterprises, Inc., relationships exist
that may lead to conflicts of interest. Level 3 Telecom effectively controls
both us and Commonwealth Telephone. In addition, the majority of our named
executive officers are also directors and/or executive officers of Commonwealth
Telephone. Our success may be affected by the degree to which our officers and
directors are involved in our business and the abilities of officers, directors
and employees to manage both our company and Commonwealth Telephone. We will
deal with potential conflicts of interest on a case-by-case basis taking into
consideration relevant factors including the requirements of The Nasdaq National
Market and prevailing corporate practices.
In February 1999, we announced that we have entered into joint construction
agreements with Level 3 Telecom. We also recently announced that we have entered
into a letter of intent with Level 3 Telecom to provide us with cross-country
capacity to allow our customers to connect to major Internet connection points
in the United States. Although these arrangements are designed to reflect
similar arrangements entered into by parties negotiating at arm's length, we
cannot assure you that we would not be able to obtain better terms from an
unrelated third party.
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<PAGE> 37
THE COMPANIES
RCN
We are building high-speed, high-capacity fiber optic networks in selected
markets with high levels of population density. Our strategy is to become the
leading single source provider of voice, video and data services to residential
customers in each of our markets by offering individual or bundled service
options, superior customer service and competitive prices. We are also
constructing our networks with significant excess capacity in order to
accommodate expanded services in the future.
Our initial fiber optic networks have been established in selected markets
in the Boston to Washington, D.C. corridors, which includes New York City, and
also in the San Francisco Bay area. In addition, we have recently entered into
agreements that will allow us to establish and expand our advanced fiber optic
networks in the Los Angeles and Chicago areas. In Boston and Washington, we
operate through joint ventures with Boston Edison Company and PEPCO
Communications, L.L.C., respectively, and in Los Angeles, we are constructing
networks through an agreement with Southern California Edison. We are typically
building the first true local network to compete with the aging infrastructure
of the incumbent service providers in our markets.
Because our network development plan involves relatively low fixed costs,
we are able to schedule capital expenditures to meet expected subscriber growth
in each major market. Our principal fixed costs in each such market are incurred
in connection with the establishment of a video transmission and telephone
switching facility. To make each market economically viable, it is then
necessary to construct infrastructure to connect a minimum number of subscribers
to the transmission and switching facility. We phase our market entry projects
to ensure that we have sufficient cash on hand to fund this construction.
Adjusting for the 21st Century acquisition and the Vulcan Ventures investment
described below, we believe we have sufficient liquidity to meet our capital
requirements into 2002 based on our current plan.
We have extensive operating experience in the telephone, video and Internet
industries and in the design, development and construction of telecommunications
facilities. As of December 31, 1999, we had approximately 947,000 total service
connections, including approximately 223,000 connections provided to customers
on our advanced fiber optic network.
BUSINESS STRATEGY
Our goal is to become the leading provider of communication services to
residential customers in our target markets by pursuing several key strategies.
- Exploit the "Last Mile" Bottleneck in Existing Local Networks. Existing
local networks are typically low capacity, single service facilities
without the bandwidth for multiple or new services and revenue streams.
We seek to be the first operator of an advanced fiber optic network
offering advanced communications services to residential customers in our
target markets.
- Continue Construction of Fiber Optic Networks. Our fiber optic networks
are designed with sufficient capacity to meet the growing demand for high
speed, high capacity, voice, video and data services. Our networks also
have a significant amount of excess capacity which will be available for
the introduction of new products.
- Leverage our Network and Customer Base. We are able to leverage our
network by delivering a broad range of communications products and by
focusing on high density residential markets. This bandwidth capacity and
home density allows us to maximize the revenue potential per mile of
constructed network. We believe we can further exploit our network
capacity and customer base by exploring opportunities to deliver new
products and services in the future, including complementary commercial
and wholesale products and services.
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- Offer Bundled Voice, Video and Data Services with Quality Customer
Service. By connecting customers to our own network, we improve our
operating economics and have complete control over our customers'
experience with us.
- Continue to Use Strategic Alliances. We have been able to enter markets
quickly and efficiently and to reduce the up-front capital investment
required to deploy our networks by entering into strategic alliances.
CONNECTIONS
Because we deliver a variety of services to our customers, we report the
total number of our various revenue generating service connections for local
telephone, video programming and Internet access. For example, a single customer
who purchases local telephone, video programming and Internet access counts as
three connections. The table below shows our growth in total connections. We
refer to "On-Net Connections" as those which are provided over our fiber optic
networks.
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------------
9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Connections:
Voice.................. 78,950 95,890 100,219 104,456 105,480 109,719
Video.................. 255,100 261,662 269,421 276,088 285,212 292,204
Data................... 474,127 497,809 516,102 522,016 553,092 545,382
Total.......... 808,177 855,361 885,742 902,560 943,784 947,305
On-Net Connections....... 82,842 123,393 149,235 173,128 194,547 222,964
Homes Passed............. 213,983 304,505 350,733 427,843 550,771 713,823
Marketable Homes......... 181,353 270,406 301,546 361,015 440,112 551,006
</TABLE>
Our off-net connections are delivered through a variety of facilities
including hybrid fiber/coaxial cable systems and a wireless video system.
21ST CENTURY
21st Century Telecom Group, Inc. is a provider of bundled
telecommunications services in Chicago. 21st Century's bundling strategy through
its fiber optic network delivers cable television, telephone services and
high-speed Internet services. 21st Century's 15-year cable franchise encompasses
Chicago Area One, which stretches along the Chicago Lakefront from Evanston,
Illinois to the Hyde Park area. 21st Century also has franchise agreements with
the Villages of Skokie and Northbrook, Illinois.
RECENT DEVELOPMENTS
On March 7, 2000, the lenders under 21st Century's credit agreement, dated
as of August 5, 1998, assigned their interests under the credit agreement to
Citibank, N.A. Also on that date, 21st Century borrowed $40 million under the
credit agreement. In connection with the assignment of the credit agreement to
Citibank, the parties amended the credit agreement in which Citibank agreed
among other things to waive, until September 30, 2000, the requirements under
the credit agreement that 21st Century maintain specific levels of cash flows,
subscribers to its services and residential homes passed by its network and to
refrain from exercising its rights and remedies in respect of such requirements
until November 30, 2000. RCN acquired from Citibank a participation of the full
amount of the loan under the credit agreement.
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<PAGE> 39
THE MERGER
This section of the prospectus describes material aspects of the proposed
merger, including the merger agreement. While we believe that the description
covers the material terms of the merger and the related transactions, this
summary may not contain all of the information that is important to you. For a
more complete understanding of the merger you should read carefully this entire
document and the other documents we refer to in this prospectus. A copy of the
merger agreement is attached to this prospectus as Annex 1 and is incorporated
herein by reference.
BACKGROUND OF THE MERGER
During September 1999, Michael Adams, currently President of RCN,
approached Robert J. Currey, President and Chief Executive Officer of 21st
Century, regarding the possibility of a transaction. The talks focused primarily
on trends in the telecom and communications industry, the relative likeness of
the two companies' strategies and operations, the stage of 21st Century's
progress and its capital requirements going forward.
As a result of their discussion RCN and 21st Century entered into a
confidentiality agreement on September 21, 1999.
On September 29, 1999, Zachary Julius, Senior Vice President, Corporate
Development, accompanied by additional RCN representatives, met with Mr. Currey
and Ronald Webster, 21st Century's Chief Financial Officer, in Chicago to
conduct preliminary due diligence and further discuss the possibility of a
transaction, including the possibility of an acquisition of 21st Century by RCN.
Mr. Currey and Mr. Webster emphasized that 21st Century was currently seeking
equity investments from private financing sources.
On October 10, 1999, Mr. Julius met Mr. Currey in Washington, D.C. to
continue their discussions regarding a transaction. They could not agree on the
material terms of a transaction, including the price at which RCN would be
willing to acquire 21st Century, and no progress was made.
On November 1, 1999, David McCourt, Chairman and Chief Executive Officer of
RCN, met with Mr. Currey in Princeton, NJ to revisit the possibility of an
acquisition. During this conversation, Mr. McCourt and Mr. Currey discussed the
pace of change and consolidation in the telecommunications industry and how a
possible combination of the two companies could position the resulting company
to benefit from these trends. After agreeing that the two companies would
benefit from a combination, Mr. McCourt asked Mr. Currey to discuss with Mr.
Julius the appropriate structure, accounting treatment, and form and amount of
consideration for a potential transaction.
Beginning the week of November 8, 1999, representatives of RCN and 21st
Century, and their legal and financial advisors, met to discuss terms of a
potential transaction, including information relating to business, financial,
tax and accounting matters relating to 21st Century.
In the third and fourth weeks of November, Mr. Currey, Mr. Webster and 21st
Century's legal and financial advisors met in New York with Mr. Julius, other
representatives of RCN and RCN's legal and financial advisors, to negotiate the
terms of a draft merger agreement. Talks focused on valuation, the exchange
ratio, indemnity, employee benefits, representations and warranties, conditions
to closing and the treatment of 21st Century's outstanding senior discount notes
and the debentures.
On November 24, the board of directors of 21st Century met to discuss the
preliminary terms of the transaction.
On December 7, 1999, Mr. Julius, various representatives of RCN's senior
management and RCN's legal and financial advisors met with RCN's board of
directors to review the rationale for the acquisition of 21st Century, and to
discuss with the board the terms and conditions of the proposed merger
agreement. Following a detailed overview of the proposed terms of the
transaction by Mr. Julius, RCN's legal advisors reviewed the terms and
conditions of the proposed merger agreement, along with the board's fiduciary
duties. After extensive discussion, RCN's board voted unanimously to approve the
acquisition of 21st Century, subject to the resolution of certain outstanding
issues.
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During the next week, representatives of RCN and 21st Century met to
negotiate the final terms of the acquisition.
The board of 21st Century held meetings via conference call on December 9
and 10, 1999 to review and discuss the transaction with their financial and
legal advisors, during which 21st Century's legal advisors reviewed the terms
and conditions of the proposed merger agreement, along with the board's
fiduciary duties.
The merger agreement was executed by RCN and 21st Century on December 12,
1999. On December 13, 1999, RCN issued a press release announcing the
transaction.
RCN'S REASONS FOR THE MERGER
Our board of directors has determined that the combined company following
the merger would have the potential to realize long-term improved operating and
financial results and a stronger competitive position. Our board of directors
has identified additional potential mutual benefits of the merger that it
believes will contribute to the success of the combined company. These potential
benefits include the following:
- the merger will enable RCN to expand its operations into a new
high-density residential market;
- the merger will result initially in RCN being the only competitive
provider in the Chicago metropolitan area with RCN's package of bundled
phone, cable and high-speed Internet services, which RCN believes will
increase RCN's revenue potential and create value for RCN stockholders;
- adding 21st Century allows RCN to integrate 21st Century's operating and
network expertise as well as its experienced management team;
- 21st Century is in an earlier stage of development than RCN, which RCN
expects to allow it to continue the development of 21st Century's network
in a manner consistent with RCN's approach to developing its networks;
and
- combining RCN and 21st Century may improve network efficiency through
increased scale and the potential for lower costs.
21ST CENTURY'S REASONS FOR THE MERGER
In addition to the anticipated potential benefits described above, 21st
Century's board of directors has indicated to us that it believes that the
merger will be beneficial to 21st Century and its shareholders for the following
reasons:
- the merger will result in a larger, more diversified company, better able
to compete effectively in a rapidly changing and increasingly competitive
industry;
- the value of the consideration to be paid to 21st Century shareholders
and the potential tax-free nature of the transaction;
- the opportunity for liquidity for holders of 21st Century shares, who
will receive RCN shares that are expected to be listed and traded on the
Nasdaq National Market;
- the prospects for positive long-term performance of RCN common stock;
- the conclusion of 21st Century's board of directors that the merger
consideration was fair, from a financial point of view, to the 21st
Century shareholders; and
- the 21st Century board's assessment of 21st Century's strategic
alternatives to the merger, including remaining an independent company.
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In the course of its deliberations, the 21st Century board reviewed a
number of additional factors relevant to the merger, including:
- 21st Century's business, financial condition, results of operations and
prospects;
- 21st Century's management's view as to the financial condition, results
of operations and businesses of RCN and 21st Century before and after
giving effect to the merger based on management's due diligence review
and review of publicly available information;
- market conditions and historical market prices, volatility and trading
information with respect to RCN common stock;
- the impact of the merger on 21st Century's customers and employees; and
- 21st Century's evaluation of other potential strategic relationships.
21st Century's board of directors also identified and considered a variety
of potentially negative factors in its deliberations concerning the merger,
which are described under "Risk Factors" beginning on page 14 of this
prospectus. 21st Century's board of directors believed that these risks were
outweighed by the potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by
21st Century's board of directors. Each member of 21st Century's board may have
considered different factors, and 21st Century's board evaluated these factors
as a whole and did not quantify or otherwise assign relative weights to the
factors considered.
INTERESTS OF CERTAIN 21ST CENTURY DIRECTORS, OFFICERS AND AFFILIATES IN THE
MERGER
You should be aware that certain executive officers of 21st Century,
including some officers who are also directors, have certain interests in the
merger that are different from or in addition to yours.
In particular, all executive officers or directors who hold shares or stock
options of 21st Century, will be entitled to receive shares of RCN in the same
manner as all other shareholders or stock option holders of 21st Century.
Additionally, Robert J. Currey, Ronald D. Webster, Glenn W. Milligan and John A.
Brouse have employment agreements with 21st Century that, by their terms, will
continue to be in effect following the merger. In addition, we have agreed to
grant options to acquire a yet to be determined number of shares of RCN common
stock to Mr. Currey in the event the merger is completed. In addition, we are
currently in the process of negotiating an employment arrangement with Mr.
Currey to provide him with a level of compensation and benefits consistent with
similarly situated RCN employees. As part of that negotiation, we expect Mr.
Currey to execute an agreement relating to the waiver of the automatic vesting
of his stock options that might have occurred as a result of the merger. It is a
condition to our obligation to complete the merger that he execute such an
agreement. We have agreed to grant options to acquire up to 30,000 shares of RCN
common stock to Mr. Webster and to pay him a $100,000 bonus on March 31, 2001 in
the event that he is employed by RCN at that time and the merger is completed.
We have agreed to grant options to acquire up to 20,000 shares of RCN common
stock to Mr. Brouse in the event that the merger is completed.
On the date the merger agreement was executed, directors and executive
officers of 21st Century and their affiliates owned and were entitled to vote
1,906,194.492 shares of common stock and 1,351,196.200 shares of class A
preferred stock. On that date, all of these shares together represented
approximately 51% of the total voting power of 21st Century common stock, 86.9%
of the total voting power of 21st Century class A preferred stock and 61.65% of
the total voting power of 21st Century's common stock and class A preferred
stock taken together as a class. Additionally, Edward T. Joyce, Ronald D.
Webster, Glenn W. Milligan, David Kronfeld and William Farely have all signed an
irrevocable proxy that gives RCN the right to vote their shares.
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COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including adoption of the merger agreement
by the shareholders of 21st Century. The merger will become effective upon the
filing of a certificate of merger with the State of Illinois.
We are working towards completing the merger as quickly as possible. We
hope to complete the merger during the second quarter 2000.
FORM OF MERGER
We will acquire 21st Century by merging a wholly owned subsidiary of RCN
into 21st Century, and 21st Century will become a wholly owned subsidiary of
RCN. Following the merger, you will become a shareholder of RCN, in which event
you will have an equity stake in 21st Century's parent company.
VOTE REQUIRED TO APPROVE THE MERGER
The affirmative vote of holders of shares representing two-thirds of the
outstanding shares of 21st Century's voting common stock and class A preferred
stock, voting together as a class, and a majority of the outstanding shares of
class A preferred stock entitled to vote at the 21st Century special meeting is
required to adopt the merger agreement.
MERGER CONSIDERATION
HOLDERS OF 21ST CENTURY COMMON STOCK. The number of shares of RCN common
stock that will be received for each share of 21st Century common stock will be
equal to the exchange ratio. The exchange ratio is .4443, subject to adjustment
in the event that 21st Century does not obtain the three franchises in the
Chicago area for which it has applications pending prior to the merger. In
addition, whether you hold 21st Century common stock, class A preferred stock or
warrants, in each case:
- ten percent (10%) of the shares of RCN common stock you would otherwise
receive will be held in escrow as security for your indemnification
obligations to RCN
-- such shares will be held in escrow for a period of one year following
the completion of the merger, and
-- the number of shares you will receive from the escrow amount, if any,
will depend on the amount of indemnification claims made by RCN
against the escrow amount during the one-year period following
completion of the merger; and
- you may be entitled to receive additional shares of RCN common stock as
an "earn-out" payment in the event that, during the 12-month period ended
March 31, 2001, 21st Century achieves specific revenue and other
performance targets
-- as described in the merger agreement, your possible "earn-out"
payment depends upon 21st Century achieving specific performance
targets relating to marketable homes and on-net revenues, and not
exceeding specific limitations on both capital expenditures and
earnings before interest, taxes, depreciation and amortization (which
is commonly referred to as "EBITDA") for the 12-month period ending
on March 31, 2001.
In the event the three franchises are not obtained prior to the completion
of the merger, the exchange ratio of .4443 will be reduced by approximately
.0278 for each franchise not obtained. For example, if none of the three
franchises are obtained, the exchange ratio would be reduced to .3607. As
described in the merger agreement, if a franchise not obtained prior to
completion of the merger is obtained by December 12, 2000, you will receive the
same number of shares at RCN common stock in respect of that franchise that you
would have received if that franchise was obtained prior to the completion of
the merger. The number of shares of RCN common stock payable for franchises
obtained after that date decreases until June 12, 2001. Nothing will be payable
for franchises obtained after June 12, 2001.
HOLDERS OF 21ST CENTURY CLASS A PREFERRED STOCK. The number of shares of
RCN common stock that will be received for each share of 21st Century class A
preferred stock will be equal to the exchange ratio, as it may be adjusted if
21st Century does not obtain its pending franchises, multiplied by 1,000. As
with
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the 21st Century common stock described above, a portion of the shares of RCN
common stock you would otherwise receive will be held in escrow and you may be
entitled to receive additional shares of RCN common stock as an "earn-out"
payment in the event specific revenue and other performance targets are achieved
by 21st Century.
HOLDERS OF 21ST CENTURY WARRANTS. The number of shares of RCN common stock
that will be received for each warrant to acquire 21st Century common stock will
be equal to the number of shares of RCN common stock you would have received had
you exercised your warrant immediately prior to the completion of the merger by
means of a cash-less exercise. As with the 21st Century common stock described
above, a portion of the shares of RCN common stock you would otherwise receive
will be held in escrow and you may be entitled to receive additional shares of
RCN common stock as an "earn-out" payment in the event specific revenue and
other performance targets are achieved by 21st Century.
HOLDERS OF 21ST CENTURY OPTIONS. Options to purchase 21st Century common
stock will automatically be converted into options to purchase a proportionate
number of shares RCN common stock with a corresponding adjustment to the
exercise price based on the exchange ratio, as it may be adjusted if 21st
Century does not obtain its pending franchises. In addition, if you still hold
options at the time that any indemnification claims are made by RCN against the
escrow amount described above or at the time any additional shares of RCN common
stock are issued as a result of 21st Century achieving specific performance
targets, then the number of options you hold at such time will be adjusted to
give effect to such events.
As a result of the form of the merger consideration, the value of the
merger consideration you receive will not be known at the time you vote on the
merger and may increase or decrease as the market price of RCN common stock
increases or decreases. 21st Century is not permitted to "walk away" from the
merger or resolicit the vote of its shareholders based solely on changes in the
value of RCN common stock. In addition, the value of the merger consideration
may change depending on whether or not the franchises are obtained, whether or
not any "earn-out" payment is ever made and/or whether or not any shares will be
payable from the escrow amount.
FRACTIONAL SHARES. Holders of 21st Century common stock, class A preferred
stock and warrants will receive cash, without interest, for any fractional
shares they might otherwise have received in the merger based on the average of
the closing prices of RCN common stock, as reported on the Nasdaq National
Market, on each of the 15 trading days immediately preceding the completion of
the merger.
MISCELLANEOUS. If RCN effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction prior to the completion of the merger, an appropriate adjustment to
the consideration will be made.
EXCHANGE OF 21ST CENTURY STOCK CERTIFICATES FOR RCN STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to you a letter
of transmittal and instructions for use in surrendering your 21st Century common
stock certificates, Class A preferred stock certificates and/or warrant
certificates, as applicable in exchange for RCN stock certificates. When you
deliver your 21st Century stock certificates to the exchange agent along with a
properly executed letter of transmittal and any other required documents, your
21st Century stock certificates will be canceled and you will receive RCN stock
certificates representing the number of full shares of RCN common stock to which
you are entitled under the merger agreement. You will receive payment in cash,
without interest, in lieu of any fractional shares of RCN common stock which
would have been otherwise issuable to you as a result of the merger.
YOU SHOULD NOT SUBMIT YOUR 21ST CENTURY STOCK CERTIFICATES FOR EXCHANGE
UNLESS AND UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER
OF TRANSMITTAL FROM THE EXCHANGE AGENT.
You are not entitled to receive any dividends or other distributions on RCN
common stock until the merger is completed and you have surrendered your 21st
Century stock certificates in exchange for RCN stock certificates.
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If there is any dividend or other distribution on RCN common stock with a
record date after the merger and a payment date prior to the date you surrender
your 21st Century stock certificates in exchange for RCN stock certificates, you
will receive such dividend or other distribution with respect to the whole
shares of RCN common stock issued to you promptly after they are issued. If
there is any dividend or other distribution on RCN common stock with a record
date after the merger and a payment date after the date you surrender your 21st
Century certificates in exchange for RCN stock certificates, you will receive it
with respect to the whole shares of RCN common stock issued to you promptly
after the payment date.
RCN will only issue a RCN stock certificate or a check in lieu of a
fractional share in a name other than the name in which a surrendered 21st
Century certificate is registered if you present the exchange agent with all
documents required to show and effect the unrecorded transfer of ownership and
show that you paid any applicable stock transfer taxes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of material U.S. federal income tax consequences
of the merger to holders of 21st Century common stock and class A preferred
stock who hold such stock as a capital asset within the meaning of Section 1221
of the Code. This summary is based on the Code, Treasury regulations,
administrative rulings and court decisions, all as in effect as of the date
hereof and all of which are subject to change at any time (possibly with
retroactive effect). This summary is not a complete description of all the
consequences of the merger and, in particular, may not address U.S. federal
income tax considerations applicable to shareholders subject to special
treatment under U.S. federal income tax law (including, for example, non-U.S.
persons, partnerships, S corporations, other pass-through entities, financial
institutions, dealers in securities, insurance companies, tax-exempt entities,
holders who acquired 21st Century stock pursuant to the exercise of an employee
stock option or right or otherwise as compensation, and holders who hold 21st
Century stock as part of a hedge, straddle or conversion transaction). This
summary also does not apply to holders of 21st Century stock who are paid cash
for their 21st Century stock as a result of exercising dissenters' rights under
applicable state law. In addition, no information is provided herein with
respect to the tax consequences of the merger under applicable foreign, state or
local laws.
The merger presents novel and complex issues of federal income taxation.
The merger has been structured in a manner that is intended to allow it to
qualify as a reorganization within the meaning of Section 368(a) of the Code
(which we refer to as a "Reorganization"). However, there is a significant risk
that the merger will not qualify as a Reorganization and it is not a condition
to the consummation of the merger that the merger qualify as a Reorganization.
IF THE MERGER DOES NOT QUALIFY AS A REORGANIZATION, THE MERGER WILL BE A FULLY
TAXABLE TRANSACTION TO YOU.
It is intended that if 21st Century's counsel, Piper Marbury Rudnick &
Wolfe LLP, is able to do so, Piper will, upon completion of the merger, deliver
to 21st Century an opinion generally to the effect that the merger will be
treated as a Reorganization. Piper's opinion, if issued, will not be binding on
the Internal Revenue Service (commonly referred to as the "IRS") or the courts,
and the parties do not intend to request a ruling from the IRS with respect to
the merger. Accordingly, there can be no assurance that (i) Piper will be able
to deliver such an opinion, (ii) if Piper does deliver an opinion that the IRS
will not challenge the conclusions reached in the opinion, or (iii) a court will
not sustain any such challenge by the IRS. HOWEVER, SINCE NEITHER TREATMENT OF
THE MERGER AS A REORGANIZATION NOR DELIVERY OF THE OPINION IS A CONDITION TO THE
CONSUMMATION OF THE MERGER, 21ST CENTURY WILL BE OBLIGATED TO CONSUMMATE THE
MERGER EVEN IF THE MERGER IS FULLY TAXABLE TO YOU AND/OR PIPER IS UNABLE TO
DELIVER THE OPINION.
If Piper does deliver an opinion that the merger will be treated as a
Reorganization, that opinion will be based upon certain assumptions and upon the
representations contained in separate representation letters provided to Piper
by 21st Century and RCN and signed by officers of each company. If any of
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those assumptions or representations proves to be inaccurate, the conclusions
contained in the opinion could be affected.
If the merger is treated as a Reorganization, the following will be the
material federal income tax consequences of the merger to you:
- except as discussed below with respect to certain imputed interest and
cash received in lieu of fractional shares, you will recognize neither
gain nor loss with respect to your 21st Century stock upon your surrender
of all such stock in exchange for RCN common stock in the merger
(including RCN common stock (a) held in escrow, (b) issued subject to the
"earn-out" and (c) issued upon 21st Century's obtaining the franchises
for which it has applications pending (we refer to items (b) and (c) as
the "Contingent Consideration"));
- except for shares treated as imputed interest, the aggregate tax basis of
the shares of RCN common stock you receive in the exchange of all of your
21st Century stock solely for RCN common stock in the merger will be the
same as the aggregate tax basis of the shares of 21st Century stock you
surrender in exchange therefor (reduced by any amount of tax basis
allocable to a fractional share interest in RCN common stock for which
you receive cash). The aggregate tax basis of the Contingent
Consideration treated as imputed interest will be equal to the amount of
interest income you are required to recognize upon receipt of any
Contingent Consideration so treated. If you dispose of some of the RCN
common stock received on the merger closing date prior to the time when
your right to receive any Contingent Consideration is determinable, you
may be required to determine the tax basis of the shares disposed of by
estimating the amount of Contingent Consideration you will receive;
- a portion of the shares, if any, that you receive as Contingent
Consideration will be treated as imputed interest, and you must include
that portion as taxable ordinary income in the year of receipt. The
portion treated as imputed interest will generally be equal to the excess
of the fair market value of the Contingent Consideration on the earlier
of the date of receipt or date of deposit in escrow, over the present
value of the Contingent Consideration, determined as of the Effective
Time, discounted using the short-term applicable federal rate in effect
for the month in which the Effective Time occurs;
- except for shares treated as imputed interest, the holding period of
shares of RCN common stock you receive in the merger will include your
holding period of the shares of 21st Century stock you surrender in
exchange therefor. The holding period for a share of RCN common stock you
receive that is treated as imputed interest will begin on the earlier of
the date that share is received or the date it is deposited in escrow;
and
- based upon the current ruling position of the IRS, cash you receive in
lieu of a fractional share interest in RCN common stock will be treated
as received in redemption of that fractional share interest, and you will
generally recognize capital gain or loss for federal income tax purposes
measured by the difference between the amount of cash you receive and the
portion of the tax basis of your 21st Century stock that is allocable to
such fractional share interest. The capital gain or loss will be long
term capital gain or loss if your holding period in your 21st Century
stock is more than one year.
If the merger is not treated as a Reorganization, your exchange of 21st
Century stock for RCN common stock and cash in lieu of fractional shares will be
fully taxable to you. As a result, except for the portion of Contingent
Consideration treated as imputed interest, you will generally recognize a
capital gain or loss for United States federal income tax purposes equal to the
difference between the fair market value of the RCN common stock and cash in
lieu of fractional shares you receive and your aggregate tax basis in the 21st
Century stock you surrender in exchange therefor. The timing of such gain or
loss would depend on your method of accounting, and you should consult your own
tax advisor in this regard. The capital gain or loss will be long term capital
gain or loss if your holding period in your shares of 21st Century stock is more
than one year. You will generally be required to include the portion of the
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Contingent Consideration, if any, that is treated as imputed interest as
ordinary income in the taxable year deemed received. Your aggregate tax basis in
the shares of RCN common stock you receive will be equal to the fair market
value of such shares when they are received (or deposited in escrow). Your
holding period for a share of RCN common stock received will commence on the
earlier of the date that such share is received or deposited in escrow.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OR
ANY OTHER CONSEQUENCES OF THE MERGER. THUS, YOU ARE URGED TO CONSULT YOUR OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU, INCLUDING
TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS, THE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS AND THE DISPOSITION OF A SHARE OF RCN COMMON STOCK
BEFORE YOUR RIGHT TO RECEIVE THE CONTINGENT CONSIDERATION IS DETERMINABLE.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger using the purchase method for business
combinations with RCN being deemed to have acquired 21st Century.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 which prevents some transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and certain waiting periods end or expire. We received early termination of the
applicable waiting periods on February 14, 2000. The requirements of
Hart-Scott-Rodino will be satisfied if the merger is completed within one year
from the termination of the waiting period.
However, the Antitrust Division of the Department of Justice or the Federal
Trade Commission may challenge the merger on antitrust grounds after termination
of the waiting period. Accordingly, at any time before or after the completion
of the merger, either the Antitrust Division of the Department of Justice or the
Federal Trade Commission could take action under the antitrust laws as it deems
necessary or desirable in the public interest, or other persons could take
action under the antitrust laws, including seeking to enjoin the merger.
Additionally, at any time before or after the completion of the merger,
notwithstanding that the applicable waiting period expired or ended, any state
could take action under the antitrust laws as it deems necessary or desirable in
the public interest. There can be no assurance that a challenge to the merger
will not be made or that, if a challenge is made, we will prevail.
Under the Communications Act of 1934, as amended, the Federal
Communications Commission must approve, before the completion of the merger, the
transfer of control to RCN of 21st Century's FCC authorizations. The FCC must
determine whether RCN is qualified to control such licenses and authorizations
and whether the transfer is consistent with the public interest, convenience and
necessity. RCN and 21st Century filed transfer of control applications and/or
notifications with the FCC in January and February 2000 and have since received
all such approvals.
21st Century holds cable television franchises issued by the City of
Chicago, Village of Northbrook and Village of Skokie, each of which must approve
the transfer of control of the 21st Century franchise to RCN. Applications to
approve the transfer of control were filed in January 2000, and 21st Century has
since notified us that it has received approval from the City of Chicago and the
Village of Northbrook. 21st Century has indicated to us that it expects to
receive approval by the Village of Skokie prior to completion of the merger. In
addition, 21st Century holds telecommunications service authorizations issued by
the Indiana Utility Commission and Illinois Commerce Commission which reviewed
and approved the notice of transfer of control of these authorizations to RCN.
Obtaining approval of these transfers is a condition to completion of the merger
and we can not make assurances that we will obtain these approvals.
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We are not aware of any other material governmental or regulatory approval
required for completion of the merger, other than compliance with the applicable
corporate law of Illinois.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF 21ST CENTURY AND RCN
The shares of RCN common stock to be issued in connection with the merger
will be registered under the Securities Act and will be freely transferable
under the Securities Act, except for shares of RCN common stock issued to any
person who is deemed to be an "affiliate" of either of RCN or 21st Century under
the Securities Act of 1933 at the time of the special meeting. Persons who may
be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control of either RCN or 21st Century and may
include some officers and directors, as well as principal shareholders.
Affiliates may not sell their shares of RCN common stock acquired in connection
with the merger except by means of:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act
RCN's registration statement, of which this prospectus forms a part, does not
cover the resale of shares of RCN common stock to be received by these
affiliates in the merger.
LISTING ON THE NASDAQ NATIONAL MARKET OF RCN COMMON STOCK TO BE ISSUED IN THE
MERGER
RCN will use best efforts to cause the shares of RCN common stock to be
issued in the merger to be approved for listing on the Nasdaq National Market,
subject to official notice of issuance, before the completion of the merger.
APPRAISAL RIGHTS
Under Illinois law, if you are a 21st Century shareholder and you comply
with certain requirements of Illinois law, you are entitled to dissenters'
rights in the merger. However, it is a condition of 21st Century's obligation to
consummate the merger that no more than 5% of the issued and outstanding 21st
Century shares exercise dissenters' appraisal rights.
Any holder of 21st Century common stock has the right to dissent to the
approval of the merger under Section 11.65 of the Illinois Act and the right to
be paid the "fair value" of his or her shares in cash by complying with the
procedures set forth in Section 11.70 of the Illinois Act. A holder of the 21st
Century common stock must dissent with respect to all of the shares beneficially
owned by him or her. A record owner of shares may assert dissenters' rights as
to fewer than all the shares recorded in the shareholder's name only if the
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies 21st Century in writing of the name and address of each
person on whose behalf the record owner asserts dissenter's rights. The rights
of a partial dissenter are determined as if the shares as to which dissent is
made and the remaining shares were recorded in the names of different
shareholders. A beneficial owner of shares who is not the record owner may
assert dissenter's right as to shares held on such person's behalf only if the
beneficial owner submits to 21st Century the record owner's written consent to
the dissent before or at the same time the beneficial owner asserts dissenters'
rights. A copy of Sections 11.65 and 11.70 of the Illinois Act is attached as
Annex 2 and those sections are incorporated into this prospectus by reference.
Set forth below is a summary of the procedures relating to the exercise of
dissenters' rights. This summary does not purport to be a complete statement of
the provisions of Sections 11.65 and 11.70 of the Illinois Act and is qualified
in its entirety by reference to Annex 2.
To be entitled to the right to receive a cash payment by exercising
dissenters' rights, a holder of 21st Century common stock must first:
1. deliver to 21st Century a written demand for payment for his or her
shares if the merger is consummated; and
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2. not vote his or her shares in favor of the adoption of the merger
agreement.
The written demand must be made in addition to, and separate from, any
proxy or vote against the approval of the merger agreement; neither a proxy nor
a vote against approval of the merger agreement constitutes a written demand.
The written demand should be sent in advance of the 21st Century special
meeting by registered or certified mail, return receipt requested, to 21st
Century Telecom Group, Inc., 350 North Orleans, Suite 600, Chicago, Illinois
60654-1509. The written demand may also be delivered to 21st Century before the
vote is taken on the proposal to approve the merger agreement. With respect to
condition (2) above, a dissenting holder of 21st Century common stock must
either vote by proxy or in person against the merger agreement or abstain from
voting. Holders of 21st Century common stock who return a proxy but do not
indicate their vote will be deemed to have voted for approval of the merger
agreement and will not have satisfied condition (2) above.
If a holder of 21st Century common stock has satisfied conditions (1) and
(2) above, then such shareholder will be entitled only to payment in cash of the
fair value of his or her shares as provided in Section 11.70 of the Illinois
Act. If the shareholder withdraws the written demand to be paid the fair value
of his or her shares, or if the merger is abandoned or terminated, or if a court
determines that the holder of 21st Century common stock is not entitled to
receive payment for his or her shares, or if the shareholder otherwise loses his
or her dissenters' rights, then the shareholder will be reinstated to all his or
her rights as a holder of 21st Century common stock as of the filing of his or
her written demand. If the merger is consummated, these rights would include the
right to receive RCN common stock, into which his or her shares of 21st Century
common stock were converted under the merger agreement.
Within 10 days after completion of the merger or 30 days after the
dissenting shareholder of 21st Century common stock who complies with conditions
(1) and (2) noted above delivers to 21st Century his or her written demand for
payment, whichever is later, RCN, as successor to 21st Century, will send to
each shareholder:
(a) a statement setting forth the opinion of 21st Century as to the
estimated value of the shares of 21st Century common stock;
(b) 21st Century's latest balance sheet as of the end of the fiscal year
ending not earlier than 16 months before delivery of the statement,
together with the statement of income for the year and the latest
interim financial statements; and
(c) a commitment to pay for the shares of the dissenting shareholder of
21st Century common stock at the estimated value upon transmittal to
RCN of the certificate or certificates, or other evidence of ownership,
with respect to the shares.
If the dissenting holder of 21st Century common stock does not agree with
the opinion of 21st Century as to the estimated value of his or her shares of
21st Century common stock, the shareholder, within 30 days of the delivery of
21st Century's statement of estimated value, will notify 21st Century in writing
of the shareholder's estimate value and demand payment of the difference between
the shareholder's estimate of value and amount of the proposed payment by 21st
Century.
If, within 60 days from delivery of the shareholder's notification of the
estimate of value of the shares of 21st Century common stock, 21st Century and
the dissenting shareholder have not agreed in writing upon the value of the
shares, 21st Century has the right to either
1. pay the difference in value demanded by the shareholder; or
2. file a petition in the Circuit Court of Cook County, Illinois,
requesting the court to determine the "fair value" of the shares of the
21st Century common stock.
If 21st Century commences such a proceeding, it must make all dissenters,
whether or not residents of Illinois, whose demands remain unsettled, parties to
the proceeding as an action against their shares and all parties must be served
with a copy of the petition. Non-resident shareholders may be served by
registered or certified mail or by publication as provided by law. The failure
of 21st Century to commence
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an action under Section 11.70 of the Illinois Act will not limit or affect the
right of dissenting shareholders to otherwise commence an action as permitted by
law.
Each dissenting holder of 21st Century common stock who is made a party to
the proceeding is entitled to judgment for the amount, if any, by which the
court finds that the fair value of his or her shares of 21st Century common
stock exceeds the amount committed to be paid by 21st Century. The judgment may
include an allowance for interest and, if the fair market value of the shares
materially exceeds the amount which RCN offered to pay for the shares, the
expenses of the proceeding, including the reasonable compensation and expenses
of appraisers, may be assessed against 21st Century. On the other hand, if the
fair value of the shares as determined by the court does not materially exceed
the amount which 21st Century offered to pay for the shares, then the dissenting
shareholder may be responsible for paying his or her own expenses of the
proceeding.
THE MERGER AGREEMENT
REPRESENTATIONS AND WARRANTIES. RCN and 21st Century each made a number of
representations and warranties in the merger agreement regarding aspects of
their respective businesses, financial condition, structure and other facts
pertinent to the merger.
The representations given by 21st Century cover the following topics, among
others, as they relate to 21st Century and its subsidiaries:
- 21st Century's corporate organization and its qualification to do
business;
- 21st Century's subsidiaries capital stock or other equity interest;
- 21st Century's capital structure;
- identification of 21st Century's shareholders;
- authorization of the merger agreement by 21st Century;
- voting requirements for approval of the merger agreement;
- regulatory approvals required to complete the merger;
- the effect of the merger on obligations of 21st Century and under any
applicable laws;
- 21st Century's filings and reports with the Securities and Exchange
Commission;
- 21st Century's financial statements;
- the absence of undisclosed liabilities by 21st Century;
- the absence of changes in 21st Century's business and material adverse
effects since September 30, 1999;
- 21st Century's taxes and required filings;
- 21st Century's title to, and the condition of, the properties it owns and
leases;
- intellectual property used by 21st Century;
- 21st Century's material contracts and agreements;
- 21st Century's compliance with applicable environmental laws and
litigation involving 21st Century;
- the possession of and compliance with permits required to conduct 21st
Century's business;
- 21st Century's compliance with all applicable laws and orders;
- information supplied by 21st Century in this prospectus and the related
registration statement filed by RCN;
- 21st Century's employee benefit plans;
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- the absence of any liability under the Employee Retirement Income
Security Act of 1974 or the threat of any work stoppage resulting from
any labor dispute;
- absence of any collective bargaining agreements or other labor union
contracts;
- 21st Century's systems information;
- identification of 21st Century's fixed assets, outside plants and
networks and Internet-related systems;
- absence of other operators other than 21st Century;
- identification, enforceability, and compliance of 21st Century's
franchises and licenses;
- 21st Century's commitments;
- the absence of financial advisors employed by 21st Century with respect
to the merger other than Morgan Stanley & Co., Incorporated;
- 21st Century's insurance;
- year 2000 readiness and compliance;
- the receipt by 21st Century of a fairness opinion from Morgan Stanley &
Co., Incorporated;
- full disclosure and no misrepresentation of a material fact by 21st
Century; and
- absence of securities registered under Section 12 of the Securities
Exchange Act.
The representations given by RCN cover the following topics, among others,
as they relate to RCN and its subsidiaries:
- RCN's corporate organization and its qualification to do business;
- authorization of the merger agreement by RCN and 21st Holding;
- RCN's filings and reports with the Securities and Exchange Commission;
- authorization of RCN stock issued in the merger;
- absence of litigation materially affecting the merger involving RCN;
- 21st Holding's interim operations;
- the absence of financial advisors employed by RCN with respect to the
merger other than Salomon Smith Barney, Inc.;
- RCN's financial statements;
- absence of undisclosed liabilities by RCN; and
- changes in RCN's business since September 30, 1999.
21ST CENTURY'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER. 21st
Century agreed that until the completion of the merger or unless RCN consents in
writing, 21st Century and its subsidiaries will operate their businesses in good
faith consistent with past practice, including using their best efforts to:
- preserve intact their assets and current business organizations;
- keep available the services of their current officers and employees; and
- maintain their material contracts and preserve their relationships with
those persons having business dealings with 21st Century so that goodwill
and ongoing business dealings remain unimpaired.
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21st Century and its subsidiaries agreed that they would conduct their
business in compliance with a number of specific restrictions, including those
relating to the following:
- the issuance and redemption of securities;
- the issuance of dividends or other distributions;
- the split, combination or reclassification of any capital stock, except
as regards 21st Century's convertible securities;
- the liquidation or restructuring of, or any merger involving, 21st
Century;
- modification of 21st Century's articles of incorporation and by-laws;
- the incurrence of indebtedness;
- the acquisition of assets with a value greater than $20,000;
- the disposition of 21st Century's assets;
- capital expenditures;
- the violation of any representations and warranties in the merger
agreement;
- entrance into or modification of contracts or expansion of states in
which their businesses currently operate;
- employees and employee benefits;
- accounting policies and procedures;
- liens;
- settlement of litigation and claims;
- changes in interest rate and foreign exchange positions;
- tax elections and liabilities; and
- insurance.
The agreements related to the conduct of 21st Century's business in the
merger agreement are complicated and not easily summarized. You are urged to
carefully read the article of the merger agreement entitled "Covenants Relating
to the Conduct of Business."
NO OTHER NEGOTIATIONS INVOLVING 21ST CENTURY. Until the merger is
completed or the merger agreement is terminated, 21st Century has agreed not to
solicit, initiate, knowingly encourage or otherwise facilitate any "acquisition
proposal." Additionally, 21st Century has agreed to provide RCN with detailed
information about any acquisition proposal it receives. An "acquisition
proposal" is any offer or proposal other than transactions contemplated by the
merger agreement that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, share exchange, business
combination, sale of substantial assets, sale of shares of capital stock or
similar transaction or series of transactions involving 21st Century.
ACCESS TO INFORMATION. 21st Century has agreed to afford to RCN reasonable
access to all its properties, books, contracts, commitments, personnel and
records. Each of 21st Century and RCN have agreed not to use one another's
non-public, confidential or proprietary information other than in connection
with the merger agreement.
CONSENT. 21st Century and RCN have agreed to use their best efforts to
obtain all necessary consents, waivers and approvals and to make all necessary
filings or notifications required to consummate the merger.
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TAX-FREE REORGANIZATION. 21st Century, 21st Century's shareholders and RCN
have agreed to use certain commercially reasonable efforts to cause the merger
to be treated as a reorganization within the meaning of Section 368(a) of the
Code. However, the terms of the merger agreement allow RCN to make payments
under any debentures or to 21st Century for payment to shareholders who dissent
from the merger if RCN determines in its reasonable discretion that 21st Century
has insufficient funds to make such payments. Any such payments by RCN could
cause the merger to fail to qualify as a Reorganization.
AFFILIATE AGREEMENTS. 21st Century has agreed to provide RCN with a list
of shareholders who are "affiliates" of 21st Century under the Securities Act.
COMMERCIALLY REASONABLE EFFORTS; CERTAIN FILINGS. 21st Century and RCN
have agreed to use commercially reasonable efforts to take all actions and do
all things necessary under applicable laws and regulations to complete the
transactions contemplated by the merger agreement.
SHAREHOLDERS MEETING. 21st Century has agreed that promptly after signing
the merger agreement to call, give notice of, and hold a meeting of 21st Century
shareholders in accordance with the Illinois law and applicable federal
securities laws, for the purpose of voting on the merger agreement. Also, 21st
Century has agreed, through its board of directors, to recommend to 21st Century
shareholders the approval and adoption of the merger agreement.
REGISTRATION STATEMENT. RCN and 21st Century have agreed that they would
prepare and RCN would file a registration statement for the RCN common stock
issuable as a result of the merger, and RCN has agreed to make all necessary
filings under the applicable securities laws required as a result of the merger.
NASDAQ LISTING. RCN has agreed to use its reasonable efforts to have the
shares of RCN common stock to be issued in the merger, in exchange for 21st
Century 13 3/4% subordinated exchange debentures due 2010, and in respect of the
"earn-out", if any, and the franchise amount, if any, to be approved for
quotation on the Nasdaq National Market.
CONDITIONS TO COMPLETION OF THE MERGER. The obligations of RCN and 21st
Century to complete the merger and the other transactions contemplated by the
merger agreement are subject to the satisfaction or waiver of each of the
following conditions before completion of the merger:
- all applicable approvals and consents required to complete the merger
must be received and all applicable waiting periods under applicable
antitrust laws must have expired or been terminated;
- the merger agreement must be adopted by two-thirds of the outstanding
shares of 21st Century common stock and 21st Century class A preferred
stock voting together as a class, and also must be adopted by a majority
of the outstanding shares of 21st Century class A preferred stock;
- no law, regulation or order may be enacted or issued which has the effect
of limiting or restricting the businesses of RCN or which has the effect
of making the merger illegal or otherwise prohibiting completion of the
merger substantially on the terms contemplated by the merger agreement;
- RCN's registration statement on Form S-4 must be effective; and
- the shares of RCN common stock issuable to the shareholders of 21st
Century in the merger must be authorized for quotation on the Nasdaq
National Market.
RCN's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
- 21st Century's representations and warranties contained in the merger
agreement must be true and correct, including 21st Century's
representation that there is not and has not been a material adverse
effect on 21st Century;
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- 21st Century must perform or comply in all material respects with all of
its obligations required by the merger agreement;
- 21st Century must receive, or reasonably satisfy RCN that 21st Century
will receive, all material consents required by the merger agreement;
- 21st Century must deliver to RCN an escrow agreement with respect to
shares of RCN common stock to be placed in escrow;
- RCN must receive voting and lock-up agreements that shall have been
executed and delivered to RCN by the number of persons constituting
two-thirds of the outstanding shares of 21st Century common stock and
21st Century class A preferred stock, voting together as a class, and by
a majority of the outstanding shares of 21st Century class A preferred
stock. Each of the agreements must be in full force and effect;
- RCN must receive agreements from certain persons who would be deemed
"affiliates" of 21st Century under the Securities Act with respect to the
resale of RCN common stock to be received by them in the merger;
- a majority of holders in aggregate principal amount of 21st Century
12 1/4% Senior Discount Notes due 2008 and holders of a majority of 21st
Century 13 3/4% Subordinated Exchange Debentures due 2010 must have
tendered their notes and debentures to RCN and agreed to amendments to
the indentures governing those securities;
- 21st Century and each of its subsidiaries must deliver to RCN a
certificate satisfying Treasury Regulations Section 1.1445-2(c)(3),
otherwise known as a FIRPTA Certificate, certifying that an interest in
21st Century or any of its subsidiaries is not a U.S. real property
interest;
- the number of 21st Century shares dissenting in the merger must be fewer
than 5% of the 21st Century stock outstanding;
- 21st Century must terminate its credit agreement, dated as of August 8,
1998, including any amendments to the credit agreement, on terms
reasonably satisfactory to RCN; and
- 21st Century must obtain consents, reasonably acceptable to RCN, from
agreed upon holders of 21st Century stock options, waiving any
acceleration of vesting that may occur as a result of the merger.
21st Century's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- RCN's representations and warranties contained in the merger agreement
must be true and correct, including RCN's representation that there is
not and has not been a material adverse effect on RCN;
- RCN and 21st Holding Corp. must perform or comply in all material
respects with all of their obligations required by the merger agreement;
and
- RCN must deliver to 21st Century a letter in the form attached as an
exhibit to the merger agreement that contains factual representations
that are relevant to the treatment of the merger as a Reorganization
within the meaning of Section 368(a) of the Code. Alternatively, if RCN
does not delivery such letter, the condition will be satisfied if 21st
Century receives a written opinion from Piper Marbury Rudnick & Wolfe
LLP, to the effect that, among other things, the merger will constitute a
reorganization within the meaning of Section 368(a) of the Code.
The failure of any condition precedent to the merger resulting from either
RCN or 21st Century's failure to use its best efforts to consummate the merger
will not extinguish either party's obligations under the merger agreement.
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The term "material adverse effect," as it is used in this summary of the
merger agreement, means any change, event or effect that individually or in the
aggregate, is reasonably likely to be materially adverse to the business,
results of operations or financial condition of RCN or 21st Century, as
applicable, and their respective subsidiaries, taken as a whole, except for such
changes, events or effects which are directly the result of (i) the entering
into or the public announcement of the merger, (ii) changes in the
telecommunications industry generally or (iii) changes in general economic
(excluding changes in the capital markets), regulatory or political conditions
in the United States; except, in the case of each of (ii) and (iii), if the
impact on RCN or 21st Century, as applicable, is more than insignificantly
disproportionate to the more general impact of the change, event or effect.
INDEMNIFICATION. 21st Century has agreed that 10% of the merger
consideration will be deposited in escrow as security for your indemnification
obligations to RCN under the merger agreement. See "--Additional
Agreements--Escrow Agreement." If the merger agreement is approved by 21st
Century's shareholders, all 21st Century shareholders who accept the merger
consideration will be deemed to have agreed to indemnify RCN for any losses it
may incur as a result of:
- any inaccuracies in the representations and warranties made by 21st
Century in the merger agreement;
- any breach by 21st Century of any of its covenants contained in the
merger agreement; and
- specific tax matters relating to 21st Century.
In order to be entitled to indemnification, RCN must assert its claims
during the one year period following the completion of the merger. RCN's claims
for indemnification will initially be limited to the 10% portion of the merger
consideration to be deposited in escrow, however, in the event RCN's claims
exceed the escrow amount, RCN will be entitled to withhold that excess from any
"earn-out" payment that might otherwise be payable to 21st Century shareholders
by RCN.
SHAREHOLDER REPRESENTATIVE. If the merger is completed, the merger
agreement provides that by accepting RCN common stock in the merger, you are
appointing Edward T. Joyce as your shareholder representative. The shareholder
representative will be authorized to act on behalf of 21st Century shareholders
in connection with any action required or permitted by 21st Century shareholders
under the merger agreement, including the handling of all matters relating to
indemnification and the "earn-out."
TERMINATION OF THE MERGER AGREEMENT. The merger agreement may be
terminated at any time prior to completion of the merger, whether before or
after adoption of the merger agreement by 21st Century shareholders:
- by mutual written consent of RCN and 21st Century;
- by RCN in the event that 21st Century fails to satisfy one or more of the
conditions to the obligations of RCN to effect the merger as set forth in
the merger agreement and RCN chooses not to waive 21st Century's default;
provided that RCN provides 21st Century with 15 days prior notice to
allow 21st Century to remedy its failure to satisfy such condition(s);
- by 21st Century in the event that RCN fails to satisfy one or more of the
conditions to the obligations of 21st Century to effect the merger as set
forth in the merger agreement and 21st Century chooses not to waive RCN's
default; provided that 21st Century provides RCN with 15 days prior
notice to allow RCN to remedy its failure to satisfy such condition(s);
- by RCN if the shareholders of 21st Century fail to provide the requisite
vote for adoption of the merger agreement by May 31, 2000; or
- by either RCN or 21st Century if the merger has not been closed by the
close of business on May 31, 2000. However, RCN may not terminate the
merger agreement if an applicable condition of RCN to complete the merger
or the closing of the merger before May 31, 2000 is the result of a
material breach by RCN. Accordingly, 21st Century may not terminate the
merger agreement if an applicable condition of 21st Century to complete
the merger or the closing of the merger before May 31, 2000 did not occur
because of a material breach by 21st Century.
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EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT. RCN and 21st
Century may amend the merger agreement at any time, in writing signed by both
RCN and 21st Century, before or after 21st Century shareholders' approval of the
merger, provided that the amendment does not require further shareholder
approval. At any time before completion of the merger, RCN and 21st Century may,
with authorization by their respective boards of directors, extend the time for
the performance of any obligations under the merger agreement, waive any
inaccuracies in the representations and warranties contained in the merger
agreement, and waive compliance with any agreements or conditions in the merger
agreement.
FEES AND EXPENSES. All fees and expenses incurred in connection with the
merger agreement and the transactions contemplated in connection with the merger
will be paid by the party incurring such expenses, whether or not the merger is
completed.
ADDITIONAL AGREEMENTS
VOTING AND LOCK-UP AGREEMENTS. In connection with the merger, a number of
21st Century's shareholders entered into voting and lock-up agreements
containing irrevocable proxies. Each irrevocable proxy requires these 21st
Century shareholders to vote all of the shares of 21st Century common stock
beneficially owned by them in favor of the merger. As of the date of the merger
agreement was executed, the 21st Century shareholders who entered into these
agreements held approximately 2,372,260.705 shares of 21st Century common stock,
which represented approximately 63.6% of the outstanding 21st Century common
stock, and 1,371.505.2 shares of 21st Century class A preferred stock, which
represented approximately 88.2% of the outstanding 21st Century class A
preferred stock and 70.8% of 21st Century common stock and class A preferred
stock taken as a class. None of the shareholders who are parties to the voting
and lock-up agreements containing the irrevocable proxies was paid any
additional consideration to enter into such agreements.
AFFILIATE AGREEMENTS. The merger agreement provides that certain 21st
Century shareholders who, as of the date of the merger, may be deemed an
"affiliate" of 21st Century for purposes of Rule 145 under the Securities Act,
shall execute and deliver an affiliate agreement intended to ensure compliance
with the Securities Act. Affiliates of 21st Century may not sell their shares of
RCN common stock acquired in connection with the merger except by means of an
effective registration statement under the Securities Act covering such shares
or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act. Persons who may be deemed to be
affiliates of 21st Century generally include individuals or entities that
control, are controlled by or are under common control with 21st Century, and
may include certain officers and directors of 21st Century as well as certain
principal shareholders of 21st Century.
ESCROW AGREEMENT. Prior to the completion of the merger, RCN, 21st Century
and the shareholder representative have agreed to enter into an escrow agreement
and deposit with a mutually agreed upon escrow agent the shares of RCN common
stock to be held in escrow as security for your indemnification obligations to
RCN under the merger agreement. Such shares will be held in escrow for one year
following the completion of the merger. The amount you are entitled to receive
after the one year period depends on whether the value of indemnification claims
made by RCN against the escrow amount during such period exceeded the amount in
escrow. If RCN's claims do not exceed that amount, each shareholder will be
entitled to receive its pro rata share of the remaining escrow fund. During the
period your shares are deposited in escrow, you will have voting rights with
respect to the shares held on your behalf so long as such shares remain in
escrow. Additionally, you will receive any and all dividends or other
distributions of any kind, when and if made, on these shares held in escrow on
your behalf.
WAIVER OF VESTING AGREEMENTS. Under agreements between 21st Century and
each of Ronald D. Webster and John A. Brouse, each of these individuals agreed
to waive any automatic vesting of his stock options that might have occurred as
a result of the merger. In addition, we are currently negotiating an agreement
with Robert J. Currey relating to the waiver of the automatic vesting of his
stock options that might have occurred as a result of the merger. It is a
condition to our obligation to complete the merger that he execute such an
agreement.
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THE EXCHANGE OFFER AND CONSENT SOLICITATION
This section of the prospectus describes material aspects of the proposed
exchange offer and consent solicitation. While we believe that the description
covers the material terms of the exchange offer and consent solicitation and the
related transactions, this summary may not contain all of the information that
is important to you. You should read this entire document and the other
documents we refer to carefully for a more complete understanding of the
exchange offer and consent solicitation.
TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
Upon the terms and subject to the conditions of the exchange offer set
forth in this prospectus and in the accompanying consent and letter of
transmittal, we are offering to exchange all of the outstanding debentures for
shares of RCN common stock.
- The total consideration available for each of the debentures tendered
pursuant to the exchange offer is RCN common stock representing 101% of
principal amount, plus accrued and unpaid interest to the date of
exchange, per $1,000 principal amount of debentures.
- Of that amount, 4% is an early consent payment that is payable in RCN
common stock if you consent to the proposed amendments and tender and not
withdraw your debentures prior to the expiration of the consent
solicitation, and 97% is the consideration that is payable in RCN common
stock if you tender and do not withdraw your tender debentures prior to
the expiration of the exchange offer.
- We will make the exchange of RCN common stock representing the total
consideration (i.e., the exchange offer consideration plus the early
consent payment) or the exchange offer consideration alone, as
applicable, for debentures validly tendered and accepted for exchange
promptly following the expiration of the exchange offer, which we refer
to as the "exchange date."
- The value of the RCN common stock you will receive as a result of the
exchange offer and consent solicitation will be calculated based on the
average volume weighted trading prices of RCN common stock for the five
trading day period ending one day prior to the date of exchange. We will
not issue fractional shares of RCN common stock. Instead you will receive
cash in lieu of any fractional shares your debentures may convert into.
Upon the terms and subject to the conditions of the solicitation, we are
also soliciting consents to the proposed amendments to the indenture.
- We are offering RCN common stock representing the early consent payment
in exchange for debentures validly tendered and not withdrawn that are
coupled with consents which have been validly delivered and not revoked
on or prior to the expiration of the consent solicitation.
- We will make the exchange promptly following the expiration of the
exchange offer if, but only if, the debentures are accepted for exchange
under the terms of the exchange offer.
- If you desire to tender your debentures in the exchange offer and to
receive the total consideration, you are required to validly tender your
debentures and consent to the proposed amendments on or prior to the
expiration of the consent solicitation.
- Your completion, execution and delivery of the consent and letter of
transmittal in connection with your tender of debentures will constitute
your consent to the proposed amendments with respect to such debentures.
- If your debentures are not properly tendered in the exchange offer on or
prior to the expiration of the consent solicitation, you will not receive
the early consent payment, even if the proposed amendments become
effective as to all debentures that are not exchanged in the exchange
offer.
- RCN is not soliciting and will not accept consents to the proposed
amendments from you if you are not also tendering you debentures in the
exchange offer.
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- If you validly tender your debentures after the expiration of the consent
solicitation, you will receive only the exchange offer consideration if
the exchange offer is consummated and not the early consent payment.
Our obligation to accept and exchange debentures validly tendered in the
exchange offer is conditioned upon satisfaction of (a) receipt of the requisite
consents required for the proposed amendments, (b) consummation of the merger
and (c) the general conditions described in this prospectus. See "-- Conditions
to the Exchange Offer and Consent Solicitation." Our obligation to issue shares
of RCN common stock representing the early consent payment is conditioned upon
our acceptance of debentures for exchange in the exchange offer.
Subject to applicable securities laws and the terms and conditions in this
prospectus, we reserve the right, on or prior to the expiration of the exchange
offer to:
- waive any and all conditions to the exchange offer or the consent
solicitation;
- extend or terminate the exchange offer or the consent solicitation; or
- otherwise amend the exchange offer or the consent solicitation in any
respect.
The rights we reserve in this paragraph are in addition to our right to
terminate the exchange offer described under "-- Conditions to the Exchange
Offer and Consent Solicitation."
Any extension, amendment or termination will be followed promptly by a
public announcement. In the case of an extension of the exchange offer, the
announcement will be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration of the exchange
offer. Without limiting the manner in which any public announcement may be made,
we will have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to the Dow Jones News
Service.
RISK FACTORS RELATING TO HOLDERS WHO DO NOT TENDER THEIR DEBENTURES
Consummation of the exchange offer and consent solicitation will have
consequences to you if you do not tender your debentures, including the deletion
of substantially all of the covenants contained in the indenture, the suspension
of the periodic reporting requirements currently applicable to 21st Century, a
reduced trading market and possible recognition of gain for U.S. federal income
tax purposes. See "Risk Factors -- Risk Factors Relating to Holders Who Do Not
Tender Their Debentures" and "Material United States Federal Income Tax
Consequences of the Exchange Offer and the Proposed Amendments."
BACKGROUND AND PURPOSE
On December 12, 1999, we entered into the merger agreement with 21st
Century under which we agreed to acquire 21st Century upon the terms and subject
to the conditions contained in the merger agreement. As a result of the merger,
21st Century will become a wholly owned subsidiary of RCN. In connection with
and as a condition to the completion of the merger, we are making the exchange
offer and consent solicitation.
We are making the exchange offer and consent solicitation in order to
eliminate certain provisions of the indenture which would limit our ability and
21st Century's ability to consummate the merger and to provide us with financial
and operational flexibility with respect to the management of 21st Century's
assets and cash flow following the merger.
PROPOSED AMENDMENTS TO THE INDENTURE
This section sets forth a brief description of the proposed amendments to
the indenture for which we are seeking consents in the consent solicitation. The
proposed amendments constitute a single proposal and if you tender and consent,
you must consent to the proposed amendments as an entirety and may not consent
selectively to specific proposed amendments. The valid tender by you of
debentures in the exchange offer on or prior to the expiration of the consent
solicitation will be deemed to constitute your consent to the proposed
amendments with respect to such debentures.
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The proposed amendments will be embodied in an amendment to the indenture
in the form set forth in the supplemental indenture. The supplemental indenture
will become effective once it is approved by the required number of holders of
debentures, as described below, and once it is signed by 21st Century, at our
direction, and the trustee on the expiration of the consent solicitation. The
proposed amendments, however, will not become operative until we accept the
debentures for exchange in the exchange offer. Thereafter, the proposed
amendments will be binding on all non-tendering holders of debentures. The
indenture will remain in effect, without giving effect to the proposed
amendments, until the proposed amendments become operative. If the exchange
offer is terminated or withdrawn, or the debentures are never accepted for
exchange, the supplemental indenture will never become operative.
Under the terms of the indenture, the proposed amendments require the
written consent of the holders of at least a majority in aggregate principal
amount of the debentures outstanding.
The following summary of provisions of the indenture set forth below are
qualified in their entirety by reference to the full and complete terms
contained in the indenture, a copy of which is filed as an exhibit to the
registration statement of which this prospectus forms a part and is incorporated
herein by reference. You may obtain copies of the indenture and the proposed
form of supplemental indenture without charge from the information agent.
The proposed amendments to the indenture are as follows:
DELETION OF COVENANTS. The proposed amendments would delete in their
entireties the covenants listed below by section number in the indenture, and
any references to such covenants from the indenture.
<TABLE>
<C> <S>
SECTION 4.02 -- SEC Reports. This provision currently requires 21st Century
to file specific voluntary reports with the SEC.
SECTION 4.03 -- Limitation on Indebtedness. This provision currently
restricts the ability of 21st Century and subsidiaries of
21st Century designated as "restricted subsidiaries" in the
indenture to incur indebtedness.
SECTION 4.04 -- Limitation on Restricted Payments. This provision currently
restricts the ability of 21st Century and its restricted
subsidiaries to make specified restricted payments,
including restrictions on the payment of dividends, the
redemption of capital stock, the redemption of obligations
subordinate to the debentures and the making of investments.
SECTION 4.05 -- Limitation on Restrictions on Distributions from Restricted
Subsidiaries. This provision currently restricts 21st
Century and its restricted subsidiaries from creating or
allowing encumbrances or restrictions to exist on any
restricted subsidiary's ability to (i) pay dividends or make
distributions on its capital stock, (ii) make any loans or
advances to 21st Century or (iii) transfer any of its
property or assets to 21st Century.
SECTION 4.06 -- Limitation on Sales of Assets and Subsidiary Stock. This
provision restricts 21st Century's and its restricted
subsidiaries' ability to sell or otherwise transfer any of
their assets or property unless the proceeds from such sales
are used to repay senior indebtedness, acquire additional
assets or repurchase debentures.
SECTION 4.07 -- Limitation on Affiliate Transactions. This provision
currently restricts the ability of 21st Century and its
restricted subsidiaries to engage in transactions with
affiliates of 21st Century.
SECTION 4.08 -- Limitation on Sales or Issuance of Capital Stock of Certain
Restricted Subsidiaries. This provision currently restricts
21st Century's and restricted subsidiaries' ability to sell
or dispose of any capital stock of a restricted subsidiary.
SECTION 4.09 -- Change of Control. This provision requires that 21st
Century make an offer to purchase the debentures at a price
equal to 101% of principal amount plus accrued and unpaid
interest after a change in control event has occurred.
</TABLE>
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<TABLE>
<C> <S>
SECTION 4.10 -- Limitation on Market Swaps. This provision restricts 21st
Century and its restricted subsidiaries from engaging in any
market swaps.
SECTION 4.11 -- Limitation on Lines of Business. This provision limits
ability of 21st Century and any restricted subsidiary from
engaging in any trade or business other than in its current
line of business.
SECTION 5.01 -- When Company May Merge or Transfer Assets. This provision
currently restricts the ability of 21st Century to
consolidate with or merge with or into any other person or
convey, transfer or lease substantially all of its assets to
any person.
SECTION 6.01 -- Events of Default. Section 6.01 of the indenture sets forth
(3),(4), events that would constitute a default by 21st Century under
(6),(9) the indenture. Sections (3) and (4) of Section 6.01 are
events of default relating to the failure of 21st Century to
comply with its covenants and agreements in the indenture.
Sections (6) and (9) are events of default relating to the
failure of 21st Century and its restricted subsidiaries to
make payment on any of their outstanding indebtedness.
</TABLE>
DELETION OF DEFINITIONS. The proposed amendments would delete definitions
from the indenture that would be rendered inapplicable as a result of the
proposed amendments described above.
ACCEPTANCE FOR EXCHANGE OF DEBENTURES; ACCEPTANCE OF CONSENTS
Upon the terms and subject to the conditions of the exchange offer
(including if the exchange offer is extended or amended, the terms and
conditions of any such extension or amendment) and applicable law, we will
exchange shares of RCN common stock for:
- all debentures validly tendered (and not withdrawn) under the exchange
offer on or prior to the expiration of the exchange offer; and
- all consents validly delivered (and not revoked) under the consent
solicitation on or prior to the expiration of the consent solicitation
that are coupled with debentures validly tendered (and not withdrawn)
under the exchange offer on or prior to the expiration of the exchange
offer.
This exchange will be made by the deposit by us of shares of RCN common
stock constituting the exchange offer consideration and early consent payment,
as applicable, with the exchange agent as soon as practicable after the
expiration of the exchange offer so that the exchange of shares of RCN common
stock representing the exchange offer consideration or the total consideration,
as applicable, may be made to you on the exchange date.
The exchange agent will act as agent for you for the purpose of issuing
shares of RCN common stock in exchange for debentures and consents. Under no
circumstances will interest on either the exchange offer consideration or the
early consent payment be paid by us by reason of any delay on behalf of the
exchange agent in making that exchange.
We expressly reserve the right, in our sole discretion and subject to Rule
14e-l(c) under the Exchange Act of 1934, to delay acceptance for exchange of, or
the exchange of, debentures in order to comply, in whole or in part, with any
applicable law. See "--Conditions to the Exchange Offer and Consent
Solicitation."
In all cases, exchange by the exchange agent of shares of RCN common stock
for debentures accepted for exchange under the exchange offer and early consent
payments for consents delivered on or prior to the expiration of the consent
solicitation, as applicable, will be made only after timely receipt by the
exchange agent of:
- certificates representing your debentures or timely confirmation of a
book-entry transfer of your debentures into the exchange agent's account
at DTC. See "-- Procedures for Exchanging Debentures and Delivering
Consents";
- a properly completed and duly executed consent and letter of transmittal
(or a manually signed facsimile thereof); and
- any other documents required by the consent and letter of transmittal.
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For purposes of the exchange offer, validly tendered debentures (or
defectively tendered debentures for which we have waived that defect) will be
deemed to have been accepted for exchange by us if, as and when we give written
notice thereof to the exchange agent. For purposes of the consent solicitation,
consents delivered to the exchange agent will be deemed to have been accepted by
us if, as and when 21st Century and the trustee execute the supplemental
indenture after the expiration of the consent solicitation, even though the
early consent payment will not be made unless and until we have accepted the
debentures for exchange under the exchange offer.
If the exchange offer is terminated or withdrawn, or the debentures are not
accepted for exchange, no exchange offer consideration, early consent payment or
total consideration will be paid or payable. If any tendered debentures are not
exchanged under the exchange offer for any reason, or certificates are submitted
evidencing more debentures than are tendered, those debentures not exchanged
will be returned, without expense, to you (or, in the case of debentures
tendered by book-entry transfer, those debentures will be credited to the
account maintained at DTC from which those debentures were delivered) unless
otherwise requested by you under the heading "Special Delivery Instructions" in
the consent and letter of transmittal, promptly after the expiration of the
exchange offer or termination of the exchange offer.
We reserve the right to transfer or assign, in whole at any time or in part
from time to time, to one or more of our affiliates, our right to exchange
debentures tendered under the exchange offer. Any such transfer or assignment
will not relieve us of our obligations under the exchange offer or prejudice
your rights to receive the exchange offer consideration or early consent
payment, as applicable, under the exchange offer and consent solicitation.
PROCEDURES FOR EXCHANGING DEBENTURES AND DELIVERING CONSENTS
In order to receive the total consideration you must:
- tender your debentures under the exchange offer; and
- deliver consents to the proposed amendments with respect to those
debentures on or prior to the expiration of the consent solicitation.
On or prior to the expiration of the consent solicitation, we are not
soliciting and we will not accept consents to the proposed amendments from you
unless you are tendering debentures in the exchange offer. If you tender
debentures after the expiration of the consent solicitation, you will receive
only the exchange offer consideration.
The method of delivery of debentures and consents and letters of
transmittal, any required signature guarantees and all other required documents,
including delivery through DTC and any acceptance of an agent's message
transmitted through ATOP, is at your election and risk. Except as otherwise
provided in the consent and letter of transmittal, delivery will be deemed made
only when actually received by the exchange agent. If delivery is by mail, we
suggest that you use properly insured, registered mail with return receipt
requested, and that the mailing be made sufficiently in advance of the
expiration of the consent solicitation or expiration of the exchange offer, as
applicable.
All RCN shares will be delivered only in book-entry form through DTC.
Accordingly, if you anticipate tendering other than through DTC, you are urged
to promptly contact a bank, broker or other intermediary that has the capability
to hold securities custodially through the DTC, to arrange for the receipt of
any RCN shares to be delivered as the total consideration or exchange offer
consideration, as applicable, and to obtain the information necessary in the
letter of transmittal.
TENDERS OF DEBENTURES AND DELIVERY OF CONSENTS. Your tender of debentures
and delivery of consents (and subsequent acceptance by us) by one of the
procedures set out below will constitute a binding agreement between us in
accordance with the terms and subject to the conditions set forth in this
prospectus, in the consent and letter of transmittal and, if applicable, in the
notice of guaranteed delivery.
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TENDERS OF DEBENTURES HELD IN PHYSICAL FORM. To effectively tender
debentures held in physical form (and deliver the related consents):
- you must properly complete and duly execute a consent and letter of
transmittal (or a manually signed facsimile thereof) and any other
documents required by the consent and letter of transmittal, and those
documents must be received by the exchange agent at its address set out
on the back cover of this prospectus; and
- you must ensure that certificates representing those debentures are
received by the exchange agent at that address on or prior to the
expiration of the consent solicitation or the expiration of the exchange
offer, as applicable.
Consents and letters of transmittal and debentures should be sent only to
the exchange agent and should not be sent to RCN, 21st Century, the information
agent, the dealer manager or the trustee.
If your debentures are registered in the name of a person other than the
signatory to the consent and letter of transmittal, then, in order to tender
those debentures under the exchange offer, the debentures must be endorsed or
accompanied by an appropriate written instrument or instruments of transfer
signed exactly as that name appears on the debentures, with the signature on the
debentures or instruments of transfer guaranteed as provided below. If these
procedures are followed by a beneficial owner tendering debentures on or prior
to the expiration of the consent solicitation, the registered holder of these
debentures must sign a valid proxy set forth in the consent and letter of
transmittal.
TENDER OF DEBENTURES HELD THROUGH A CUSTODIAN. If your debentures are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and if you wish to tender debentures and deliver a consent and
letter of transmittal, you should contact that registered holder promptly and
instruct him or her or it to tender debentures and deliver a consent and letter
of transmittal on your behalf. A letter of instructions is enclosed in the
solicitation materials provided along with this prospectus which may be used by
you in this process to instruct the registered holder to tender debentures and
deliver consents. If you wish to tender those debentures and deliver consents
yourself, you must, prior to completing and executing the consent and letter of
transmittal and delivering those debentures, either make appropriate
arrangements to register ownership of the debentures in your name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
TENDER OF DEBENTURES HELD THROUGH DTC. To effectively tender debentures
(and deliver the related consents) that are held through DTC, if you are a DTC
participant, you should either:
- properly complete and duly execute the consent and letter of transmittal
(or a manually signed facsimile thereof), together with any other
documents required by the consent and letter of transmittal, and mail or
deliver the consent and letter of transmittal and those other documents
to the exchange agent; or
- electronically transmit your acceptance through ATOP (and thereby tender
debentures), for which the transaction will be eligible, followed by a
properly completed and duly executed consent and letter of transmittal
delivered to the exchange agent to effectuate the delivery of the related
consent. Upon receipt of your acceptance through ATOP, DTC will edit and
verify the acceptance and send an agent's message (as described below) to
the exchange agent for its acceptance.
Delivery of tendered debentures must be made to the exchange agent subject
to the book-entry delivery procedures set out below, or you must comply with the
guaranteed delivery procedures set out below. These guaranteed delivery
procedures may only be used for tenders of debentures after the expiration of
the consent solicitation.
Except as provided below, unless the debentures being tendered are
deposited with the exchange agent on or prior to the expiration of the consent
solicitation or on or prior to the expiration of the exchange offer, as the case
may be (accompanied by a properly completed and duly executed consent and letter
of transmittal or a properly transmitted agent's message), we may, at our
option, treat that tender as defective for purposes of the right to receive the
total consideration or exchange offer consideration, as
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applicable. Exchange for the debentures will be made only against deposit of the
tendered debentures and delivery of any other required documents.
In order to validly deliver a consent with respect to debentures
transferred subject to ATOP, if you are a DTC participant using ATOP, you must
also properly complete and duly execute the consent and letter of transmittal
and deliver it to the exchange agent. Subject to authority granted by DTC, if
you are a DTC participant who has debentures credited to your DTC account at any
time (and thereby held of record by DTC's nominee), you may directly provide a
consent to the proposed amendments as though you were the registered holder by
so completing, executing and delivering the consent and letter of transmittal.
BOOK-ENTRY DELIVERY PROCEDURES. The exchange agent will establish accounts
with respect to the debentures at DTC for purposes of the exchange offer within
two business days after the date of this prospectus. Any financial institution
that is a participant in DTC may make book-entry delivery of the debentures by
causing DTC to transfer those debentures into the exchange agent's account in
accordance with DTC's procedures for that transfer.
Although delivery of debentures may be effected through book-entry transfer
into the exchange agent's account at DTC, the consent and letter of transmittal
(or a manually signed facsimile thereof) with any required signature guarantees,
or an agent's message (as described below) in connection with a book-entry
transfer, and any other required documents, must, in any case, be transmitted to
and received by the exchange agent at one or more of its addresses set out on
the back cover of this prospectus on or prior to the expiration of the consent
solicitation or the expiration of the exchange offer, as the case may be, in
connection with the tender of those debentures. Delivery of documents to DTC
does not constitute delivery to the exchange agent.
The confirmation of a book-entry transfer into the exchange agent's account
at DTC as described above is referred to in this prospectus as a "book-entry
confirmation." The term "agent's message" means a message transmitted by DTC to,
and received by, the exchange agent and forming a part of the book-entry
confirmation, which states that DTC has received an express acknowledgment from
a DTC participant that such participant has received the consent and letter of
transmittal and agrees to be bound by the terms of the consent and letter of
transmittal.
SIGNATURE GUARANTEES. Signatures on all consents and letters of
transmittal must be guaranteed by a recognized participant in the Securities
Transfer Agents Medallion Program, unless your tender of debentures tendered and
delivery of consents delivered are tendered and delivered:
- by a registered holder of debentures (or by a participant in DTC whose
name appears on a security position listing as the owner of those
debentures) who has not completed any of the boxes entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the consent
and letter of transmittal; or
- for the account of a member firm of a registered national securities
exchange, 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 (which entities we refer to as
"eligible institutions").
If your debentures are registered in the name of a person other than the
signatory to the consent and letter of transmittal or if debentures not accepted
for exchange or not tendered are to be returned to a person other than the
registered holder, then the signature on the consent and letter of transmittal
accompanying the tendered debentures must be guaranteed. See Instructions 1 and
5 of the consent and letter of transmittal.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If you desire to tender
debentures, but the certificates evidencing those debentures have been
mutilated, lost, stolen or destroyed, you should contact the trustee to receive
information about the procedures for obtaining replacement certificates for
debentures at the following address or telephone number: The Bank of New York,
101 Barclay, 21 West, New York, New York 10286, Attention: Mary Lagumina,
telephone (212) 815-5783.
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GUARANTEED DELIVERY. If you want to tender debentures under the exchange
offer after the expiration of the consent solicitation prior to the expiration
of the exchange offer and,
- your certificates representing those debentures are not immediately
available,
- time will not permit your consent and letter of transmittal, the
certificates representing your debentures and all other required
documents to reach the exchange agent on or prior to the expiration of
the exchange offer, or
- the procedures for book-entry transfer (including delivery of an agent's
message) cannot be completed on or prior to the expiration of the
exchange offer,
you may nevertheless tender your debentures with the effect that tender will be
deemed to have been received on or prior to the expiration of the exchange offer
if all the following conditions are satisfied:
- the tender is made by or through an eligible institution;
- a properly completed and duly executed notice of guaranteed delivery or
an agent's message with respect to guaranteed delivery that is accepted
by us is received by the exchange agent on or prior to the expiration of
the exchange offer as provided below; and
- the certificates for the tendered debentures, in proper form for transfer
(or a book-entry confirmation of the transfer of those debentures into
the exchange agent's account at DTC as described above), together with a
consent and letter of transmittal (or manually signed facsimile thereof)
that is properly completed and duly executed, with any signature
guarantees and any other documents required by the consent and letter of
transmittal, or a properly transmitted agent's message, are received by
the exchange agent within two business days after the date of execution
of the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by an
eligible institution in the form set out in the notice of guaranteed delivery.
Under no circumstances will interest be paid by us by reason of any delay
in exchanging debentures for shares of RCN common stock to any person using the
guaranteed delivery procedures that results from this guaranteed delivery. The
exchange offer consideration for debentures tendered under the guaranteed
delivery procedures will be the same as for debentures delivered to the exchange
agent after the expiration of the consent solicitation and on or prior to the
expiration of the exchange offer, even if the debentures to be delivered subject
to the guaranteed delivery procedures are not so delivered to the exchange
agent, and therefore exchange by the exchange agent on account of those
debentures is not made, until after the exchange date. You should be aware that,
on or prior to the expiration of the consent solicitation, tenders of debentures
and the related consents cannot be delivered using the guaranteed delivery
process and that use of the guaranteed delivery process could result in a tender
of debentures and the related consent being defective.
BACKUP UNITED STATES FEDERAL INCOME TAX WITHHOLDING. To prevent backup
Federal income tax withholding you must provide the exchange agent with your
current taxpayer identification number and certify that you are not subject to
backup federal income tax withholding by completing the Substitute Form W-9
included in the consent and letter of transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered
debentures or consents subject to any of the procedures described above will be
determined by us, in our sole discretion (which determination shall be final and
binding).
We reserve the right to reject any or all tenders of any debentures or
consents that we determine not to be in proper form or, in the case of
debentures, if the acceptance for tender of those debentures may, in the opinion
of our counsel, be unlawful. We also reserve the rights to waive any of the
conditions of the exchange offer or any defect or irregularity in any tender of
your debentures or delivery of your consents, whether or not similar defects or
irregularities are waived in the case of other holders of debentures.
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Our interpretation of the terms and conditions of the exchange offer and
the consent solicitation (including the consent and letter of transmittal and
the instructions thereto) will be final and binding. Neither we, the exchange
agent, the trustee or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. If we waive our right to
reject a defective tender of debentures, you will be entitled to the exchange
offer consideration.
WITHDRAWAL OF TENDERED DEBENTURES AND REVOCATION OF CONSENTS
You may withdraw tenders of debentures at any time on or prior to the
expiration of the exchange offers, but neither the exchange offer consideration
nor the early consent payment shall be payable in respect of debentures so
withdrawn. You may only revoke consents on or prior to the expiration of the
consent solicitation.
A valid withdrawal of tendered debentures effected on or prior to the
expiration of the consent solicitation will constitute the concurrent valid
revocation of your related consent. In order to revoke a consent, you must
withdraw the related tendered debentures.
Tenders of debentures may be validly withdrawn if the exchange offer is
terminated without any debentures being exchanged thereunder. In this case, the
debentures tendered under the exchange offer will be promptly returned to you,
the supplemental indenture will not become operative and the consents will be
deemed revoked.
If the consent solicitation is amended on or prior to the expiration of the
consent solicitation in a manner determined by us, in our sole discretion, to
constitute a material adverse change to you, we promptly will disclose that
amendment and, if necessary, extend the consent solicitation for those
debentures for a period deemed by us to be adequate to permit you to withdraw
your debentures and revoke your consents. In addition, we may, if we deem
appropriate, extend the consent solicitation for any other reason.
If we make a material change in the terms of the exchange offer or the
information concerning the exchange offer or waive a material condition of the
exchange offer, we will disseminate additional exchange offer materials and
extend that exchange offer to the extent required by law. In addition, we may,
if we deem appropriate, extend the exchange offer for any other reason. If the
consideration to be paid in the exchange offer is increased or decreased or the
principal amount of debentures subject to the exchange offer is decreased, the
exchange offer will remain open at least 10 business days from the date we first
give notice to you, by public announcement or otherwise, of that increase or
decrease.
For a withdrawal of tendered debentures or the revocation of consents, as
the case may be, to be effective, a written or facsimile transmission notice of
withdrawal or revocation must be received by the exchange agent on or prior to
the expiration of the exchange offer or expiration of the consent solicitation,
as applicable, at its address set out on the back cover of this prospectus. Any
such notice of withdrawal must:
- specify the name of the person who tendered the debentures to be
withdrawn or to which the revocation of consents relates;
- contain the description of the debentures to be withdrawn and identify
the certificate number or numbers shown on the particular certificates
evidencing those debentures (unless those debentures were tendered by
book-entry transfer) and the aggregate principal amount represented by
those debentures; and
- be signed in the same manner as the original signature on the consent and
letter of transmittal by which those debentures were tendered (including
any required signature guarantees) or the related consent was given, or
be accompanied by evidence sufficient to the exchange agent that the
person withdrawing the tender or revoking the consent has succeeded to
the beneficial ownership of the debentures.
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If the debentures to be withdrawn have been delivered or otherwise
identified to the exchange agent, a signed notice of withdrawal is effective
immediately upon written or facsimile notice of that withdrawal even if physical
release is not yet effected.
Any valid revocation of consents will automatically render the prior tender
of the debentures to which those consents relate defective, and we will have the
right, which we may waive, to reject that tender as invalid. Any permitted
withdrawal of debentures and revocation of consents may not be rescinded, and
any debentures properly withdrawn will thereafter be deemed not validly tendered
and any consents revoked will be deemed not validly delivered for purposes of
the exchange offer. Withdrawn debentures may, however, be re-tendered and
revoked consents may be re-delivered by again following one of the appropriate
procedures described in this prospectus at any time on or prior to the
expiration of the consent solicitation.
If we extend the exchange offer or if for any reason (whether before or
after any debentures have been accepted for tender) the acceptance for tender of
debentures is delayed or if we are unable to accept the tender of debentures
under the exchange offer, then, without prejudice to our rights under the
exchange offer, tendered debentures may be retained by the exchange agent on our
behalf and may not be withdrawn (subject to Rule 14e-l(c) under the Exchange
Act, which requires that an offeror pay the consideration offered or return the
securities deposited by or on behalf of the investor promptly after the
termination or withdrawal of a tender offer), except as otherwise provided in
this section.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal and revocation of consents will be determined
by us, in our sole discretion (which determination shall be final and binding).
Neither we, the exchange agent, the dealer manager, the information agent, the
trustee or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or revocation of consents,
or incur any liability for failure to give any such notification.
CONDITIONS TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
Notwithstanding any other provisions of the exchange offer and consent
solicitation and in addition to (and not in limitation of) our rights to extend
and/or amend the exchange offer and consent solicitation, we shall not be
required to accept for exchange or exchange, and may delay the acceptance for
exchange of, or exchange of, any tendered debentures, in each event subject to
Rule 14e-l(c) under the Exchange Act, and may terminate the exchange offer and
consent solicitation, if:
- we have not received the requisite consents with respect to the proposed
amendments and the execution of the supplemental indenture providing for
the proposed amendments;
- RCN's registration statement on Form S-4 does not become effective;
- the consummation of the merger shall not have occurred; or
- the general conditions described below shall not have been satisfied.
The "general conditions" are set forth below in paragraphs (i) and (ii)
below. The general conditions shall be deemed to have been satisfied or waived
unless any of the following events or conditions shall occur on or prior to the
expiration of the exchange offer:
(i) There shall be no third-party, proceeding or investigation pending
which questions the validity or legality of, or seeks to restrain or
prohibit the performance of the merger, the exchange offer or consent
solicitation or of any action taken or to be taken by the parties pursuant
to or in connection with the merger, the exchange offer or consent
solicitation; or
(ii) An order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been enacted, entered, issued,
promulgated, enforced or deemed applicable by any court or governmental,
regulatory or administrative agency or instrumentality that, in our
reasonable judgment,
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would prohibit, prevent, or materially restrict or delay consummation of
the exchange offer or consent solicitation.
The foregoing conditions are for our sole benefit and we may assert them in
our reasonable discretion, regardless of the circumstances giving rise to any
such condition (including any action or inaction by us) and we may waive such
conditions, in whole or in part, at any time and from time to time, in our
reasonable discretion, whether any other condition of the exchange offer and
consent solicitation is also waived. Our failure at any time to exercise any of
the foregoing rights will not be deemed a waiver of any other right and each
right will be deemed an ongoing right which may be asserted at any time and from
time to time.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER AND
THE PROPOSED AMENDMENTS
The following is a summary of material United States federal income tax
consequences of (i) the exchange offer to holders of debentures who exchange
their debentures in the exchange offer and (ii) the adoption of the proposed
amendments to holders of debentures who do not exchange their debentures in the
exchange offer. This summary is based on the Code, Treasury regulations,
administrative rulings and court decisions, all as in effect as of the date
hereof and all of which are subject to change at any time (possibly with
retroactive effect). This summary is not a complete description of all the
consequences of the exchange offer or the adoption of the proposed amendments
and, in particular, may not address U.S. federal income tax considerations
applicable to debenture holders subject to special treatment under U.S. federal
income tax law (including, for example, non-U.S. persons, financial
institutions, dealers in securities, insurance companies, tax-exempt entities,
partnerships, S corporations and other pass-through entities and holders who
hold debentures as part of a hedge, straddle or conversion transaction). In
addition, no information is provided herein with respect to the tax consequences
of the exchange offer under applicable foreign, state or local laws. This
summary assumes that the debentures constitute debt of 21st Century and are
"securities" of 21st Century within the meaning of Section 354(a) of the Code
and that you hold the debentures as capital assets within the meaning of Section
1221 of the Code.
TREATMENT OF EXCHANGING HOLDERS. The exchange offer presents novel and
complex issues of federal income taxation. The merger has been structured in a
manner that is intended to allow it to be treated as a reorganization within the
meaning of Section 368(a) of the Code (which we refer to as a "Reorganization"),
and the exchange is likely to be treated as part of the same Reorganization if
the merger so qualifies. However, there is a significant risk that the merger
will not qualify as a Reorganization. It is not a condition to the consummation
of the exchange offer or the merger that the merger so qualify or that the
exchange offer qualify as a part of that Reorganization. IF THE MERGER DOES NOT
QUALIFY AS A REORGANIZATION, OR IF THE EXCHANGE OFFER DOES NOT QUALIFY AS PART
OF THAT REORGANIZATION, THE EXCHANGE OFFER WILL BE A FULLY TAXABLE TRANSACTION
TO YOU.
It is intended that if 21st Century's counsel, Piper, is able to do so, it
will, upon the completion of the merger, deliver to 21st Century an opinion
generally to the effect that the merger will be treated as a Reorganization.
Piper's opinion, if issued, will not be binding on the IRS or the courts, and
the parties do not intend to request a ruling from the IRS with respect to the
exchange offer or the merger. Accordingly, there can be no assurance that (i)
Piper will be able to deliver such an opinion, (ii) if Piper does deliver an
opinion that the IRS will not challenge the conclusions reached in the opinion,
or (iii) a court will not sustain any such challenge by the IRS.
If Piper does deliver an opinion that the merger will be treated as a
Reorganization, that opinion will be based upon certain assumptions and upon the
representations contained in separate representation letters provided to Piper
by 21st Century and RCN and signed by officers of each company. If any of those
assumptions or representations proves to be inaccurate, the conclusions
contained in the opinion could be affected. If Piper does issue an opinion, that
opinion will only address the treatment of the merger as a Reorganization and
will not address the issue of whether the exchange offer is treated as part of
that Reorganization.
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If the merger qualifies as a Reorganization and the exchange offer is
treated as a part of the Reorganization, the following will be the material
federal income tax consequences of the exchange offer to you:
- you will recognize neither gain nor loss with respect to your debentures
upon your surrender of your debentures in exchange for RCN common stock
in the exchange offer (except as discussed below with respect to cash
received in lieu of fractional shares and possibly, as discussed below,
with respect to consent payments);
- your aggregate tax basis in the shares of RCN common stock you receive in
exchange for your debentures pursuant to the exchange offer will be the
same as the aggregate tax basis of the debentures you surrender in
exchange therefor (reduced by any amount of tax basis allocable to a
fractional share interest in RCN common stock for which you receive
cash);
- the holding period of shares of RCN common stock you receive in the
exchange will include your holding period for the debentures you
surrender in exchange therefor;
- cash you receive in lieu of a fractional share interest in RCN common
stock will be treated as received in redemption of that fractional share
interest, and you will generally recognize capital gain or loss measured
by the difference between the amount of cash you receive and the portion
of the tax basis of the debentures allocable to such fractional share
interest; and
- if you purchased debentures with "market discount" within the meaning of
Section 1278 of the Code, then, under regulations to be issued by the
Treasury, upon a disposition of the RCN common stock you receive in
exchange therefor, any gain you recognize will generally be treated as
ordinary income to the extent of the accrued market discount not already
taken into account as ordinary income.
If the merger does not qualify as a Reorganization or the exchange offer is
not treated as part of the Reorganization, your exchange of debentures for RCN
common stock will be fully taxable to you. As a result, you will generally
recognize a capital gain or loss for United States federal income tax purposes
(except as discussed below with respect to market discount and possibly, as
discussed below, with respect to the consent payment) equal to the difference
between the fair market value of the RCN common stock and cash you receive and
your aggregate tax basis in the debentures you surrender in exchange therefor,
each determined as of the time the RCN common stock and cash is received.
If the merger and exchange offer are not treated as a Reorganization and
you acquired the debentures with market discount, you will generally be required
to treat a portion of the RCN common stock you receive in the exchange as
ordinary income to the extent of the market discount accrued to the date of the
exchange, less any accrued market discount income previously required to be
reported as ordinary income.
Regardless of whether the merger and exchange offer are treated as a
Reorganization, early consent payments received by holders who tender their
debentures pursuant to the exchange offer should be treated as either (i)
additional consideration received on the exchange or (ii) a separate payment in
the nature of a fee for the consent. In the event that the early consent
payments are treated as additional consideration you receive in the exchange,
RCN common stock issued as such additional consideration will be added to the
amount of consideration exchanged for the debentures, and will be treated in the
same manner as the other RCN common stock issued in the exchange, as discussed
above. If the early consent payments are treated as a separate fee to you, you
would likely recognize ordinary income in an amount equal to the fair market
value of the RCN common stock received as an early consent payment, determined
as of the date of receipt. Although there is no authority directly on point and
there can be no assurance that the IRS would not assert a contrary position or
that a court would not sustain such assertion, RCN intends to treat the early
consent payments as additional consideration received in the exchange.
TREATMENT OF NON-EXCHANGING HOLDERS. Although the matter is not free from
doubt, RCN intends to take the position that the adoption of the proposed
amendments to the indenture should not constitute a "significant modification"
in the terms of the debentures within the meaning of the applicable Treasury
regulations. Accordingly, the adoption of the proposed amendments should (i) not
result in a deemed exchange of debentures if you do not tender pursuant to the
exchange offer and (ii) have no U.S. Federal
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income tax consequences to you. Even if the proposed amendments were to
constitute a deemed exchange of the debentures, holders who do not tender their
debentures pursuant to the exchange offer should not recognize gain or loss on a
deemed exchange, since such deemed exchange should qualify as a tax-free
recapitalization. There can be no assurance, however, that the IRS will not take
a different position or that a court will not sustain that position.
Furthermore, the parties do not intend to request a ruling from the IRS with
respect to the adoption of the proposed amendments, and the intended treatment
set forth above will not be a condition to the consummation of the exchange
offer or the adoption of the proposed amendments. If an exchange were deemed to
have occurred and such exchange did not qualify as a recapitalization, holders
would recognize gain or loss, if any, on such exchange and would have a new
holding period for the debentures.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OR
ANY OTHER CONSEQUENCES OF EITHER THE EXCHANGE OFFER OR THE ADOPTION OF THE
PROPOSED AMENDMENTS. THUS, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE OFFER AND/OR ADOPTION OF THE
PROPOSED AMENDMENTS TO YOU, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE
TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
THE DEALER MANAGER, THE INFORMATION AGENT AND THE EXCHANGE AGENT
Salomon Smith Barney Inc. has been engaged to act as the dealer manager in
connection with the exchange offer and consent solicitation. In its capacity as
dealer manager, Salomon Smith Barney may contact you regarding the exchange
offer and consent solicitation and may request brokers, dealers, commercial
banks, trust companies and other nominees to forward this prospectus and related
materials to you. Salomon Smith Barney has provided certain investment banking
and financial advisory services to us in the past. At any given time, Salomon
Smith Barney may trade debentures of 21st Century for its own accounts or for
the accounts of customers, and, accordingly, may hold a long or short position
in the debentures. We have agreed to indemnify Salomon Smith Barney and its
respective affiliates against certain liabilities, including liabilities caused
by, arising out of or in connection with the exchange offer, the consent
solicitation or the engagement of Salomon Smith Barney as the dealer manager.
If you have questions concerning the terms of the exchange offer or the
consent solicitation, you may contact the dealer manager at its address and
telephone number set forth on the back cover page of this prospectus.
ChaseMellon Shareholder Services has been appointed as information agent
for the exchange offer and consent solicitation. You may direct questions and
requests for assistance or additional copies of this prospectus, the consent and
letter of transmittal or the notice of guaranteed delivery to the information
agent at its address and telephone numbers set forth on the back cover page of
this prospectus. You may also contact you broker, dealer, commercial bank or
trust company for assistance concerning the exchange offer or consent
solicitation.
ChaseMellon Shareholder Services has been appointed as exchange agent for
the exchange offer and consent solicitation. Consents and letters of transmittal
and all correspondence in connection with the exchange offer and consent
solicitation should be sent or delivered by you or your broker, dealer,
commercial bank, trust company or other nominee to the exchange agent at the
addresses and telephone number set forth on the back cover page of this
prospectus.
FEES AND EXPENSES
The dealer manager will receive customary fees for its services and
reimbursement for its reasonable out-of-pocket expenses, including fees and
expenses of its legal counsel, in connection with the exchange offer and consent
solicitation. The information agent and the exchange agent will also receive
reasonable and customary fees for their services and reimbursement for their
reasonable out-of-pocket expenses in connection therewith. Brokerage houses and
other custodians, nominees and fiduciaries will be reimbursed for their
reasonable out-of-pocket expenses incurred in forwarding copies of this
prospectus and related documents to the beneficial owners of debentures. We will
pay all such fees and expenses.
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RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF 21ST CENTURY AND RCN
The shares of RCN common stock to be issued in connection with the exchange
offer will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of RCN common stock
issued to any person who is deemed to be an "affiliate" of either of RCN or 21st
Century under the Securities Act at the time of the exchange offer. Persons who
may be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control of either RCN or 21st Century and may
include some officers and directors, as well as principal shareholders.
Affiliates may not sell their shares of RCN common stock acquired in connection
with the exchange except by means of:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
RCN's registration statement, of which this prospectus forms a part, does not
cover the resale of shares of RCN common stock to be received by these
affiliates in the merger.
NO APPRAISAL RIGHTS
You will not have any right to dissent and receive an appraisal of your
21st Century debentures, either under Illinois law or under the indenture your
debentures were issued, in connection with the exchange offer.
USE OF PROCEEDS
The RCN common stock issued in connection with the exchange offer is only
being issued in exchange for your 21st Century debentures. We will not receive
any cash proceeds from the issuance of RCN Stock pursuant to the exchange offer.
LISTING ON THE NASDAQ NATIONAL MARKET OF RCN COMMON STOCK TO BE ISSUED IN THE
EXCHANGE OFFER
RCN will use best efforts to cause the shares of RCN common stock to be
issued in the exchange offer and consent solicitation to be approved for listing
on the Nasdaq National Market, subject to official notice of issuance, before
the completion of the exchange offer.
ACCOUNTING TREATMENT OF THE EXCHANGE OFFER
We intend to account for the exchange offer in connection with our purchase
accounting for the acquisition of 21st Century.
MISCELLANEOUS
We are making this exchange offer and consent solicitation to all holders
of debentures. We are not aware of any jurisdiction in which the making of the
exchange offer and consent solicitation is not in compliance with applicable
law. If we become aware of any jurisdiction in which the making of the exchange
offer and consent solicitation would not be in compliance with applicable law,
we will make a good faith effort to comply with any such law. If, after such
good faith effort, we cannot comply with any such law, the exchange offer and
consent solicitation will not be made to (nor will tenders of debentures and
consents be accepted from or on behalf of) the holders of debentures residing in
such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF RCN NOT CONTAINED IN THIS PROSPECTUS OR IN THE
CONSENT AND LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
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COMPARATIVE PER SHARE MARKET PRICE DATA
RCN's common stock is traded on the Nasdaq National Market under the symbol
"RCNC." 21st Century common stock, class A preferred stock and debentures are
not traded publicly. Because the market price of RCN common stock that you will
receive in the merger may increase or decrease before the merger, you are urged
to obtain current market quotations. You may call 1 (888) 566-9474 during normal
business hours at any time before the special meeting to obtain the prior day's
closing market quotation of RCN common stock.
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices per share of RCN common stock as reported on the Nasdaq
National Market. The sales prices listed on the following table are adjusted to
reflect a 2:1 stock split of RCN common stock on April 6, 1998.
<TABLE>
<CAPTION>
RCN COMMON STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1997
Third Quarter............................................. $16.63 $12.44
Fourth Quarter............................................ 21.63 12.50
FISCAL 1998
First Quarter............................................. $30.63 $15.88
Second Quarter............................................ 29.38 19.25
Third Quarter............................................. 24.31 12.38
Fourth Quarter............................................ 25.00 8.75
FISCAL 1999
First Quarter............................................. $39.75 $17.75
Second Quarter............................................ 54.50 33.75
Third Quarter............................................. 51.50 32.25
Fourth Quarter............................................ 54.25 37.31
FISCAL 2000
First Quarter (through March 30, 2000).................... $74.87 $44.75
</TABLE>
On December 10, 1999, the business day preceding the public announcement
that RCN and 21st Century had entered into the merger agreement, the closing
price of RCN common stock was $41.625. On March 30, 2000, the last full trading
day for which closing prices were available at the time of the printing of this
prospectus, the closing price of RCN common stock was $54.75.
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DESCRIPTION OF RCN CAPITAL STOCK
The following summary description of the common stock of RCN to be
registered in this prospectus and other capitol stock of RCN is based on the
provisions of RCN's amended and restated certificate of incorporation and
certificates of designation, RCN's by-laws and the applicable provisions of
Delaware law. For information on how to obtain copies of RCN's certificate of
incorporation and by-laws, see "Where You Can Find More Information."
AUTHORIZED AND OUTSTANDING CAPITAL STOCK OF RCN. The authorized capital
stock of RCN consists of (i) 200,000,000 shares of common stock, (ii)
400,000,000 shares of class B non-voting common stock, and (iii) 25,000,000
shares of preferred stock, of which 708,000 are designated as Series A 7% Senior
Convertible Preferred Stock and 2,681,931 are designated as Series B 7% Senior
Convertible Preferred Stock. As of December 31, 1999, 77,724,070 shares of
common stock, no shares of class B common stock, 263,053 shares of series A
preferred stock and no shares of series B preferred stock were issued and
outstanding. The RCN common stock is the only class of capital stock of RCN to
be registered in this prospectus.
RCN COMMON STOCK
DIVIDEND RIGHTS. The board of directors of RCN may declare dividends to be
paid to the holders of shares of RCN common stock, subject to the prior rights
of holders of all classes of stock at the time outstanding having prior rights
as to dividends.
CONVERSION RIGHTS. Each holder of shares of RCN common stock is entitled
to convert, at his or her option, each outstanding share of common stock into
one fully paid and nonassessable share of RCN class B common stock.
VOTING RIGHTS. Each holder of a share of RCN common stock is entitled to
vote on each matter on which the stockholders of RCN will be entitled to vote
and each holder is entitled to one vote for each share of RCN common stock held.
The affirmative vote of a majority of the shares of capital stock present, in
person or by proxy, at a meeting of stockholders and entitled to vote on the
subject matter will be the act of the stockholders.
CLASSIFICATION OF THE BOARD. The board of directors is divided into three
classes, designated Class I, Class II and Class III. Each class generally
consists of one third of the total number of directors constituting the entire
board of directors.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of RCN, holders of RCN common stock will
be entitled to share ratably according to the shares held by them in all assets
of RCN available for distribution to its stockholders, subject to the prior
rights of holders of all classes of capital stock outstanding having prior
rights with respect to the assets of RCN.
RCN PREFERRED STOCK
RCN's certificate of incorporation gives RCN's board of directors the power
to authorize by resolution the issuance of one or more classes or series of
preferred stock and to fix the designations, powers, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, if any, in regard to each class or series
of preferred stock. As of the date of this prospectus, the board has authorized
the issuance of 25,000,000 shares of preferred stock, of which 708,000 are
designated as series A preferred stock and 2,681,931 are designated as series B
preferred stock. The board has not provided for the issuance of any other class
or series of preferred stock and there are no agreements or understandings for
the issuance of any other class or series of preferred stock. Because of its
broad discretion with respect to the creation and issuance of preferred stock
without stockholder approval, the board could adversely affect the voting power
of the holders of RCN common stock and, by issuing shares of preferred stock
with certain voting, conversion and/or redemption rights, could discourage any
attempt to obtain control of RCN.
SERIES A PREFERRED STOCK
RCN's board of directors has designated 708,000 shares of preferred stock
as series A preferred stock.
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LIQUIDATION PREFERENCE. $1,000.00 per share.
DIVIDEND RIGHTS. Dividends on the series A preferred stock are cumulative
and accrue at 7% per annum on the liquidation preference per share, and an
additional amount of 7% of the dividends and other amounts which become payable
in respect of the series A preferred stock but which have not been paid. Accrued
dividends may be paid at the election of RCN in cash or shares of series A
preferred stock, or any combination thereof.
RANK. The series A preferred stock ranks, with respect to dividend rights
and rights on liquidation, winding-up and dissolution, senior to all other
classes or series of RCN's capital stock, excluding the series B preferred
stock, with which it ranks equally.
CONVERSION RIGHTS. Each holder of series A preferred stock has the right,
at such holder's option, to convert any or all outstanding shares of series A
preferred stock into shares of RCN common stock at a predetermined conversion
ratio. The conversion ratio is subject to a proportional adjustment for stock
splits, stock dividends, mergers, consolidations, reclassifications and the
grant of warrants or options.
REDEMPTION RIGHTS. The series A preferred stock is not redeemable prior to
March 31, 2003. On or after that date, RCN may, to the extent that it has funds
available for payment, redeem the series A preferred stock at any time in whole
or in part, at a redemption price per share equal to the liquidation preference
plus all accrued and unpaid amounts and dividends payable thereon. If RCN has
funds available for payment on March 31, 2014, RCN must redeem all outstanding
series A preferred stock, if any, at a redemption price per share in cash equal
to the liquidation preference, plus accrued and unpaid amounts and dividends.
CHANGE OF CONTROL. Upon the occurrence of a change of control, RCN must
make an offer to each holder of series A preferred stock to repurchase all of
the shares, or a portion of the shares as may be determined by the holder, at a
price per share in cash equal to the liquidation preference plus the accrued and
unpaid amounts and dividends payable thereon.
SERIES B PREFERRED STOCK
RCN's board of directors has designated 2,681,931 shares of preferred stock
as series B preferred stock.
LIQUIDATION PREFERENCE. $1,000.00 per share.
DIVIDEND RIGHTS. Dividends on the series B preferred stock are cumulative
and accrue at 7% per annum on the liquidation preference per share. The
dividends are payable in additional shares of series B preferred stock.
RANK. The series B preferred stock ranks, with respect to dividend rights
and rights on liquidation, winding-up and dissolution, senior to all other
classes or series of RCN's capital stock, excluding the series A preferred
stock, with which it ranks par.
CONVERSION RIGHTS. Each holder of series B preferred stock has the right,
at such holder's option, to convert any or all outstanding shares of series B
preferred stock into and RCN common stock or class B common stock. RCN may
require a holder to convert any or all shares of series B preferred stock into
RCN common stock or class B common stock during the period from the 42 month
anniversary of the first date of issue of the series B preferred stock and the
seventh anniversary of that issue date, provided the 20 day average trading
price of RCN common stock at the time is at least 110% of the adjusted
conversion price at the time. Any outstanding shares of series B preferred stock
on the seventh anniversary of the issue date will be automatically convertible
into shares of RCN common stock or class B common stock. The conversion price is
$62 per share and is subject to adjustment for stock splits, stock dividends,
mergers, consolidations, and reclassifications, or if the price of shares of RCN
common stock is less than the 20 day average trading price of the RCN common
stock at the time.
REDEMPTION RIGHTS. The series B preferred stock is not redeemable prior to
the 42 month anniversary of its issuance. On or after that date, RCN may, to the
extent that it has funds available for payment, redeem the series B preferred
stock at any time in whole or in part, at a redemption price per share equal to
the liquidation preference plus all accrued and unpaid dividends thereon.
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CHANGE OF CONTROL. Upon the occurrence of a change of control, each holder
of series B preferred stock, will be entitled to convert its shares into RCN
common stock or class B common stock at a specified conversion price.
COMPARISON OF RIGHTS OF RCN STOCKHOLDERS AND 21ST
CENTURY SHAREHOLDERS
The rights of RCN stockholders are currently governed by Delaware law,
RCN's amended and restated certificate of incorporation and certificates of
designation and RCN's by-laws. The rights of 21st Century's shareholders are
currently governed by Illinois law, 21st Century's articles of incorporation and
21st Century's by-laws. Upon completion of the merger, 21st Century shareholders
will become holders of RCN common stock and their rights will be governed by
Delaware law, RCN's certificate of incorporation and RCN's by-laws.
The following summarizes the material differences between the rights of RCN
stockholders and the rights of 21st Century shareholders, but does not purport
to be a complete statement of all such differences, or a complete description of
the specific provisions referred to in this summary.
AUTHORIZED CAPITAL
RCN. The authorized capital stock of RCN consists of (i) 200,000,000
shares of common stock, (ii) 400,000,000 shares of class B non-voting common
stock, and (iii) 25,000,000 shares of preferred stock, of which 708,000 are
designated as Series A 7% Senior Convertible Preferred Stock and 2,681,931 are
designated as Series B 7% Senior Convertible Preferred Stock. As of December 31,
1999, 77,724,070 shares of common stock, no shares of class B common stock,
263,053 shares of series A preferred stock and no shares of series B preferred
stock were issued and outstanding.
21ST CENTURY. The authorized capital stock of 21st Century consists of (i)
50,000,000 shares of voting common stock, and 1,000,000 shares of non-voting
common stock, (ii) 500,000 shares of class A preferred stock, (iii) 500,000
shares of class B preferred stock, and (iv) 100,000 shares of exchangeable
preferred stock. As of the date of the merger agreement, 3,728,666.215 shares of
voting common stock, 552,271.8965 shares of non-voting common stock, 1,554.871
shares of class A preferred stock, no shares of class B preferred stock and
65,668.2 shares of exchangeable preferred stock were issued and outstanding.
VOTING RIGHTS
RCN. Each holder of a share of RCN common stock is entitled to vote on
each matter on which the stockholders of RCN are entitled to vote and each
holder is entitled to one vote for each share of RCN common stock held. Each
holder of a share of RCN class B common stock is not entitled to vote on any
matter. Subject to Delaware law, an act of stockholders will result from the
affirmative vote of a majority of shares of capital stock of RCN present in
person, or by proxy, at a meeting of stockholders and entitled to vote. Under
Delaware law, stockholder proxies are valid for three years from their date
unless the proxy provides for a longer period.
21ST CENTURY. The holders of 21st Century common stock are entitled to
vote on all matters submitted to the shareholders for a vote, together with the
holders of the 21st Century common stock and class B preferred stock, with all
such holders voting together as a single class.
Each share of 21st Century common stock is entitled to one vote per share
and each share of 21st Century class A preferred stock and class B preferred
stock is entitled to one vote on "as converted" basis. The holders of 21st
Century non-voting common stock are not entitled to vote, except in limited
circumstances.
Subject to Illinois law, any corporate action, other than the election of
directors, to be voted on by shareholders must be authorized by a majority of
votes cast at a shareholders meeting by shareholders entitled to vote. Each
shareholder entitled to vote may do so by proxy in writing. Any resolution in
writing signed by all of the shareholders entitled to vote thereon has the same
effect as if it is passed by unanimous vote at a duly called meeting of
shareholders. Under Illinois law, no proxy will be valid for longer than 11
months, unless otherwise provided in the proxy.
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CUMULATIVE VOTING
RCN. Delaware law provides that the certificate of incorporation of any
corporation may grant shareholders the right to accumulate their votes. RCN's
certificate of incorporation states that there will be no cumulative voting in
the election of directors.
21ST CENTURY. Illinois law provides that in all elections for directors,
each shareholder will have the right to vote the number of shares owned by him
or her for as many persons as there are directors to be elected, or to
accumulate those shares, and give one candidate as many votes as is equal to the
number of directors to be elected multiplied by the number of that shareholder's
shares, or to distribute the votes in any proportion among any number of
candidates. Corporations incorporated after June 15, 1971 may limit or eliminate
cumulative voting rights in all or specified circumstances.
NUMBER AND ELECTION OF DIRECTORS
RCN. Delaware law permits the certificate of incorporation or by-laws to
contain a provision regarding the number of directors. According to the RCN's
by-laws, the number of directors on RCN's board of directors may not be less
than 3 nor more than 24, the exact number of which is to be determined from time
to time by resolution adopted by the affirmative vote of a majority of the RCN's
directors. RCN's board of directors presently consists of 13 directors.
Delaware law permits a corporation's board to be divided up into three
classes with staggered terms of office by adopting a classification provision in
the corporation's certificate of incorporation or by-laws. RCN's board of
directors is divided into three classes, designated Class I, Class II and Class
III. Each class generally consists of one third of the total number of directors
constituting the entire board of directors. Each director serves for a term
ending on the date of the third annual meeting of stockholders following the
annual meeting at which such director was elected.
21ST CENTURY. Under Illinois law, the board of directors of a corporation
must consist of at least one member. According to 21st Century's by-laws, the
number of directors of 21st Century is three, unless and until otherwise
determined by a vote of majority of the entire board of directors. It was
resolved at a meeting of the board held on June 9, 1998, that the number of
directors be fixed at 9.
The members of the board of directors may be elected by a majority of the
votes cast at a meeting of shareholders, by the shareholders entitled to vote in
the election. Each director will hold office until the annual general meeting
next succeeding his election.
REMOVAL OF DIRECTORS
RCN. Under Delaware law, the affirmative vote of a majority of the shares
entitled to vote for the election of directors is required to remove directors,
with or without cause, subject to certain exceptions relating to directors
elected by the holders of a class or series, and corporations that have a
classified board of directors. According to RCN's by-laws, no director may be
removed from office by the stockholders, except for cause with the affirmative
vote of the holders of not less than a majority of the total voting power of all
outstanding securities of RCN then entitled to vote generally in the election of
directors, voting together as a single class.
21ST CENTURY. Subject to certain exceptions relating to notice
requirements, cumulative voting and voting based on class or series, Illinois
laws provides that one or more of the directors of a corporation may be removed,
with or without cause, at a meeting of shareholders by the affirmative vote of
the holders of a majority of the outstanding shares then entitled to vote at an
election of directors. According to 21st Century's by-laws, any director may be
removed with or without cause at any time by the affirmative vote of
shareholders holding in the aggregate at least a majority of the outstanding
shares of 21st Century at a special meeting of the shareholders called for that
purpose. Directors may be removed for cause by action of the board of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
RCN. Delaware law provides that, unless otherwise provided in a
corporation's certificate of incorporation or by-laws, vacancies and newly
created directorships may be filled by a majority of the
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directors then in office or a sole remaining director, even though less than a
quorum, unless otherwise provided in the certificate of incorporation or
by-laws. However, Delaware law also provides that if the directors then in
office constitute less than a majority of the corporation's whole board of
directors, as constituted prior to any such increase, then, upon application by
stockholders representing at least 10% of the outstanding shares entitled to
vote for such directors, the Delaware Court of Chancery may order a stockholder
election of directors to be held. According to RCN's certificate of
incorporation, vacancies on the board of directors resulting from death,
resignation, removal or otherwise, and newly created directorships resulting
from any increase in the number of directors will be filled solely by a majority
of the directors then in office or by the sole remaining director. Each director
so elected will hold office for a term that will coincide with the term of the
class to which such director will have been elected. When one or more directors
resign from the board, a majority of the directors then in office, including
those who have resigned, will have the power to fill such vacancy or vacancies,
and the vote thereon will take effect when the resignation or resignations
become effective.
21ST CENTURY. Illinois law provides that, except as otherwise provided in
the articles of incorporation, any vacancy occurring in the board of directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual meeting or at a special meeting
of shareholders called for that purpose; provided, however, that the by-laws of
a corporation may provide a method for filling vacancies arising between
meetings of shareholders by reason of an increase in the number of directors or
otherwise, by director or stockholder action and, in the absence of such
provision, the board of directors may fill the vacancy. 21st Century's by-laws
provide that any vacancy in the board of directors occurring by reason of an
increase in the number of directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a director
by the shareholders will be filled by the shareholders at the meeting at which
the removal was effected), or inability to act of any director, or otherwise,
will be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the board of directors called for that purpose.
INTERESTED DIRECTORS
RCN. Under Delaware law, certain contracts or transactions in which one or
more of a corporation's directors has an interest are not void or voidable
solely because of such interest if such contract or transaction (1) is ratified
by the stockholders (as set forth below) or a majority of disinterested members
of the board of directors or a committee thereof if the material facts of the
contract or transaction are disclosed or known or (2) was fair to the
corporation at the time it was approved. Under Delaware law, any ratification of
such a contract or transaction by the stockholders must be made by a majority of
all stockholders in good faith.
21ST CENTURY. Under Illinois law, if a transaction is fair to a
corporation at the time it was authorized, approved or ratified by the directors
or shareholders, respectively, then the fact that a director of the corporation
is directly or indirectly a party to the transaction is not grounds for
invalidating the transaction or the director's vote regarding the transaction.
Nevertheless, in a proceeding contesting the validity of such an "interested
transaction," the person asserting the validity of such a transaction has the
burden of proving the fairness of such transaction unless the material facts of
the transaction and the director's interest or relationship were disclosed to
the board of directors and such transaction was authorized, approved or ratified
by "disinterested" directors, or the material facts of the transaction and the
director's interest or relationship were disclosed to the shareholders and such
transaction was authorized, approved or ratified by the "disinterested"
shareholders. 21st Century's by-laws provide that a contract or other
transaction between 21st Century and any other corporation will not be impaired,
effected or invalidated, nor will any director be liable in any way by reason of
the fact that any one or more of the directors of 21st Century is or are
interested in, or is a director or officer, or are directors or officers of such
other corporations, provided that such facts are disclosed to 21st Century's
board of directors.
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ACTION BY WRITTEN CONSENT
RCN. Under Delaware law, unless otherwise provided in the certificate of
incorporation, actions may be taken by the stockholders of a Delaware
corporation by written consent, provided that the written consent is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote on the matter were present and voted. RCN's
certificate of incorporation prohibits the stockholders from acting by written
consent.
21ST CENTURY. 21st Century's by-laws provide that, a resolution signed by
all of 21st Century's shareholders shall constitute action by the shareholders
as if it had been passed by unanimous vote at a duly called meeting of the
shareholders.
ABILITY TO CALL SPECIAL MEETINGS
RCN. Delaware law provides that the board of directors or any other
persons authorized by the certificate of incorporation or by the by-laws of a
corporation may call a special meeting of the stockholders. Under RCN's
certificate of incorporation and by-laws, special meetings of the stockholders
of RCN may be called by the board of directors, the chairman of the board or the
chief executive officer.
21ST CENTURY. 21st Century's by-laws provide that special meetings of the
shareholders may be called at any time by the board of directors or by the
president, or must be called by the president or the secretary at the written
request of the holders of not less than one fifth of all the shares outstanding
and entitled to vote at a meeting.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER MEETINGS AND PROPOSALS
RCN. Under RCN's by-laws, whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting must be given
not less than 10, nor more than 60 days before the date of the meeting to each
stockholder of record entitled to vote at such meeting. A written waiver of any
such notice signed by the person entitled thereto, whether before or after the
time stated therein, is deemed equivalent to notice. Attendance of a person at
the meeting also constitutes waiver of notice.
At any meeting of the stockholders, only such business will be conducted as
will have been brought for the meeting by or at the direction of the board of
directors, or, in the case of an annual meeting of stockholders, by any
stockholder of RCN who is a stockholder of record at the time of giving the
notice required by the by-laws. In order for notice by a stockholder to be
timely, it must be given in writing to the secretary of RCN not less than 60
days nor more than 90 days prior to the meeting. In the event that less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder, to be timely, must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting or public disclosure was given or made.
No business may be brought by a stockholder for a special meeting of
stockholders.
The stockholder's notice to the secretary must set out as to each matter
the stockholder proposes to bring before the meeting:
- a brief description of the business desired to be brought before the
meeting and the reasons for conducting that business at the meeting;
- the name and address of the stockholder proposing the business;
- the class and number of shares of RCN which are beneficially owned by the
stockholder; and
- any material interest of the stockholder in the business.
RCN's by-laws allow stockholders to nominate candidates for election to
RCN's board of directors. Nominations by stockholder may be made by any
stockholder who is a stockholder of record at the time of giving of notice
provided for in the by-laws. Such nominations, to be timely, must be given in
accordance with the notice requirements for meetings of stockholders.
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The stockholder's notice must set out:
- as to each person who the stockholder proposes to nominate for election
or re-election, all information relating to that person that is required
to be disclosed in proxy solicitation for the election of directors or as
otherwise required under Section 14A of the Exchange Act;
- the name and address of the stockholder giving the notice;
- the class and number of shares of RCN which are beneficially owned by the
stockholder giving the notice;
- a description of all arrangements or understandings between the
stockholder giving the notice and each proposed nominee; and
- any other information relating to the stockholder giving the notice which
is required to be disclosed in proxy solicitations for the election of
directors or as otherwise required under Section 14A of the Exchange Act.
21ST CENTURY. 21st Century's by-laws provide that, subject to Illinois
law, written notice of each meeting of shareholders must be served not less than
10 nor more than 60 days before the meeting, or in the case of a merger, among
other items, not less than 20 nor more than 60 days before the meeting upon each
shareholder of record entitled to vote at such meeting, and to any other
shareholder entitled by law to vote. Notice of a special meeting must state the
purpose for which the meeting is called and indicate that it is being issued by,
or at the direction of, the person or persons calling the meeting. If, at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares under Illinois law, the notice
of that meeting must include a statement of that purpose and to that effect.
Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
other shareholder who, in person or by proxy, submits a signed waiver of notice
either before or after that meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND ARTICLES OF INCORPORATION
RCN. Delaware law provides that the certificate of incorporation of a
corporation may be amended upon adoption by the board of directors of a
resolution setting forth the proposed amendment and declaring its advisability,
followed by the affirmative vote of a majority of the outstanding shares
entitled to vote. It also provides that a certificate of incorporation may
provide for a greater or lesser vote than would otherwise be required by
Delaware law.
RCN's certificate of incorporation states that RCN may amend its
certificate of incorporation in any matter permitted by Delaware law. The
provisions of the certificate of incorporation regarding the board of directors,
amendment of the by-laws, special meetings of stockholders, personal liability
and indemnity of directors and officers and amendment of the certificate of
incorporation may not be repealed or amended in any respect without the approval
of the affirmative vote of the holders of not less than two-thirds of the total
voting power of all outstanding securities of RCN then entitled to vote
generally in the election of directors, voting together as a single class.
21ST CENTURY. Generally, under Illinois law, the board of directors must
recommend and two-thirds of the shareholders entitled to vote must approve
amendments to a corporation's articles of incorporation other than those
amendments relating to certain immaterial procedural matters. If a specified
amendment affects the rights of holders of a particular class of securities,
then those shareholders must approve the amendment, by a two-thirds vote, even
if that class of shareholders would not ordinarily have voting rights. Illinois
law permits corporations to supercede the two-thirds voting requirement and
specify any larger or smaller vote requirement not less than a majority of the
votes entitled to vote on the amendment and not less than a majority of the
votes of shares of each class or series of shares entitled to vote as a class on
the amendment.
21st Century's articles of incorporation provide that no amendment,
modification or waiver of the terms relating to 21st Century's class A preferred
stock and class B preferred stock may be made without
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the prior written consent of the holders of a majority of the class A and class
B preferred stock outstanding at the time the action is taken. In addition, no
change in the terms of the preferred stock may be accomplished by merger of 21st
Century with another corporate entity (among other events) unless 21st Century
has obtained the prior written consent of the requisite holders of its class A
preferred stock and class B preferred stock.
No amendment or waiver of any provision of 21st Century's articles of
incorporation which adversely affects the holders of 21st Century's non-voting
common stock may be made without the prior approval of the holders of a majority
of the then outstanding non-voting common stock voting as a separate class.
AMENDMENT OF BY-LAWS
RCN. Under Delaware law, stockholders have the authority to make, alter,
amend or repeal the by-laws of a corporation and such power may be delegated to
the board of directors. RCN's by-laws permit the by-laws to be altered, amended
or repealed by the board of directors or by the affirmative vote of the holders
of not less than two-thirds of the total voting power of all outstanding
securities of RCN then entitled to vote generally in the election of directors,
voting together as a single class.
21ST CENTURY. Illinois law provides that unless the power to make, alter,
amend or repeal the by-laws is reserved to the shareholders by the articles of
incorporation, the by-laws of the corporation may be made, altered, or repealed
by the shareholders or the board of directors; provided however, that no by-laws
adopted by the shareholders may be altered, amended or repealed by the board of
directors if the by-laws so provide. 21st Century's by-laws state that the
by-laws may be altered or repealed, or renewed by-laws may be made, by the
affirmative vote of shareholders holding in the aggregate at least a majority of
the outstanding shares entitled to vote in the election of directors at any
annual or special meeting of shareholders. 21st Century's board of directors has
the power to make, adopt, alter, amend and repeal the by-laws of 21st Century,
which by-laws may be further altered, amended or repealed by the shareholders.
The board of directors does not have the power to change the quorum for meetings
of shareholders or the board of directors, or to change any provisions of the
by-laws with respect to the removal of directors or the filling of vacancies in
the board resulting from the removal by the shareholders.
STANDARD OF CONDUCT FOR DIRECTORS
RCN. Under Delaware law, the standards of conduct for directors have
developed through written opinions of the Delaware courts. Generally, directors
of Delaware corporations are subject to a duty of loyalty and a duty of care.
The duty of loyalty has been said to require directors to refrain from self-
dealing and the duty of care requires directors in managing the corporate
affairs to use that amount of care which ordinarily careful and prudent persons
would use in similar circumstances. In general, gross negligence has been
established as the test for breach of the standard for the duty of care in the
process of decision-making by directors of Delaware corporations. When directors
act consistently with their duties of loyalty and care, their decisions
generally are presumed to be valid under the business judgment rule.
21ST CENTURY. Under Illinois law, directors and officers may, in
discharging their duties, and in considering the best long term and short term
interests of the corporation, consider the effects of any action (including
without limitation, action which may involve or relate to a change or potential
change in control of the corporation) upon employees, suppliers and customers of
the corporation or its subsidiaries, communities in which offices or other
establishments of the corporation or its subsidiaries are located, and all other
pertinent factors. Illinois courts have imposed fiduciary duties on directors of
corporations similar to those under Delaware law as described above.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
RCN. Under Delaware law, a Delaware corporation may include in its
certificate of incorporation, a provision that eliminates or limits a director's
personal liability for monetary damages for breach of his or her fiduciary duty,
subject to certain limitations. Delaware law also generally permits
indemnification of a person who acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation.
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RCN's certificate of incorporation precludes a director of RCN from
liability to RCN or its stockholders for monetary damages for breach of a
fiduciary duty as a director to the fullest extent permitted by Delaware law.
The certificate of incorporation states that each person who was or is a
party to, or threatened to be made a party to, or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or office of RCN or is or was serving at the request of RCN as a
director or officer of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise, will be indemnified by RCN to
the fullest extent permitted by Delaware law. The right to indemnification
includes the right to be paid by RCN the expenses incurred in connection with
any such proceeding advance of its final disposition.
RCN is further permitted under the certificate of incorporation by action
of its board of directors, to provide indemnification to employees and agents of
RCN and to those persons serving at the request of RCN as an employee or agent
of another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, to such extent and to the effect as the board of
directors determines to be appropriate and authorized by Delaware law.
In general, the indemnification provided for by Delaware law is not deemed
to be exclusive of any non-statutory indemnification rights provided to
directors, officers and employees under any by-law, agreement or vote of
shareholders or disinterested directors. RCN's certificate of incorporation
contains similar provisions.
21ST CENTURY. 21st Century's by-laws preclude any director of 21st
Century, personally and individually, who may be a party to or may be interested
in any contract or transaction of 21st Century from liability in any way by
reason of such interest, provided that the effect of such interest is disclosed
or made known to the board of directors and that the board of directors
authorizes, approves or rectifies such contract or transaction by the vote of a
majority of a quorum of the board of directors (excluding the vote of the
interested director).
Generally, Illinois law provides that a corporation may indemnify any
person who is a party or is threatened to be made a party to any proceeding by
reason of the fact that such person is a director, officer, employee or agent of
the corporation, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interest of the
corporation, and, with respect to any criminal action, had no reasonable cause
to believe his or her actions were unlawful.
21st Century's by-laws provide for indemnification for any person who
enjoys indemnity under Illinois law against the reasonable expenses, including
attorneys fees, actually and necessary incurred by the person in connection with
the defense of the action, suit or proceeding, or in connection with any appeal
therein, in which that person is involved. The right of indemnification is not
available where the officer, director or employee is liable for negligence or
misconduct in the performance of his duties.
Illinois law and 21st Century's by-laws contain similar provisions to
Delaware law and RCN's certificate of incorporation regarding the
non-exclusivity of any non-statutory indemnification rights provided to
directors, officers and employees.
DIVIDENDS
RCN. Delaware laws allow a corporation to pay dividends in cash, in
property or stock out of its surplus or, if there is no surplus, out of net
profits for the fiscal year in which dividends are declared or out of net
profits for the preceding fiscal year. The board of directors of RCN may declare
dividends to be paid to the holders of shares of RCN common stock, subject to
the prior rights of holders of all classes of stock at the time outstanding
having prior rights as to dividends.
21ST CENTURY. Under Illinois law, a dividend may be made unless, after
giving it effect, the corporation would be insolvent or the net assets of the
corporation would be less than the maximum amount payable to shareholders having
preferential rights in liquidation. 21st Century's by-laws provide that
dividends may be declared and paid out of any funds available therefor as often,
in amounts, and on any term or terms as the board of directors of 21st Century
may determine.
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21st Century's articles of incorporation provide that if dividends are
declared which are payable in shares of 21st Century's voting common stock or
non-voting common stock, then dividends will be declared which are payable at
the same rate on both classes of 21st Century's common stock. If the dividends
consist of other voting securities of 21st Century, then in respect of the
non-voting common stock, 21st Century may, at its option, pay those dividends in
the form of non-voting securities of 21st Century which are otherwise identical
to those other voting securities and which are convertible into or exchangeable
for voting securities on the same terms as the 21st Century non-voting common
stock is convertible into 21st Century's voting common stock.
21st Century's articles of incorporation provide that 21st Century will pay
preferential dividends to the holders of the class A preferred stock in cash or
additional shares of class A preferred stock when and as declared by the board
of directors of 21st Century. Dividends on each share of class A preferred stock
accrue on a daily basis at the rate of 8% per annum of the sum of the
liquidation value thereof, plus all accumulated and unpaid dividends from and
including the date of issuance.
CONVERSION RIGHTS
RCN. RCN's certificate of incorporation permits a holder of RCN common
stock to convert, at his or her option, each outstanding share into one fully
paid and nonassessable share of RCN class B common stock. This right of
conversion must be exercised by the holder giving written notice thereof to RCN
that he or she elects to convert a stated number of shares of RCN common stock
into class B common stock and by surrender of a certificate or certificates for
the shares to be converted.
21ST CENTURY. 21st Century's articles of incorporation provide that so
long as any shares of class A preferred stock remain outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
class A preferred stock and class B preferred stock, 21st Century will not be
permitted to redeem, purchase or acquire any securities which rank junior in
preference.
Upon the occurrence, or expected occurrence of any conversion event (which
includes a merger), each holder of 21st Century's non-voting common stock will
be entitled to convert its shares into the same number of shares of 21st Century
voting common stock.
21st Century's class A preferred stock is convertible at the option of any
holder thereof into a number of shares of 21st Century's voting common stock
computed by multiplying the number of shares of class A preferred stock to be
converted by the liquidation value of each share and dividing the result by the
conversion price then in effect.
LIQUIDATION RIGHTS
RCN. RCN's certificate of incorporation provides that in the event of any
voluntary or involuntary liquidation, dissolution or winding up of RCN, holders
of RCN common stock will be entitled to share ratably according to the shares
held by them in all assets of RCN available for distribution to its
stockholders, subject to the prior rights of holders of all classes of stock
outstanding having prior rights with respect to the assets of RCN.
21ST CENTURY. 21st Century's articles of incorporation provide that upon
the liquidation, dissolution or winding up of 21st Century, the holder of 21st
Century class A preferred stock will be entitled to be paid, before any
distribution or payment is made to any securities which rank junior in
preference to the class A preferred stock, an amount in cash equal to the
greater of the amount which the holders would have received if they had
converted all of their class A preferred stock immediately prior to the
liquidation, dissolution or winding up, and the aggregate liquidation value of
all shares of class A preferred stock then held by the holder. Mergers, among
other events, do not constitute a liquidation, dissolution or winding.
APPRAISAL RIGHTS
RCN. Under Delaware law, appraisal rights may be available in connection
with a statutory merger or consolidation in certain specific situations.
Appraisal rights are not available under Delaware law when a corporation is to
be the surviving corporation and no vote of its stockholders is required to
approve the merger or consolidation. In addition, no appraisal rights are
available to holders of shares of any class of
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stock which is either (a) listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (b) held of record by more
than 2,000 shareholders, unless such stockholders are required by the terms of
the merger or consolidation to accept anything other than (i) shares of the
surviving corporation, (ii) shares of stock that are listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the Nasdaq National Market or held of record by
more than 2,000 stockholders, (iii) cash in lieu of fractional shares or (iv)
any combination of the foregoing. Stockholders who perfect their appraisal
rights are entitled to receive cash from the corporation equal to the value of
their shares as established by judicial appraisal. Corporations may enlarge
these statutory rights by including in their certificate of incorporation a
provision allowing the appraisal rights in any merger or consolidation in which
the corporation is a constituent corporation. RCN's certificate of incorporation
and by-laws do not contain a provision enlarging such appraisal rights.
21ST CENTURY. Illinois law grants to shareholders of an Illinois
corporation the right to dissent and to receive the fair value of their shares
in the event of certain amendments to the articles of incorporation that
adversely affects their shares or business transactions, including mergers. For
a description of the rights of dissenting shareholders of 21st Century under
Illinois law, see "The Merger -- Appraisal Rights."
PREEMPTIVE RIGHTS
RCN. RCN's certificate of incorporation stipulates that the holders of
shares of RCN common stock have no preemptive or preferential rights of
subscription to any shares of any class of capital stock of RCN or any
securities convertible into or exchangeable for shares of any class of stock of
RCN.
21ST CENTURY. 21st Century's articles of incorporation and by-laws do not
contain any provisions regarding preemptive rights of shareholders.
VOTE ON CERTAIN FUNDAMENTAL ISSUES
RCN. Delaware law requires that any merger, consolidation, sale of all or
substantially all of the assets, or dissolution of a corporation be approved by
the affirmative vote of the holders of a majority of the outstanding shares of
the corporation entitled to vote thereon. Neither RCN's certificate of
incorporation nor the by-laws alter these stockholder approval requirements.
21ST CENTURY. In general, under Illinois law, a plan of merger,
consolidation or share exchange must be approved by the affirmative vote of at
least two-thirds of the votes of the shares entitled to vote on the plan unless
any class or series of shares of the corporation is entitled to vote as a class
on the plan, in which event the plan must also be approved by the affirmative
votes of at least two-thirds of the votes of the shares of each such class or
series. The articles of incorporation of any corporation may supersede the
two-thirds vote requirement by specifying any smaller or larger vote requirement
not less than a majority of the votes of the shares entitled to vote on the
issue and not less than a majority of the votes of the shares of each class or
series of shares entitled to vote as a class on the issue. Neither 21st
Century's articles of incorporation nor the by-laws alter this shareholder
approval requirement.
STATE ANTI-TAKEOVER PROVISIONS
RCN. Delaware law limits certain business combinations of Delaware
corporations with interested stockholders. Under Delaware law, an interested
stockholder (a stockholder whose beneficial ownership in the corporation is at
least 15% of the outstanding voting securities) cannot enter certain business
combinations with the corporation for a period of three years following the time
that such stockholder became an interested stockholder unless, (i) prior to such
time, a corporation's board of directors approved either the business
combination or the transaction in which the stockholder became an interested
stockholder, (ii) upon consummation of the transaction in which any person
becomes an interested stockholder, such interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares owned by certain employee stock
ownership plans and persons who are both directors and officers of the
corporation) or (iii) at or subsequent to such time, the business combination is
both approved by the board of directors and authorized at an annual or special
meeting of stockholder, not by written consent, by the affirmative vote
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of at least two-thirds of the outstanding voting stock not owned by the
interested stockholder. RCN's certificate of incorporation and by-laws do not
provide for an "opt-out" from this provision of Delaware law and, therefore, it
applies to RCN.
21ST CENTURY. Illinois law prohibits a corporation from engaging in
certain business combinations with any interested shareholder (generally, a
shareholder whose beneficial ownership in the corporation is, or in certain
cases was, at least 15% of the outstanding voting securities, and affiliates of
such shareholders) for a period of three years following the date on which such
shareholder became an interested shareholder, unless (i) prior to the time that
a person or entity becomes an interested shareholder, the board of directors of
the corporation approved the business combination or the transaction in which
such shareholder became an interested shareholder, (ii) upon the consummation of
the transaction in which the shareholder became an interested shareholder, such
shareholder owned at least 85% of the outstanding voting shares of the
corporation (excluding shares held by certain persons set forth in the statute)
or (iii) at, or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of the
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting shares which are not owned by the interested
shareholder. Certain exemptions exist under this statute.
Under Illinois law, a corporation may not enter into a business combination
with any interested shareholder unless the transaction has been approved by the
holders of at least 80% of the outstanding voting shares of the corporation and
the holders of a majority of the voting shares of the corporation not held by
such interested shareholders and their affiliates or associates. The heightened
shareholder voting requirement does not apply if (i) the business combination
has been approved by two-thirds of the disinterested directors, or (ii) specific
procedural requirements and requirements relating to the consideration to be
paid are met. The disinterested directors of the 21st Century board of directors
have unanimously approved the merger agreement and the merger. See "The
Merger -- Background of the Merger."
LEGAL MATTERS
The validity of the shares of RCN common stock offered by this prospectus
will be passed upon for RCN by John J. Jones, Esq., Executive Vice President,
General Counsel and Corporate Secretary of RCN. Mr. Jones is paid a salary by
RCN, is a participant in various employee benefit plans offered to employees of
RCN generally and owns and has options to purchase shares of RCN common stock.
EXPERTS
The financial statements of RCN Corporation incorporated in this prospectus
by reference to the Annual Report on Form 10-K for the year ended December 31,
1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of 21st Century as of December 31,
1999 and December 31, 1998, and for the year ended December 31, 1999, the nine
months ended December 31, 1998, and the twelve months ended March 31, 1998,
included in 21st Century's Annual Report in Form 10-K for the year ended
December 31, 1999 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
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WHERE YOU CAN FIND MORE INFORMATION
RCN and 21st Century file annual, quarterly and special reports and other
information with the SEC. You may read and copy any reports, statements or other
information that RCN and 21st Century file with the SEC at the SEC's public
reference rooms at the following locations:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
New York Regional Office
7 World Trade Center
Suite 1300
New York, NY 10048
Chicago Regional Office
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet worldwide web site
maintained by the SEC at "http://www.sec.gov". Reports, proxy statements and
other information concerning RCN may also be inspected at the offices of The
Nasdaq Stock Market, which is located at 1735 K. Street, N.W., Washington, D.C.
20006.
RCN filed a registration statement on Form S-4 on February 8, 2000, to
register with the SEC the RCN common stock to be issued to 21st Century
shareholders in the merger and 21st Century debenture holders in the exchange
offer and consent solicitation. This prospectus is a part of that registration
statement. As allowed by SEC rules, this prospectus does not contain all the
information you can find in RCN's registration statement or the exhibits to the
registration statement.
The SEC allows RCN to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to other documents filed separately with the SEC. The information
incorporated by reference is considered part of this prospectus, except for any
information superseded by information contained directly in this prospectus or
in later filed documents incorporated by reference in this prospectus.
This prospectus incorporates by reference the documents set forth below
that RCN and 21st Century have previously filed with the SEC. These documents
contain important business and financial information about RCN and 21st Century
that is not included in or delivered with this prospectus.
The following documents, which have been filed by RCN with the Securities
and Exchange Commission, are incorporated by reference into this prospectus:
- RCN's Annual Report on Form 10-K, for the fiscal year ended December 31,
1999;
- RCN's Current Report on Form 8-K filed March 27, 2000;
The following documents, which have been filed by 21st Century with the
Securities and Exchange Commission, are incorporated by reference into this
prospectus:
- 21st Century's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1999;
- 21st Century' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, as amended February 4, 2000; and
- 21st Century's Current Report on Form 8-K filed February 4, 2000.
RCN and 21st Century also incorporate by reference additional documents
that may be filed with the SEC under sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this prospectus and the later of the date of
the 21st Century special meeting and the completion of the exchange offer and
consent solicitation. These include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
We have sent you some of the documents incorporated by reference, but you
can also obtain any of them through RCN, the SEC or the SEC's Internet web site
as described above. Documents incorporated by reference are available from us
without charge, excluding all exhibits, except that if we have specifically
incorporated by reference an exhibit in this prospectus, the exhibit will also
be provided without charge. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY APRIL
20, 2000 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS. You may obtain documents
incorporated by reference in this prospectus by requesting them in writing or
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by telephone from ChaseMellon Shareholder Services, LLC, the information agent,
or us at the following addresses and telephone numbers:
<TABLE>
<S> <C> <C> <C> <C>
ChaseMellon Shareholder Services, L.L.C. or RCN Corporation
44 Wall Street, 7th Floor 105 Carnegie Center
New York, NY 10005 Princeton, NJ 08540
Toll Free: (888) 566-9474 Attention: Investor Relations Department
Telephone: (609) 734-3700
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. This
prospectus is dated March 31, 2000. You should not assume that the information
contained in this prospectus is accurate as of any date other than that date.
Neither the mailing of this prospectus to 21st Century debenture holders nor the
issuance of RCN common stock in the merger or the exchange offer and consent
solicitation creates any implication to the contrary.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH JURISDICTION. THE INFORMATION
CONTAINED IN THIS PROSPECTUS WITH RESPECT TO 21ST CENTURY AND ITS SUBSIDIARIES
WAS PROVIDED BY 21ST CENTURY.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements within the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations and business, and on the expected
impact of the merger on RCN's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties, including those described under "Risk
Factors" in this prospectus, that could cause actual results to differ
materially from the results contemplated by the forward-looking statements.
In evaluating the merger, you should carefully consider the discussion of
risks and uncertainties in the section entitled "Risk Factors" on page 14 of
this prospectus.
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ANNEX
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
RCN CORPORATION,
21ST HOLDING CORP.
AND
21ST CENTURY TELECOM GROUP, INC.
DATED AS OF DECEMBER 12, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 86
TABLE OF CONTENTS
ARTICLE I
The Merger
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Section 1.1 The Merger.................................................. 1-1
Section 1.2 Closing; Effective Time of the Merger....................... 1-1
Section 1.3 Effects of Merger........................................... 1-1
Section 1.4 Directors and Officers...................................... 1-1
ARTICLE II
Conversion of Securities
Section 2.1 Conversion of Capital Stock................................. 1-2
Section 2.2 Exchange of Certificates.................................... 1-4
Section 2.3 Options..................................................... 1-5
Section 2.4 Contingent Deferred Payment................................. 1-6
Section 2.5 Payment of Contingent Deferred Payment...................... 1-7
Section 2.6 Franchise Amount............................................ 1-8
Section 2.7 Shares of Dissenting Shareholders........................... 1-9
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Organization................................................ 1-9
Section 3.2 Company Subsidiaries........................................ 1-10
Section 3.3 Company Capital Structure................................... 1-10
Section 3.4 Authority; No Conflict; Required Filings and Consents....... 1-12
Section 3.5 SEC Filings................................................. 1-13
Section 3.6 Financial Statements........................................ 1-13
Section 3.7 Absence of Undisclosed Liabilities.......................... 1-14
Section 3.8 Absence of Certain Changes or Events........................ 1-14
Section 3.9 Taxes....................................................... 1-15
Section 3.10 Real Properties; Title to and Condition of Assets........... 1-16
Section 3.11 Intellectual Property....................................... 1-17
Section 3.12 Agreements, Contracts and Commitments....................... 1-17
Section 3.13 Litigation.................................................. 1-18
Section 3.14 Environmental Matters....................................... 1-18
Section 3.15 Transactions with Affiliates................................ 1-19
Section 3.16 Employee Benefit Plans...................................... 1-19
Section 3.17 Labor Matters............................................... 1-20
Section 3.18 Compliance with Laws; Regulatory Approvals.................. 1-20
Section 3.19 Systems Information......................................... 1-23
Section 3.20 Outside Plant/Network; CLEC; Internet Related Systems....... 1-24
Section 3.21 No Other Operators.......................................... 1-26
Section 3.22 Franchises; Licenses........................................ 1-26
Section 3.23 Bonds....................................................... 1-27
Section 3.24 Commitments................................................. 1-27
Section 3.25 Brokers..................................................... 1-27
</TABLE>
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Section 3.26 Insurance................................................... 1-27
Section 3.27 Fairness Opinion............................................ 1-28
Section 3.28 Year 2000 Compliance........................................ 1-28
Section 3.29 Full Disclosure............................................. 1-28
Section 3.30 Registered Securities....................................... 1-28
ARTICLE IV
Representations and Warranties of Parent and Sub
Section 4.1 Organization................................................ 1-29
Section 4.2 Authority; No Conflict; Required Filings and Consents....... 1-29
Section 4.3 SEC Documents............................................... 1-29
Section 4.4 Parent Common Stock Issued in the Merger.................... 1-30
Section 4.5 Litigation.................................................. 1-30
Section 4.6 Interim Operations of Sub................................... 1-30
Section 4.7 Brokers..................................................... 1-30
Section 4.8 Tax Matters................................................. 1-30
Section 4.9 Financial Statements........................................ 1-30
Section 4.10 Absence of Undisclosed Liabilities.......................... 1-30
Section 4.11 Absence of Certain Changes or Events........................ 1-31
ARTICLE V
Conduct of Business
Section 5.1 Covenants of the Company.................................... 1-31
Section 5.2 Cooperation................................................. 1-32
ARTICLE VI
Additional Agreements
Section 6.1 No Solicitation............................................. 1-32
Section 6.2 Access to Information....................................... 1-32
Section 6.3 Consents.................................................... 1-33
Section 6.4 Public Disclosure........................................... 1-33
Section 6.5 Tax-Free Reorganization..................................... 1-33
Section 6.6 Affiliate Agreements........................................ 1-33
Section 6.7 Commercially Reasonable Efforts............................. 1-33
Section 6.8 Certain Filings............................................. 1-33
Section 6.9 Further Assurances.......................................... 1-34
Section 6.10 Notification of Certain Matters............................. 1-34
Section 6.11 Affiliate Transactions...................................... 1-34
Section 6.12 Shareholders Meeting........................................ 1-34
Section 6.13 Proxy Statement; Registration Statement; Board 1-34
Recommendation..............................................
Section 6.14 Nasdaq Listing.............................................. 1-35
Section 6.15 Letter of Independent Auditors.............................. 1-35
Section 6.16 Treatment of Company Debt and Exchangeable Preferred........ 1-35
Section 6.17 Employee Matters............................................ 1-36
Section 6.18 280G Approval............................................... 1-37
Section 6.19 Director and Officer Liability.............................. 1-37
</TABLE>
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Section 6.20 Employee Benefits after the Effective Time.................. 1-37
Section 6.21 ISP Plan.................................................... 1-38
ARTICLE VII
Conditions to Merger
Section 7.1 Conditions to Each Party's Obligation to Effect the 1-38
Merger......................................................
Section 7.2 Additional Conditions to Obligations of Parent and Sub...... 1-38
Section 7.3 Additional Conditions to Obligations of the Company......... 1-40
ARTICLE VIII
Termination and Amendment
Section 8.1 Termination................................................. 1-40
Section 8.2 Procedure and Effect of Termination......................... 1-41
Section 8.3 Amendment................................................... 1-41
Section 8.4 Extension; Waiver........................................... 1-41
Section 8.5 Fees and Expenses........................................... 1-41
ARTICLE IX
Indemnification
Section 9.1 Survival.................................................... 1-42
Section 9.2 Obligations of the Shareholders............................. 1-42
Section 9.3 Indemnification Procedures.................................. 1-42
Section 9.4 Shareholder Representative.................................. 1-43
Section 9.5 Certain Definitions......................................... 1-44
ARTICLE X
Tax Matters
Section 10.1 Indemnification by the Company Shareholders................. 1-44
Section 10.2 Allocation of Taxes......................................... 1-44
Section 10.3 Mutual Cooperation; Contests................................ 1-45
Section 10.4 Other Tax Agreements........................................ 1-45
ARTICLE XI
Miscellaneous
Section 11.1 Notices..................................................... 1-46
Section 11.2 Interpretation; Certain Definitions......................... 1-46
Section 11.3 Counterparts................................................ 1-47
Section 11.4 Entire Agreement; No Third Party Beneficiaries.............. 1-47
Section 11.5 Governing Law............................................... 1-47
Section 11.6 Jurisdiction................................................ 1-47
Section 11.7 WAIVER OF JURY TRIAL........................................ 1-47
Section 11.8 Assignment.................................................. 1-47
Section 11.9 Severability................................................ 1-47
</TABLE>
1-iii
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December 12,
1999 by and among RCN Corporation, a Delaware corporation ("Parent"), 21st
Holding Corp., an Illinois corporation and a wholly owned subsidiary of Parent
("Sub"), and 21st Century Telecom Group, Inc., an Illinois corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved this Agreement and deem it advisable and in the best interests of each
corporation and its respective stockholders and shareholders to enter into this
Agreement and the other agreements contemplated herein and consummate the
transactions contemplated hereby and thereby; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the Business Corporation Act of the State
of Illinois (the "Illinois Statute"), Sub shall be merged with and into the
Company (the "Merger"). As a result of the Merger, the outstanding shares of
capital stock of Sub and the Company shall be converted or canceled in the
manner provided in Article II of this Agreement, the separate corporate
existence of Sub shall cease and the Company shall be the surviving corporation
in the Merger.
Section 1.2 Closing; Effective Time of the Merger. Unless this Agreement
shall have been terminated pursuant to Section 8.1, the closing of the Merger
(the "Closing") will take place at 10:00 a.m., New York time, on a date to be
specified in writing by Parent and the Company (the "Closing Date"), which shall
be no later than the third business day after satisfaction (or waiver in
accordance with Section 8.4) of all conditions set forth in Article VII, at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New
York, New York 10036, unless another date or place is agreed to in writing by
Parent and the Company. Subject to the provisions of this Agreement, a
certificate of merger (the "Certificate of Merger") shall be duly prepared and
executed in accordance with the Illinois Statute and simultaneously with or as
soon as practicable following the Closing delivered to the Secretary of State of
the State of Illinois for filing. The Merger shall become effective upon the
later of: (a) the date and time of the filing of the Certificate of Merger with
the Secretary of State of the State of Illinois, or (b) such other date and time
as is provided in this Agreement (the "Effective Time").
Section 1.3 Effects of Merger.
(a) At the Effective Time: (i) the separate existence of Sub shall cease
and Sub shall be merged with and into the Company (Sub and the Company are
sometimes referred to collectively herein as the "Constituent Corporations" and
the Company is sometimes referred to herein as the "Surviving Corporation"); and
(ii) the articles of incorporation and bylaws of the Company in effect
immediately prior to the Effective Time shall be the articles of incorporation
and bylaws of the Surviving Corporation until amended in accordance with the
terms thereof and in accordance with applicable law.
(b) The Merger shall have the effects set forth in this Agreement and the
Illinois Statute.
Section 1.4 Directors and Officers. The directors of Sub and the officers
of the Company immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation, and shall hold office in
accordance with the articles of incorporation and bylaws of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed.
<PAGE> 90
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or the holder of any shares of capital stock of the Constituent
Corporations (other than Dissenting Shares (as defined in Section 2.7)):
(a) Capital Stock of Sub. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and nonassessable
share of common stock, no par value, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares of
Company Stock (as defined below) that are owned by the Company as treasury stock
and any shares of Company Stock owned by Parent, Sub or any other wholly owned
Subsidiary (as defined in Section 3.1 below) of Parent shall be canceled and
retired and shall cease to exist and no stock of Parent or other consideration
shall be delivered in exchange therefor.
(c) Company Common Stock. Each issued and outstanding share of Company
Common Stock (as defined in Section 3.3) shall be converted into the right to
receive the sum of:
(i) that number of shares of Common Stock, par value $1.00 per share,
of Parent ("Parent Common Stock") equal to (A) the Exchange Ratio (as
defined below) multiplied by (B) one minus the Indemnification Percentage
(as defined below);
(ii) subject to offset in accordance with the provisions of Section
2.1(l) and Articles IX and X hereof and the Escrow Agreement (as defined
below), that number of shares of Parent Common Stock equal to (A) the
Exchange Ratio multiplied by (B) the Indemnification Percentage (the
"Escrowed Common Consideration");
(iii) its applicable share of the Contingent Deferred Payment (as
defined below), if any; and
(iv) its applicable share of the Franchise Amount (as defined below),
if any.
(d) Class A Preferred Stock. Each issued and outstanding share of Class A
Preferred Stock (as defined in Section 3.3) shall be converted into the right to
receive the sum of:
(i) that number of shares of Parent Common Stock equal to (A) the
Exchange Ratio multiplied by (B) one minus the Indemnification Percentage
multiplied by (C) the Preferred Conversion Number (as defined below);
(ii) subject to offset in accordance with the provisions of Section
2.1(l) and Articles IX and X hereof and the Escrow Agreement, that number
of shares of Parent
Common equal to (A) the Exchange Ratio multiplied by (B) the
Indemnification Percentage multiplied by (C) the Preferred Conversion
Number (the "Escrowed Preferred Consideration");
(iii) its applicable share of the Contingent Deferred Payment (as
defined below), if any; and
(iv) its applicable share of the Franchise Amount, if any.
(e) Warrants. Each Warrant (as defined in Section 3.3(a)) to acquire
shares of Company that is outstanding immediately prior to the Effective Time,
whether or not then exercisable, shall, effective as of the Effective Time, be
cancelled and in exchange therefor, shall be converted into the right to receive
the sum of:
(i) that number of shares of Parent Common Stock equal to (1) the
Exchange Ratio multiplied by (2) one minus the Indemnification Percentage
multiplied by (3) the difference between (A) the total number of shares of
Company Common Stock subject to such Warrant less (B) the quotient obtained
by dividing (i) the product of (x) the total number of shares of Company
Common Stock
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subject to such Warrant multiplied by (y) the exercise price of such
Warrant, by (ii) the Net Equity Value;
(ii) subject to offset in accordance with the provisions of Section
2.1(l) and Articles IX and X hereof and the Escrow Agreement, that number
of shares of Parent Common equal to (1) the Exchange Ratio multiplied by
(2) the Indemnification Percentage multiplied by (3) the difference between
(A) the total number of shares of Company Common Stock subject to such
Warrant less (B) the quotient obtained by dividing (i) the product of (x)
the total number of shares of Company Common Stock subject to such Warrant
multiplied by (y) the exercise price of such Warrant, by (ii) the Net
Equity Value (the "Escrowed Warrant Consideration");
(iii) its applicable share of the Contingent Deferred Payment (as
defined below), if any; and
(iv) its applicable share of the Franchise Amount, if any.
(f) As used herein, the term "Company Stock" shall mean the Company Common
Stock, the Class A Preferred Stock and, as applicable, the Warrants and the
shares of Company Common Stock subject to the Warrants.
(g) As used herein, the term "Exchange Ratio" means a fraction, the
numerator of which is the Net Equity Value (as defined below) and the
denominator of which is $45.441667 (the "Parent Stock Price"). The aggregate
shares of Parent Common Stock into which all shares of Company Stock will be
converted into the right to receive is referred to herein as the "Merger
Consideration". The aggregate Escrowed Common Consideration, Escrowed Preferred
Consideration, Escrowed Warrant Consideration, Escrowed CDP (as defined in
Section 2.5(a)) and Escrowed Franchise Amount (as defined in Section 2.6(c)) are
collectively referred to as the "Escrowed Consideration".
(h) As used herein, the term "Net Equity Value" means a fraction, the
numerator of which is (A) the excess of (i) $212,377,112.50 less (ii) in the
event that the Company shall not have delivered the Franchise Certificate (as
defined in Section 2.6(b)) to Parent prior to the Closing, the Initial Franchise
Amount (as defined in Exhibit A-1 hereto), and (B) the denominator of which is
the number of shares of Company Common Stock outstanding immediately prior to
the Effective Time assuming, in each case, immediately prior to the Effective
Time and at the then applicable exercise or conversion prices, whether or not
then vested, exercisable or convertible: (i) conversion of all shares of Class A
Preferred into Company Common Stock; (ii) the exercise of all outstanding
options to acquire shares of Company Common Stock; (iii) the exercise of all
warrants to acquire shares of Company Common Stock; and (iv) the exercise or
conversion, as applicable, of all other securities convertible into or
exchangeable for shares of Company Common Stock.
(i) As used herein, (i) the term "Indemnification Percentage" means ten
percent (10%) and (ii) the term "Preferred Conversion Number" means 1,000.
(j) Effect on Company Stock. All such shares of Company Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Parent Common Stock and any
cash in lieu of fractional shares of Parent Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance with
Section 2.2, without interest.
(k) Adjustment of Exchange Ratio for Dilution and Other Matters. If
between the date of this Agreement and the Effective Time, the outstanding
shares of Parent Common Stock shall have been changed into a different number of
shares or a different class by reason of any reclassification, recapitalization,
split-up, stock dividend, stock combination, exchange of shares, readjustment or
otherwise, then the Exchange Ratio shall be correspondingly adjusted.
(l) Escrow of Shares. At the Effective Time, any Franchise Amount Payment
Date and any CDP Payment Date, as applicable, Parent shall deposit the number of
shares of Parent Common Stock comprising the Escrowed Consideration (the "Escrow
Shares") with an escrow agent reasonably
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<PAGE> 92
satisfactory to the Company and Parent to be held and disbursed by that escrow
agent in accordance with the form of escrow agreement attached as Exhibit B (the
"Escrow Agreement"). Those shares will be withheld from the shares of Parent
Common Stock allocable to each former holder of the Company Stock in accordance
with the provisions of Sections 2.1(c)(ii), 2.1(d)(ii), 2.1(e)(ii), 2.5(a) and
2.6(c). To the extent Parent is entitled to indemnification out of the Escrow
Shares pursuant to Articles IX or X of this Agreement and subject to the
conditions and limitations therein, Parent shall set off and apply against
Indemnified Losses (as defined in Section 9.2) the Escrow Shares in accordance
with the terms hereof and of the Escrow Agreement. Pursuant to the terms of the
Escrow Agreement, the Escrow Shares shall be valued for purposes of set off
against any Indemnified Losses at the Parent Stock Price.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit with an
exchange agent designated by Parent and reasonably acceptable to the Company
(the "Exchange Agent"), for the benefit of the holders of shares of Company
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, (A) certificates representing the shares of Parent Common Stock (such
shares of Parent Common Stock, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to this Article II in exchange for the shares of Company Stock and (B)
cash in an amount sufficient for payment in lieu of fractional shares as
contemplated by this Article II.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Stock (each a "Certificate" and
collectively, the "Certificates") whose shares were converted pursuant to this
Article II into the right to receive shares of Parent Common Stock (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of (1) the
Certificates or (2) an affidavit in accordance with Section 2.2(h) to the
Exchange Agent and shall be in such form and have such other provisions as
Parent and the Company may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates or affidavits in exchange for
certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents reasonably acceptable to the Company as may be appointed by Parent,
together with such letter of transmittal, duly executed, and such other
documents as may be reasonably required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor (x) a
certificate representing that number of whole shares of Parent Common Stock
which such holder has the right to receive, pursuant to the provisions of this
Article II, and (y) cash in lieu of any fractional shares of Parent Common Stock
in accordance with Section 2.2(e), and the Certificate so surrendered shall
immediately be canceled. In the event of a transfer of ownership of Company
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock may
be issued to a transferee if the Certificate representing such Company Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Article
II, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate or affidavit pursuant to Section
2.2(h) with respect to the shares of Parent Common Stock represented thereby and
no cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to paragraph (e) below until the holder of record of such Certificate
shall surrender such Certificate or affidavit. Subject to the effect of
applicable laws, following surrender of any such Certificate or affidavit, there
shall be paid to the record holder of the certificates representing whole shares
of Parent Common Stock issued in exchange therefor,
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<PAGE> 93
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to paragraph (e) below and the amount of dividends
or other distributions with a record date after the Effective Time previously
paid with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) No Further Ownership Rights in Company Stock. All shares of Parent
Common Stock issued upon the surrender for exchange of shares of Company Stock
in accordance with the terms hereof (including any cash paid pursuant to
paragraph (c) or (e) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Company Stock, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared or made by the Company on such shares of Company Stock in accordance
with the terms of this Agreement on or prior to the date hereof and which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of Parent. Notwithstanding any
other provision of the Agreement, each holder of shares of Company Stock,
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Parent Common Stock (after taking into account
all Certificates delivered by such holder) shall receive from Parent, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Parent Common Stock multiplied by the average of the closing prices of
Parent Common Stock, as reported on the Nasdaq, on each of the fifteen trading
days immediately preceding the date of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the shareholders of the Company for one year after the
Effective Time shall be delivered to Parent, upon demand, and any former
shareholders of the Company who have not previously complied with this Article
II shall thereafter look only to Parent for payment of their claim for Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock, and
any dividends or distributions with respect to Parent Common Stock.
(g) No Liability. Neither the Exchange Agent, Parent, Sub nor the Company
shall be liable to any holder of shares of Company Stock or Parent Common Stock,
as the case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common
Stock, cash in lieu of fractional shares of Parent Common Stock, to which such
holder is entitled pursuant to paragraph (e) above and any dividends or other
distributions with respect to Parent Common Stock to which such holder is
entitled.
Section 2.3 Options.
(a) Except as may otherwise be agreed upon between a holder of Company
Stock Options and Parent, each option granted to a Company employee to acquire
shares of Company Common Stock ("Company Stock Option") that is outstanding
immediately prior to the Effective Time, whether or not then vested or
exercisable, shall, effective as of the Effective Time, become and represent an
option to acquire the number of shares of Parent Common Stock (a "Substitute
Option"), rounded up or down to
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<PAGE> 94
the nearest whole share, determined by multiplying (i) the number of shares of
Company Common Stock subject to such Company Stock Option immediately prior to
the Effective Time by (ii) the Exchange Ratio, at an exercise price per share of
Parent Common Stock (increased to the nearest whole cent) equal to the exercise
price per share of such Company Stock Option divided by the Exchange Ratio;
provided, however, that in the case of any Company Stock Option to which Section
421 of the Code applies by reason of its qualification as an incentive stock
option under Section 422 of the Code, the conversion formula shall be adjusted
if necessary to comply with Section 424(a) of the Code; and provided, further,
that the conversion formula shall be further adjusted as provided in Section
2.3(d). After the Effective Time, except as provided in this Section 2.3, each
Substitute Option shall be exercisable upon the same terms and conditions as
were applicable to the related Company Stock Option immediately prior to the
Effective Time.
(b) Prior to the Effective Time, the Company shall (i) obtain any consents
from holders of Company Stock Options and (ii) amend the terms of its equity
incentive plans or arrangements, in each case to the extent, if any, necessary
to give effect to the provisions of Section 2.3(a).
(c) As soon as reasonably practicable after the Effective Time, Parent
shall (i) file with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-8 or another appropriate form with respect to
the shares of Parent Common Stock subject to such options, (ii) as soon as
reasonably practicable, prepare and file with the Nasdaq listing applications
covering the shares of Parent Common Stock issuable upon the exercise of
Substitute Options and use all reasonable efforts to obtain approval for the
listing of such shares of Parent Common Stock, subject only to official notice
of issuance and (iii) amend the terms of its equity incentive plans or
arrangements, in each case to the extent, if any, necessary to give effect to
the provisions of Section 2.3(a). Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of Substitute Options.
(d) In the event that any Franchise Amount becomes due in accordance with
the provisions of Section 2.6, the conversion formula applicable to each
Substitute Option shall be adjusted by recalculating such formula in accordance
with clauses (i) and (ii) of Section 2.3(a) as if the Exchange Ratio had been
determined at the Effective Time to include the value of the Franchise Amount
that is actually due in accordance with Section 2.6.
(e) On any date on which either (i) a Contingent Deferred Payment is paid
or (ii) the Escrow Agent releases any portion of the Escrow Account (as it may
be increased) to Parent in respect of any Indemnified Losses, the conversion
formula applicable to each Substitute Option shall be adjusted by recalculating
such formula in accordance with clauses (i) and (ii) of Section 2.3(a) hereof as
if the Exchange Ratio had been determined at the Effective Time to include the
value of any Contingent Deferred Payment that is actually paid in accordance
with Section 2.5 and to exclude the value of any portion of the Escrow Account
that is released to Parent in respect of any Indemnified Losses.
Section 2.4 Contingent Deferred Payment.
(a) For purposes of this Agreement, the Contingent Deferred Payment shall
have the meaning set forth in Exhibit A hereto. Capitalized terms used herein
and not otherwise defined in this Agreement shall have the meanings set forth in
Exhibit A hereto.
(b) As promptly as practicable, but no later than ninety (90) days after
the end of the twelve month period ended March 31, 2001, the Company shall
prepare and deliver to the Shareholder Representative (as defined in Section
9.4) the financial statements of the Company for the twelve month period ended
March 31, 2001, which shall include a statement of the Indicators set forth on
Exhibit A hereto and the calculation thereof (the "Company March 2001
Financials"). Such financial statements shall be prepared in accordance with
GAAP based upon the books and records of the Company in a manner consistent with
the Company's past practice as of the date hereof and shall be certified by the
Chief Financial Officer of the Company. Concurrently with delivery of the
Company March 2001 Financials, the Company shall deliver to the Shareholder
Representative a statement setting forth the calculation of the Contingent
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Deferred Payment (the "CDP Statement"). Following the delivery of the CDP
Statement, the Company shall give the Shareholder Representative and any
independent auditors of the Shareholder Representative access at all reasonable
times to the properties, books, records and personnel of the Company for
purposes of reviewing the CDP Statement. The Shareholder Representative shall
have thirty (30) days following delivery of the CDP Statement during which to
notify the Company of any dispute regarding the calculation of the Contingent
Deferred Payment set forth in the CDP Statement or the Company's calculation of
the Indicators, as the case may be, which notice shall set forth in reasonable
detail the basis for such dispute. If the Shareholder Representative fails to
notify the Company of any such dispute within such 30-day period, the CDP
Statement and the Indicator calculations shall be deemed to be final and binding
upon the Company, Shareholder Representative and the shareholders. In the event
that the Shareholder Representative shall so notify the Company of any dispute,
the Shareholder Representative and the Company shall cooperate in good faith to
resolve such dispute as promptly as possible.
(c) If the Shareholder Representative and the Company are unable to resolve
any such dispute within thirty (30) days of the delivery of notice of a dispute,
such dispute shall be resolved by an independent accounting firm (the
"Accounting Firm") reasonably acceptable to the Company and the Shareholder
Representative, and such determination shall be final and binding on the
Company, the shareholders and the Shareholder Representative. If the Shareholder
Representative and the Company cannot mutually agree on the identity of the
Accounting Firm, the Shareholder Representative and the Company shall each
submit to the other party's independent auditor the name of a "big five
accounting firm" which does not at such time and has not in the two years prior
to such time provided material services to any of the Shareholder
Representative, the Company or any of their respective affiliates, and the
Accounting Firm shall be selected by lot from these two firms by the independent
auditors of the two parties. Any expenses relating to the engagement of the
Accounting Firm shall be paid by the party whom the Accounting Firm determines
to be the non-prevailing party with respect to such dispute. The shareholders'
portion, if any, of such expenses shall be deducted from the Contingent Deferred
Payment, if any, and if sufficient funds are not available therein, Parent and
the Shareholder Representative shall instruct the Escrow Agent to surrender to
Parent a sufficient number of Escrowed Shares, valued at the Parent Stock Price,
as payment for the shareholders' portion of such expenses. The Accounting Firm
shall be instructed to use every reasonable effort to perform its services
within thirty (30) days of submission of the CDP Statement to it and, in any
case, as promptly as practicable after such submission.
(d) The Company shall make the Contingent Deferred Payment, if any, in
shares of Parent Common Stock to the Exchange Agent for distribution to the
shareholders in accordance with the provisions of Section 2.5. For purposes of
this Agreement, a "Final Determination" shall mean the earliest of (i) the
expiration of the applicable time periods for notifying parties of disputes
pursuant to Section 2.4(b) (assuming no such notification has been made during
such time periods), (ii) the parties reaching a final agreement on such amount
or (iii) the Accounting Firm rendering its determination pursuant to paragraph
(c) above.
Section 2.5 Payment of Contingent Deferred Payment.
(a) Exchange Agent; CDP Exchange Fund. On the later of (i) fifteen (15)
business days following a Final Determination and (ii) the Escrow Termination
Date (as defined in the Escrow Agreement) (such date being hereinafter referred
to as the "CDP Payment Date"), Parent shall deposit with the Exchange Agent
certificates representing a number of shares of Parent Common Stock equal to the
quotient of the Contingent Deferred Payment divided by the average of the
closing prices of Parent Common Stock, as reported on the Nasdaq, on each of the
fifteen trading days immediately preceding the date on which such shares are
deposited with the Exchange Agent (such shares of Parent Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "CDP Exchange Fund") issuable pursuant to this Section 2.5 in
respect of the Contingent Deferred Payment, and cash in an amount (determined in
accordance with Section 2.2(e)) sufficient for payment in lieu of fractional
shares. Notwithstanding the foregoing, if, on the CDP Payment Date, the
aggregate amount of unpaid and unresolved claims for Indemnified Losses (as
defined in Section 9.2(a)), as determined in accordance with Articles IX and X
hereof, and subject to the conditions and limitations therein, and the Escrow
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Agreement, exceeds the value of the Escrow Account as it then exists, then the
portion of the Contingent Deferred Payment which would be necessary to satisfy
such claims shall be excluded from the CDP Exchange Fund and shall be deposited
with the Escrow Agent (such shares of Parent Common Stock to be deposited in
respect thereof, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Escrowed CDP") and shall be added
to the Escrow Account to be released in accordance with the terms of the Escrow
Agreement.
(b) Payment Amount. The Exchange Agent shall pay to each person who held
shares of Company Stock (other than Dissenting Shares) immediately prior to the
Effective Time, out of the CDP Exchange Fund, a number of shares of Parent
Common Stock (together with cash in lieu of fractional shares) equal to the
product of (A) the number of shares of Parent Common Stock comprising the CDP
Exchange Fund multiplied by (B) a fraction, (x) the numerator of which is the
number of shares of Company Stock held by each such shareholder immediately
prior to the Effective Time and (y) the denominator of which is the aggregate
number of shares of Company Stock outstanding immediately prior to the Effective
Time.
(c) Payment Procedure. The Exchange Agent shall make such payment of
shares of Parent Common Stock (together with cash in lieu of fractional shares)
to each such shareholder in the manner and at the location specified in the
letter of transmittal previously delivered by each such shareholder to the
Exchange Agent pursuant to Section 2.2 (unless the Exchange Agent has otherwise
been notified in writing by the Shareholder Representative) and otherwise in
accordance with the applicable provisions of Section 2.2.
Section 2.6 Franchise Amount.
(a) Computation. For purposes of this Agreement, the "Franchise Amount"
and "Partial Franchise Amount" shall have the respective meanings set forth in
Exhibit A-1 hereto. Capitalized terms used herein and not otherwise defined in
this Agreement shall have the meanings set forth in Exhibit A-1 hereto.
(b) Franchise Certificate. In the event that the Company obtains
franchises for any or all of Chicago Areas 2, 3 and 4, in each case, on terms
generally no less favorable than the terms of the Company's franchise with
respect to Chicago Area 1 or otherwise approved by Parent, the Company shall
prepare and deliver to Parent a certificate (each a "Franchise Certificate")
executed by the Chief Executive Officer and the Chief Financial Officer of the
Company and in form and substance reasonably satisfactory to Parent, certifying
as to (i) the receipt of such franchise or franchises on such terms, (ii) the
date on which such franchises shall have been obtained (each a "Franchise
Receipt Date") and that such franchise or franchises are in full force and
effect and (iii) documentation evidencing such franchise or franchises.
(c) Exchange Agent; Franchise Exchange Fund. Within ten (10) business days
following Parent's receipt of a Franchise Certificate in form and substance
reasonably satisfactory to Parent (each such date being hereinafter referred to
as a "Franchise Amount Payment Date"), Parent shall deposit with the Exchange
Agent certificates representing a number of shares of Parent Common Stock equal
to the quotient of (A) the product of (i) the Franchise Amount or a Partial
Franchise Amount, as the case may be, multiplied by (ii) one minus the
Indemnification Percentage divided by (B) the Parent Stock Price (such shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Franchise Exchange Fund")
issuable pursuant to this Section 2.6 in respect of the Franchise Amount or a
Partial Franchise Amount, and cash in an amount (determined in accordance with
Section 2.2(e)) sufficient for payment in lieu of fractional shares.
Simultaneously therewith, Parent shall deposit with the Escrow Agent pursuant to
Section 2.1(l) certificates representing a number of shares of Parent Common
Stock equal to the quotient of (A) the product of (i) the Franchise Amount or a
Partial Franchise Amount, as the case may be, multiplied by (ii) the
Indemnification Percentage divided by (B) the Parent Stock Price (such shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Escrowed Franchise Amount") to be
included in the Escrowed Consideration and to be held and disbursed by the
Escrow Agent in accordance with the Escrow Agreement. Notwithstanding the
foregoing, in the event that the Franchise Amount, or any Partial Franchise
Amount, as the case may be, is payable after the first
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anniversary of the Closing, then, if on such date or dates the aggregate amount
of unpaid and unresolved claims for Indemnified Losses (as defined in Section
9.2), as determined in accordance with Articles IX and X hereof, and subject to
the conditions and limitations therein, and the Escrow Agreement, exceeds the
value of the Escrow Account as it then exists, the portion the Escrowed
Franchise Amount which would be necessary to satisfy such claims shall be
deposited with the Escrow Agent and the remainder of the Escrowed Franchise
Amount, if any, shall be included in the Franchise Exchange Fund.
(d) Payment Amount. The Exchange Agent shall pay to each person who held
shares of Company Stock (other than Dissenting Shares) immediately prior to the
Effective Time, out of the Franchise Exchange Fund, a number of shares of Parent
Common Stock (together with cash in lieu of fractional shares) equal to the
product of (A) the number of shares of Parent Common Stock comprising the
Franchise Exchange Fund multiplied by (B) a fraction, (x) the numerator of which
is the number of shares of Company Stock held by each such shareholder
immediately prior to the Effective Time and (y) the denominator of which is the
aggregate number of shares of Company Stock outstanding immedi-ately prior to
the Effective Time.
(e) Payment Procedure. The Exchange Agent shall make such payment of
shares of Parent Common Stock (together with cash in lieu of fractional shares)
to each such shareholder in the manner and at the location specified in the
letter of transmittal previously delivered by each such shareholder to the
Exchange Agent pursuant to Section 2.2 (unless the Exchange Agent has otherwise
been notified in writing by the Shareholder Representative) and otherwise in
accordance with the applicable provisions of Section 2.2.
Section 2.7 Shares of Dissenting Shareholders. Notwithstanding anything
in this Agreement to the contrary, any shares of Company Stock that are issued
and outstanding as of the Effective Time and that are held by a shareholder that
has exercised its right (to the extent such right is available by law) to demand
and to receive the fair value of such shares (the "Dissenting Shares") under
Section 5/11.70 of the Illinois Statute shall not be converted into the right to
receive the Merger Consideration unless and until the holder shall have failed
to perfect, or shall have effectively withdrawn or lost, his right to dissent
from the Merger under the Illinois Statute and to receive such consideration as
may be determined to be due with respect to such Dissenting Shares pursuant to
and subject to the requirements of the Illinois Statute. If any such holder
shall have so failed to perfect or have effectively withdrawn or lost such
right, each share of such holder's Company Stock shall thereupon be deemed to
have been converted into and to have become, as of the Effective Time, without
any interest thereon, the right to receive the Merger Consideration. The Company
shall give Parent (i) prompt notice of any notice or demands for appraisal or
payment for shares of Company Stock received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands or notices. The Company shall not, without the prior
written consent of Parent, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands. Except as provided in Section
6.5 hereof, provided that the Company has sufficient assets to, and actually
does pay all holders of Dissenting Shares in accordance with the Illinois
Statute and this Agreement, no assets of Parent will be used in the payment for
Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedules (as defined in
Section 3.2), the Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization. Each of the Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted or as its present business (excluding
expansions or additions to that business) is contemplated to be conducted
("Conducted"), and is duly qualified to do business and is in good standing
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as a foreign corporation in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect (as defined below). When used in
connection with the Company or any of its Subsidiaries, the term "Material
Adverse Effect" means any change, event or effect that is materially adverse to
the business, assets (including intangible assets), liabilities, condition
(financial or otherwise), operations or results of operations of the Company and
its Subsidiaries taken as a whole except for such changes, events or effects
which are directly the result of (i) the entering into or the public
announcement of this Agreement or the transactions contemplated hereby, (ii)
changes in the telecommunications industry generally or (iii) changes in general
economic (excluding changes in the capital markets), regulatory or political
conditions in the United States; except, in the case of each of (ii) and (iii),
if the impact on the Company is more than insignificantly disproportionate to
the more general impact of the change, event or effect. The Company has provided
complete and correct copies of the articles of incorporation, by-laws or other
organizational documents of the Company and each of its Subsidiaries as
currently in effect. As used herein, "Subsidiary" means, with respect to any
person, any entity of which such person owns, directly or indirectly, at least a
majority of the voting securities or economic interests or which is directly or
indirectly owned or controlled by such person.
Section 3.2 Company Subsidiaries. All of the issued and outstanding
shares of capital stock or other equity interest of each of the Company's
Subsidiaries are owned by the Company or by a Subsidiary of the Company free and
clear of all Liens (as defined in Section 3.3(a)) and are validly issued, fully
paid and nonassessable, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants with respect to any such
Subsidiary's capital stock or other equity interest, including any right
obligating any such Subsidiary to issue, deliver or sell additional shares of
its capital stock. A list of the Subsidiaries of the Company (including the
authorized capital stock and beneficial and record owner thereof) is set forth
in Section 3.2 of the disclosure schedules delivered by the Company to Parent in
connection with this Agreement (the "Company Disclosure Schedules"). Neither the
Company nor any of its Subsidiaries, directly or indirectly, owns any equity or
similar interest, or any interest convertible into or exchangeable for any such
equity or similar interest, in any entity other than a Subsidiary.
Section 3.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of: (i) 50,000,000
shares of Voting Common Stock, no par value, of the Company (the "Company Voting
Common Stock") and 1,000,000 shares of Non Voting Common Stock, no par value, of
the Company (the "Company Non Voting Common Stock" and, together with the
Company Voting Common Stock, the "Company Common Stock"); (ii) 500,000 shares of
Class A Convertible 8% Cumulative Preferred Stock, no par value, of the Company
(the "Class A Preferred Stock"); (iii) 500,000 shares of Class B Convertible 8%
Cumulative Preferred Stock, no par value, of the Company, ("Class B Preferred
Stock"); and (iv) 100,000 shares of 13 3/4 Senior Cumulative Exchangeable
Preferred Stock, $0.01 par value, of the Company ("Exchangeable Preferred"). As
of the date hereof, (x) 3,728,666.2150 shares of Company Voting Common Stock;
552,271.8965 shares of Company Non Voting Common Stock; 1554.8710 shares of
Class A Preferred Stock and 65,668.2 shares of Exchangeable Preferred were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, and no shares of Class B Preferred Stock were issued and
outstanding; (y) no shares of Company Common Stock were held in the treasury of
the Company or by Subsidiaries of the Company; and (z) 6,518,486.6 shares of
Company Voting Common Stock were reserved for issuance pursuant to the
following: (A) 145,235.8330 shares pursuant to the 1998 Employee Stock Option
Plan; (B) 140,375 shares pursuant to the 1998 Key Management Stock Option Plan;
(C) 331,200 shares pursuant to the 1998 Stock Option Agreement entered into
between the Company and each of Robert J. Currey and Ronald D. Webster; (D)
575,758.5360 shares pursuant to the 1997 Stock Option Plan; (E) 53,640 shares
pursuant to the Company 1999 Stock Incentive Plan; (F) subjection to the
provisions of Section 6.21 hereof, 599,916 shares pursuant to the Company 1999
ISP Stock Plan; (G) 97,830.00 shares pursuant to the Company ISP Employee Stock
Option Plan; (H) 322,000.00 shares pursuant to an option agreement entered into
with Robert J. Currey dated December 10, 1999; (I) 1,554,871 shares pursuant to
the conversion of the Class A Preferred Stock; (J) 3,016,060.35 shares
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pursuant to Warrants (as defined below), of which 1,308,195.65 are attributable
to Warrants issued in connection with the Class A Preferred Stock, 438,870 are
attributable to Warrants issued in connection with the Exchangeable Preferred,
18,994.7 are attributable to Warrants issued to Carr, Nickey & Company and
1,250,000 are attributable to the LaSalle Options (as defined below). As used
herein, the term "Warrants" means (i) warrants to purchase Company Common Stock
and (ii) options (the "LaSalle Options") issued pursuant to a Contribution and
Indemnity Agreement, dated June 24, 1996, and any amendments thereto. All shares
of Company Voting Common Stock subject to issuance as specified above, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any such shares of capital stock or the capital stock of any of the Company's
Subsidiaries or make any investment (in the form of a loan, capital contribution
or otherwise) in any such Subsidiary or any other entity. All of the outstanding
shares of capital stock of each Subsidiary of the Company are duly authorized,
validly issued, fully paid and nonassessable, and all such shares are owned by
the Company or another Subsidiary of the Company free and clear of all security
interests, liens, claims, pledges, agreements, limitations on voting rights,
limitations on transfer, charges or other encumbrances of any nature
(collectively "Liens").
(b) Section 3.3 of the Company Disclosure Schedules sets forth a complete
and accurate list of each of the record and beneficial holders of (i) each class
or series of the Company's capital stock and the number of shares of the
Company's capital stock held by each holder as of the date hereof and the number
of shares or other securities into which such capital stock is convertible, (ii)
options and warrants and the exercise price, date of grant, and number of shares
and class of capital stock of the Company into which such options and warrants
are exercisable by each such holder as of the date hereof and the vesting
schedules of each such option or warrant and (iii) the percentage of each class
or series of capital stock of the Company held by each holder as of the date
hereof, the percentage of the total outstanding capital stock of the Company
held by each holder as of the date hereof, and the percentage of each such class
or series and the percentage of the total outstanding capital stock as of the
date hereof, assuming, at the then applicable exercise or conversion prices,
whether or not then vested, exercisable or convertible: (A) conversion of all
shares of Class A Preferred; (B) the exercise of all outstanding options; (C)
the exercise of all warrants; and (D) the exercise or conversion, as applicable,
of all other securities convertible into or exchangeable for shares of capital
stock of the Company. No shares of capital stock of the Company and no
securities convertible into or exercisable for shares of capital stock of the
Company are convertible into or exercisable for any other class or series of
capital stock of the Company other than Company Common Stock. Immediately prior
to the Effective Time, the Company shall provide Parent with a revised
capitalization table substantially in the form of Section 3.3 of the Company
Disclosure Schedules and setting forth any changes made in the capitalization of
the Company after the date hereof and prior to the Effective Time.
(c) Except as set forth in this Section 3.3, there are no equity securities
of any class of the Company or any of its Subsidiaries, or any security
exchangeable into or exercisable for such equity securities, issued and
outstanding or, reserved for issuance and the Company has not authorized the
issuance of such security. Except as set forth in this Section 3.3, there are no
options, warrants, equity securities, calls, rights commitments or agreements of
any character to which the Company or any of its Subsidiaries is a party or by
which it is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of the Company or any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to grant, extend, accelerate the vesting of
or enter into any such option, warrant, equity, security, call, right,
commitment or agreement, and to the knowledge of the Company, there are no
voting trusts, proxies or other agreements or understandings with respect to the
shares of capital stock of the Company.
(d) Each share of Class A Preferred Stock is, and immediately prior to the
Effective Time will be, convertible into 1,000 shares of Company Voting Stock.
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(e) On January 9, 1998, the Company effected a 1,000 for 1 share split with
respect to the Company Common Stock and no other splits or similar adjustments
with respect to any of the Company's capital stock or securities convertible
thereinto have otherwise occurred. The Board of Directors of the Company has
rescinded, or will prior to the Effective Time rescind, the 3 for 1 share split
described on the Company's Quarterly Report on Form 10-Q for the Quarterly
Period ended September 30, 1999 and will file a Current Report on Form 8-K
reflecting the foregoing and revising the disclosure contained in the Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended September 30, 1999.
Section 3.4 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to enter
into and deliver this Agreement and the other agreements contemplated herein,
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the other agreements contemplated
herein and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company and each of its Subsidiaries, subject only (in the case of this
Agreement) to the approval of the Merger by the Company's shareholders under the
Illinois Statute. This Agreement and the other agreements contemplated herein
have been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company, enforceable in accordance with the terms
hereof and thereof, except as such enforceability may be limited by (i)
bankruptcy laws and other similar laws affecting creditors' rights generally and
(ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
(b) The only vote of the Company's shareholders required for the approval
of the Merger and the consummation of the transactions contemplated hereby is
the affirmative vote of (i) two-thirds of the outstanding shares of Company
Voting Common Stock and Class A Preferred Stock, voting together as a class, and
(ii) a majority of the outstanding shares of Class A Preferred Stock. This
Agreement and the transactions contemplated hereby have been approved by (i) at
least a majority of the directors comprising the Company's Board of Directors
and (ii) at least a majority of the directors appointed by the holders of the
Class A Preferred Stock, which are the only votes of the Company's Board of
Directors required for approval of this Agreement and the consummation of the
transactions contemplated hereby. The Company has taken all appropriate action
so that the restrictions on business combinations contained in Section 5/11.75
of the Illinois Statute and in any other applicable laws will not apply to
Parent or Sub and their respective associates and affiliates with respect to or
as a result of this Agreement and the transactions contemplated hereby.
(c) Persons holding, beneficially and of record, (i)(A) two-thirds of the
outstanding shares of Company Voting Common Stock and Class A Preferred Stock,
voting together as a class, and (B) two-thirds of the shares of Company Voting
Common Stock and Class A Preferred Stock, voting together as a class, that would
be outstanding assuming the exercise or conversion, as the case may be, of any
and all options, warrants or other securities exercisable or convertible into
Company Voting Common Stock or Class A Preferred Stock, whether or not then
convertible or exercisable and (ii)(A) a majority of the outstanding shares of
Class A Preferred Stock and (B) a majority of the shares of Class A Preferred
Stock that would be outstanding assuming the exercise or conversion, as the case
may be, of any and all options, warrants or other securities exercisable or
convertible into Class A Preferred Stock, whether or not then convertible or
exercisable, have each validly executed and delivered a Voting and Lock-Up
Agreement substantially in the form attached hereto as Exhibit C and each such
agreement is enforceable against each such person that is a party thereto in
accordance with its terms except as such enforceability may be limited by (i)
bankruptcy laws and other similar laws affecting creditors' rights generally and
(ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law and the votes represented thereby represent the
only approval required by the Company's shareholders as of the date hereof and
at any time prior to the Effective Time necessary to approve the Merger and the
other transactions contemplated hereby and thereby.
(d) Except as set forth in Section 3.4 of the Company Disclosure Schedules,
the execution and delivery of this Agreement and the other agreements
contemplated herein does not, and the consummation
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of the transactions contemplated hereby and thereby will not, (i) conflict with,
or result in any violation or breach of any provision of the certificates of
incorporation or bylaws of the Company or any of its Subsidiaries, (ii) result
in any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default or conflict with (or give rise to a right of
termination, amendment, cancellation or acceleration of any obligation or loss
of any benefit) or require any consent or notice to any person, under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their properties or assets or (iv) result in the
imposition of any Lien (except the claims, agreements, limitations on voting
rights or transfer and other encumbrances contemplated by this Agreement)
against any of the properties or assets of the Company or any of its
Subsidiaries.
(e) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal,
county or local government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority (each such entity shall
hereinafter be referred to as a "Governmental Entity"), is required by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of a pre-merger notification
report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) the filing of the Illinois Articles of Merger
with, and the issuance of the Illinois Certificate of Merger by, the Secretary
of State of the State of Illinois in accordance with Illinois Statute, (iii) the
filing of documents to satisfy the applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state
takeover laws, (iv) the filing with the SEC of the Registration Statement (as
defined in Section 6.13(d)), (v) approval by the Illinois Public Utility
Commission and applicable state and local franchising authorities and (vi)
consents, authorizations, filings, approvals and registrations pursuant to the
foregoing or set forth in Section 3.4 of the Company Disclosure Schedules.
Section 3.5 SEC Filings. The Company has filed all reports and
registration statements required to be filed by it with the SEC since May 14,
1998 (collectively, the "Company SEC Reports"). As of its filing date, and
giving effect to any amendments thereof, each Company SEC Report complied as to
form in all material respects with the applicable requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the Exchange Act, as the
case may be. As of its filing date, and giving effect to any amendments thereof,
each Company SEC Report filed pursuant to the Exchange Act did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each Company SEC Report that is a
registration statement, as amended or supplemented, if applicable, filed
pursuant to the Securities Act, as of the date of such registration statement or
amendment became effective, did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 3.6 Financial Statements. Each of the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Company SEC Reports (the "Financial Statements") complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, had been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited financial statements
contained therein (the "Interim Financial Statements"), as permitted by Form
10-Q or the Exchange Act regulations promulgated by the SEC), and each fairly
presented the consolidated financial position of the Company and its
consolidated Subsidiaries in all material respects as at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated in accordance
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with GAAP (subject, in the case of the Interim Financial Statements, to normal
audit adjustments which were not and are not expected, individually or in the
aggregate, to be material in amount).
Section 3.7 Absence of Undisclosed Liabilities. The Company and its
Subsidiaries do not have any liabilities or obligations of any nature, whether
accrued or contingent (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due, and there
is no existing condition or situation which could reasonably be expected to
result in any such liabilities or obligations other than (i) liabilities
reflected in the consolidated balance sheet of the Company dated as of September
30, 1999 (the "Company Balance Sheet"); (ii) normal or recurring immaterial
liabilities incurred since September 30, 1999 in the ordinary course of business
consistent with past practices; and (iii) liabilities set forth in Section 3.7
of the Company Disclosure Schedules.
Section 3.8 Absence of Certain Changes or Events. Since the date of the
Company Balance Sheet, the Company and its Subsidiaries have conducted their
businesses in the ordinary course, in a manner consistent with past practice,
and there has not been: (i) any event, occurrence or development of a state of
circumstances or facts which has had or could reasonably be expected to have a
Material Adverse Effect; (ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition by the Company
or any of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries; (iii) any amendment of any term of any outstanding security of the
Company or any of its Subsidiaries; (iv) any incurrence, assumption or guarantee
by the Company (other than guarantees of its Subsidiaries' obligations) or any
of its Subsidiaries (other than guarantees of their Subsidiaries' obligations)
of any indebtedness for borrowed money; (v) any creation or assumption by the
Company or any of its Subsidiaries of any Lien (except as contemplated by this
Agreement) on any asset; (vi) any making of any loan, advance or capital
contributions to or investment in any person other than loans, advances or
capital contributions to or investments in wholly owned Subsidiaries made in the
ordinary course of business consistent with past practices; (vii) any
condemnation, seizure, damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company or any
of its Subsidiaries; (viii) any transaction or commitment made, or any contract
or agreement entered into, amended or terminated by the Company or any of its
Subsidiaries or any relinquishment by the Company or any Subsidiary of any
contract or other right, in either case, material to the Company and its
Subsidiaries taken as a whole; (ix) any change in any method of accounting or
accounting practice by the Company or any of its Subsidiaries; (x) any (A) grant
of any severance or termination pay to any director, officer or employee of the
Company or any of its Subsidiaries, (B) entering into or renewal of any
employment, deferred compensation, severance, retirement or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any of its Subsidiaries, (C) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements, or (D) except in the ordinary course of business
consistent with past practice, increase in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any of its
Subsidiaries; (xi) any labor dispute, other than routine individual grievances,
or any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company or any of its Subsidiaries, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; (xii) any capital expenditure, or commitment for a
capital expenditure, for additions or improvements to property, plant and
equipment in excess of $500,000, individually or $1,000,000 in the aggregate
other than expenditures for planned build out of the Company's network that are
in accordance with the budget agreed to between Parent and the Company; (xiii)
except for capital expenditures and commitments referred to in subsection (xii)
above, any acquisition or disposition of any material assets or properties or
any Intellectual Property (as defined in Section 3.11) in one or more
transactions, or any commitment in respect thereof; (xiv) any express or deemed
election for Tax (as defined below) purposes or any offer to settle or
compromise or any settlement or compromise of any liability with respect to
Taxes (as defined below); (xv) any offers to existing Subscribers (as defined in
Section 3.19(i)) for renewal at rates below the standard rates charged by the
Company and its Subsidiaries; or (xvi) any Outage (as defined below). As used
herein, "Outage" means any complete loss of any service to any System, including
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but not limited to any complete loss of network access, telephone, video, audio,
Internet, data, bandwidth access, mail, web or other services.
Section 3.9 Taxes.
(a) (i) The Company and each of its Subsidiaries have duly and timely filed
(or there have been duly and timely filed on its behalf), or a valid extension
of time to file has been obtained, with the appropriate governmental authorities
all Tax Returns (as hereinafter defined) required to be filed by it and all such
Tax Returns are true, correct and complete in all material respects, and (ii)
all Taxes for which the Company or any Subsidiary is or may be liable (whether
or not shown on any Tax Return) in respect of periods (or portions thereof)
ending on or before the Closing Date have been timely paid, or will be timely
paid, or have been provided for on the Financial Statements and Interim
Financial Statements in accordance with GAAP. With respect to any period (or
portion thereof) through the Closing Date for which Taxes are not yet due or
owing, the Company and each of its Subsidiaries have established due and
sufficient reserves for the payments of such Taxes in accordance with generally
accepted accounting principles, and such current reserves through the Closing
Date are duly and fully provided for in the Financial Statements and Interim
Financial Statements.
(b) No deficiencies for Taxes have been claimed, proposed or assessed by
any taxing or other governmental authority against the Company or any of its
Subsidiaries, and none of the Company shareholders or the Company or any
Subsidiary has received any notice, or otherwise has any knowledge, of any
potential claim, proposal or assessment against the Company or any of its
Subsidiaries for any such deficiency for Taxes. There are no pending, or to the
best of the Company's or any Subsidiary's knowledge, threatened audits,
investigations or claims for or relating to any liability in respect of Taxes,
and there are no matters under discussion between the Company or any Subsidiary
on the one hand and any governmental authority on the other hand with respect to
Taxes that, in the reasonable judgment of the Company shareholders, the Company
or any of its Subsidiaries are likely to result in a material additional
liability of the Company or any of its Subsidiaries for Taxes.
(c) There are no liens for Taxes upon any property or assets of the Company
or any of its Subsidiaries, except for liens for Taxes not yet due and payable,
and for which adequate reserves have been provided for on the Financial
Statements and Interim Financial Statements in accordance with GAAP.
(d) Each of the Company and each of its Subsidiaries has duly and timely
withheld, collected and paid to the proper governmental authority all Taxes
required to have been withheld, collected or paid.
(e) No claim has ever been made to the Company or any Subsidiary by an
authority in a jurisdiction where the Company or any Subsidiary has not filed
Tax Returns that the Company or any Subsidiary is or may be subject to taxation
by that jurisdiction.
(f) Neither the Company nor any of its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(g) There is no contract, plan or arrangement (written or otherwise)
covering any current or former employee or independent contractor of the Company
or any of its Subsidiaries that, individually or in the aggregate, could give
rise to the payment of any amount that will not be deductible by the Company or
any of its Subsidiaries under Section 280G of the Code.
(h) Other than an affiliated group (as defined under Section 1504 of the
Code) of which the common parent was the Company, neither the Company nor any of
its Subsidiaries has (i) been a member of an affiliated group or (ii) any
liability for Taxes of any person (other than the Company or any of its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(i) No power of attorney that is currently in force has been granted by the
Company or any of its Subsidiaries with respect to any matters relating to
Taxes.
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(j) There are no tax sharing agreements or other similar arrangements with
respect to or involving the Company or any of its Subsidiaries.
(k) Neither the Company nor any of its Subsidiaries is, and during the
five-year period ending on the Closing Date has been, a "United States Real
Property Holding Corporation," as such term is defined in Section 897(c) of the
Code or the Treasury Regulations promulgated thereunder.
(l) "Tax" or "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including all net income, gross income, gross receipts,
excise, stamp, real or personal property, ad valorem, sales, withholding,
estimated, social security, employment, unemployment, occupation, use, service,
service use, license, net worth, payroll, franchise, environmental, severance,
transfer, recording, escheat, or other taxes, duties, assessments, or charges,
imposed by any governmental authority and any interest, penalties, or additions
to tax attributable thereto. "Tax Return" shall mean any report, return,
document, declaration, information, return or filing (including any related or
supporting information) filed or required to be filed with respect to Taxes.
Section 3.10 Real Properties; Title to and Condition of Assets.
(a) Neither the Company nor any Subsidiary of the Company now owns or at
any time in the past has owned any fee interest in fee estates.
(b) Section 3.10(b) of the Company Disclosure Schedules contains a complete
and correct list of all Real Property leased, subleased, licensed, used or
occupied by the Company and each of its Subsidiaries pursuant to the Leases
("Leased Real Property") setting forth information sufficient to identify
specifically such Leased Real Property and material terms of the Leases with
respect thereto. For purposes of this Agreement, "Leases" means the Real
Property leases, subleases, licenses and use or occupancy agreements pursuant to
which the Company or any of its Subsidiaries is the lessee, sublessee, licensee,
user or occupant of Real Property, or interests therein with lease payments in
excess of $1,000 per month. Each Lease grants the lessee under the Lease the
right to use and occupy the premises and rights demised thereunder in accordance
with the terms thereof, free and clear of any Liens, other than (i) Liens for
current Taxes, assessments and other governmental charges not yet due and
payable or that may subsequently be paid without penalty or that are being
contested in good faith by appropriate proceedings, and (ii) matters set forth
in Section 3.10(b) of the Company Disclosure Schedules (collectively, "Permitted
Liens"). The Company and its Subsidiaries have good and valid title to the
leasehold estate or other interest created under its respective Leases free and
clear of any Liens other than Permitted Liens and except as otherwise provided
in the Leases. In the case of easements, rights of access, rights-of-way,
licenses and other interests included in the Real Property, the Company and its
Subsidiaries have such title or other interest as is necessary to permit the use
and enjoyment of such properties substantially in the manner such properties are
used and are contemplated to be used.
(c) The Leased Real Property constitutes all the leasehold and other
interests in Real Property held by the Company and its Subsidiaries, and
constitutes all of the leasehold and other interests in Real Property necessary
for the conduct of, or otherwise material to, the business of the Company and
its Subsidiaries as it is Conducted, except for any leasehold or other interest
acquired or disposed of in the ordinary course of business after the date
hereof.
(d) The Real Property has been maintained in compliance with (i) all
applicable laws, treaties, statutes, ordinances, codes, rules or regulations of
Governmental Entities, including, without limitation, local zoning and
subdivision ordinances ("Laws"), (ii) all applicable judgments, decrees, orders,
writs, awards, injunctions or determinations of an arbitrator or court or other
Governmental Entity ("Orders") and (iii) all applicable Licenses (as defined in
Section 3.22(a)), except, in each case, where the failure to be in compliance
would not have, individually or in the aggregate, a Material Adverse Effect. To
the knowledge of the Company and its Subsidiaries, none of the Real Property is
subject to any decree or order of any Governmental Entity to be sold or is being
condemned, expropriated or otherwise taken by any Governmental Entity.
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(e) As used herein, "Real Property" means all the leasehold and fee simple
interests in all fee estates, and all buildings, fixtures, and all other
improvements located thereon (including, without limitation, towers), leasehold
interests in real estate, private easements, private rights to access, private
rights-of-way, and other real property interests including, without limitation,
head-end sites which are owned, leased or used by the Company and its
Subsidiaries in the conduct of their business or operation of the Systems.
(f) The Company and its Subsidiaries have good and marketable title to, or
valid leasehold or other interests in, and possession or valid use of, all of
their respective assets and properties, including without limitation the Systems
(as defined in Section 3.19), free and clear of all Liens. Such assets and
properties are in good operating condition and repair, ordinary wear and tear
excepted, and will permit the Company and its Subsidiaries to comply with the
material terms of their current Franchises (as defined in Section 3.22(a), but
excluding franchises applied for but not yet awarded). Such assets and
properties constitute all property and rights, real and personal, tangible and
intangible, necessary or required to operate the Systems and Conduct the
business of the Company and its Subsidiaries.
Section 3.11 Intellectual Property. The Company and its Subsidiaries own
or have a valid license to use each trademark, service mark, trade name,
invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right (collectively, the
"Intellectual Property") necessary to carry on its business substantially as
Conducted. Neither the Company nor any of its Subsidiaries has received any
notice of infringement of or conflict with, and to their knowledge, there are no
infringements of or conflicts with, the rights of any person with respect to the
use of any Intellectual Property.
Section 3.12 Agreements, Contracts and Commitments. Section 3.12 of the
Company Disclosure Schedules sets forth a true and complete list of all the
following arrangements, agreements, or understandings, whether written or oral,
to which the Company or any of its Subsidiaries is a party, (i) any agreements
relating to indebtedness for borrowed money (whether incurred, assumed,
guaranteed, secured by any asset or otherwise), (ii) any agreements for the
lease of personal property to or from any person, (iii) any agreement concerning
a partnership or joint venture, (iv) any agreement concerning confidentiality or
non-competition other than those entered into in the ordinary course of business
for the benefit of the Company's vendors or potential investors, (v) any profit
sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other material plan or arrangement for the benefit
of the current or former employees of the Company or any of its Subsidiaries,
(vi) any collective bargaining agreement, (vii) any agreement for the employment
or retention of any individual on a full-time, part-time, consulting, or other
basis not terminable on less than 30 days notice without penalty or cost, (viii)
any agreement under which it has advanced or loaned any amount in excess of
$1,000 to any of the employees or affiliates of the Company or any of its
Subsidiaries, (ix) any agreement providing for indemnification of or by the
Company, (x) any agreement by the Company or any of its Subsidiaries providing
products or services to any person for consideration other than cash or
receiving consideration from any person in products or services in lieu of cash,
(xi) any agreement for the purchase of materials, software, supplies, goods,
services, equipment or other assets providing for either annual or aggregate
payments by the Company and its Subsidiaries of $100,000 or more; (xii) any
sales, distribution or other similar agreement providing for the sale by the
Company or any Subsidiary of materials, supplies, goods, services, equipment or
other assets that provides for annual or aggregate payments by the Company and
its Subsidiaries of $100,000 or more, (xiii) any agreement relating to the
acquisition or disposition of any business (whether by merger, sale of stock,
sale of assets or otherwise); (xiv) any option, license, franchise or similar
agreement; (xv) any agency, dealer, sales representative, marketing or other
similar agreement; (xvi) any agreement to provide service to any Subscriber
other than the standard dial-up service contracts previously disclosed to Parent
which individually or in the aggregate would be material; (xvii) any formal or
informal partnership arrangement with any merchant or service or web content
provider; (xviii) any agreement with any local exchange carrier, competitive
local exchange carrier, competitive access provider or other telecommunications
carrier; (xix) any collocation or other similar agreements; (xx) any peering,
transit or other agreement with any Internet service provider, online company or
similar entity; (xxi) any
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pole attachment agreements; (xxii) any programming agreements; (xxiii) any right
of entry agreements; (xxiv) any bulk agreements and (xxv) any other agreement
(or group of related agreements) material to the Company or any of its
Subsidiaries or disclosed, or required to be disclosed, in the Company SEC
Reports (such contracts and agreements, the "Material Agreements"). The Company
has delivered to Parent a correct and complete copy of each written Material
Agreement and a written summary setting forth the terms and conditions of each
oral Material Agreement. Except as set forth in Section 3.12 of the Company
Disclosure Schedules, all Material Agreements are valid, binding and enforceable
in accordance with their terms and will continue to be so on identical terms
immediately following the consummation of the transaction s contemplated by this
Agreement, and neither the Company or any of its Subsidiaries are in default
under any of such agreements, nor, to the best knowledge the Company, has any
event or circumstance occurred that, with notice or lapse of time or both, would
constitute any event of default by the Company or any of its Subsidiaries.
Except as set forth in Section 3.12 of the Company Disclosure Schedules, (i) all
right of entry agreements have perpetual terms and (ii) none of the Material
Agreements contain any revenue sharing provisions and to the extent any such
agreements contain such provisions, the schedule shall describe the revenue
sharing information with respect to such agreements.
Section 3.13 Litigation.
(a) Except as set forth in Section 3.13 of the Company Disclosure
Schedules, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened by or against the
Company or any of its Subsidiaries at law or in equity or before or by any
court, Governmental Entity or arbitrator, nor is there any judgment, decree,
injunction, rule or order of any court, Governmental Entity or arbitrator
outstanding against the Company or any of its Subsidiaries. Neither the Company
nor any of its subsidiaries is in violation of any term of any judgment, decree,
injunction or order outstanding against it.
(b) No demands have been made on the Company or any of its Subsidiaries by
any Governmental Entity, utility, pole lessor, or other party, which seek or
could reasonably be expected to result in the termination, modification,
suspension or limitation to the rights or obligations of the Company or any of
its Subsidiaries with respect to the Franchises, Licenses or Material
Agreements.
Section 3.14 Environmental Matters.
(a) The Company and its Subsidiaries are in compliance with all applicable
Environmental Laws (as defined below) (which compliance includes, but is not
limited to, the possession by the Company and its Subsidiaries of all permits
and other governmental authorizations required under applicable Environmental
Laws, which are in full force and effect, and compliance with the terms and
conditions thereof). As of the date of this Agreement, the Company and its
Subsidiaries have not received since January 1, 1995 any written communication,
whether from a governmental authority, citizens' group, employee or otherwise,
alleging that the Company and its Subsidiaries is not in such compliance.
(b) Except as set forth in Section 3.14 of the Company Disclosure Schedule,
there is no Environmental Claim (as defined below) pending or, to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries or
against any person or entity whose liability for any Environmental Claim the
Company or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
(c) There have been (a) no Releases (as defined below) of Hazardous
Materials (as defined below) at any of the Real Property or (b) to the knowledge
of the Company, at any other location that could have a Material Adverse Effect
on the Company and its Subsidiaries, taken as a whole.
(d) Except as set forth in Section 3.14 of the Company Disclosure
Schedules, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the Release or
presence of any Hazardous Material, which could form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to the
knowledge of the Company, against any person or entity whose liability for any
Environmental Claim the Company or any of its Subsidiaries has or may
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have retained or assumed either contractually or by operation of law which could
have a Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
(e) As used herein, (i) "Environmental Claim" means any claim, action,
cause of action, investigation or notice (written or oral) by any person or
entity alleging any actual or potential liability arising out of, based on or
resulting from (a) the presence or Release of any Hazardous Materials at any
location, whether or not owned or operated by the Company, or (b) circumstances
forming the basis of any violation of any Environmental Law, (ii) "Environmental
Laws" means all federal, state, local and foreign laws and regulations relating
to pollution, protection of human health or the environment, including, without
limitation, those relating to Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, transport or handling of Hazardous Materials, (iii)
"Hazardous Materials" means all substances defined as Hazardous Substances,
Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or defined as such by, or
regulated as such under, any Environmental Law and (iv) "Release" means any
release, spill, emission, discharge, leaking, pumping, pouring, dumping,
injection, deposit, disposal, dispersal, leaching or migration of Hazardous
Materials into the environment (including, without limitation, ambient air,
surface water, groundwater and surface or subsurface strata).
Section 3.15 Transactions with Affiliates. Neither the Company nor any of
its Subsidiaries is involved with any of its officers, directors, affiliates,
employees or shareholders in any contract, loan, commitment, transaction or in
any other situation which may generally be characterized as a "conflict of
interest," including, without limitation, any direct or indirect interest in the
business of competitors, suppliers or customers of the Company or any of its
Subsidiaries.
Section 3.16 Employee Benefit Plans.
(a) Section 3.16 of the Company Disclosure Schedules contains a true and
complete list of, (i) each deferred compensation and each bonus or other
incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; (ii) each severance or
termination pay, medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")); (iii)
each profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of Section 3(2) of ERISA); (iv) each employment, termination
or severance agreement; and (v) each other employee benefit plan, fund, program,
agreement or arrangement, other than the Bonus Pool as defined in Section 6.17,
in each case, that is sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA (an "ERISA Affiliate"), or to
which the Company or an ERISA Affiliate is party, whether written or oral, for
the benefit of any employee or former employee of the Company or any of its
Subsidiaries (collectively, the "Plans"). No Plan is subject to Section 302 or
Title IV of ERISA or Section 412 of the Code. Neither the Company, any of its
Subsidiaries nor any ERISA Affiliate has any commitment or formal plan, whether
legally binding or not, to create any additional employee benefit plan or modify
or change any existing Plan (other than a modification or change required by
applicable Laws) that would affect any employee or former employee of the
Company or any of its Subsidiaries.
(b) With respect to each Plan, the Company has heretofore delivered or made
available to Parent true and complete copies of each of the following documents:
(i) a copy of the Plan and any amendments thereto (or if the Plan is not a
written Plan, a description thereof); (ii) a copy of the two most recent annual
reports and actuarial reports, if required under ERISA, and the most recent
report prepared with respect thereto in accordance with Statement of Financial
Accounting Standards No. 87; (iii) a copy of the most recent Summary Plan
Description required under ERISA with respect thereto; (iv) if the Plan is
funded through a trust or any third party funding vehicle, a copy of the trust
or other funding agreement and the latest financial statements thereof; and (v)
the most recent determination letter received from the IRS with respect to each
Plan intended to qualify under Section 401 of the Code.
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(c) No liability under Title IV or Section 302 of ERISA has been incurred
by the Company or any ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
to the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) All contributions required to be made with respect to any Plan on or
prior to the Effective Time have been timely made or are reflected on the
Company's balance sheet.
(e) Neither the Company nor any of its Subsidiaries, any Plan, any trust
created thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which the Company or any of its Subsidiaries, any
Plan, any such trust, or any trustee or administrator thereof, or any party
dealing with any Plan or any such trust could be subject to either a civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed
pursuant to Section 4975 or 4976 of the Code.
(f) Each Plan has been operated and administered in all material respects
in accordance with its terms and applicable law, including but not limited to
ERISA and the Code. There are no pending or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan
(other than routine claims for benefits).
(g) Each Plan intended to be "qualified" within the meaning of Section
401(a) of the Code is so qualified and the trusts maintained thereunder are
exempt from taxation under Section 501(a) of the Code. Each Plan intended to
satisfy the requirements of Section 501(c)(9) of the Code has satisfied such
requirements.
(h) No Plan provides medical, surgical, hospitalization, death or similar
benefits (whether or not insured) for employees or former employees of the
Company or any of its Subsidiaries for periods extending beyond their retirement
or other termination of service, other than (i) coverage mandated by applicable
law, (ii) death benefits under any "pension plan," or (iii) benefits the full
cost of which is borne by the current or former employee (or his beneficiary).
No condition exists that would prevent the sponsor of any Plan providing health
or medical benefits in respect of any active employee of the Company or any of
its Subsidiaries from amending or terminating such Plan.
(i) No amounts payable under the Plans will fail to be deductible for
federal income tax purposes by virtue of Section 162(m) or 280G of the Code.
(j) Except as expressly provided in this Agreement or disclosed in Section
3.16 of the Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not, either alone or in combination with
another event, (i) entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay, unemployment compensation or
any other payment or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer.
Section 3.17 Labor Matters. Except as set forth in Section 3.17 of the
Company Disclosure Schedules, (i) the Company and its Subsidiaries are not a
party to or bound by any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company, nor does the Company
know of any activities or proceedings on behalf of or by any labor union to
organize any such employees, (ii) there are no unfair labor practice charges or
complaints, or any current union representation questions, involving employees
or former employees of the Company or any of its Subsidiaries pending against
the Company or any of its Subsidiaries before the National Labor Relations Board
or similar foreign entity and (iii) there is no labor strike, lockout, organized
slowdown or organized work stoppage in effect or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries.
Section 3.18 Compliance with Laws; Regulatory Approvals.
(a) No Violation of Law. The Company and its Subsidiaries are in
compliance, and have conducted their respective businesses and operated the
Systems in accordance, with (and, to the knowledge of the
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Company, are not under investigation with respect to and have not been
threatened in writing to be charged with or given notice that the continued
operation of any business or assets does or will violate or conflict with), all
applicable Laws and Orders and the Company and its Subsidiaries are not in
default of, or in violation with respect to, any Order. The Company and its
Subsidiaries hold all Licenses and Franchises and all certificates, consents,
permits, qualifications and authorizations from all Governmental Entities
necessary for the lawful conduct of the business and operations of the Systems.
Except as set forth in Section 3.18 of the Company Disclosure Schedules, each of
the Company and its Subsidiaries has all requisite authority from federal,
state, local or municipal authorities to hold itself out as a provider of, and
to provide, telecommunications services and to Conduct the business and
operations of the Systems, including local exchange telephone and interexchange
toll services, Internet access, or any other telecommunications services offered
by the Company, and whether offered on facilities within its own or other
private rights-of-way or on public rights-of-way. The Company has timely filed
all required tariffs, reports, or other information required for the conduct of
its telecommunications business. The Company's tariffs are in effect and no
action is pending or, to the knowledge of the Company, threatened challenging
the lawfulness of the Company's operations or services or any element of such
operations or services. Except as set forth in Section 3.18 of the Company
Disclosure Schedules, (i) all television stations carried by the cable systems
are carried either pursuant to retransmission consent agreements or must-carry
elections (or must-carry defaults) (which Schedule includes a description of the
basis for the exception) and (ii) the Company has delivered or made available to
Parent full and complete copies of all retransmission consent agreements. For
each commercial television station carried on a System that has elected
must-carry status, but that is not being carried because of signal quality
problems or potential copyright liability, Section 3.18 of the Company
Disclosure Schedules lists the call sign of the station and the reason for
non-carriage. Except as set forth in Section 3.18 of the Company Disclosure
Schedules, there are no requests by any television station which asserts that it
is entitled to must-carry status seeking carriage on any System which the
Company or any of its Subsidiaries has denied or refused to honor or which is
the subject of a complaint filed with the FCC.
(b) Licensing. The Company and its Subsidiaries are permitted under all
applicable Franchises, Licenses and rules, regulations and orders of the Federal
Communications Commission ("FCC"), all applicable state, local or municipal laws
or regulations to distribute the transmissions (whether television, satellite,
radio or otherwise) of video programming or other information that they make
available to Subscribers (the "Signals") and to use all carrier frequencies
generated by the operations of the Systems. The Company and its Subsidiaries are
licensed to operate all the facilities required by law to be licensed,
including, without limitation, any business radio and any cable television relay
service system being operated as part of the Systems. Other than requests for
network non-duplication and syndicated exclusivity, and sports black-out
protection, neither the Company nor any of its Subsidiaries has received any
written requests from the FCC, the United States Copyright Office or any other
person challenging or questioning the right of operation of the Systems and of
any FCC-licensed or registered facility used in conjunction with the Company and
its Subsidiaries' operation of the Systems. The Company and its Subsidiaries
have not violated any Laws or any duty or obligation with regard to protecting
the privacy rights of any past or present Subscribers. Except as set forth in
Section 3.18(b)(ii) of the Company Disclosure Schedules, neither the Company nor
any of its Subsidiaries has made or is bound by any commitments to any state,
municipal, local or other governmental commission, agency or body with respect
to the operation and construction of their respective systems which are not
fully reflected in the Franchises or Licenses.
(c) Pole Attachment Agreements. Each of the Company and its Subsidiaries
(i) has complied in all material respects with the terms and conditions of all
pole attachment agreements to which it is a party (including any requirements
for notifications, filing, reporting, posting and maintaining logs and records)
and (ii) has not performed any act or failed to perform any act, the doing of
which or failure to do so, would invalidate or impair in any material respect
its rights under the pole attachment agreements. There is no pending claim that
operations by the Company or any of its Subsidiaries pursuant to any pole
attachment agreement have been improperly conducted or maintained in any
material respect. There is no
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action, suit or proceeding pending, or to the knowledge of the Company,
threatened, to terminate, suspend or modify in any material respect any pole
attachment agreement.
(d) Programming Agreements. Each of the Company and its Subsidiaries (i)
has complied in all material respects with the terms and conditions of the
programming agreements to which it is a party (including any requirements for
notifications, filing, reporting, posting and maintaining logs and records) and
(ii) has not performed any act or failed to perform any act, the doing of which
or the failure to do, would invalidate or impair in any material respect its
rights under the programming agreements. Except as set forth in Section 3.18(d)
of the Company Disclosure Schedules, no consents, permits or approvals of, or
notice to, or declaration, filing or registration with, any Governmental Entity
or any other person under the Franchises, Licenses, Material Agreements or other
agreement involving the Company or any of its Subsidiaries or under any Law or
otherwise is required in connection with the execution, delivery or performance
of any programming agreement. Except as set forth in Section 3.18(d) of the
Company Disclosure Schedules, no material programming agreement expires or
requires renewal or other material modification within two years of the date of
this Agreement. Except as set forth in Section 3.18(d) of the Company Disclosure
Schedules, there is no pending claim that operations by the Company or any of
its Subsidiaries pursuant to any programming agreement have been improperly
conducted or maintained in any material respect. There is no action, suit or
proceeding pending, or to the knowledge of the Company, threatened, to
terminate, suspend or modify in any material respect any programming agreement.
(e) Cable Act. The Company and its Subsidiaries are operating the Systems
in material compliance with the Franchises, the Copyright Act, the Cable Act,
the provisions of the Communications Act of 1934, as amended, 47 U.S.C. sec.151
et seq. and the rules and regulations promulgated thereunder ("Communications
Act"), as such Laws apply to the Systems, including those relating to signal
carriage, syndicated exclusivity, network non-duplication, sports black-out,
must-carry and retransmission consent. No written notice or demands, and to the
knowledge of the Company and its Subsidiaries, no oral notice or demands, have
been received from any television station or from any other person claiming to
have a right, or objecting to or challenging the right of the Systems, to carry
or deliver any signal, or challenging the channel position on which any
television station is carried. The Company and its Subsidiaries have used
reasonable good faith efforts to establish rates charged to Subscribers that are
or were allowable under the Cable Act and any authoritative interpretation
thereof now or then in effect, whether or not such rates are or were subject to
regulation at that date by any Governmental Entity, including any local
franchising authority and/or the FCC, unless such rates were not subject to
regulation pursuant to a specific exemption from rate regulation contained in
the Cable Act, other than the failure of any franchising authority to have been
certified to regulate rates. The Company and its Subsidiaries have filed
complete and correct reports and filings required to be filed pursuant to the
Cable Act or FCC rules or regulations with respect to the Systems, including but
not limited to equal opportunity reporting in accordance with Section 634 of the
Cable Act. No System is rate-regulated under any Law. A request for renewal has
been timely filed under Section 626(a) of the Cable Act with the proper
Governmental Entity with respect to each Franchise expiring within 36 months of
the date of this Agreement. Neither the Company nor any of its Subsidiaries have
received any written notice or, to the knowledge of the Company and its
Subsidiaries, any oral notice from any Governmental Entity with respect to the
intention to enforce customer service standards pursuant to the Cable Act, and
neither the Company nor any of its Subsidiaries have agreed with any
Governmental Entity to establish customer service standards that exceed the
standards in the Cable Act. Except as set forth in Section 3.18(e) of the
Company Disclosure Schedules, there are no requests by any television station
that asserts must-carry status seeking carriage on any System that the Company
or any of its Subsidiaries has denied or refused to honor or that is the subject
of a complaint filed with the FCC. For the purposes of this Agreement, "Cable
Act" means Title VI of the Communications Act of 1934, as amended, 47 U.S.C.
sec.151 et seq., and all other provisions of the Cable Communications Policy Act
of 1984, Pub. L. No. 98-549, the Cable Television Consumer Protection and
Competition Act of 1992, Pub. L. No. 102-385, and the provisions of the
Telecommunications Act of 1996 amending Title VI of the Communications Act, as
such statutes may be amended from time to time, and the rules and regulations
promulgated thereunder.
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(f) CLI. The Company and its Subsidiaries have conducted all system and
microwave performance tests required by any applicable Law, including all
Cumulative Leakage Index ("CLI") related tests applicable to the Systems. The
Company and its Subsidiaries have (i) maintained appropriate log books and other
record keeping which accurately and completely reflect in all material respects
all results required to be shown thereon, (ii) to the extent required by the
rules and regulations of the FCC, corrected any radiation leakage of the Systems
required to be corrected in connection with monitoring obligations of the
Company and its Subsidiaries under the rules and regulations of the FCC and
(iii) otherwise complied in all material respects with all applicable CLI rules
and regulations in connection with the operation of the Systems. Parent may,
with reasonable notice, review all tests and filings at offices of the Company.
Neither the Company nor any of its Subsidiaries is using any frequency whose use
is prohibited by the FAA (as defined below), Department of Defense or any other
Governmental Entity.
(g) FAA Rules and Regulations. The Systems are being operated in all
material respects in compliance with the rules and regulations of the Federal
Aviation Administration ("FAA"). Section 3.18(g) of the Company Disclosure
Schedules lists the existing towers, if any, utilized in conjunction with the
Systems. Without limiting the generality of the foregoing, the existing towers,
if any, of the Systems are obstruction-marked and lighted in all material
respects in accordance with the rules and regulations of the FAA and FCC if so
required. All required authorizations, including, without limitation, hazard to
air navigation determinations, for any such towers have been issued by and
pursuant to the rules and regulations of the FAA. Except as set forth in Section
3.18(g) of the Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries leases space on any such towers to any third party.
(h) Copyright. The Company has deposited with the United States Copyright
Office all statements of account and other documents and instruments, and paid
all royalties, supplemental royalties, fees and other sums to the United States
Copyright Office required under the Copyright Act with respect to the business
and operations of the Systems as are required to obtain, hold and maintain the
compulsory copyright license for cable television systems prescribed in Section
111 of the Copyright Act and has made all payments to ASCAP and BMI required
under the Copyright Act. Neither the Company nor any of its Subsidiaries has any
knowledge of any deficiency in the amount of compulsory copyright or other fee
payments made and has not received any statement, notice or claim respecting an
underpayment or nonpayment of any compulsory copyright or other fee payment for
the Systems. Except as set forth in Section 3.18(h) of the Company Disclosure
Schedules, the Company and its Subsidiaries are in compliance in all material
respects with the Copyright Act and the rules and regulations of the Copyright
Office with respect to the operation of the Systems. The Company and its
Subsidiaries are entitled to hold and do hold the compulsory copyright license
described in Section 111 of the Copyright Act, which compulsory copyright
license is in full force and effect and has not been revoked, canceled,
encumbered or adversely affected in any manner.
Section 3.19 Systems Information. Section 3.19 of the Company Disclosure
Schedules sets forth a complete and correct description of the following
applicable information with respect to each System operated by the Company and
its Subsidiaries as of the date hereof (unless a different date is specified
below or indicated in Section 3.19 of the Company Disclosure Schedules) with
paragraph references corresponding to those set forth below. As used herein,
"Systems" means the infrastructure used to provide telephone, video, audio,
Internet, data, bandwidth access and related services, including network
components, communications facilities, computing platforms and services
(including for mail, news, DNS, web, authentication, and other services), power
plants, data processing platforms, MIS systems, DRS Network components, office
automation systems and internal LAN, network management systems:
(a) for the period ended September 30, 1999 (or such other period or
date indicated in Section 3.19 of the Company Disclosure Schedules) a
description of the services offered by each System; the rates charged by
the Company and its Subsidiaries for each; a description of any memoranda
of understanding or other agreements regarding rates; and any other charges
by the Company and its Subsidiaries for services to Subscribers (as defined
below);
(b) the channel and bandwidth capacity of the Systems;
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(c) the number of off-air signals available in the community in which
each System operates;
(d) the date and amount of the last rate increase for System service
and a description of marketing programs, policies and practices;
(e) a description of any proposed rate increases and channel changes;
(f) the approximate total number of miles of fully completed and
operational trunk and distribution cable, the approximate number of miles
of aerial plant and the approximate number of miles of underground plant of
each System as of the date hereof;
(g) all channel additions in the immediately preceding 12 months,
Subscribers affected and carriage payments (such as launch revenues or
equipment support) received in the immediately preceding 12 months;
(h) the cities, towns, townships, villages, and boroughs served by
each System;
(i) the number of Subscribers (as defined below) and the number of
bulk Subscribers receiving each of the services provided by the Systems
(set forth separately with respect to each such service provided by the
Systems) and the number of homes passed and marketable homes and how such
numbers have been calculated; for purposes of this Agreement, the term
"Subscribers" means any customers of the Company or any of its
Subsidiaries, except for persons served under bulk contracts, who (i) are
currently connected to and receiving telephone, video, audio, Internet,
data, bandwidth or related services from the Systems, (ii) are being
charged or have pre-paid the Company's or Subsidiary's standard rates
(which rates are set forth in Section 3.19(a) of the Company Disclosure
Schedules) pursuant to the Company's standard form contracts previously
provided to Parent, (iii) have paid such stated rates in full for at least
one full month, (iv) are not two or more months delinquent in the payment
of any invoice from the Company or any of its Subsidiaries, (v) have not,
in the preceding two months, been given a waiver or forgiveness of service
charges (other than charges inappropriately billed), (vi) have not received
any inducements or free services to become connected to the Systems or to
receive or pay for service, (vii) have not notified the Company or any of
its Subsidiaries of their intention to cancel service (other than pursuant
to the Company's customary renewal and cancellation procedures in numbers
consistent with past history); and (viii) with respect to a hotel, motel or
other multiple dwelling unit customer which pays less per dwelling unit
than the rates charged in the relevant area by the applicable provider for
detached single family homes, such customer shall be considered to be that
number of basic Subscribers which is equal to revenues from basic service
generated by such hotel, motel or other customer for the month ending on
the relevant date (or if such date is not the end of the month, the month
ending immediately prior to such date) (without regard to non-recurring
revenues from ancillary services such as installation fees) divided by the
full rate charged to detached single family homes for such service in the
relevant area by the applicable provider;
(j) the Company's monthly churn rate for each service (consisting of
(i) cancellations of month-to-month service and long-term subscriptions
prior to expiration and (ii) non-renewal of long-term contracts upon
expiration) during each full calendar month during the twelve calendar
month period prior to the date hereof; and
(k) the amount of unearned revenue for all Subscriber contracts with a
remaining term of (i) less than or equal to 90 days, (ii) greater than 90
days and less than or equal to one year (iii) greater than one year and
less than or equal to two years, (iv) greater than two years and less than
or equal to three years and (v) greater than three years.
Section 3.20 Outside Plant/Network; CLEC; Internet Related Systems.
(a) Outside Plant/Network. The Company's outside plant and network
consists of six (6) main components: the switch/head-end; the Network Operations
Center (NOC); the Fiber Optic Transport Facilities; the Transport and Campus
Hubs; the local Hybrid Fiber Coax (HFC) Distribution Center; and the RBOC
collocation sites. All of the equipment, hardware, and software necessary to
operate the
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business is in good working condition and has been installed in accordance with
and complies with industry standards and Bellcore standards, including all
applicable safety standards, regulatory specifications and manufacturer
guidelines. The outside plant and network is constructed using industry accepted
guidelines and the Company has secured and is in compliance with all of the
right-of-ways, pole attachments, vendor agreements and all other agreements,
including, but not limited to, interconnection agreements necessary to operate
the business. The Ameritech collocation sites have been constructed according to
Ameritech and Bellcore standards and the Company has complied with all of the
terms and conditions of the collocation agreements. The distribution facilities
of the outside plant network and systems do not constitute a trespass,
prohibited encumbrance or illegal occupation of land of any third person.
Section 3.20(a) of the Company Disclosure Schedules contains a complete and
accurate list of all third party plant, structures and equipment used by the
Company. The Company's network consists of approximately 204,479 homes passed,
approximately 87,889 marketable homes, approximately 40 underground plant miles
and approximately 143 aerial plant miles. In addition, the Company has 547
nodes, approximately 151 miles of activated plant, 491 right of entry buildings
activated and connected to the network and 79 bulk buildings activated and
connected to the network. Further, the Company has 38 bulk buildings under
contract, 15 bulk buildings wired, 268 right of entry buildings under contract
and 41 right of entry buildings wired.
(b) CLEC Plant/Equipment. The plant, structures equipment and all other
assets of the CLEC system of the Company and its Subsidiaries are in good
working order and repair and comply in all material respects with applicable
rules, regulations and standards regarding their intended use. Such assets meet,
in all material respects, all current industry technical performance standards,
including industry fiber optic standards, for a system of its particular design.
All of the CLEC equipment, hardware, software, switch, transmission systems and
all other equipment is the most recent version of equipment offered by the
respective vendors. The CLEC system physically attaches to at least two (2)
tandems in the 358 LATA. The CLEC System connects to the SS7 network for
signaling and corresponding features and functions (i.e. voice mail, caller ID
etc.). The Company has applied for and received all NXX codes and all other
applicable codes in order to function as a CLEC and interconnect to the public
switch telephone network, and the codes and all other equipment, functionality
and agreements are transferable to Parent. The Company is providing telephony
service via collocation within Ameritech's central offices and the leasing of
unbundled loops and the Company complies with all aspects of the collocation
agreement and regulations regarding the installation of equipment within an
Ameritech central office. The Company is providing direct operator service,
directory assistance and E911 services. Except as set forth in Section 3.20(b)
of the Company Disclosure Schedules, the interconnection agreement between the
Company and Ameritech and all other agreements necessary to operate the CLEC
business are in full force and effect and are fully transferable to Parent
without any required consents. The Company and its Subsidiaries have an
inventory of spare parts and other materials relating to their CLEC business of
the type, nature and amount consistent with Company's past practices and good
CLEC industry practices. Section 3.20(b) of the Company Disclosure Schedules
contains a complete and accurate list of all third party plant, structures and
equipment used by the Company and its Subsidiaries. Except as set forth on
Section 3.20(b) of the Company Disclosure Schedules, the Company and its
Subsidiaries have all consents and approvals necessary to use the plant,
structures and equipment used by the Company and its Subsidiaries. The rates
charged by the Company for local telephone service are at least 15% below the
rates charged by Ameritech.
(c) Internet Related Systems. Except as set forth in Section 3.20(c) of
the Company Disclosure Schedules, (i) all of the Internet-related Systems,
services and platform servers are running, or peaking, at no higher than 50% of
capacity, (ii) all of the Internet-related Systems' services are replicated in a
redundant manner across available platform servers, (iii) all remote physical
points of presence ("POPs") are secure, conform to equipment manufacturers'
recommended environmental parameters, and contain a generator, battery power
source, an UPS, and/or a generator-battery source-UPS combination to provide AC
and/or DC power for a minimum of eight hours, (iv) the Subscriber blockage rate
for dial-in Subscribers is no greater than 1% of Subscriber attempts across the
overall network infrastructure, (v) the configuration diagrams provided to
Parent reasonably represent the redundant network facilities between
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major backbone locations, and between remote physical POPs and major network
concentration points, (vi) the existing power plant(s) at the Company's main
location is equipped with an uninterrupted power supply with a battery back-up
of at least 8 hours, (vii) all deployed dial-in modem, modem shelf, and
corresponding technology conform to the V.90 modem standard, (viii) the Company
utilizes a DHCP, or other dynamic, IP address allocation scheme that conforms to
industry standards to support residential Subscribers, and (ix) the Company has
access to the quantity of IP addresses sufficient to support the Company's
Subscriber base as currently existing and as currently contemplated to exist as
of December 31, 2000.
Section 3.21 No Other Operators. Except as described in Section 3.21 of
the Company Disclosure Schedules, (i) each System is the only multiple video
service provider, whether by wireline (telephone or cable) or, to the Company's
knowledge, wireless (SMATV, MATV, MMDS, ITFS or other), presently serving the
communities which it serves, (ii) to the knowledge of the Company, the entry of
no other multiple channel video service provider is presently contemplated by
any person in the communities now served by the Systems, (iii) there are no
franchises or other authorizations, other than the Franchises that have been
issued with respect to the communities served by the Systems, and (iv) no person
has any right to acquire any interest in any cable or pay television system or
assets of the Company or any of its Subsidiaries (including any right of first
refusal or similar right) upon an assignment or transfer of control of a
Franchise, other than rights of condemnation or eminent domain afforded by Law.
Section 3.22 Franchises; Licenses.
(a) Section 3.22 of the Company Disclosure Schedules contains (i) a true
and complete list of all franchises and any amendments thereto, new or renewal
franchise applications (if any), authorizations, ordinances, permits and
agreements relating to the Systems or issued or granted by any Governmental
Entity (the "Franchises"), and (ii) all licenses, sublicenses, permits,
consents, orders, approvals, applications, grants, concessions, franchises,
authorizations, registrations, filings, waivers, variances or clearances under
any Law or with any Governmental Entity (including the U.S. EPA, U.S. EEOC,
OSHA, Federal Trade Commission, U.S. Department of Justice, U.S. Department of
Commerce, FAA, FCC and municipal franchise authorities) including, without
limitation, all domestic satellite, business radio, CARS band and other
microwave licenses, and all authorizations and permits relating to the Systems
(the "Licenses"), used in or necessary to the Conduct of the business or
operations of the Company and its Subsidiaries or the Systems. The Company has
delivered to Parent true and complete copies of each of the Franchises and
Licenses, including any amendments thereto.
(b) Each of the Franchises and Licenses is valid, in full force and effect,
and enforceable in accordance with its terms against the parties thereto. At
Closing, Parent will acquire, through ownership of the Company, good and
marketable title to all Franchises and Licenses free and clear of all Liens. The
Company and its Subsidiaries are validly and lawfully operating the Systems
under the Franchises and Licenses and the Company has fulfilled when due, or has
taken all action necessary to enable it to fulfill, when due, all of its
obligations thereunder. There has not occurred any default (without regard to
lapse of time, the giving of notice, the election of any person other than the
Company, or any combination thereof) by the Company nor, to the knowledge of the
Company, has there occurred any default (without regard to lapse of time, the
giving of notice, the election of the Company, or any combination thereof) by
any person other than the Company under any of the Franchises or Licenses.
Neither the Company nor, to the Company's knowledge, any other person, is in
arrears in the performance or satisfaction of its financial, documentary
service, operational or other obligations under any of the Franchises or
Licenses, or any agreements entered into pursuant thereto, including, without
limitation, the payment of all franchise and other fees to relevant franchising
authorities and no waiver or indulgence has been granted by any of the parties
thereto. There is not pending any proceeding, application, petition, objection,
pleading or other notification with any Governmental Entity that questions the
validity of any Franchise or License or which presents a substantial risk that,
if accepted or granted, would result in the revocation, cancellation, suspension
or any adverse modification of any Franchise or License and no franchising
authority has commenced, or given notice to the Company that it intends to
commence, a proceeding to revoke a Franchise held by the Company or any of its
Subsidiaries. The Franchises and Licenses are sufficient to
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permit the Company and its Subsidiaries to operate the Systems lawfully and in
the manner in which they are currently operated and intend to be operated. No
franchising authority has advised the Company or any of its Subsidiaries in
writing, or otherwise notified the Company or any of its Subsidiaries of its
intention to deny renewal of an existing Franchise held by the Company or any of
its Subsidiaries. No Governmental Entity or other third party has a right to
acquire any interest in any System upon an assignment or transfer of control of
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received, nor has notice that it will receive, from any
franchising authority, a preliminary assessment that a Franchise should not be
renewed as provided in Section 626(c)(1) of the Communications Act, nor has the
Company, any of its Subsidiaries, or any franchising authority commenced or
requested the commencement of an administrative proceeding concerning the
renewal of a Franchise as provided in Section 626(c)(1) of the Communications
Act.
Section 3.23 Bonds. Section 3.23 of the Company Disclosure Schedules
contains an accurate and complete list of all bonds (franchise, construction,
fidelity, or performance) of the Company and its Subsidiaries which are required
to be obtained by the Company or any of its Subsidiaries and which relate in any
way to the ownership or use of their assets and properties or the operation of
the Systems.
Section 3.24 Commitments. Except as described in Section 3.24 of the
Company Disclosure Schedules, there are no unfulfilled binding commitments for
capital improvements which the Company or any of its Subsidiaries are obligated
to make in connection with the Systems. There are no liabilities to Subscribers
or to other users of services of the Company and its Subsidiaries, which
services are material to the business or the Systems, except (i) with respect to
deposits made by such Subscribers or such other users and (ii) the obligation to
supply services to Subscribers in the ordinary course of business, pursuant to
the Franchises. There are no complaints by Subscribers or other users of the
services of the Company and its Subsidiaries that, individually or in the
aggregate, could materially and adversely affect the financial condition,
assets, liabilities, operations or prospects of the Systems. Except with respect
to the persons listed in Section 3.24 of the Company Disclosure Schedules, there
is no free or discounted service liability (other than as a result of bulk
service commitments) to Subscribers existing with respect to the Systems. Except
with respect to deposits for converters, encoders, decoders and related
equipment, the Company and its Subsidiaries have no obligation or liability for
the refund of monies or for the provision of rebates to their Subscribers.
Except as set forth in the Franchises, with respect to the Systems, neither the
Company nor any of its Subsidiaries has made a commitment to any franchising
entity to maintain a local office in any location. The Company and its
Subsidiaries have not made any commitment to any of the municipalities served by
the Systems to pay franchise fees to any such municipality in excess of the
amounts set forth in the Franchises. No material restoration, repaving, repair
or other work (outside of ordinary maintenance) is required to be made by the
Company and its Subsidiaries to any street, sidewalk or abutting or adjacent
area pursuant to the requirements of any Law, Franchise, License, Material
Agreement or other understanding relating to the installation, construction and
operation of the Systems.
Section 3.25 Brokers. No broker, investment banker, financial advisor or
other person, other than Morgan Stanley Dean Witter & Co., the fees and expenses
of which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated in this Agreement based upon arrangements made by or
on behalf of the Company. The Company has provided Parent true and correct
copies of all agreements between the Company and Morgan Stanley Dean Witter &
Co., including, without limitations, any fee arrangements.
Section 3.26 Insurance. The Company has provided Parent with copies of
all policies of fire, liability, workmen's compensation and other forms of
insurance owned or held by the Company, all of which are listed in Section 3.26
of the Company Disclosure Schedules, together with the material terms thereof
(including, without limitation, the premiums, coverage and dates thereof).
Except as set forth in Section 3.26 of the Company Disclosure Schedules, such
policies are in adequate amounts and cover risks customarily insured against by
businesses of the type operated by the Company. All such policies are in full
force and effect, all premiums with respect thereto covering all periods up to
and including the Closing will have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies
will remain in full force and effect through the respective dates set forth in
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Section 3.26 of the Company Disclosure Schedules without the payment of
additional premiums and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. All of such
policies have been issued by reputable insurance companies actively engaged in
the insurance business. All pending claims, if any, made against the Company
that are covered by insurance have been disclosed to and accepted by the
appropriate insurance companies and, to the best knowledge of the Company, are
being defended by such insurance companies and are described in Section 3.26 of
the Company Disclosure Schedules and no claims have been denied coverage during
the last three years. During the last three years, no policy of the Company has
been cancelled by the issuer thereof, nor have the premiums on any such policy
been increased by more than 20% over the prior period. The Company has not been
refused any insurance with respect to its assets or operations, nor has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years.
Section 3.27 Fairness Opinion. The Company has received the opinion of
Morgan Stanley & Co. Incorporated to the effect that, based upon and subject to
the considerations in its opinion, the consideration to be received by the
holders of shares of Company Common Stock and Class A Preferred Stock in the
aggregate is fair from a financial point of view to such holders.
Section 3.28 Year 2000 Compliance.
(a) None of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
the Company or by any of its Subsidiaries in the conduct of their respective
businesses will malfunction, cease to function, generate incorrect data, or
provide incorrect results when processing, providing, and/or receiving (i)
date-related data into and between the twentieth and twenty-first centuries and
(ii) date-related data in connection with any valid date in the twentieth and
twenty-first centuries; and
(b) None of the products and services sold, licensed, rendered, or
otherwise provided by the Company or by any of its Subsidiaries in the conduct
of their respective businesses will malfunction, cease to function, generate
incorrect data, or produce incorrect results when processing, providing, and/or
receiving (i) date-related data into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries; and neither the Company nor any of its
Subsidiaries is or shall be subject to claims or liabilities arising from their
failure to do so; and
(c) Neither the Company nor any of its Subsidiaries has made other
representations or warranties regarding the ability of any product or service
sold, licensed, rendered or otherwise provided by the Company or by any of its
Subsidiaries in the conduct of their respective businesses to operate without
malfunction, to operate without ceasing to function, to generate correct data,
and to produce correct results when processing, providing, and/or receiving (i)
date-related data into and between the twentieth and twenty-first centuries and
(ii) date-related data in connection with any valid date in the twentieth and
twenty-first centuries.
Section 3.29 Full Disclosure. The Company and its Subsidiaries have
disclosed to Parent all information material to an investment in the Company and
its Subsidiaries. This Agreement, the Company Disclosure Schedules, and any
certificate required to be delivered pursuant to this Agreement and any document
or information provided by the Company or its representatives to Parent do not
contain any misrepresentation of a material fact by the Company or its
representatives, and do not omit to state any material fact necessary to make
the statements made by them and contained therein not misleading.
Section 3.30 Registered Securities. Neither the Company nor any of its
Subsidiaries has any securities registered, or required to be registered, under
Section 12 of the Exchange Act.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company:
Section 4.1 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as Conducted, and is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the failure to be so qualified would have a Parent
Material Adverse Effect (as defined below). When used in connection with Parent
or any of its Subsidiaries, the term "Parent Material Adverse Effect" means any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), liabilities, condition (financial or otherwise),
operations, results of operations or prospects of Parent and its Subsidiaries
taken as a whole except for such changes, events or effects which are directly
the result of (i) the entering into or the public announcement of this Agreement
or the transactions contemplated hereby, (ii) changes in the telecommunications
industry generally or (iii) changes in general economic (excluding changes in
the capital markets), regulatory or political conditions in the United States;
provided, that, in the case of each of (i), (ii) and (iii), the impact on Parent
is proportionate to the more general impact of the change, event or effect.
Section 4.2 Authority; No Conflict; Required Filings and Consents.
(a) Parent and Sub have all requisite corporate power and authority to
enter into this Agreement, and Parent and Sub have all requisite power and
authority to consummate the transactions contemplated hereby. The execution and
delivery by Parent and Sub of this Agreement and the consummation by Parent and
Sub of the transactions contemplated hereby, have been duly authorized by all
necessary corporate and shareholder action on the part of Parent and Sub. This
Agreement and the other agreements contemplated herein have been duly executed
and delivered by Parent and constitute valid and binding obligations of Parent,
enforceable in accordance with the terms hereof and thereof, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Parent and Sub does
not, and the consummation by Parent and Sub of the transactions contemplated
hereby will not, (i) conflict with, or result in any violation or breach of any
provision of the certificate of incorporation or bylaws of Parent or Sub, or
(ii) conflict with or violate any permit, concession, agreements, instruments,
or obligations, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or Sub or any of their
properties or assets.
(c) No consent, approval order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent or Sub in connection with the execution and delivery of this
Agreement, or the consummation of the transactions contemplated hereby, except
for (i) the filing of a pre-merger notification report under the HSR Act, and,
in the case of this Agreement and certain of the transactions contemplated
hereby, (ii) the filing of the Articles of Merger with, and the issuance of the
Illinois Certificate of Merger by, the Secretary of State of the State of
Illinois in accordance with the Illinois Statute, (iii) the filing of documents
to satisfy the applicable requirements, if any, of the Exchange Act and state
takeover laws, (iv) the filing with the SEC of the Registration Statement, (v)
approval by the Illinois Public Utility Commission and applicable State and
local franchising authorities and (vi) consents, authorizations, filings,
approvals and registrations pursuant to the foregoing or set forth in the
Company Disclosure Schedules.
Section 4.3 SEC Documents. Parent has filed all required reports, proxy
statements, forms and other documents with the SEC since December 31, 1998 (the
"Parent SEC Documents"). As of their respective dates, and giving effect to any
amendments thereto, (a) the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may
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be, and the applicable rules and regulations of the SEC promulgated thereunder
and (b) none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
Section 4.4 Parent Common Stock Issued in the Merger. The shares of
Parent Common Stock to be issued in the Merger, in exchange for Debentures, in
respect of the Contingent Deferred Payment, if any, in respect of the Franchise
Amount, if any, and in respect of the exercise of any Substitute Options have
been duly authorized and reserved for issuance and when issued and delivered in
accordance with the terms of this Agreement (or in the case of any Substitute
Option, the applicable option plan and agreement) will have been validly issued
and will have been fully paid and nonassessable.
Section 4.5 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against Parent or Sub pending or as to which Parent
or Sub has received any written notice of assertion which materially threatens
the ability of Parent and Sub to consummate the transactions contemplated
hereby.
Section 4.6 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.7 Brokers. No broker, investment banker, financial advisor or
other person, other than Salomon Smith Barney, Inc., the fees and expenses of
which will be paid by Parent or Sub, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
Section 4.8 Tax Matters.
(a) Neither Parent nor any person related to Parent within the meaning of
Treasury Regulation Section 1.368-1(e)(3) has a plan or intention to reacquire
any Parent Common Stock issued in the Merger.
(b) Parent has no plan or intention to acquire any Exchangeable Preferred
stock of the Company, or the Debentures, for consideration other than Parent
Common Stock.
(c) Parent has no plan or intention to liquidate the Company or to cause
the Company to merge into another corporation.
(d) Parent has no plan or intention to cause the Company to sell, transfer
or otherwise dispose of any of the Company's assets, except for dispositions
made in the ordinary course of business and transfers described in Section
368(a)(2)(C) of the Code and the Treasury Regulations issued thereunder.
(e) Parent has no plan or intention to sell or otherwise dispose of any of
the Company Stock.
Section 4.9 Financial Statements. Each of the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Parent SEC Documents (the "Parent Financial Statements") complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, had been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited financial statements contained therein (the "Parent
Interim Financial Statements"), as permitted by Form 10-Q or the Exchange Act
regulations promulgated by the SEC), and each fairly presented the consolidated
financial position of Parent and its consolidated Subsidiaries in all material
respects as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated (subject, in the case of the
Parent Interim Financial Statements, to normal audit adjustments which were not
and are not expected, individually or in the aggregate, to be material in
amount).
Section 4.10 Absence of Undisclosed Liabilities. Parent and its
Subsidiaries do not have any liabilities or obligations of any nature, whether
accrued or contingent (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due, and there
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is no existing condition or situation which could reasonably be expected to
result in any such liabilities or obligations other than (i) liabilities
reflected in the unaudited consolidated balance sheet of Parent dated as of
September 30, 1999 (the "Parent Balance Sheet"); (ii) normal or recurring
immaterial liabilities incurred since December 31, 1998 in the ordinary course
of business consistent with past practices; and (iii) liabilities which would
not individually or in the aggregate have a Parent Material Adverse Effect.
Section 4.11 Absence of Certain Changes or Events. Since the date of the
Parent Balance Sheet, Parent and its Subsidiaries have conducted their
businesses in the ordinary course, in a manner consistent with past practice,
and there has not been any event, occurrence or development of a state of
circumstances or facts which has had or could reasonably be expected to have a
Parent Material Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of the Company. Except as expressly contemplated by
this Agreement, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
the Company agrees as to itself and its Subsidiaries (except to the extent that
Parent shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts when due and pay (or reserve for) all
Taxes due with respect to periods ending on or before the Effective Time,
subject to good faith disputes over such debts or Taxes, to timely file (or
obtain a valid or extension of time to file) all Tax Returns due on or before
the Effective Time, to pay or perform its other obligations when due, and to use
all reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees and
others having business dealings with it, and (iv) keep and maintain its
respective assets and properties in normal operating condition and repair.
Without limiting the generality of the foregoing, the Company shall not (and
shall not permit any of its Subsidiaries to), without the prior written consent
of Parent:
(a) adopt or propose any change in its articles of incorporation or
bylaws;
(b) merge or consolidate with any other person or acquire a material
amount of assets of any other person;
(c) sell, lease, license or otherwise dispose of any assets or
property which are material, individually or in the aggregate, to the
business of the Company or any of its Subsidiaries except (i) pursuant to
existing contracts or commitments disclosed in writing to Parent on or
prior to the date hereof and (ii) in the ordinary course consistent with
past practice;
(d) amend, modify or terminate any agreement set forth in Section 3.15
of the Company Disclosure Schedules, except as provided in Section 6.11 of
the Company Disclosure Schedules;
(e) make any express or deemed election for Tax purposes or any offer
to settle or compromise or any settlement or compromise of any material
liability with respect to Taxes;
(f) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of the
Company or authorize cash payments in exchange for any options granted
under any of such plans except as required by the terms of such plans or
any related agreements in effect as of the date of this Agreement;
(g) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property Rights
other than in the ordinary course of business consistent with past
practices;
(h) issue, deliver, sell, purchase, repurchase, redeem or otherwise
acquire, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants
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or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(i) enter into any agreement, arrangement or understanding with any
affiliate of the Company or its Subsidiaries;
(j) relinquish any right or privilege without adequate consideration
or a reasonable business purpose;
(k) pay, discharge or otherwise satisfy any material claim, liability
or obligation except in the ordinary course of business and consistent with
past practice;
(l) enter into any agreement or arrangements with VTech; or
(m) take, or agree in writing or otherwise to take, any of the actions
described in the foregoing clauses (a) through (l) or in clauses (i)
through (xvi) of Section 3.8, or any action (or omit to take or agree to
take any action) which is reasonably likely to make any of the Company's
representations or warranties contained in this Agreement untrue or
incorrect in any respect at, or as of any time prior to, the Effective
Time.
Section 5.2 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Parent and the Company shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation.
(a) The Company shall immediately cease any existing discussions or
negotiations with any third parties conducted on or prior to the date hereof
with respect to any Acquisition Proposal (as defined below). From and after the
date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, the Company shall
not, directly or indirectly, through any officer, director, employee,
representative or agent, (i) solicit, initiate or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, share exchange, business
combination, sale of substantial assets, sale of shares of capital stock
(including without limitation pursuant to a tender or exchange offer) or similar
transaction or series of transactions involving the Company, other than the
transactions contemplated by this Agreement (any of the foregoing inquiries or
proposals being referred to in this Agreement as an "Acquisition Proposal"), or
(ii) engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Acquisition Proposal, or
(iii) agree to, approve or recommend any Acquisition Proposal. The Company will
promptly communicate to Parent any such inquiries or proposals regarding an
Acquisition Proposal and the terms thereof.
Section 6.2 Access to Information.
(a) Upon reasonable notice, the Company shall (and shall cause each of its
Subsidiaries to) afford (i) to the officers, employees, independent auditors,
legal counsel (including outside legal counsel) and other representatives of
Parent, reasonable access, during normal business hours during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records in order that Parent has a full opportunity to make such investigation
as it reasonably desires to make of the Company and its Subsidiaries and (ii) to
the independent auditors of Parent, reasonable access to the audit work papers
and other records of the independent auditors of the Company and its
Subsidiaries. Additionally the Company and its Subsidiaries will permit Parent
to make such reasonable inspections of the Company and its
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Subsidiaries and their respective operations during normal business hours as
Parent may reasonably require and the Company and its Subsidiaries will cause
its officers and the officers of its Subsidiaries to furnish Parent with such
financial and operating data and other information with respect to the business
and properties of the Company and its Subsidiaries as Parent may from time to
time reasonably request. During the period prior to the Effective Time, the
Company shall (and shall cause each of its Subsidiaries to) furnish promptly to
Parent (i) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws and (ii) all other information concerning its
business, properties and personnel as Parent may reasonably request.
(b) The parties will hold any information provided pursuant to Section
6.2(a) in confidence in accordance with the terms and conditions of the letter
agreement dated September 21, 1999, between the Company and Parent (the
"Confidentiality Agreement"). No information or knowledge obtained in any
investigation pursuant to this Section 6.2 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the Merger.
Section 6.3 Consents. Each of Parent and the Company shall use all
reasonable efforts to obtain all necessary consents, waivers and approvals, and
to make all necessary notifications or filings under any of Parent's or the
Company's material agreements, contracts, licenses or leases, whether oral or
written, as may be necessary or advisable to consummate the Merger and the other
transactions contemplated by this Agreement.
Section 6.4 Public Disclosure. No press release or announcement with
respect to the Merger or this Agreement shall be issued by the Company or Parent
without the prior consent of the Company or Parent, except as such release or
announcement may be required by law, rule or regulation.
Section 6.5 Tax-Free Reorganization. The Company's shareholders, Parent
and the Company shall use commercially reasonable efforts to cause the Merger to
be treated as a reorganization within the meaning of Section 368(a) of the Code.
Parent shall take no action following the Closing that would reasonably be
expected to cause it not to be so treated; provided, however, that Parent is
permitted to provide funds (i) to make payments under any Debentures and (ii) to
the Company for the payment to Shareholders who dissent to the Merger if, in
either case, Parent in its reasonable discretion determines that the Company has
insufficient funds to make such payments.
Section 6.6 Affiliate Agreements. Upon the execution of this Agreement,
the Company will provide Parent a list of those persons who are "affiliates" of
the Company, within the meaning of Rule 145 promulgated under the Securities Act
("Rule 145"). The Company shall use its reasonable efforts to deliver or cause
to be delivered to Parent prior to the Effective Time from each of the
affiliates of the Company, an executed Affiliates Agreement, substantially in
the form attached hereto as Exhibit D ("Affiliates Agreement"). Parent shall be
entitled to place appropriate legends on the certificates evidencing any Parent
Common Stock to be received by such affiliates of the Company pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent for the Parent Common Stock, consistent with the terms of the
Affiliates Agreements.
Section 6.7 Commercially Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each party hereto will use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate the transactions contemplated by this
Agreement; provided that Parent and its affiliates shall not be required to
agree to any consent decree or order in connection with any objections of the
Department of Justice or Federal Trade Commission to the transactions
contemplated by this Agreement.
Section 6.8 Certain Filings. The parties hereto shall cooperate with one
another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required, or
any actions, consents, approvals or waivers are required to be obtained from
parties
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to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such actions, consents, approvals or waivers.
Section 6.9 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Sub, any
documents, certificates, agreements, deeds, bills of sale, assignments,
assurances or other writings and to take and do, in the name and on behalf of
the Company or Sub, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of the Company
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
Section 6.10 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent and Sub shall give prompt notice to the
Company, of the occurrence, or failure to occur, of any event of which it has
knowledge, which occurrence or failure to occur would be likely to cause (a) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any respect at any time from the date of this Agreement to the
Effective Time, or (b) any material failure of the Company or Parent and Sub, as
the case may be, or of any officer, shareholder, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. The delivery of any
notice pursuant to this Section 6.10 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 6.11 Affiliate Transactions. Prior to the Effective Time, the
Company shall use commercially reasonable efforts to amend, modify or terminate
the transactions with affiliates set forth in Section 3.15 of the Company
Disclosure Schedules in the manner specified in Section 6.11 of the Company
Disclosure Schedules.
Section 6.12 Shareholders Meeting. The Company shall as promptly as
practicable duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Shareholders Meeting") in accordance with the
Illinois Statute and applicable federal securities laws, for the purpose of
voting on this Agreement and shall, through its Board of Directors, recommend to
its shareholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby. Neither the Board of Directors of the
Company nor any committee thereof shall (i) withdraw or modify or propose to
withdraw or modify, in a manner adverse to Parent, such approval or
recommendation, (ii) approve or recommend any Acquisition Proposal other than
the Merger or (iii) enter into any agreement with respect to an Acquisition
Proposal other than the Merger.
Section 6.13 Proxy Statement; Registration Statement; Board
Recommendation.
(a) As promptly as practical after the execution of this Agreement, Parent
and the Company shall prepare and Parent shall file with the SEC the
Registration Statement (as defined below). The Company and Parent shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon after such filing as practicable. The Company shall furnish Parent with all
information concerning the Company and the holders of its capital stock and
shall take such other action as Parent may reasonably request in connection with
the Registration Statement and the issuance of the shares of Parent Common
Stock. If at any time prior to the Effective Time any event or circumstance
relating to the Company, Parent or any of their respective Subsidiaries,
affiliates, officers or directors should be discovered by such party which
should be set forth in an amendment or a supplement to the Registration
Statement or Proxy/ Prospectus, such party shall promptly inform the other
thereof and take appropriate action in respect thereof.
(b) The Company and Parent shall make any necessary filings with respect to
the Merger, the Debenture Offer, and the Contingent Deferred Payment under the
Securities Act and the Exchange Act and the rules and regulations thereunder,
and Parent shall use its reasonable best efforts to take any action
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required to be taken under state securities or "blue sky" laws in connection
with the issuance of the shares of Parent Common Stock in accordance with the
provisions of this Agreement.
(c) The Proxy Statement shall contain the recommendation of the Company's
Board of Directors in favor of approval of this Agreement and the transactions
contemplated hereby.
(d) The information to be supplied by the Company for inclusion in the
registration statement on Form S-4 pursuant to which (i) the offer to exchange
Parent Common Stock for the Debentures shall be registered with the SEC and (ii)
shares of Parent Common Stock to be issued in the Merger and pursuant to the
Debenture Offer and in respect of the Contingent Deferred Payment, if any, and
the Franchise Amount, if any, will be registered with the SEC (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The proxy
statement (the "Proxy Statement") to be sent to the shareholders of the Company
in connection with the solicitation of votes to approve and adopt this Agreement
shall not, and the documents to be sent to the applicable holders of securities
in connection with the Notes Offer, the Notes Solicitation, the Debenture Offer
and the Debenture Solicitation (each as defined in Section 6.16(a))
(collectively, the "Offer Documents") shall not, (i) on the date the Proxy
Statement and the Offer Documents, as applicable, are first mailed to security
holders of the Company or (ii) at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein not false
or misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of votes which has become false or misleading.
The Offer Documents will conform with all applicable requirements of the
Exchange Act.
Section 6.14 Nasdaq Listing. Parent shall use its reasonable efforts to
cause the shares of Parent Common Stock to be issued in the Merger, in exchange
for Debentures, in respect of the Contingent Deferred Payment, if any, and the
Franchise Amount, if any, to be approved for quotation on Nasdaq, subject to
official notice of issuance.
Section 6.15 Letter of Independent Auditors. The Company and Parent shall
use all reasonable efforts to cause to be delivered to the other (i) "comfort
letters" of Arthur Andersen LLP, the Company's independent auditors, and of
PriceWaterhouseCoopers LLP, Parent's independent auditors, in each case dated
and delivered the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to the Boards of Directors
of the Company and Parent, in form and substance reasonably satisfactory to the
other and customary in scope and substance for letters delivered by independent
auditors in connection with registration statements similar to the Registration
Statement and (ii) the consent of each such auditor as to the inclusion of such
"comfort letters" and applicable financial statements in the Registration
Statement.
Section 6.16 Treatment of Company Debt and Exchangeable Preferred.
(a) As soon as is reasonably practicable after the date hereof, the Parent
or, at Parent's election, the Company shall commence (i) (A) an offer (the
"Notes Offer") to purchase for cash all of the Company's outstanding 12 1/4
Senior Discount Notes Due 2008 (the "Notes") coupled with (B) a solicitation as
part of the Notes Offer (the "Notes Solicitation") of consents to the amendments
to the Indenture, dated as of February 15, 1998, with respect to the Notes (the
"Notes Indenture") set forth on Exhibit F hereto from the holders of not less
than a majority in aggregate principal amount of the Notes outstanding (the
consents from such holders, the "Requisite Note Consents") at an aggregate price
for the Notes Offer and the Notes Solicitation not greater than 101% of Accreted
Value (as defined in the Notes Indenture) and (ii) subject to the Company's
compliance with paragraph (c) below, (A) an offer to exchange all of the 13 3/4%
Subordinated Exchange Debentures Due 2010 (the "Debentures") (the "Debenture
Offer") for shares of Parent Common Stock, valued at a price per share equal to
the average volume weighted trading prices of Parent Common Stock on Nasdaq for
the five trading day period ending one trading day prior to the date of the
exchange, coupled with (B) a solicitation as part of the Debenture Offer (the
"Debenture
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Solicitation") of consents to the amendments to the Company's articles of
incorporation and the Indenture governing the Debentures set forth on Exhibit F
hereto from the holders of not less than a majority of the Exchangeable
Preferred (or holders of not less than a majority in aggregate principal amount
of the Debentures, as applicable) outstanding (the consents from such holders,
the "Requisite Debenture Consents") at an aggregate price not greater than 101%
of the principal amount of the Debentures plus accrued and unpaid interest to
the date of purchase. The Notes Offer, Debenture Offer, the Notes Solicitation
and the Debenture Solicitation (including the applicable amendments) shall be
conducted in accordance with all applicable rules and regulations of the SEC and
other applicable laws and shall be on terms (including the terms of the proposed
amendments) reasonably determined by Parent (including the appointment of a
dealer manager selected by Parent), provided that the Company shall not be
required to purchase the Notes, or Debentures pursuant to the Notes Offer or the
Debenture Offer, and the proposed amendments, if approved, shall not become
operative, unless Parent has consummated the Merger. The Company agrees that
promptly following the date the Requisite Note Consents and the Requisite
Debenture Consents are obtained it will execute a supplemental indenture and an
amendment to the Company's articles of incorporation, as applicable, containing
the proposed amendments that by their terms shall become operative only upon
consummation of the Merger and the Notes Offer and the Debenture Offer.
(b) Each of Parent and the Company agrees to cooperate, and to cause its
officers, employees, counsel and accountants to cooperate, and use its
reasonable best efforts to consummate the Notes Offer, Debenture Offer, the
Notes Solicitation and the Debenture Solicitation as soon as reasonably
practicable following the date hereof, to comply in all material respects with
all laws and regulations applicable thereto, to participate in any "road shows"
or other solicitation activities relating to the foregoing and to prepare and,
if necessary, execute all other documents in form and substance reasonably
satisfactory to Parent and/or the Company, as the case may be, as may be
necessary to consummate the Notes Offer, Debenture Offer, the Notes Solicitation
and the Debenture Solicitation. If at any time prior to the Effective Time any
information relating to Parent or the Company, or any of their respective
affiliates, officers or directors, should be discovered by Parent or the Company
which should be set forth in an amendment or supplement to the documents mailed
to holders in respect of the Notes Offer, Debenture Offer, the Notes
Solicitation and the Debenture Solicitation so that such document would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such information
shall promptly notify the other party hereto and, to the extent required by law,
rules or regulations, an appropriate amendment or supplement describing such
information shall promptly be prepared and, if required, filed with the SEC and
disseminated to the holders of Notes and the Debentures and/or the Exchangeable
Preferred.
(c) The Company agrees to provide appropriate written notice to the holders
of the Exchangeable Preferred in accordance with Section 4B of the Company's
articles of incorporation such that the Exchangeable Preferred shall be
exchanged into the Debentures on February 15, 2000 in accordance with Section 4
of the Company's articles of incorporation and on February 15, 2000 the Company
shall exchange all shares of Exchangeable Preferred for the Debentures in an
aggregate principal amount equal to the sum of the Liquidation Preference (as
defined in the Company's articles of incorporation) plus a payment equal to
accumulated and unpaid dividends thereon to the date of the exchange (which the
Company shall elect to pay in Debentures) in accordance with Section 4 of the
Company's articles of incorporation; provided, however, that Parent and the
Company shall use their reasonable efforts to obtain consents from the holders
thereof to effect such exchange prior to February 15, 2000.
Section 6.17 Employee Matters. Prior the Closing, but contingent thereon
and following the Effective Time, Parent and the Company shall create a bonus
pool (the "Bonus Pool") having the terms and conditions set forth on Exhibit G
hereto, in which certain employees of the Company listed on Exhibit G hereto
will be entitled to participate to the extent of their respective percentage
interest listed thereon.
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Section 6.18 280G Approval. Prior to the Closing, the Company shall
satisfy the approval requirements of Section 280G(b)(5)(B) of the Code with
respect to all payments to be made to disqualified individuals (within the
meaning of Section 280G of the Code) in connection with the transactions
contemplated hereby, including, without limitation, the Bonus Pool and no such
payments shall be made unless such approval is obtained.
Section 6.19 Director and Officer Liability. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby agrees, to do the
following:
(a) The Surviving Corporation shall from and after the Effective Time
indemnify and hold harmless the present and former officers and directors
of the Company (each an "Indemnified Person") in respect of acts or
omissions occurring at or prior to the Effective Time to the fullest extent
provided under the Company's certificate of incorporation and bylaws in
effect on the date hereof, provided that such indemnification shall be
subject to any limitation imposed from time to time by applicable law.
(b) For six (6) years after the Effective Time, the Surviving
Corporation shall use its best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such Indemnified Person currently covered by
the Company's officers' and directors' liability insurance policy on terms
with respect to coverage and amount no less favorable than those of such
policy in effect on the date hereof, provided that, in satisfying its
obligation under this Section 6.19(b), the Surviving Corporation shall not
be obligated to pay premiums in excess of 200% of the amount per annum the
Company paid in its last full fiscal year, which amount the Company has
represented to Parent as being $75,000.
(c) If the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 6.19.
(d) These rights shall survive consummation of the Merger and are
intended to benefit, and shall be enforceable by each Indemnified Person.
Section 6.20 Employee Benefits after the Effective Time. During the
period commencing at the Effective Time and ending on the first anniversary
thereof, Parent and/or its Subsidiaries shall use their reasonable efforts to
cause those employees of the Surviving Corporation or any of its Subsidiaries
who were employed by the Company or any of its Subsidiaries as of the Effective
Time ("Company Employees") to be eligible to participate in employee benefit
plans providing benefits no less favorable, in the aggregate (but excluding the
Key Management Performance Plan), than the employee benefit plans that similarly
situated employees of Subsidiaries of Parent are eligible to participate. To the
extent any Company Employee participates in any employee benefit plan maintained
by Parent or its Subsidiaries after the Effective Time (a "Parent Plan"), such
Company Employee shall be credited under such Parent Plan, for all purposes
other than benefit accrual under any defined benefit retirement plan or retiree
medical plan and other than vesting under any compensation plan (other than,
except as provided herein, with respect to Substitute Options) maintained by
Parent or its Subsidiaries, with service prior to the Effective Time with the
Company and its Subsidiaries to the same extent service with Parent and its
Subsidiaries would be so credited. With respect to the plan year in which the
Effective Time occurs under any Parent Plan providing for medical or dental
benefits, Parent shall cause the dollar amount of all expenses incurred by
Company Employees and their eligible dependents during such year to be credited
for purposes of satisfying such Parent Plan's deductible and copayment
limitations for such plan year, to the extent such expenses would have been
credited under the corresponding Plan prior to the Effective Time. The Company
Employees shall be subject to other personnel policies and practices of Parent
and its Subsidiaries in the same manner as similarly situated employees of
Subsidiaries of Parent. For purposes of
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this Section 6.20, "employee benefit plan" has the meaning ascribed to such term
under Section 3(3) of ERISA.
Section 6.21 ISP Plan. Pursuant to an agreement between the Company and
the holders of options under the 21st Century Telecom Group, Inc. 1999 ISP Stock
Plan (the "1999 ISP Plan"), the Company shall cause (and shall enter into
agreements with the holders of options granted thereunder providing for) the
1999 ISP Plan to be terminated prior to the Closing and all of the options
outstanding thereunder to be cancelled in return for the grant, to each holder
of such options, of the right to receive a pro rata portion of the ISP Option
Amount, if any, determined in accordance with Exhibit I.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(b) Shareholder Approval. This Agreement shall have been approved and
adopted by (i) two-thirds of the outstanding shares of Company Voting
Common Stock and Class A Preferred Stock, voting together as a class, and
(ii) a majority of the outstanding shares of Class A Preferred Stock in
accordance with the applicable provisions of the Illinois Statute and the
Company's articles of incorporation.
(c) Governmental Approvals. All authorizations, consents, orders or
approvals of any Governmental Entity required to consummate the
transactions contemplated by this Agreement shall have been obtained and be
in effect.
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger or
limiting or restricting Parent's conduct or operation of the business of
Parent or the Company after the Merger shall have been issued and be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, seeking any of the foregoing be
pending, nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal or prevents or
prohibits the Merger.
(e) Registration Statement. The Registration Statement shall have
been declared effective by the SEC under the Securities Act and shall not
be the subject of any stop order or proceeding by the SEC seeking a stop
order.
(f) Nasdaq Listing. The shares of Parent Common Stock to be issued in
the Merger, in exchange for Debentures, in respect of the Contingent
Deferred Payment, if any, and the Franchise Amount, if any, shall have been
approved for quotation on Nasdaq, subject to official notice of issuance.
Section 7.2 Additional Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent and Sub:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except that to
the extent such representations and warranties expressly speak as of an
earlier date, such representations and
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warranties shall be true in all respects as of such specified date) without
regard to any materiality or Material Adverse Effect exceptions or
qualifications contained therein, except for such failures to be true and
correct which in the aggregate do not, and could not reasonably be expected
to, have a Material Adverse Effect, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to such effect.
(b) Performance of Obligations. The Company shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date and Parent shall have
received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to such
effect.
(c) Material Consents. Parent shall have received or be reasonably
satisfied that it will receive, in each case in form and substance to its
reasonable satisfaction, the consents set forth in Section 7.2(c) of the
Company Disclosure Schedules, and no such consent, authorization or
approval shall have been revoked.
(d) Escrow Agreement. The Escrow Agreement in the form attached
hereto as Exhibit B shall have been executed and delivered to Parent by the
Company and the Shareholder Representative.
(e) Voting and Lock-Up Agreements. A Voting and Lock-Up Agreement in
the form annexed hereto as Exhibit C shall have been executed and delivered
to Parent by the number of persons required to satisfy the shareholder
approval requirements set forth in Section 7.1(b), and each Voting and
Lock-Up Agreement and each such irrevocable proxy included therewith shall
be in full force and effect.
(f) Affiliate Agreements. An Affiliate Agreement in the form annexed
hereto as Exhibit D shall have been executed and delivered to Parent by
each director and officer and each applicable affiliate of the Company and
each Affiliate Agreement shall be in full force and effect.
(g) Employment, Consulting and Non-compete Agreements. Employment,
Consulting and Non-compete Agreements, in form and substance reasonably
satisfactory to Parent, shall have been executed and delivered to Parent by
each person set forth on Section 7.2(g) of the Company Disclosure
Schedules, and such agreements shall be in full force and effect.
(h) Notes and Exchangeable Preferred. Holders of at least a majority
in aggregate principal amount of Notes and holders of a majority of the
Exchangeable Preferred shall have tendered and not withdrawn Notes and
Debentures pursuant to the Notes Offer and the Debenture Offer and the
Company shall have received each of the Requisite Note Consents and the
Requisite Preferred Consents and none of such consents shall have been
withdrawn, each in accordance with the provisions of Section 6.16.
(i) FIRPTA Certificate. Parent shall have received from the Company
and each of its Subsidiaries a certificate, satisfying the provisions of
Treasury Regulations Section 1.1445-2(c)(3), and otherwise in form and
substance reasonably satisfactory to Parent, certifying that an interest in
the Company or any of its Subsidiaries is not a U.S. real property interest
(a "FIRPTA Certificate"). Notwithstanding anything to the contrary
expressed or implied herein, if Company and each of its Subsidiaries fails
to provide Parent with a FIRPTA Certificate, Parent shall be entitled to
withhold the requisite amounts in accordance with Section 1445 of the Code.
(j) Expense Certificates. Parent shall have received the Expense
Certificate, in form and substance reasonably satisfactory to Parent.
(k) Dissenting Shares. The number of Dissenting Shares shall be less
than five percent (5%) of the issued and outstanding shares of Company
Stock.
(l) Credit Agreement. The Company shall have terminated its Credit
Agreement, dated as of August 5, 1998, including any amendments thereto, on
terms reasonably satisfactory to Parent.
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(m) Waiver of Accelerated Vesting. The Company shall have obtained
consents, reasonably acceptable to Parent, from each of the holders of
Company Stock Options set forth on Section 7.2(m) of the Company Disclosure
Schedules, waiving any acceleration of vesting of such options that may
occur as a result of the consummation of the transactions contemplated
hereby, and the option plans with respect to such options shall have been
amended to provide the same, and such consents and such amendments shall be
in full force and effect.
Section 7.3 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date (except that to the extent
such representations and warranties expressly speak as of an earlier date,
such representations and warranties shall be true in all respects as of
such specified date) without regard to any materiality or Material Adverse
Effect exceptions or qualifications contained therein, except for such
failures to be true and correct which in the aggregate do not, and could
not reasonably be expected to, have a Parent Material Adverse Effect.
(b) Performance of Obligations. Parent and Sub shall have performed
in all material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date.
(c) Tax Letter. Parent shall have executed and delivered to the
Company the letter attached hereto as Exhibit H (the "Tax Letter") or in
the event that Parent is unable to execute and deliver such Tax Letter, the
Company shall have received a written opinion of Piper Marbury Rudnick &
Wolfe LLP, in form and substance reasonably satisfactory to the Company,
based on facts, representations and assumptions set forth in such opinion
that are consistent with the state of facts existing at the Effective Time,
to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and (ii) each of Parent and the Company will be a party to such
reorganization. In rendering such opinion, counsel may obtain and rely upon
representations and covenants, in form and substance satisfactory to
counsel, including those contained in certificates of officers of Parent,
Sub, the Company and others.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time by:
(a) the mutual written consent of Parent and the Company;
(b) Parent in the event that any condition set forth in Section 7.1
and 7.2 hereof shall not be satisfied and shall not be reasonably capable
of being remedied by May 31, 2000; provided, that Parent shall have given
at least 15 days prior notice of such failure to be satisfied and such
condition shall not have been satisfied by the later of such date or the
expiration of such 15 day period;
(c) the Company in the event that any condition set forth in Section
7.1 and 7.3 hereof shall not be satisfied and shall not be reasonably
capable of being remedied by May 31, 2000; provided that the Company shall
have given at least 15 days prior notice of such failure to be satisfied
and such failure to be satisfied and such condition shall not have been
satisfied by the later of such date or the expiration of such 15 day
period;
(d) Parent in the event that the requisite shareholder vote specified
in Section 7.1(b) shall not have been obtained by May 31, 2000; or
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(e) Either Parent or the Company if the Closing has not occurred by
the close of business on May 31, 2000; provided, however, that no party may
terminate this Agreement pursuant to clause (b), (c) or (d) above, or
pursuant to this clause (e), if the failure of the applicable condition in
Section 7.1, 7.2 or 7.3 (as the case may be) to be satisfied or the failure
of the Closing to occur on or before the date required in this Section
8.1(e) results from the material breach by Parent in the case of a
termination by Parent, or the Company in the case of a termination by the
Company.
Section 8.2 Procedure and Effect of Termination. In the event of
termination of the Agreement by a party hereto pursuant to Section 8.1, written
notice thereof shall forthwith be given by the terminating party to the other
parties hereto, and this Agreement shall thereupon terminate and become void and
have no effect, and the transactions contemplated hereby shall be abandoned
without further action by the parties hereto, except that the provisions of
Section 6.2(b) and this Section 8.2 shall remain in full force and effect and
surviving termination of this Agreement; provided, however, that such
termination shall not relieve any party hereto of any liability for any breach
of this Agreement (other than non-willful breaches of representations,
warranties and covenants, as to which no party shall be liable hereunder);
provided, further, that in the event that Parent and Sub shall fail to close the
transactions contemplated hereby either (i) in breach of this Agreement or (ii)
by virtue of the failure of any of the conditions set forth in Section 7.1, 7.2
or 7.3 hereof to be satisfied, other than the conditions set forth in Section
7.1(b) hereof (Shareholder Approval), Section 7.1(d) hereof (Injunctions) (to
the extent such action is brought or taken by any equity or debt holder of the
Company), Section 7.2(h) hereof (Notes and Exchangeable Preferred) or Section
7.2(k) hereof (Dissenting Shares), then Parent shall make a $25,000,000
investment (the "Investment") in the Company on the terms and conditions
substantially set forth on Exhibit E-1 hereto and pursuant to a mutually
acceptable purchase agreement, (which Parent and the Company shall negotiate and
enter into on or prior to March 31, 2000) which investment the Company
acknowledges to be a reasonable representation of its potential damages for
breach hereunder and which payment shall be the sole and exclusive remedy by the
Company for a breach of this Agreement by Parent or Sub; provided further,
Parent shall not be obligated to make any such investment in the event that the
failure to close is the result of a breach by the Company of any of its
representations, warranties or covenants hereunder. Within 5 business days after
the date hereof, Parent shall deliver to the Company a letter from a reputable
financial institution in a form reasonably acceptable to the Company (at such
time, to be set forth in Exhibit E-2 hereto) to the effect that it will maintain
a balance in Parent's account at such financial institution sufficient to make
the Investment when due.
Section 8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. This
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the shareholders of the
Company, but, after any such approval, no amendment shall be made which by law
requires further approval by such stockholders and shareholders without such
further approval.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
Section 8.5 Fees and Expenses. All fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the Merger is
consummated.
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ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival. No claim for indemnification by the shareholders
under this Agreement shall be made by Parent later than one year after the
Closing; provided that if a claim or notice is given in accordance with Article
IX or Article X with respect to any representation or warranty prior to such
expiration date, the claim shall continue indefinitely until such claim is
finally resolved.
Section 9.2 Obligations of the Shareholders.
(a) From and after the Effective Time, by acceptance of the Merger
Consideration pursuant to Article II hereof, the shareholders agree, jointly and
severally, to indemnify and hold harmless the Surviving Corporation, Parent, Sub
and their respective directors, officers, employees, affiliates, agents,
successors and assigns (collectively, the "Indemnified Parties") from and
against any and all Losses (as defined below) of any such person, directly or
indirectly, as a result of, or based upon or arising from, (i) any inaccuracy in
or breach or nonperformance of any of the representations, warranties,
covenants, or agreements made by or of the Company or any shareholder in this
Agreement including in any certificate delivered pursuant hereto without regard
to any qualification or exception with respect to materiality, Material Adverse
Effect or knowledge contained therein, (ii) any liability for Taxes for which
the Company's shareholders are obligated to indemnify the Indemnified Parties
pursuant to Article X (without duplication thereof) and (iii) any inaccuracies
in the Expense Certificate (together, the "Indemnified Losses").
(b) The obligation of the shareholders to indemnify the Indemnified Parties
for Indemnified Losses is subject to the following limitations: (x) the
shareholders shall not be required to provide indemnification to any Indemnified
Party pursuant to Section 9.2(a)(i) or (ii) of this Agreement unless the
aggregate amount of Indemnified Losses incurred by all Indemnified Parties
pursuant to such provision exceeds $3,500,000, and then the Indemnified Parties
shall be entitled to the indemnification for the amount in excess of $1,750,000;
and (y) in no event shall the aggregate obligation of the shareholders to
indemnify the Indemnified Parties pursuant to this Agreement exceed the sum of
the Escrowed Consideration and the Contingent Deferred Payment and in no event
shall such obligation be payable except out of the Escrowed Consideration and
the Contingent Deferred Payment. In the event that any indemnification
obligations with respect to the matters referred to above are in excess of the
Escrowed Consideration then, in addition to the rights of the Indemnified
Parties to seek indemnification with respect to such matters, the Indemnified
Parties shall have the right to reduce the amount of the Contingent Deferred
Payment, if any, by the amount of such excess.
(c) In the event that, and at such time as, the payment of any Indemnified
Losses in respect of which the shareholders are obligated results in a reduction
of Taxes actually paid by an Indemnified Party, then the amount of Escrowed
Consideration due to the Indemnified Party shall reflect the amount in Taxes
actually paid by such Indemnified Party below the amount of Taxes that would
have been paid solely but for the tax effect of the payment by such Indemnified
Party of such Loss.
(d) The amount of any Indemnified Losses for which the Indemnified Parties
are owed in accordance with this Section 9.2 shall be reduced by the aggregate
of any amounts, less any payments or out-of-pocket expenses made by any
Indemnified Party, actually recovered by such Indemnified Party under insurance
policies with respect to such Losses.
Section 9.3 Indemnification Procedures.
(a) In the event that any action, proceeding, complaint or litigation is
commenced by a third party involving a claim for which the shareholders may be
liable to a Indemnified Party hereunder (an "Asserted Liability"), the
Indemnified Party shall promptly notify the Shareholder Representative in
writing of such Asserted Liability (the "Claim Notice"); provided that no delay
on the part of the Indemnified Party in giving any such Claim Notice shall
relieve the shareholders of any indemnification obligation hereunder unless (and
then solely to the extent that) the shareholders are materially prejudiced by
such delay. The
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Shareholder Representative shall have sixty (60) days (or less if the nature of
the Asserted Liability requires) from its receipt of the Claim Notice (the
"Notice Period") to notify the Indemnified Party whether or not the Shareholder
Representative desires, at the shareholders' sole cost and expense and by
counsel of its own choosing, which shall be reasonably satisfactory to the
Indemnified Party, to defend against such Asserted Liability. If the Shareholder
Representative undertakes to defend against such Asserted Liability, (i) the
Shareholder Representative shall use its commercially reasonable best efforts to
defend and protect the interests of the Indemnified Party with respect to such
Asserted Liability, (ii) the Indemnified Party, prior to or during the period in
which the Shareholder Representative assumes the defense of such matter, may
take such reasonable actions as the Indemnified Party deems necessary to
preserve any and all rights with respect to such matter, without such actions
being construed as a waiver of the Indemnified Party's rights to defense and
indemnification pursuant to this Agreement, (iii) the Shareholder Representative
shall not, without the prior written consent of the Indemnified Party, consent
to any settlement which (A) does not contain an unconditional release of the
Indemnified Party from the subject matter of the settlement, (B) imposes any
liabilities or obligations on the Indemnified Party, and (C) with respect to any
non-monetary provision of such settlement, could, in the Indemnified Party's
judgment, have a material adverse effect on the business operations, assets,
properties or prospects of the Company or the Indemnified Party (for purposes of
this clause (iii) an effect shall be deemed "material" if it involves $100,000
or more) and (iv) in the event that the Shareholder Representative undertakes to
defend against such Asserted Liability, unless otherwise agreed to in writing
between Parent and the Shareholder Representative, the Shareholder
Representative shall be deemed to have agreed that it will indemnify the
Indemnified Party pursuant to, and subject to the conditions and limitations set
forth in, the provisions of this Article IX. Notwithstanding the foregoing, in
any event, the Indemnified Party shall have the right to control, pay or settle
any Asserted Liability which the Shareholder Representative shall have
undertaken to defend so long as the Indemnified Party shall also waive any right
to indemnification therefor by the Shareholder Representative. If the
Shareholder Representative undertakes to defend against such Asserted Liability,
the Indemnified Party shall cooperate to the extent reasonable (during regular
business hours) with the Shareholder Representative and its counsel in the
investigation, defense and settlement thereof. If the Indemnified Party desires
to participate in any such defense it may do so at its sole cost and expense. If
the Shareholder Representative does not undertake within the Notice Period to
defend against such Asserted Liability, then the Shareholder Representative
shall have the right to participate in any such defense at the shareholders'
sole cost and expense (out of the Escrowed Consideration), but, in such case,
the Indemnified Party shall control the investigation and defense and may settle
or take any other actions the Indemnified Party deems reasonably advisable
without in any way waiving or otherwise affecting the Indemnified Party's rights
to indemnification pursuant to this Agreement. The Indemnified Party and the
Shareholder Representative agree to make available to each other, their counsel
and other representatives, all information and documents available to them which
relate to such claim or demand. The Indemnified Party and the Shareholder
Representative and the Company and its employees also agree to render to each
other such assistance and cooperation as may reasonably be required to ensure
the proper and adequate defense of such claim or demand.
(b) In the event that a Indemnified Party should have a claim against the
shareholders hereunder which it determines to assert, but which does not involve
a claim or demand being asserted against or sought to be collected from it by a
third party, such claim shall be resolved in the manner described in the Escrow
Agreement.
(c) The provisions of this Section 9.3 shall not apply to any of the
provisions of Article X, which shall be governed solely and exclusively by the
terms thereof.
Section 9.4 Shareholder Representative. Each shareholder, by acceptance
of Merger Consideration, shall be deemed to have designated and appointed Edward
T. Joyce with full power of substitution (the "Shareholder Representative") as
the representative of any such shareholder to perform all such acts as are
required, authorized or contemplated by this Agreement to be performed by the
shareholders (including, without limitation, any acts, agreements, amendments or
resolution of disputes related to the Contingent Deferred Payment (including any
amendments to any of the targets and other provisions of
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Exhibit A hereto) and any matters referred to in Article IX or X hereof) and
hereby acknowledges that the Shareholder Representative shall be the only person
authorized to take any action so required, authorized or contemplated by this
Agreement by any shareholder. Each shareholder is thereby deemed to have further
acknowledged that the foregoing appointment and designation shall be deemed to
be coupled with an interest and shall survive the death or incapacity of such
shareholder. Each shareholder is thereby deemed to have authorized the other
parties hereto to disregard any notice or other action taken by each shareholder
pursuant to this Agreement except for the Shareholder Representative. The other
parties hereto are and will be entitled to rely on any action so taken or any
notice given by the Shareholder Representative and are and will be entitled and
authorized to give notices only to the Shareholder Representative for any notice
contemplated by this Agreement to be given to any such shareholder.
Section 9.5 Certain Definitions.
(a) For purposes of this Agreement, "Loss" means any action, cost, damage,
disbursement, expense, liability, loss, injury, deficiency, penalty, diminution
in value, settlement or obligation of any kind or nature (collectively, "Claims
For Losses"), including but not limited to interest, penalties, fines, legal,
accounting, and other professional fees and expenses incurred in the
investigation, collection, prosecution, determination and defense of Claims For
Losses, amounts paid in settlement, any incidental or consequential damages and
any punitive damages payable to third parties that may be imposed on or
otherwise incurred or suffered by the specified person.
ARTICLE X
TAX MATTERS
Section 10.1 Indemnification by the Company Shareholders. Subject to the
conditions and limitations set forth in Sections 9.1 and 9.2, each of the
Company's shareholders shall be liable for, and shall hold Parent, the Surviving
Corporation, each Subsidiary, and their respective affiliates harmless from and
against, (i) any and all Taxes imposed on or with respect to the Company or any
of its Subsidiaries for any taxable period (or portion thereof) ending on or
before the Closing Date (a "Pre-Closing Period"), other than (x) Taxes incurred
in the ordinary course of business in any taxable period (or portion thereof)
beginning after the date of the Company Balance Sheet, (y) Taxes for which
reserves have been provided on the Company Balance Sheet, and (z) Taxes arising
out of the transactions contemplated by this Agreement (including, without
limitation, Section 6.16), (ii) any and all Taxes imposed on or with respect to
the Company or any of its Subsidiaries as a result of any of the Company's (or
any of its Subsidiaries') being or having been a member of any group of
companies that files or has filed a Tax Return on a consolidated, combined,
affiliated or unitary basis for any Pre-Closing Period (other than a group the
common parent of which was the Company), (iii) any and all Taxes imposed on or
with respect to the Company or any of its Subsidiaries as a result of any breach
or inaccuracy of any representation or warranty contained in Section 3.9 or any
covenant contained in this Article X (without duplication), (iv) any and all
Taxes imposed upon or with respect to Parent, the Surviving Corporation, the
Company, or any of its Subsidiaries or any of their respective affiliates as a
result of any inaccuracy in the certificate referred to or any in Section
7.2(i), and (v) and any and all Taxes or any other payments required to be made
after the Closing Date by the Company or any of its Subsidiaries under any Tax
sharing, indemnity, allocation or other similar agreement or arrangement in
effect at any time on or prior to the Closing Date.
Section 10.2 Allocation of Taxes.
(a) In the case of any Tax that is imposed on a periodic basis and is
payable for a period that begins on or before the Closing Date and ends after
the Closing Date, the portion of such Tax that shall be allocable to the portion
of the period ending at the end of the day on the Closing Date shall (i) in the
case of any Taxes, other than income Taxes and Taxes based upon or related to
receipts, be deemed to be in the amount of such Taxes for the entire period,
multiplied by a fraction the numerator of which is the number of calendar days
in the period ending on (and including) the Closing Date and the denominator of
which is the number of calendar days in the entire period, and (ii) in the case
of any income Taxes and
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Taxes based upon or related to receipts, be deemed equal to the amount which
would be payable if the taxable year ended at the end of the day on the Closing
Date. Any refunds for such a period shall be prorated, based upon the method
employed in clause (i) or (ii) of the preceding sentence, as applicable. Clause
(i) of the second preceding sentence shall be applied with respect to Taxes, if
any, for such period relating to capital (including net worth or long-term debt)
or intangibles by reference to the level of such items on the Closing Date.
(b) The portion of any Taxes that are imposed on a periodic basis, payable
for a period that begins on or before the Closing Date and ends after the
Closing Date and not allocable to the portion of such period ending on the
Closing Date pursuant to Section 10.3(a) shall be allocable to the portion of
the period beginning after the Closing Date.
Section 10.3 Mutual Cooperation; Contests.
(a) Mutual Cooperation. As soon as practicable, but in any event within 30
days after either the Shareholder Representative's or Parent's request, Parent
shall deliver to the Shareholders Representative or each of the Company's
shareholders shall deliver to Parent, as the case may be, such information and
other data relating to the Tax Returns and Taxes of the Company and each of its
Subsidiaries and shall provide such other assistance as may reasonably be
requested, to cause the completion and timely filing of all Tax Returns or to
respond to audits by any taxing authority with respect to any Tax Returns or
taxable periods or to otherwise enable each of the Company's shareholders,
Parent, the Surviving Corporation, any of the Subsidiaries or their respective
affiliates to satisfy their accounting or Tax requirements.
(b) Contests. Whenever any taxing authority asserts a claim, makes an
assessment or otherwise disputes the amount of Taxes for which the Company
shareholders are or may be liable under this Agreement, Parent shall, if
informed of such an assertion, inform the Shareholder Representative within five
(5) business days, and the Company's shareholders shall have the right to
control any resulting proceedings and to determine whether and when to settle
any such claim, assessment or dispute to the extent such proceedings or
determinations affect the amount of Taxes for which the Company shareholders may
be liable under this Agreement; provided, that Parent shall have the right to
consent, which consent shall not be unreasonably withheld, to any settlement to
the extent such proceedings or settlement materially affect the amount of Taxes
imposed on the Company or any of its Subsidiaries for periods beginning after
the Pre-Closing Periods. Whenever any taxing authority asserts a claim, makes an
assessment or otherwise disputes the amount of Taxes for which Parent is liable
under this Agreement, Parent shall have the right to control any resulting
proceedings and to determine whether and when to settle any such claim,
assessment or dispute; provided, that the Shareholder Representative shall have
the right to consent, which consent shall not be unreasonably withheld, to any
settlement to the extent such proceedings materially affect the amount of Taxes
for which the Company shareholders are or may be liable under this Agreement.
(c) Resolution of Disagreements Between Company Shareholders and
Parent. The resolution of disagreements between Company's shareholders and
Parent as to the amount of Taxes shall be resolved in the manner described in
the Escrow Agreement.
Section 10.4 Other Tax Agreements.
(a) Notwithstanding anything in any other agreement to the contrary, all
Tax allocation or Tax sharing agreements or similar arrangements of any kind to
which the Company or any of its Subsidiaries is a party on or prior to the
Closing Date (other than this Agreement) shall cease and terminate as of the
Closing Date.
(b) All transfer, sales, stamp, registration, excise and similar Taxes on
or with respect Merger shall be borne by the Company's shareholders.
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<PAGE> 134
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by nationally-recognized, overnight
courier or mailed by registered or certified mail (return receipt requested) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Sub, to:
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540-6215
Attention: General Counsel
Telecopy: (609) 734-3830
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue (prior to January 14, 2000)
New York, New York 10022-3897
Four Times Square (after January 14, 2000)
New York, New York 10036
Attention: Howard L. Ellin, Esq.
Telecopy: (212) 735-2000
(b) if to the Company, to:
21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, IL 60654-1509
Attention: President
Telecopy: (312) 955-2111
with a copy to:
Piper Marbury Rudnick & Wolfe LLP
1200 Nineteen Street
Washington, D.C. 20036-2412
Telecopy: (202) 223-2085
Attention: Edwin M. Martin Jr., Esq.
(c) if to the Shareholder Representative, to:
Edward T. Joyce
11 South LaSalle Street, Suite 1600
Chicago, IL 60603
Attention: Edward T. Joyce
Telecopy: (312) 641-0360
Section 11.2 Interpretation; Certain Definitions.
(a) When a reference is made in this Agreement to a section, such reference
shall be to a Section of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation". The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date
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hereof", and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to the date first above written. The phrase "to the
knowledge" of a person, and terms of similar import, shall mean both the actual
knowledge of a person or its executive officers and what such person or its
officers should have known after reasonable investigation. The term "person"
means an individual, corporation, partnership, limited liability company,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
Section 11.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.4 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the Confidentiality Agreement and other documents and the
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 11.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein, without giving effect to laws that
might otherwise govern under applicable principles of conflicts of law, provided
that any matter relating to the mechanics and legal consequences of the Merger
shall be governed by Illinois law.
Section 11.6 Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the District of Delaware or any
other Delaware State court sitting in Wilmington, Delaware and each of the
parties hereby consents to the jurisdiction of such courts (and or the
appropriate appellate courts therefrom) in any such suit, action proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11.1 shall be deemed effective service of
process on such party as provided in Section 11.1 shall be deemed effective
service of process on such party.
Section 11.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 11.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
Section 11.9 Severability. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, in the event that any provision of
this Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provisions in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or
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<PAGE> 136
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provisions in any other
jurisdiction.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
<TABLE>
<S> <C>
21st CENTURY TELECOM GROUP, INC RCN CORPORATION
By: /s/ ROBERT J. CURREY By: /s/ ZACHARY JULIUS
--------------------------------------------------------
- ----------------------------------------------------- Name: Zachary Julius
Name: Robert J. Currey Title: Senior Vice President,
Title: President and Chief Executive Officer Corporate Development
21st HOLDING CORP.
By: /s/ ZACHARY JULIUS
--------------------------------------------------------
Name: Zachary Julius
Title: Senior Vice President,
Corporate Development
</TABLE>
The undersigned hereby acknowledges his appointment as the Shareholder
Representative and his willingness to fulfill the duties of the Shareholder
Representative as contemplated by this Agreement.
SHAREHOLDER REPRESENTATIVE
By: /s/ EDWARD T. JOYCE
------------------------------------
Name: Edward T. Joyce
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<PAGE> 137
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment"), dated as
of March 7, 2000, by and among RCN Corporation, a Delaware corporation
("Parent"), 21st Holding Corp., an Illinois corporation and a wholly owned
subsidiary of Parent ("Sub"), and 21st Century Telecom Group, Inc., an Illinois
corporation (the "Company"), to the Agreement and Plan of Merger (the
"Agreement"), dated as of December 12, 1999, by and among Parent, Sub and the
Company. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Agreement.
WHEREAS, Parent, Sub, the Company and its Board of Directors have approved
this Amendment and deem it advisable and in the best interests of Parent, Sub
and the Company and their respective stockholders and shareholders to enter into
this Amendment;
NOW, THEREFORE, for good and valuable consideration and in consideration of
the respective representations, warranties, covenants and agreements set forth
in the Agreement, the parties agree as follows:
ARTICLE I
AMENDMENT
Section 1.1 Amendment.
(a) Section 8.2 of the Agreement is hereby amended by deleting the
following language in its entirety from Section 8.2 of the Agreement:
"; provided, further, that in the event that Parent and Sub shall fail to close
the transactions contemplated hereby either (i) in breach of this Agreement or
(ii) by virtue of the failure of any of the conditions set forth in Section 7.1,
7.2 or 7.3 hereof to be satisfied, other than the conditions set forth in
Section 7.1(b) hereof (Shareholder Approval), Section 7.1(d) hereof
(Injunctions) (to the extent such action is brought or taken by any equity or
debt holder of the Company), Section 7.2(h) hereof (Notes and Exchangeable
Preferred) or Section 7.2(k) hereof (Dissenting Shares), then Parent shall make
a $25,000,000 investment (the "Investment") in the Company on the terms and
conditions substantially set forth on Exhibit E-1 hereto and pursuant to a
mutually acceptable purchase agreement, (which Parent and the Company shall
negotiate and enter into on or prior to March 31, 2000) which investment the
Company acknowledges to be a reasonable representation of its potential damages
for breach hereunder and which payment shall be the sole and exclusive remedy by
the Company for a breach of this Agreement by Parent or Sub; provided further,
Parent shall not be obligated to make any such investment in the event that the
failure to close is the result of a breach by the Company of any of its
representations, warranties or covenants hereunder. Within 5 business days after
the date hereof, Parent shall deliver to the Company a letter from a reputable
financial institution in a form reasonably acceptable to the Company (at such
time, to be set forth in Exhibit E-2 hereto) to the effect that it will maintain
a balance in Parent's account at such financial institution sufficient to make
the Investment when due."
(b) Exhibits E-1 and E-2 to the Agreement are hereby amended by deleting
them in their entirety.
(c) As a result of the amendment set forth in Section 1.1(a) hereof,
Section 8.2 of the Agreement shall read in its entirety as follows:
"Section 8.2 Procedure and Effect of Termination. In the event of
termination of the Agreement by a party hereto pursuant to Section 8.1, written
notice thereof shall forthwith be given by the terminating party to the other
parties hereto, and this Agreement shall thereupon terminate and become void and
have no effect, and the transactions contemplated hereby shall be abandoned
without further action by the parties hereto, except that the provisions of
Section 6.2(b) and this Section 8.2 shall remain in full force and effect and
survive termination of this Agreement; provided, however, that such termination
shall not
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relieve any party hereto of any liability for any breach of this Agreement
(other than non-willful breaches of representations, warranties and covenants,
as to which no party shall be liable hereunder)."
ARTICLE II
MISCELLANEOUS
Section 2.1 Counterparts. This Amendment may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 2.2 Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein, without giving effect to laws that
might otherwise govern under applicable principles of conflicts of law, provided
that any matter relating to the mechanics and legal consequences of the Merger
shall be governed by Illinois law.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Amendment
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
<TABLE>
<S> <C>
21st CENTURY TELECOM GROUP, INC. RCN CORPORATION
By: /s/ ROBERT J. CURREY By: /s/ ZACHARY JULIUS
-----------------------------------------------------
- ----------------------------------------------------- Name: Zachary Julius
Name: Robert J. Currey Title: Senior Vice President,
Title: President and Chief Corporate Development
Executive Officer
21st HOLDING CORP.
By: /s/ ZACHARY JULIUS
-------------------------------------------------
Name: Zachary Julius
Title: Senior Vice President,
Corporate Development
</TABLE>
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<PAGE> 139
EXHIBIT A
TO ANNEX 1
CONTINGENT DEFERRED PAYMENT
For purposes of this Agreement, the Contingent Deferred Payment shall equal
the amount set forth below the lowest of the Target Achievement Levels, if any,
attained with respect to any Indicator; provided, however, that all two
Indicators have attained at least Level 1.
Notwithstanding the foregoing, the Contingent Deferred Payment shall equal
zero (0) and shall not be payable, regardless of the Target Achievement Level
with respect to any Indicator, in the event that either (i) Capital Expenditures
per Marketable Home for new Marketable Homes added during the Measurement Period
exceed $900 (the "Maximum Cap Ex") or (ii) EBITDA for the Measurement Period
exceeds $(35,000,000) (the "Maximum EBITDA Loss").
TARGET ACHIEVEMENT LEVELS
<TABLE>
<CAPTION>
INDICATORS LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Marketable Homes................ 267,600 274,000 280,200 286,900 292,700
On-Net Revenues................. $44,700,000 $45,400,000 $46,100,000 $46,900,000 $47,500,000
Contingent Deferred Payment..... $ 7,600,000 $15,200,000 $22,800,000 $30,900,000 $38,000,000
</TABLE>
EXAMPLES
1. Assuming that (i) the Level 3 targets were met for each of Marketable
Homes and On-Net Revenues, respectively, and (ii) the Maximum Cap Ex and
Maximum EBITDA Loss were not exceeded, the Contingent Deferred Payment
would be $22,800,000.
2. Assuming that (i) the Level 3 target was met for Marketable Homes and
that the Level 2 target was met for On-Net Revenues and (ii) the Maximum
Cap Ex and Maximum EBITDA Loss were not exceeded, the Contingent
Deferred Payment would be $15,200,000. Note: Because a Target
Achievement Level was reached with respect to all Indicators but not in
the same column, the Contingent Deferred payment is equal to $15,200,000
because it relates to the lowest Target Achievement Level reached of the
two Indicators.
3. Assuming that (i) the Level 2 Target was met for Marketable Homes and
(ii) no Target Achievement Level was reached for On-Net Revenues, the
Contingent Deferred Payment would not be payable. Note: No Contingent
Deferred Payment is payable because, even though one Indicator achieved
a specified Target Achievement Level, On-Net Revenues did not achieve
even the lowest Target Achievement Level.
4. Assuming that (i) the Level 3 targets were met for each of Marketable
Homes and On-Net Revenues, respectively, and (ii) the Maximum Cap Ex was
not exceeded, but (iii) EBITDA for the Measurement Period was
$(38,000,000), no Contingent Deferred Payment would be payable because
the Maximum EBITDA Loss was exceeded.
DEFINITIONS
"Capital Expenditures" means any and all additions to property, plant and
equipment and any other capital expenditures of the Company and its Subsidiaries
(including, without limitation, assets acquired pursuant to capital lease
obligations that would be required to be classified and accounted for as capital
leases on a balance sheet under GAAP, and the amount of such obligations shall
be the capitalized amount thereof determined in accordance with GAAP)
attributable to obtaining Marketable Homes, as determined in accordance with the
methodology used by Parent in calculating its Capital Expenditures.
<PAGE> 140
"Capital Expenditures per Marketable Home" means the quotient obtained by
dividing Capital Expenditures by Marketable Homes.
"Consolidated Net Income" means, for any period, the net income or loss of
the Company and its Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP.
"EBITDA" means, with respect to the Measurement Period, the Consolidated
Net Income of the Company and its Subsidiaries for such period plus, without
duplication and to the extent deducted from revenues in determining such
Consolidated Net Income, the sum of (a) the aggregate amount of Net Interest
Expense for such period, (b) the aggregate amount of income tax expense for such
period, (c) all amounts attributable to depreciation and amortization (including
amortization of debt issuance costs) for such period, (d) all non-cash
non-recurring charges during such period (it being understood that charges shall
be deemed non-cash charges until the period that cash disbursements attributable
to such charges are made, at which point such charges shall be deemed cash
charges), and minus, without duplication and to the extent added to revenues in
determining Consolidated Net Income for such period, all non-cash non-recurring
gains during such period (it being understood that gains shall be deemed
non-cash gains until the period that cash receipts attributable to such gains
are received, at which point such gains shall be deemed cash gains), all as
determined on a consolidated basis with respect to the Company and its
Subsidiaries in accordance with GAAP.
"Indicators" means each of Marketable Homes and On-Net Revenue.
"Marketable Home" means a residential unit that can provide all of Parent's
current services, i.e., local voice, video, and cable modem, through its own
network, is connected to the Parent switch and December 12, 1999 headend and can
be immediately provisioned with these services.
"Measurement Period" means the twelve month period ending March 31, 2001.
"Net Interest Expense" means, for any fiscal period, the amount of interest
expense (net of interest income) of the Company and its Subsidiaries on a
consolidated basis for such fiscal period, determined in accordance with GAAP.
"On-Net Connection" means a vocal voice, video or data connection in a
Marketable Home whose service payments are not overdue to a point where service
is generally disconnected.
"On-Net Revenues" means revenues, net of discounts, derived from On-Net
Connections.
1-A-2
<PAGE> 141
EXHIBIT A-1
TO ANNEX 1
FRANCHISE AMOUNT
For purposes of this Agreement, the "Franchise Amount" shall be equal to
the Initial Franchise Amount less:
(i) if the Franchise Receipt Date shall occur after the twelve month
anniversary of the Execution Date and on or prior to the eighteen month
anniversary of the Execution Date, $10,000,000, in which case the Franchise
Amount shall equal $30,000,000;
(ii) if the Franchise Receipt Date shall occur after the eighteen
month anniversary of the Execution Date and on or prior to the twenty-four
month anniversary of the Execution Date, $20,000,000, in which case the
Franchise Amount shall equal $20,000,000;
(iii) if the Franchise Receipt Date shall occur after the twenty-four
month anniversary of the Execution Date and on or prior to the thirty month
anniversary of the Execution Date, $30,000,000, in which case the Franchise
Amount shall equal $10,000,000; or
(iv) if the Franchise Receipt Date shall occur after the thirty month
anniversary of the Execution Date, $40,000,000, in which case the Franchise
Amount shall equal zero;
(v) and the "Partial Franchise Amount" shall be equal to one-third of
the Franchise Amount for each franchise (for Chicago Area 2, 3 or 4) the
receipt of which on a Franchise Receipt Date is certified in a Franchise
Certificate.
DEFINITIONS
"Execution Date" means December 12, 1999, the date of the Merger Agreement.
"Franchise Receipt Date" means the date set forth in the Franchise
Certificate (to be delivered pursuant to Section 2.6 of the Merger Agreement).
"Initial Franchise Amount" means $40,000,000.
<PAGE> 142
EXHIBIT B
TO ANNEX 1
BONUS POOL
(EXHIBIT G TO THE MERGER AGREEMENT)
1. Bonus Pool. The aggregate Bonus Pool, if any, shall be calculated based
on the same formula as the Contingent Deferred Payment, as calculated pursuant
to Section 2.5 of the Merger Agreement and Exhibit A thereto, except that for
purposes of such calculation, the Bonus Pool in respect of each of Levels 1, 2,
3, 4 and 5 thereunder shall equal: $2,000,000; $4,000,000; $6,000,000;
$8,000,00; and $10,000,000, respectively.
2. Eligibility. The following employees of the Company shall be eligible
to participate in the Bonus Pool and to receive the percent thereof set forth
above their names if, and only if, they are employed by the Company on the Bonus
Payment Date (as defined below).
<TABLE>
<CAPTION>
TO BE
5% 2.5% 1.0% .5% ALLOCATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Employee: Brouse Huff Stevens Pyka
Cloran Yelvington Jackson McCoy
Jacobs Sales Person Smoot A. Blake
Webster Young Buktencia Roberts
Miller Krafcisin Kacholiya
Dreher Dougherty Riendeau
Langlands Gladkowski Pusey
Snell Griffith Tack
Nugent Wood Bergstrom
Kitchen Walker Ward
Palacios McCoy Everett
Kurtz Bednar
Gonzales Cooper
Blair
Burke
Salazar
GRAND TOTAL:
------------ ------------ ------------ ------------ ------------ ------------
TOTAL: 20% 32.5% 16% 5.5% 26% 100%
============ ============ ============ ============ ============ ============
</TABLE>
In the event that any employee listed above is not employed by the Company
on the Bonus Payment Date, the percent of the Bonus Pool payable in respect of
such employee shall be forfeited and allocated amongst the remaining employees
or additional employees who the board of the Company determines to be eligible
to participate, in each case, at the sole discretion of the board of the
Company.
3. Payment. Within thirty (30) business days (the "Bonus Payment Date")
following a Final Determination (as defined in the Merger Agreement), Parent
shall deliver to each of the employees entitled to payment of the Bonus Pool, if
any, on the Bonus Payment Date certificates representing a number of shares of
Parent Common Stock equal to the product of (i) such employees percent of the
Bonus Pool (as it may be increased pursuant to the immediately preceding
paragraph) and (ii) the number obtained by dividing (A) the Bonus Pool by (B)
the average of the closing prices of Parent Common Stock, as reported on the
Nasdaq, on each of the fifteen trading days immediately preceding the Bonus
Payment Date, and cash in an amount sufficient for payment in lieu of fractional
shares.
4. To the extent any payment hereunder would constitute an "excess
parachute payment" within the meaning of Section 280G of the Code, payment of
any such "excess" may only be made if the approval specified in Section 6.18 of
the Merger Agreement has been properly obtained.
5. Nothing contained herein shall create any right or entitlement of
employment to any employee.
<PAGE> 143
ANNEX 2
ILLINOIS BUSINESS CORPORATION ACT PROVISIONS RELATING TO DISSENTER'S RIGHTS
(SECTIONS 11.65 AND 11.70 OF THE ILLINOIS BUSINESS CORPORATION ACT OF 1983, AS
AMENDED)
SECTION 11.65. RIGHT TO DISSENT
Section 11.65. Right to Dissent.
(a) A shareholder of a corporation is entitled to dissent from, and obtain
payment for his or her shares in the event of any of the following corporate
actions:
(1) Consummation of a plan of merger or consolidation or a plan of
share exchange to which the corporation is a party of (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such
shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
were recorded in the names of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to shares
held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights.
SECTION 11.70. PROCEDURE TO DISSENT
Section 11.70. Procedure to Dissent.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert
<PAGE> 144
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 (days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are canceled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of the interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
2-1
<PAGE> 145
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefitted. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
(j) As used in this Section:
(a) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate
action to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.
(b) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
2-2
<PAGE> 146
Facsimile copies of the consent and letter of transmittal, properly
completed and duly executed, will be accepted. The consent and letter of
transmittal, debentures and any other required documents should be sent or
delivered by each holder or its broker, dealer, commercial bank or other nominee
to the exchange agent at its addresses set forth below.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER AND THE CONSENT SOLICITATION IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop - Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
By Facsimile Transmission:
(For Eligible Institutions Only)
(201) 296-4293
Confirm facsimile by telephone
ONLY:
(201) 296-4860
</TABLE>
Any questions or requests for assistance or additional copies of this
Statement, the Consent and Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
location listed below. You may also contact your broker, dealer, commercial bank
or trust company or nominee for assistance concerning the Offer and the
Solicitation.
THE INFORMATION AGENT FOR THE EXCHANGE OFFER AND THE CONSENT SOLICITATION IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
44 Wall Street
7th Floor
New York, NY 10005
Toll Free: (888) 566-9474
Bank and brokers: (917) 320-6286
THE DEALER MANAGER FOR THE EXCHANGE OFFER AND THE CONSENT SOLICITATION IS:
SALOMON SMITH BARNEY
390 Greenwich Street
New York, New York 10013
Attn: Liability Management Group
(212) 723-6106
Toll Free: (800) 558-3745
B-10
<PAGE> 147
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of the fact that he or she was a director, officer or agent
of the corporation or was serving at the request of the corporation against
expenses actually and reasonably incurred by him in connection with such action
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery or
the court in which the action was brought determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
expenses as the court deems proper. Any determination as to whether a person
seeking indemnification has met the required standard of conduct and thus
entitled to indemnification is, unless ordered by a court, to be made (1) by a
majority vote of directors who are not party to such action, suit or proceeding,
or (2) by a committee of such directors designated by a majority vote of such
directors, or (3) if there are no such directors, or if such directors so
direct, independent legal counsel in a written opinion, if such a quorum does
not exist or if the disinterested directors so direct, or (4) by the
stockholders.
RCN's certificate of incorporation limits, to the maximum extent permitted
by Delaware law, the personal liability of directors for monetary damages for
breach of their fiduciary duties as a director. RCN's certificate of
incorporation further provides that each person who was or is a party or
threatened to be made a party to, or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of RCN or is or was serving at the request of RCN as a director or
officer of another corporation, partnership, limited liability company, joint
venture, trust or other enterprise, will be indemnified by RCN to the fullest
extent permitted by Delaware law. The right to indemnification includes the
right to be paid by RCN the expenses incurred in connection with any such
proceeding advance of its final disposition. In general, the indemnification
provided for by Delaware law is not deemed to be exclusive of any non-statutory
indemnification rights provided to directors, officers and employees under any
by-law, agreement or vote of shareholders or disinterested directors. The RCN
certificate of incorporation contains similar provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger among RCN Corporation, 21st
Holding Corp. and 21st Century, dated as of December 12,
1999 and Amendment No. 1 thereto dated as of March 7, 2000
(attached as Annex 1 to the prospectus included in this
Registration Statement).
3.1 Certificate of Designations, Preferences and Rights of
Series A 7% Senior Convertible Preferred Stock dated April
7, 1999 (incorporated herein by reference to Exhibit 3.1 to
RCN's Registration Statement on Form S-3 (filed February 1,
1999) (Commission File No. 333-71525) ("1999 Form S-3"))
</TABLE>
II-1
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.2 Certificate of Designations, Preferences, and Rights of
Series B 7% Senior Convertible Preferred Stock (incorporated
by reference to Exhibit A of Exhibit 10.01 to RCN's current
report on Form 8-K (filed October 1, 1999) (Commission File
No. 0-22825))
4.1 Credit Agreement dated as of June 3, 1999 among RCN, the
borrowers named therein, the lenders party thereto, The
Chase Manhattan Bank, as Agent, Chase Securities Inc., as
Lead Arranger and Book Manager, and Deutsche Bank A.G.,
Merrill Lynch Capital Corp. and Morgan Stanley Senior
Funding, as Documentation Agents (incorporated herein by
reference to Exhibit 10.01 to RCN's Current Report on Form
8-K dated August 17, 1999 (filed August 17, 1999)
(Commission File No. 000-22825)
4.2 Form of Indenture between RCN, as Issuer, and The Chase
Manhattan Bank, as Trustee, with respect to the 10 1/8%
Senior Notes due 2010 (incorporated herein by reference to
Exhibit 4.11 to RCN's 1999 Form S-3)
4.3 Indenture dated June 24, 1998 between RCN, as Issuer, and
The Chase Manhattan Bank, as Trustee, with respect to the
11% Senior Discount Notes due 2008 (incorporated herein by
reference to Exhibit 4.8 to RCN's Registration Statement on
Form S-1 (filed June 1, 1998) (Commission File No.
333-55673) ("1998 Form S-1"))
4.4 Form of 11% Senior Discount Note due 2008 (included in
Exhibit 4.3) (incorporated herein by reference to Exhibit
4.9 to RCN's 1998 Form S-1)
4.5 Indenture dated as of February 6, 1998 between RCN, as
Issuer, and The Chase Manhattan Bank, as Trustee, with
respect to the 9.80% Senior Discount Notes due 2008
(incorporated herein by reference to Exhibit 4.1 to RCN's
Registration Statement on Form S-4 (filed March 23, 1998)
(Commission File No. 333-48487) ("1998 Form S-4"))
4.6 Form of the 9.80% Senior Discount Notes due 2008, Series B
(included in Exhibit 4.5) (incorporated herein by reference
to Exhibit 4.2 to RCN's 1998 Form S-4)
4.7 Indenture dated as of October 17, 1997 between RCN, as
Issuer, and The Chase Manhattan Bank, as Trustee, with
respect to the 10% Senior Notes due 2007 (incorporated
herein by reference to Exhibit 4.1 to RCN's Registration
Statement on Form S-4 (filed November 26, 1997) (Commission
File No. 333-41081) ("1997 Form S-4"))
4.8 Form of the 10% Senior Exchange Notes due 2007 (included in
Exhibit 4.7) (incorporated herein by reference to Exhibit
4.2 to RCN's 1997 Form S-4)
4.9 Indenture dated as of October 17, 1997 between RCN, as
Issuer, and The Chase Manhattan Bank, as Trustee, with
respect to the 11 1/8% Senior Discount Notes due 2007
(incorporated herein by reference to Exhibit 4.3 to RCN's
1997 Form S-4)
4.10 Form of the 11 1/8% Senior Discount Exchange Notes due 2007
(included in Exhibit 4.9) (incorporated herein by reference
to Exhibit 4.4 to RCN's 1997 Form S-4)
4.11 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 RCN (incorporated herein by reference to Exhibit 4.6 to
RCN's 1997 Form S-4)
4.12 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 herein by reference to Exhibit 4.1 to RCN's
Information Statement on Form 10/A (filed July 10, 1997)
(Commission File No. 000-22825))
4.13 Stock Purchase Agreement dated as of October 1, 1999 between
Vulcan Ventures Incorporated and Level 3 TeleCom Holdings,
Inc. (incorporated by reference to RCN's Form 8-K dated
October 1, 1999, Commission file No. 0-22825)
</TABLE>
II-2
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.14 Voting Agreement dated as of October 1, 1999 among RCN,
Vulcan Ventures Incorporated and Level 3 Telecom Holdings,
Inc. (incorporated by reference to RCN's Form 8-K dated
October 1, 1999, Commission File No. 0-22825)
5.1* Opinion and consent of RCN Counsel re: legality of the
securities being registered
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PriceWaterhouseCoopers LLP
24.1* Power of Attorney (included in the signature page of the
original Registration Statement)
99.1* Form of Voting and Lock-Up Agreement by and among RCN, 21st
Century and the shareholder named on the signature page
thereto
99.2* Form of Waiver of Accelerated Vesting
99.3 Form of Supplemental Indenture between 21st Century, as
Issuer, and The Bank of New York, as Trustee, with respect
to the 13 3/4% Subordinated Exchange Debentures Due 2010
99.4 Indenture dated as of February 15, 1998 between 21st
Century, as Issuer, and IBJ Schroder Bank and Trust Company,
as Trustee, with respect to the 13 3/4% Subordinated
Exchange Debentures Due 2010 (incorporated herein by
reference to Exhibit 4.3 to 21st Century's Registration
Statement on Form S-4 (filed March 3, 1998) (Commission No.
333-47235))
99.5 Proxy Materials to Shareholders of 21st Century
99.6 Form of Consent and Letter of Transmittal
99.7 Form of Notice of Guaranteed Delivery
99.8 Letters to Brokers
99.9 Letters to Clients
99.10 Guidelines for Certification of Taxpayer Identification
Number on Form W-9
</TABLE>
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) 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 events 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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.
II-3
<PAGE> 150
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such 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.
(c) 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.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(4) The undersigned registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such 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;
(5) The undersigned registrant hereby undertakes 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 S-4 under the Securities Act of 1933,
within one business day of receipt of any such request, and to send the
incorporated documents by first class mail or other equally prompt means,
including information contained in documents filed after the effective date of
the registration statement through the date of responding to such request;
(6) The undersigned registrant hereby undertakes 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.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. If 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 a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Princeton,
New Jersey on March 31, 2000.
RCN CORPORATION
By: /s/ TIMOTHY J. STOKLOSA
------------------------------------
Name: Timothy J. Stoklosa
Title: Executive Vice President
and
Chief Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director, Chairman and Chief March 31, 2000
- --------------------------------------------------- Executive Officer
David C. McCourt
/s/ TIMOTHY J. STOKLOSA Director, Executive Vice March 31, 2000
- --------------------------------------------------- President and Chief Financial
Timothy J. Stoklosa Officer
* Senior Vice President and March 31, 2000
- --------------------------------------------------- Chief Accounting Officer
Ralph S. Hromisin
* Director March 31, 2000
- ---------------------------------------------------
Richard R. Jaros
* Director March 31, 2000
- ---------------------------------------------------
Michael J. Levitt
* Director March 31, 2000
- ---------------------------------------------------
Eugene Roth
* Director March 31, 2000
- ---------------------------------------------------
Michael B. Yanney
</TABLE>
*By:/s/ TIMOTHY J. STOKLOSA
- -----------------------------------
Timothy J. Stoklosa
Attorney-in-Fact
II-5
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger among RCN Corporation, 21st
Holding Corp. and 21st Century, dated as of December 12,
1999 and Amendment No. 1 thereto dated as of March 7, 2000
(attached as Annex 1 to the prospectus included in this
Registration Statement).
3.1 Certificate of Designations, Preferences and Rights of
Series A 7% Senior Convertible Preferred Stock dated April
7, 1999 (incorporated herein by reference to Exhibit 3.1 to
RCN's Registration Statement on Form S-3 (filed February 1,
1999) (Commission File No. 333-71525) ("1999 Form S-3"))
3.2 Certificate of Designations, Preferences, and Rights of
Series B 7% Senior Convertible Preferred Stock (incorporated
by reference to Exhibit A of Exhibit 10.01 to RCN's current
report on Form 8-K (filed October 1, 1999) (Commission File
No. 0-22825))
4.1 Credit Agreement dated as of June 3, 1999 among RCN, the
borrowers named therein, the lenders party thereto, The
Chase Manhattan Bank, as Agent, Chase Securities Inc., as
Lead Arranger and Book Manager, and Deutsche Bank A.G.,
Merrill Lynch Capital Corp. and Morgan Stanley Senior
Funding, as Documentation Agents (incorporated herein by
reference to Exhibit 10.01 to RCN's Current Report on Form
8-K dated August 17, 1999 (filed August 17, 1999)
(Commission File No. 000-22825)
4.2 Form of Indenture between RCN, as Issuer, and The Chase
Manhattan Bank, as Trustee, with respect to the 10 1/8%
Senior Notes due 2010 (incorporated herein by reference to
Exhibit 4.11 to RCN's 1999 Form S-3)
4.3 Indenture dated June 24, 1998 between RCN, as Issuer, and
The Chase Manhattan Bank, as Trustee, with respect to the
11% Senior Discount Notes due 2008 (incorporated herein by
reference to Exhibit 4.8 to RCN's Registration Statement on
Form S-1 (filed June 1, 1998) (Commission File No.
333-55673) ("1998 Form S-1"))
4.4 Form of 11% Senior Discount Note due 2008 (included in
Exhibit 4.3) (incorporated herein by reference to Exhibit
4.9 to RCN's 1998 Form S-1)
4.5 Indenture dated as of February 6, 1998 between RCN, as
Issuer, and The Chase Manhattan Bank, as Trustee, with
respect to the 9.80% Senior Discount Notes due 2008
(incorporated herein by reference to Exhibit 4.1 to RCN's
Registration Statement on Form S-4 (filed March 23, 1998)
(Commission File No. 333-48487) ("1998 Form S-4"))
4.6 Form of the 9.80% Senior Discount Notes due 2008, Series B
(included in Exhibit 4.5) (incorporated herein by reference
to Exhibit 4.2 to RCN's 1998 Form S-4)
4.7 Indenture dated as of October 17, 1997 between RCN, as
Issuer, and The Chase Manhattan Bank, as Trustee, with
respect to the 10% Senior Notes due 2007 (incorporated
herein by reference to Exhibit 4.1 to RCN's Registration
Statement on Form S-4 (filed November 26, 1997) (Commission
File No. 333-41081) ("1997 Form S-4"))
4.8 Form of the 10% Senior Exchange Notes due 2007 (included in
Exhibit 4.7) (incorporated herein by reference to Exhibit
4.2 to RCN's 1997 Form S-4)
4.9 Indenture dated as of October 17, 1997 between RCN, as
Issuer, and The Chase Manhattan Bank, as Trustee, with
respect to the 11 1/8% Senior Discount Notes due 2007
(incorporated herein by reference to Exhibit 4.3 to RCN's
1997 Form S-4)
4.10 Form of the 11 1/8% Senior Discount Exchange Notes due 2007
(included in Exhibit 4.9) (incorporated herein by reference
to Exhibit 4.4 to RCN's 1997 Form S-4)
4.11 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 RCN (incorporated herein by reference to Exhibit 4.6 to
RCN's 1997 Form S-4)
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.12 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 herein by reference to Exhibit 4.1 to RCN's
Information Statement on Form 10/A (filed July 10, 1997)
(Commission File No. 000-22825))
4.13 Stock Purchase Agreement dated as of October 1, 1999 between
Vulcan Ventures Incorporated (incorporated by reference to
RCN's Form 8-K dated October 1, 1999, Commission File
No. 0-22825).
4.14 Voting Agreement dated as of October 1, 1999 among RCN,
Vulcan Ventures Incorporated and Level 3 Telecom Holdings,
Inc. (incorporated by reference to RCN's Form 8-K dated
October 1, 1999, Commission File No. 0-22825)
5.1* Opinion and consent of RCN Counsel re: legality of the
securities being registered
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PriceWaterhouseCoopers LLP
24.1* Power of Attorney (included in the signature page of the
original Registration Statement)
99.1* Form of Voting and Lock-Up Agreement by and among RCN, 21st
Century and the shareholder named on the signature page
thereto
99.2* Form of Waiver of Accelerated Vesting
99.3 Form of Supplemental Indenture between 21st Century, as
Issuer, and The Bank of New York, as Trustee, with respect
to the 13 3/4% Subordinated Exchange Debentures Due 2010
99.4 Indenture dated as of February 15, 1998 between 21st
Century, as Issuer, and IBJ Schroder Bank and Trust Company,
as Trustee, with respect to the 13 3/4% Subordinated
Exchange Debentures Due 2010 (incorporated herein by
reference to Exhibit 4.3 to 21st Century's Registration
Statement on Form S-4 (filed March 3, 1998) (Commission No.
333-47235))
99.5 Proxy Materials to shareholders of 21st Century
99.6 Form of Consent and Letter of Transmittal
99.7 Form of Notice of Guaranteed Delivery
99.8 Letters to Brokers
99.9 Letters to Clients
99.10 Guidelines for Certification of Taxpayer Identification
Number on Form W-9
</TABLE>
- ------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement on Form S-4 of RCN
Corporation of our report dated March 14, 2000 covering 21st Century Telecom
Group, Inc.'s consolidated financial statements as of December 31, 1999 and
December 31, 1998 and the results of its operations and its cash flows for the
year ended December 31, 1999, the nine months ended December 31, 1998 and the
twelve months ended March 31, 1998, appearing in 21st Century's Annual Report on
Form 10-K for the period ended December 31, 1999. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
ARTHUR ANDERSEN LLP
/S/ ARTHUR ANDERSEN LLP
--------------------------------
Chicago, Illinois
March 29, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement on Form S-4 of RCN Corporation of our report dated March
8, 2000 relating to the financial statements and financial statement schedules,
which appear in RCN Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999. We also consent to the reference to us under the caption
"Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------------
Philadelphia, Pennsylvania
March 30, 2000
<PAGE> 1
Exhibit 99.3
FORM OF SUPPLEMENTAL INDENTURE
21ST CENTURY TELECOM GROUP, INC.,
Issuer
13-3/4% Subordinated Exchange Debentures Due 2010
---------------------
FIRST SUPPLEMENTAL INDENTURE
---------------------
Dated as of ____ __, 2000
THE BANK OF NEW YORK,
Trustee
<PAGE> 2
This FIRST SUPPLEMENTAL INDENTURE, dated as of _____ ___, 2000, is
between 21ST CENTURY TELECOM GROUP, INC., an Illinois corporation (the
"Company"), and THE BANK OF NEW YORK (Formerly IBJ SCHROEDER BANK AND TRUST
COMPANY), a New York banking corporation (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee entered into an Indenture, dated
as of February 15, 1998 (the "Indenture"), pursuant to which the Company has
originally issued its 13-3/4% Subordinated Exchange Debentures Due 2010 (the
"Securities");
WHEREAS, Section 9.02 of the Indenture provides that, subject to
certain conditions stated therein, the Company and the Trustee may amend the
Indenture, with the written consent of the Holders of a majority in principal
amount of the Securities then outstanding (the "Requisite Consents");
WHEREAS, the Company deems it desirable to make the necessary
amendments to the Indenture; and
WHEREAS, the Company has determined that all things necessary to make
this First Supplemental Indenture a valid indenture and agreement according to
its terms, including without limitation the receipt of the Requisite Consents,
have been done, and the Company has delivered to the Trustee an Officer's
Certificate and Opinion of Counsel stating that this First Supplemental
Indenture is authorized or permitted under the Indenture.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Trustee agree
as follows:
ARTICLE ONE
AMENDMENTS TO INDENTURE
1.1 AMENDMENTS TO ARTICLE 1
A. Section 1.01 of the Indenture is hereby amended with
respect to the definition of "Affiliate" by deleting such definition and
substituting the following therefor:
"Affiliate" of any specified Person means any other
Person, directly or indirectly, controlling or controlled by or 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 "controlling" and
"controlled" have meanings correlative to the foregoing.
B. Section 1.01 of the Indenture is hereby amended with
respect to the definition of "Indebtedness" by deleting subsection (v) of such
definition and substituting the following therefor:
<PAGE> 3
(v) with respect to any Subsidiary of such Person
(including any Restricted Subsidiary), the liquidation
preference with respect to any Preferred Stock (but excluding
any accrued dividends);
C. Section 1.01 of the Indenture is hereby amended with
respect to the definition of "Unrestricted Subsidiary" by deleting such
definition and substituting the following therefor:
"Unrestricted Subsidiary" means (i) any
Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the
Company that is not a Subsidiary of the Subsidiary to be so
designated. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to
such designation no Default shall have occurred and be
continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors
giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing
provisions.
D. Section 1.01 of the Indenture is hereby amended by deleting
the following definitions in their entirety:
"Additional Assets"
"Annualized EBITDA"
"Area 1 Franchise"
"Asset Disposition"
"Average Life"
"Change of Control"
- 3 -
<PAGE> 4
"Consolidated Current Liabilities"
"Consolidated Interest Expense"
"Consolidated Leverage Ratio"
"Consolidated Net Income"
"Consolidated Net Tangible Assets"
"Consolidated Net Worth"
"Credit Agreement"
"EBITDA"
"Equity Offering"
"Existing Restricted Subsidiary"
"Investment"
"Market Assets"
"Market Swap"
"Net Available Cash"
"Net Cash Proceeds"
"Permitted Investment"
"Qualified Preferred Stock"
"Refinance"
"Refinancing Indebtedness"
"Related Business"
- 4 -
<PAGE> 5
"Restricted Payments"
"Subordinated Obligation"
"Temporary Cash Investment"
C. Section 1.02 of the Indenture is hereby amended by deleting
the following definitions in their entirety:
"Affiliate Transaction"
"Change of Control Offer"
"Offer Amount"
"Offer Period"
"Purchase Date"
"Successor Company"
D. Section 1.04(6) of the Indenture is hereby deleted in its
entirety.
E. Section 1.04(8) of the Indenture is hereby deleted in its
entirety:
1.2 AMENDMENTS TO ARTICLE 4
A. Section 4.02 of the Indenture is hereby deleted in its
entirety.
B. Section 4.03 of the Indenture is hereby deleted in its
entirety.
C. Section 4.04 of the Indenture is hereby deleted in its
entirety.
D. Section 4.05 of the Indenture is hereby deleted in its
entirety.
E. Section 4.06 of the Indenture is hereby deleted in its
entirety.
F. Section 4.07 of the Indenture is hereby deleted in its
entirety.
G. Section 4.08 of the Indenture is hereby deleted in its
entirety.
H. Section 4.09 of the Indenture is hereby deleted in its
entirety.
I. Section 4.10 of the Indenture is hereby deleted in its
entirety.
J. Section 4.11 of the Indenture is hereby deleted in its
entirety.
- 5 -
<PAGE> 6
1.3 AMENDMENTS TO ARTICLE 5. Section 5.01 of the Indenture is hereby
deleted in its entirety.
1.4 AMENDMENTS TO ARTICLE 6
A. Subsections (3), (4), (6) and (9) of Section 6.01 of the
Indenture are hereby deleted in their entirety.
B. The third paragraph following existing Section 6.01(9) of
the Indenture (containing a reference to notification to the Company following
certain Defaults) is hereby amended by deleting the references therein to
subsections (3), (4), (6) and (a) of Section 6.01.
C. The fourth paragraph following existing Section 6.01(9) of
the Indenture (containing a reference to delivery to the Trustee by the Company
of an Officer's Certificate following certain events which may lead to an Event
of Default) is hereby amended by deleting the references therein to subsections
(3), (4), (6) and (a) of Section 6.01.
1.5 AMENDMENTS TO ARTICLE 8. Section 8.01(b) of the Indenture is
amended to read in its entirety as follows:
(b) Subject to Sections 8.01(c) and 8.02,
the Company at any time may terminate (i) all its obligations
under the Securities and this Indenture ("legal defeasance
option") or (ii) the operation of Sections 6.01(7) and 6.01(8)
(with respect only to Significant Subsidiaries) ("covenant
defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Company exercises its legal
defeasance option, payment of the Securities may not be
accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance
option, payment of the Securities may not be accelerated
because of an Event of Default specified in Sections 6.01(7)
and 6.01(8) (with respect only to Significant Subsidiaries).
Upon satisfaction of the conditions set
forth herein and upon request of the Company, the Trustee
shall acknowledge in a writing prepared by the Company and
reasonably satisfactory
- 6 -
<PAGE> 7
to the Trustee the discharge of those obligations that the Company terminates.
ARTICLE THREE
MISCELLANEOUS
2.1 Upon the execution and delivery of this First Supplemental
Indenture by each of the Company and the Trustee, the Indenture shall be
amended and supplemented in accordance herewith, and this First Supplemental
Indenture shall form a part of the Indenture for all purposes, and every holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture shall be bound hereby, as hereby amended and supplemented; provided,
however, that the provisions of the First Supplemental Indenture shall not
become operative until the Company has notified the Trustee that it has
accepted for exchange or payment the Securities which represent at least a
majority of all Securities outstanding under the Indenture (and at such time
the provisions of this First Supplemental Indenture shall automatically become
operative without the requirement of any further action by or notice to the
Company, the Trustee or any holder of Securities).
2.2 This First Supplemental Indenture is supplemental to the Indenture
and does and shall be deemed to form a part of, and shall be construed in
connection with and as part of, the Indenture for any and all purposes. Except
as specifically modified herein, the Indenture and the Securities are in all
respects ratified and confirmed and shall remain in full force and effect in
accordance with their terms, with all capitalized terms used herein without
definition having the same respective meanings ascribed to them as in the
Indenture.
2.3 Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this First Supplemental Indenture. This
First Supplemental Indenture is executed and accepted by the Trustee subject to
all the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
2.4 THIS FIRST SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS.
2.5 The parties may sign any number of copies of this First
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first written
above.
21st CENTURY TELECOM GROUP, INC.
By:
-------------------------------
-------------------------------
-------------------------------
The Bank of New York,
as Trustee
By:
-------------------------------
-------------------------------
-------------------------------
- 8 -
<PAGE> 1
EXHIBIT 99.5
21ST CENTURY TELECOM GROUP, INC.
350 NORTH ORLEANS, SUITE 600
CHICAGO, ILLINOIS 60654
PROXY STATEMENT
Dear Fellow Stockholders:
The board of directors of 21st Century Telecom Group, Inc. (the "Company")
has approved and recommends to you the merger of RCN and the Company. After the
merger, the Company will operate as a wholly-owned subsidiary of RCN.
In the merger, holders of Company common stock, class A preferred stock and
warrants to acquire common stock will receive RCN common stock. The number of
shares of RCN common stock that each such holder will receive is described in
the enclosed prospectus.
The board of directors of the Company has also approved, and recommends to
you the proposal to approve, certain merger-related compensatory payments to
officers and highly compensated employees of the Company, including the
contingent compensatory payments provided for in the merger agreement and the
grant and vesting of certain options in connection with the merger.
A special meeting is scheduled for the Company stockholders to vote on (i)
the merger agreement and the merger and (ii) the proposal to approve the
merger-related compensatory payments. You are being asked to approve the merger
and such payments.
YOU MAY VOTE AT THE SPECIAL MEETING IF YOU OWN SHARES OF VOTING COMMON
STOCK OR CLASS A PREFERRED STOCK as of the record date, which is the close of
business on March 15, 2000. The date, time and place of the special meeting are
set forth in the accompanying notice. YOU MAY NOT VOTE WARRANTS OR SHARES OF
NON-VOTING COMMON STOCK THAT YOU OWN, EVEN IF YOU RECEIVED A COPY OF THIS PROXY
STATEMENT.
RCN common stock trades on the Nasdaq National Market under the symbol
"RCNC." On March 30, 2000, RCN common stock closed at $54.75 per share.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY (I) THIS PROXY
STATEMENT IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO HEREIN UNDER "RISK
FACTORS", "MATERIAL FEDERAL INCOME TAX CONSEQUENCES", THE "FAIRNESS OPINION" AND
"MERGER-RELATED COMPENSATORY PAYMENTS TO CERTAIN INDIVIDUALS", AND (II) THE
ENCLOSED PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THE
ENCLOSED PROSPECTUS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT AND THE ENCLOSED PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This proxy statement and the enclosed prospectus is dated and was first
mailed to stockholders on or about March 31, 2000.
WE CORDIALLY INVITE YOU TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. YOU CAN REVOKE YOUR PROXY AT ANY
TIME BEFORE IT IS VOTED. YOUR VOTE IS VERY IMPORTANT.
By Order of the Board of Directors
/s/ ROBERT J. CURREY
--------------------------------------
ROBERT J. CURREY
Chief Executive Officer
Chicago, Illinois
March 31, 2000
<PAGE> 2
21ST CENTURY TELECOM GROUP, INC.
350 NORTH ORLEANS, SUITE 600
CHICAGO, ILLINOIS 60654
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 2000
To the Stockholders of 21st Century Telecom Group, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of 21st
Century Telecom Group, Inc. ("Company") will be held on April 27, 2000 at 10:00
a.m., local time, at the Company's offices at 350 North Orleans, Suite 600,
Chicago, Illinois 60654 to consider and vote upon the following proposals:
1. To approve and adopt the Agreement and Plan of Merger dated as of
December 12, 1999 among RCN Corporation, 21st Holding Corp., a wholly-owned
subsidiary of RCN, and the Company (the "merger agreement") and to approve
the merger of RCN and the Company (the "merger"). After the merger, the
Company will be a wholly-owned subsidiary of RCN. A copy of the merger
agreement is attached in the enclosed prospectus;
2. To consider and vote upon a proposal to approve certain
merger-related compensatory payments to officers and highly compensated
employees of the Company, including the contingent compensatory payments
provided for in the merger agreement and the grant and vesting of certain
options in connection with the merger; and
3. To transact such other business as may properly come before the
special meeting, including any motion to adjourn to a later time, to permit
further solicitation of proxies if necessary to establish a quorum or to
obtain additional votes in favor of the proposal, or before any
adjournments or postponements thereof.
The merger agreement, the proposed merger and other related matters are
more fully described in the enclosed proxy statement and prospectus. We strongly
urge you to read and consider carefully the proxy statement and prospectus in
their entireties.
Stockholders of record at the close of business on March 15, 2000 are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements thereof.
WE CORDIALLY INVITE YOU TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. YOU CAN REVOKE YOUR PROXY AT ANY
TIME BEFORE IT IS VOTED. YOUR VOTE IS VERY IMPORTANT.
By Order of the Board of Directors
/s/ ROBERT J. CURREY
------------------------------------------------------------------------------
ROBERT J. CURREY
Chief Executive Officer
Chicago, Illinois
March 31, 2000
THE COMPANY BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL TO APPROVE (I) THE MERGER AGREEMENT AND THE MERGER AND (II) THE
MERGER-RELATED COMPENSATORY PAYMENTS TO OFFICERS AND HIGHLY COMPENSATED
EMPLOYEES OF THE COMPANY.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1
The Companies............................................. 1
Description of Merger Agreement........................... 1
What You Will Receive in the Merger....................... 1
Special Meeting........................................... 1
Record Date............................................... 1
Recommendation to Stockholders............................ 2
Vote Required to Approve the Merger....................... 2
Vote Required to Approve Merger-Related Payments to
Certain Officers and Employees......................... 2
Dissenters' Rights........................................ 2
RISK FACTOR................................................. 3
The merger could be a taxable transaction................. 3
FAIRNESS OPINION............................................ 3
MERGER-RELATED COMPENSATORY PAYMENTS TO CERTAIN
INDIVIDUALS............................................... 4
Applicable Tax Laws....................................... 4
Bonus Pool................................................ 5
Payments in Substitution of Certain Options............... 5
Vesting of Stock Options.................................. 6
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 7
Treatment of the Merger as a Reorganization............... 8
Treatment of the Merger as a Taxable Transaction.......... 10
Annex 1 -- Fairness Opinion................................. A-1
</TABLE>
i
<PAGE> 4
SUMMARY
This summary highlights selected information found in greater detail in
this proxy statement or the enclosed prospectus. This summary does not contain
all of the information that is important to you. We urge you to read this entire
document, the enclosed prospectus and the documents which have been incorporated
by reference in each of these documents before you decide how to vote.
THE COMPANIES
The Company provides bundled telecommunications services in Chicago. The
Company's building strategy through its advanced fiber optic network delivers
cable television, telephone services and high-speed Internet services. The
Company's fifteen (15) year cable franchise encompasses Chicago Area One, which
stretches along the Chicago Lakefront from Evanston, Illinois to the Hyde Park
area. The Company also has franchise agreements with the Villages of Skokie and
Northbrook, Illinois.
RCN Corporation provides bundled local and long distance phone, cable
television and high-speed Internet services to dense residential markets. RCN is
currently delivering broadband services over its network and is designing or
building its network on both the east and west coasts. In addition, RCN is a
leading Internet service provider in its markets.
DESCRIPTION OF MERGER AGREEMENT
RCN will acquire the Company by merging a wholly owned subsidiary of RCN
into the Company and the Company will become a wholly owned subsidiary of RCN.
Following the merger, you would become a stockholder of RCN, in which event you
will have an equity stake in the Company's parent company.
WHAT YOU WILL RECEIVE IN THE MERGER
RCN will issue to each of you who owns shares of Company common stock an
amount of RCN common stock equal to the exchange ratio described in the enclosed
prospectus for each such share that you own. For each share of Company class A
preferred stock that you own, you will receive an amount of RCN common stock
equal to the exchange ratio multiplied by 1,000, which is the number of shares
of Company common stock into which each share of class A preferred stock may
convert immediately prior to the merger. In each case, a portion of the shares
of RCN common stock that you would otherwise receive will be held in escrow as
security for your indemnification obligations to RCN, as described in the
enclosed prospectus. The number of shares you will receive in the merger will be
adjusted in the event the Company does not obtain the three franchises for which
it has applications pending. In addition, you may be entitled to receive
additional shares of RCN common stock in the future if the Company achieves
specific revenue and other performance targets, as described in the enclosed
prospectus.
SPECIAL MEETING
The special meeting will be held at the Company's offices at 350 North
Orleans, Suite 600, Chicago, Illinois 60654 on April 27, 2000 at 10:00 a.m.,
local time. At the special meeting, the Company will ask its stockholders to
approve (i) the merger agreement and the merger and (ii) certain merger-related
compensatory payments to officers and highly compensated employees of the
Company. The Company stockholders may also consider and vote upon other matters
properly brought before the special meeting.
RECORD DATE
You may vote at the special meeting if you owned shares of the Company as
of the close of business March 15, 2000.
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RECOMMENDATION TO STOCKHOLDERS
The Company board of directors has approved the merger agreement and the
transactions it contemplates and has determined that the merger is fair to, and
in the best interests of, both you and the Company. After careful consideration,
the Company board of directors recommends that you vote to approve (i) the
merger agreement and the merger and (ii) certain merger-related compensatory
payments to officers and highly compensated employees of the Company, including
the contingent compensatory payments provided for in the merger agreement and
the grant and vesting of certain options in connection with the merger.
VOTE REQUIRED TO APPROVE THE MERGER
The affirmative vote of holders of shares representing two-thirds of the
outstanding shares of the Company's voting common stock and class A preferred
stock, voting together as a class, and a majority of the outstanding shares of
class A preferred stock entitled to vote at the special meeting is required to
adopt the merger agreement. A number of the Company's shareholders entered into
voting and lock-up agreements agreeing to vote their shares in favor of the
merger. The votes represented by shareholders who executed voting and lock-up
agreements are enough to satisfy the required vote.
VOTE REQUIRED TO APPROVE MERGER-RELATED PAYMENTS TO CERTAIN OFFICERS AND
EMPLOYEES
To approve the merger-related compensatory payments to officers and highly
compensated employees of the Company, the affirmative vote of the holders of
shares representing seventy-five percent (75%) of the outstanding shares of the
Company's voting common stock and class A preferred stock, voting together as a
class (excluding those holders who are disqualified individuals as entitled to
receive payments under the merger agreement), entitled to vote at the special
meeting is required.
If the merger-related payments to the officers and highly compensated
employees are not approved by the shareholders, under Section 280G of the Code,
the payments will not be payable to the extent they would constitute "excess
parachute payments" made in connection with a "change in control" of the Company
(as that term is defined in Section 280G of the Internal Revenue Code and which
definition the merger would meet). Excess parachute payments under Section 280G
generally are not deductible by the employers such as the Company and are
subject to a 20% excise tax payable by the affected employees.
Under the merger agreement, the Company agreed to obtain shareholders'
approval of such payments prior to the merger closing date.
DISSENTER'S RIGHTS
Under Illinois law, if you are a Company Stockholder and you comply with
certain requirements of Illinois law, you are entitled to dissenters' rights in
the merger. However, it is a condition of the Company's obligation to consummate
the merger that less than five percent (5%) of the Company's stockholders
exercise dissenter's appraisal rights.
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RISK FACTOR
You should carefully consider the following factor in evaluating whether to
approve the merger. This factor should be considered together with the other
risk factors set forth in the enclosed prospectus and the other information
included or incorporated by reference in this proxy statement or the enclosed
prospectus.
THE MERGER COULD BE A TAXABLE TRANSACTION
The merger is intended to qualify as a reorganization for federal income
tax purposes. If it so qualifies, you will not recognize any gain or loss
(except with respect to any RCN shares which are treated as allocable to imputed
interest and any cash received for fractional shares) if you exchange the
Company common stock or Class A preferred stock for RCN common stock in the
merger.
However, the Company's obligation to close is not conditioned on the
receipt of an opinion of counsel that the merger will qualify as a
reorganization, and, as more fully described below under the heading "Material
Federal Income Tax Consequences", there are a number of things which could
happen which could cause the merger to be taxable. These include, but are not
limited to, the following:
- the Company might not have sufficient funds available to make any
required payments to holders of dissenting shares or Debentures (as
defined in the merger agreement attached to the enclosed prospectus), in
which case RCN would provide such funds. Since the particular type of
reorganization involved does not permit any cash whatsoever to be
provided by the acquiror, this would cause the transaction not to qualify
as tax-free;
- A change in applicable law could occur which adversely affects the tax
treatment of the merger; or
- Other unforeseen circumstances could adversely affect the tax treatment
of the merger.
If one of these events, or any other event which causes the merger to become
taxable, were to occur, in most cases the Company would be required to close
anyway.
There is therefore a significant risk that the merger will be a taxable
transaction to holders of the Company common stock and Class A preferred stock.
If that were to occur, you would generally recognize gain or loss equal to the
difference between the value of the RCN common stock that you receive in the
merger and your tax basis in the Company common stock or Class A preferred stock
that you surrender in the merger.
FAIRNESS OPINION
Under a letter agreement dated as of December 10, 1999, Morgan Stanley was
engaged to provide financial advisory services to the Company. Morgan Stanley
was selected by the Company Board to act as its financial advisor for the merger
based on Morgan Stanley's qualifications, expertise and reputation, as well as
its knowledge of the business and affairs of the Company. On December 10, 1999,
Morgan Stanley delivered its oral opinion to the Company Board that, as of such
date, the consideration to be received by the holders of shares of common stock
and preferred stock in the aggregate pursuant to the merger agreement was fair
from a financial point of view to the Company stockholders. Morgan Stanley later
confirmed its oral opinion in writing by delivery of its written opinion dated
December 10, 1999, which stated the considerations and assumptions upon which
Morgan Stanley's oral opinion was based.
Morgan Stanley has acted as financial advisor to the Company in connection
with this transaction and will receive a fee for its services. In the past,
Morgan Stanley & Co. Incorporated and its affiliates have provided financial
advisory and financing services for RCN and have received fees for the rendering
of these services. In connection with the proposed merger, Morgan Stanley, prior
to being retained by the Company, informally provided advice to RCN. Morgan
Stanley will not receive any fees from RCN in connection with the merger, and
both RCN and the Company have waived any potential conflict of interest.
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The full text of the opinion dated December 10, 1999, which sets forth the
assumptions made, procedures followed, matters considered and limitations on the
scope of the review undertaken by Morgan Stanley in rendering its opinion, is
attached as Annex I to this proxy statement. You are urged to read the entire
opinion. Morgan Stanley's written opinion is directed to the Company Board and
only addresses the fairness of the consideration to be received by the holders
of shares of common stock and preferred stock in the aggregate pursuant to the
merger agreement from a financial point of view as of the date of the opinion.
Morgan Stanley's written opinion does not address any other aspect of the Merger
and does not constitute a recommendation to you as to how to vote at the Special
Meeting.
MERGER-RELATED COMPENSATORY PAYMENTS
TO CERTAIN INDIVIDUALS
APPLICABLE TAX LAWS
Under Section 280G of the Code, certain compensatory payments to employees
or other individuals who perform services for a corporation and who are
officers, highly-compensated individuals or significant shareholders are
considered "parachute payments" if such payments are contingent upon a change in
control of the corporation and the payments exceed three times the "base
amount." The base amount generally means an individual's annualized compensation
for the five most recent tax years ending before the change of control or, if an
individual has been employed by the employer for less than five years, the
period of his actual employment. Payments made under an agreement entered into
within one year prior to, or in connection with, a change in control are
presumed to be contingent on the change in control. On the other hand, payments
are not considered parachute payments if the taxpayer can show by clear and
convincing evidence that they constitute reasonable compensation for personal
services to be performed after the change in control or that they otherwise are
not contingent on the change in control. The accelerated vesting of stock
options are considered compensatory payments for this purpose.
Excess parachute payments are not deductible by the corporation, and the
recipient must pay a nondeductible excise tax equal to 20% of the excess
parachute payment in addition to federal income and other taxes on those
payments. An "excess parachute payment" means an amount equal to the excess of
any parachute payment over the base amount allocated to such payment. An excess
parachute payment is reduced by any portion of the payment that the taxpayer
establishes by clear and convincing evidence is reasonable compensation for
personal services actually performed before the change in control. These
payments are applied first to offset the base amount.
Under an exemption, if the stock of the corporation making the payments is
not publicly-traded and if the compensatory payments have been approved by the
shareholders of the corporation, the payments are not considered parachute
payments. The approval of the payments must be by a separate vote of the holders
of stock possessing more than 75% of the voting power of the corporation's
outstanding capital stock immediately before the change in control, after the
material terms of the payments have been disclosed to shareholders. For this
purpose, stock actually or constructively owned by the intended recipient of the
payments is disregarded. Under the rules for determining constructive ownership
of stock, stock owned by a partnership is considered owned proportionately by
its partners, and stock owned by a corporation is considered proportionately
owned by any shareholder owning at least 50% of the corporation's stock. If a
shareholder is not an individual and a substantial portion of its assets
consists of the stock of the corporation making the parachute payments, the
approval by that shareholder must be made by a separate vote of the persons who
hold more than 75% of the voting power of the stock or interests in that
shareholder. Where a general partner of a limited partnership has the authority
to vote on issues involving the management of the partnership's investments, the
general partner has authority to vote to approve compensation payments under
Section 280G of the Code.
The above exemption for shareholder-approved payments requires that the
vote by the shareholders be determinative as to whether the intended recipient
would be entitled to the payments. Thus, the terms of
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the agreement under which the payments are made must provide that if the
shareholders do not approve the payments, the intended recipient will not be
entitled to receive or retain the payments.
The Company and RCN will, pursuant to the merger agreement or in connection
with the merger, extend certain compensatory payments, as described below, to
officers and highly-compensated employees of the Company that may be considered
excess parachute payments, absent shareholder approval. Accordingly, the Company
is requesting shareholders' approval of such payments.
BONUS POOL
The merger agreement provides that, prior to but contingent on the closing
of the merger, RCN and the Company will create a bonus pool which will have
terms substantially as set forth on Exhibit G of the merger agreement (the
"Bonus Pool"), in which certain employees will participate to the extent of
their respective percentage interest listed on such Exhibit G opposite their
names.
The terms of the Bonus Pool and related matters are more fully described in
the enclosed prospectus and the merger agreement attached thereto. In general,
the Bonus Pool will be 20% of a contingent payment amount resulting from an
incentive formula as set forth in Exhibits A and G of the merger agreement,
based on the Company achieving certain performance targets for the twelve-month
period ending March 31, 2001. The performance targets relate to marketable homes
and on-net revenues, which must be achieved by the Company without exceeding
specific limitations on both capital expenditures and earnings before interest,
taxes, depreciation and amortization. The Bonus Pool will vary from $2,000,000
to $10,000,000, based on the Company's performance, and will be payable in RCN
common stock.
The following officers and highly compensated employees of the Company will
be eligible to participate in the Bonus Pool and to receive the percent thereof
as set forth following their names if they are employed by the Company on the
bonus payment date: Ronald D. Webster (5%); John Brouse, Jr. (5%); David Jacobs
(5%); Michael Cloran (5%); Eric D. Kurtz (2.5%); Christopher Young (2.5%);
Roxanne Jackson (1%); Tracy Snell (2.5%); James P. Dreher (2.5%); Marcus Miller
(2.5%); and Howard J. Kitchen (2.5%). The percentage allocated to each
individual may be adjusted prior to the merger closing date. In the event that
any individual is not employed by the Company on the bonus payment date, his or
her share of the Bonus Pool will be forfeited and allocated amongst the
remaining employees or additional employees as determined by the Board of
Directors of the Company.
The Bonus Pool payments to the above individuals are being submitted to the
shareholders for approval as required by the merger agreement. To the extent any
payment of the Bonus Pool would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code, payment of any such "excess" may only
be made if the stockholder approval has been properly obtained as discussed
above.
PAYMENTS IN SUBSTITUTION OF CERTAIN OPTIONS
The merger agreement provides that prior to the merger closing date, the
Company will terminate the 21st Century Telecom Group, Inc. 1999 ISP Stock Plan
(the "Plan") and will cancel all outstanding options granted under the Plan in
return for the grant, to each option holder, of the right to receive a pro rata
portion of an earnout payment (the "ISP Option Amount").
The terms of the ISP Option Amount and related matters are more fully
described in the enclosed prospectus and the merger agreement attached thereto.
In general, the ISP Option Amount will be 4% of a contingent payment amount
resulting from the incentive formula as discussed above in the "Bonus Pool"
Section (i.e., the ISP Option Amount will equal 20% of the Bonus Pool). The ISP
Option Amount will vary from $400,000 to $2,000,000, based on the Company's
performance, and will be payable in RCN common stock.
The following highly compensated employees of the Company will be eligible
to participate in the ISP Option Amount and to receive the percent thereof as
set forth following their names: Michael Cloran (44%); Tracy Snell (44%); and
James P. Dreher (4%). Each person's share of the ISP Option Amount is
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based on the number of options that person has as a percentage of all options
outstanding under the Plan as of December 12, 1999.
The ISP Option Amount payments to the above individuals are being submitted
to the shareholders for approval as required by the merger agreement. To the
extent any payment of the ISP Option Amount would constitute an "excess
parachute payment" within the meaning of Section 280G of the Code, payment of
any such "excess" may only be made if the stockholder approval has been properly
obtained as discussed above.
VESTING OF STOCK OPTIONS
The Company has granted the following stock options to officers and highly
compensated employees which will become vested and exercisable upon or in
connection with the merger:
<TABLE>
<CAPTION>
OPTION HOLDERS OPTIONS
- -------------- -------
<S> <C>
Robert J. Currey..................... Option granted on March 6, 1998 to purchase 278,200 shares
at $1.12 per share, of which 199,955.87 shares were vested
as of November 11, 1999; Option granted on December 12, 1999
to purchase 322,000 shares at $10.00 per share, of which
161,000 shares were vested as of November 11, 1999;
Ronald D. Webster.................... Option granted on September 2, 1997 to purchase 109,300
shares at $1.12 per share, of which 59,204.2520 shares were
vested as of November 11, 1999; Option granted on April 14,
1998 to purchase 53,000 shares at $4.50 per share, of which
29,812.544 shares were vested as of November 11, 1999;
Option granted on April 1, 1999 to purchase 50,000 shares at
$4.50 per share, of which 27,083.334 shares were vested as
of November 11, 1999;
John Brouse, Jr...................... Option granted on May 5, 1997 to purchase 36,433.3850 shares
at $1.12 per share, of which 22,770.867 shares were vested
as of November 11, 1999; Option granted on January 1, 1999
to purchase 25,000 shares at $4.50 per share, of which
5,729.1667 shares were vested as of November 11, 1999;
Eric D. Kurtz........................ Option granted on April 28, 1997 to purchase 36,433.3850
shares at $1.12 per share, of which 23,529.896 shares were
vested as of November 11, 1999;
Roxanne Jackson...................... Option granted on May 15, 1996 to purchase 2,733.354 shares
at $1.12 per share, of which 609.678 shares were vested as
of November 11, 1999; Option granted on January 1, 1999 to
purchase 11,073 shares at $4.50 per share, of which 583.334
shares were vested as of November 11, 1999;
Steve Lee............................ Option granted on February 7, 1997 to purchase 91,083.46
shares at $1.12 per share, of which 62,619.89 shares were
vested as of November 11, 1999; and
Susan Quandt......................... Option granted on December 12, 1997 to purchase 72,866.77
shares at $1.12 per share, of which 34,915.327 shares were
vested as of November 11, 1999.
</TABLE>
The accelerated vesting of the above options are being submitted to the
shareholders for approval as required by the merger agreement. Such accelerated
vesting are subject to the shareholders' approval to the extent such vesting
would constitute an "excess parachute payment" within the meaning of Section
280G of the Code.
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The merger agreement provides that the options of Messrs. Currey, Webster
and Brouse and the stock incentive plans under which those options are granted
will be amended before the merger closing date, subject to such officers'
consents, to provide that any accelerated vesting of such options that may occur
as a result of the merger will be waived. As of March 31, 2000, Messrs. Webster
and Brouse have executed such waiver agreements. In addition, RCN is currently
in the process of negotiating an employment arrangement with Mr. Currey to
provide him with a level of compensation and benefits consistent with similarly
situated RCN employees. As part of that negotiation, RCN expects Mr. Currey to
execute such an agreement relating to the waiver of the automatic vesting of his
stock options that might have occurred as a result of the merger. It is a
condition to RCN's obligation to complete the merger that he execute such an
agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income
tax consequences of the merger to holders of common stock and Class A preferred
stock of the Company. It addresses only those of you who hold your the Company
common stock or Class A preferred stock, as the case may be, and will, after the
merger, hold your RCN Common Stock, as, in each case, a capital asset. This
summary does not discuss all aspects of U.S. federal income taxation that may be
relevant to you in light of your particular tax circumstances, nor does it
discuss any state, local, foreign or non-income tax consequences. This
discussion does not address the federal income tax consequences that may be
applicable to taxpayers subject to special treatment under the Internal Revenue
Code of 1986, as amended, which will be referred to as the "Code" in the
following discussion. For example, it does not address the consequences to:
- tax exempt entities;
- partnerships, S corporations and other pass-through entities;
- mutual funds;
- small business investment companies;
- regulated investment companies;
- insurance companies and other financial institutions;
- dealers in securities;
- traders that mark to market;
- stockholders who hold their shares as part of a hedge, appreciated
financial position, straddle or conversion transaction;
- stockholders who acquired their shares through the exercise of options or
otherwise as compensation or through a tax-qualified retirement plan; and
- individuals who are not citizens or residents of the United States,
foreign corporations and other foreign entities.
This discussion is based on the Code, Treasury regulations, published
positions of the IRS and court decisions now in effect, all of which are subject
to change. In particular, the U.S. Congress could enact legislation, or the
Treasury Department could issue regulations or other guidance, affecting the
treatment of the transactions contemplated by the merger. Any such change, which
may or may not be retroactive, could alter the tax consequences discussed in
this document.
As more fully described below, it is intended that the merger qualify as a
reorganization for federal income tax purposes, and it is intended that if it is
able to do so, Piper Marbury Rudnick & Wolfe LLP will deliver to the Company an
opinion to that effect. However, it is not a condition to the obligation of the
Company to consummate the merger that the Company receive such an opinion. It is
a condition to the obligation of the Company to consummate the merger that RCN
provide to the Company a
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representation letter which addresses certain facts which are relevant to the
treatment of the merger as a reorganization. If Piper Marbury Rudnick & Wolfe
LLP does deliver an opinion that the merger will be a reorganization, such
opinion will be based on certain assumptions, and on the representations
contained both in the representation letter provided by an officer of RCN and in
a separate representation letter provided to Piper Marbury Rudnick & Wolfe LLP
by an officer of the Company. If any of those assumptions or representations
prove to be inaccurate, the conclusions contained in the opinion could be
affected.
IT IS POSSIBLE THAT THE COMPANY WILL BE OBLIGATED TO CONSUMMATE THE MERGER
BUT WILL NOT RECEIVE ANY ADVICE FROM TAX COUNSEL THAT THE RESULTANT EXCHANGES OF
STOCK ARE OTHER THAN TAXABLE EVENTS TO THE COMPANY STOCKHOLDERS. AS DISCUSSED
BELOW, THERE IS A SIGNIFICANT RISK THAT THE MERGER WILL BE A TAXABLE TRANSACTION
TO HOLDERS OF THE COMPANY COMMON STOCK AND SERIES A PREFERRED STOCK.
TREATMENT OF THE MERGER AS A REORGANIZATION
Provided that none of the events described below under the heading
TREATMENT OF THE MERGER AS A TAXABLE TRANSACTION -- Events Which Could Cause the
Merger to be Taxable takes place, the merger will be treated as a reorganization
under the Code. If the merger so qualifies, the material federal income tax
consequences to you will be as follows:
Except as discussed below with respect to certain imputed interest and cash
received in lieu of fractional shares, you will recognize neither gain nor loss
with respect to your Company common stock or Class A preferred stock upon your
surrender of all such stock in exchange for RCN Common Stock in the merger
(including any RCN Common Stock (a) held in escrow, (b) issued subject to the
"earn-out," and (c) issued upon the Company's obtaining the franchises for which
it has applications pending (items (b) and (c) are referred to as the "RCN
Contingent Shares")).
Except for shares of RCN Common Stock treated as imputed interest, the
aggregate tax basis of the shares of RCN Common Stock you receive in the
exchange of all of your Company stock solely for RCN Common Stock in the merger
will be the same as the aggregate tax basis of the shares of Company common
stock or Class A preferred stock you surrender in exchange therefor (reduced by
any amount of tax basis allocable to a fractional share interest in RCN Common
Stock for which you receive cash). The aggregate tax basis of the RCN Contingent
Shares treated as imputed interest will be equal to the amount of interest
income you are required to recognize upon receipt of any RCN Contingent Shares
so treated.
If you dispose of some of the RCN Common Stock received on the merger
closing date prior to the time when your right to receive any RCN Contingent
Shares is determinable, you may be required to determine the adjusted basis of
the shares disposed of by estimating the number of Contingent RCN Shares that
you will receive. Under this approach, you would "spread" the remainder of your
adjusted basis over the RCN Contingent Shares (other than Imputed Interest
Shares, as defined below) that you actually receive and what is left of the
initial RCN Common Stock (including shares of RCN Common Stock deposited into
escrow). The proper allocation of aggregate adjusted basis between the RCN
Common Stock received on the merger closing date (including shares of RCN Common
Stock deposited into escrow) and the RCN Contingent Shares is uncertain.
Consequently, you should consult your tax advisor regarding the determination of
the adjusted basis of any RCN Common Stock disposed of prior to the time when
your right to receive any RCN Contingent Shares is determinable.
- A portion of the shares, if any, of RCN Common Stock you receive as RCN
Contingent Shares will be treated as imputed interest and you must
include that portion as taxable ordinary income in the year of receipt.
The portion treated as imputed interest will generally be equal to the
excess of the fair market value of the RCN Contingent Shares on the
earlier of the date of receipt or the date of deposit in escrow, over the
present value of such fair market value, determined as of the merger
closing date, discounted using the short-term applicable federal rate in
effect for the month
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of closing. A number of RCN Contingent Shares having an aggregate fair
market value on the date of receipt equal to the foregoing excess will be
herein referred to as "Imputed Interest Shares."
- Except for Imputed Interest Shares, the holding period for shares of RCN
Common Stock you receive in the merger will include your holding period
of shares of Company common stock or Class A preferred stock you
surrender in exchange therefore. Your holding period for any Imputed
Interest Shares will begin on the earlier of the date that such share is
received or the date it is deposited in escrow.
- Based upon the current ruling position of the IRS, cash you receive in
lieu of a fractional share interest in RCN Common Stock will be treated
as received in redemption of that fractional share interest, and you will
generally recognize capital gain or loss for federal income tax purposes
measured by the difference between the amount of cash you receive and the
portion of the tax basis of your Company stock that is allocable to such
fractional share interest. The capital gain or loss generally will be
long-term capital gain or loss if your holding period in your Company
stock is more than one year.
- If you exercise your right under Illinois law to demand and receive the
fair market value of your Company common stock or Class A preferred stock
and, immediately after the merger, you are not treated as owning any RCN
Common Stock indirectly under certain rules providing for attribution of
ownership, you should generally recognize gain or loss equal to the
difference, if any, between the tax basis of your Company common stock or
Class A preferred stock and the amount of cash you receive. The gain or
loss generally will be capital gain or loss and will be long-term capital
gain or loss if the Company common stock or Class A preferred stock you
exchange was held by you for more than one year.
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TREATMENT OF THE MERGER AS A TAXABLE TRANSACTION
As described below, there are a number of events which could occur which
would render it impossible for Piper Marbury Rudnick & Wolfe LLP to render an
opinion as to the status of the merger as a reorganization. In some cases, the
merger might nonetheless so qualify (although no assurance to that effect could
be provided); in other cases, the events would result in the merger clearly
being taxable. Furthermore, even if Piper Marbury Rudnick & Wolfe LLP were able
to render an opinion as to the status of the merger as a reorganization, that
opinion would be based on certain assumptions; if those assumptions turned out
not to be true, the merger could be a taxable transaction.
If the merger did not qualify as a reorganization, the following would be
the material federal income tax consequences to holders of the Company common
stock and Class A preferred stock:
- You would recognize gain or loss equal to the difference between the fair
market value of the RCN Common Stock received and the adjusted basis of
the Company common stock or Class A preferred stock surrendered in
exchange therefor. The timing of such gain or loss would depend on your
method of accounting, and you should consult your own tax advisor in this
regard. Note that, under legislation signed into law by the President on
December 13, 1999 and applicable to sales on or after such date,
taxpayers who generally report income on the accrual method for tax
purposes are not eligible to use the installment method. There have been
proposals to repeal this provision, and you should consult your tax
advisor as to its application to you.
- Except with respect to shares of RCN Common Stock which are treated as
allocable to imputed interest, such gain or loss generally would be
capital gain or loss and, if the Company common stock or Class A
preferred stock you exchange was held by you for more than one year,
would be long-term capital gain or loss.
- Any RCN Common Stock received would have an adjusted basis equal to its
fair market value on the date it is taken in account in determining the
amount of your gain or loss.
Events Which Could Cause the Merger to be Taxable. There are a number of
events which, if they were to occur, could cause the merger to fail to qualify
as a reorganization, in which case the tax consequences described under the
heading TREATMENT OF THE MERGER AS A TAXABLE TRANSACTION would apply. These
events include the following:
- Payments to Dissenters and to Holders of Debentures. Among the
requirements for treatment of the merger as a tax-free reorganization is
a requirement that (except for cash in lieu of fractional shares) the
only consideration which RCN may pay to holders of Company stock is
voting stock of RCN. This requirement is sometimes referred to as the
"solely for voting stock" requirement.
In order to satisfy the solely for voting stock requirement, RCN may not,
directly or indirectly, provide funds for any payments to dissenting
stockholders of the Company. In addition, any payments with respect to
Debentures (as defined in the merger agreement attached to the enclosed
prospectus) could be viewed as indirect payments with respect to the Company
exchangeable Preferred Stock which was exchanged for such Debentures. Therefore,
in order to satisfy the solely for voting stock requirement, RCN may not,
directly or indirectly, provide funds for payments to holders of Debentures.
Because of issues relating to the source of funds that would be used to pay
dissenters, if there are dissenters the status of the merger as a reorganization
would not be entirely clear, and Piper Marbury Rudnick & Wolfe LLP may not be
able to render an opinion as to such status. In that case, the company would
nonetheless be required to close.
10
<PAGE> 14
As described above, the Company will only be required to close if RCN
provides a certificate of an officer of RCN with respect to certain factual
representations. Included in such certificate are representations generally to
the effect that RCN will not provide funds for the purpose of making payments to
holders of Debentures. However, RCN reserves the right to provide such funds if
the Company does not have the funds to make the payments.
If the Company is unable to certify that it believes it will have the
necessary funds available to make payments with respect to the Debentures (so
that it will not be necessary for RCN to provide such funds), Piper Marbury
Rudnick & Wolfe LLP will be unable to render an opinion as to the status of the
merger as a reorganization, but the Company will nonetheless be required to
close. Even if such an opinion is rendered, if RCN ultimately does provide funds
for this purpose (which it may do if the Company does not have adequate funds
available), the merger will be taxable. In this connection, it is noted that,
under the terms of the Debentures, payments of interest prior to February 15,
2003 may, at the option of the Company, be paid either in cash or by the
issuance of additional Debentures. It is currently the intention of the Company
to make such payments in the form of additional Debentures until payments in
cash are required to be made. However, if payments were in fact made in cash,
such cash could be viewed as having been provided, indirectly, by RCN.
Accordingly, if Piper Marbury Rudnick & Wolfe LLP does render an opinion with
respect to the status of the merger as a reorganization, such opinion will be
based on the assumption that no cash payments will be made with respect to the
Debentures until such time as payments are required to be made in cash pursuant
to the terms of the Debentures. If, contrary to such assumption, cash payments
are in fact made prior to that time, the merger could, notwithstanding such
opinion, fail to qualify as a reorganization.
- Significant Drop in Price of RCN Stock. One of the requirements for
tax-free reorganization status is the so-called "continuity of interest"
doctrine. Under this doctrine, a substantial part of the proprietary
interests in the Company must be preserved, in the form of stock of RCN,
after the merger.
For purposes of this doctrine, the Company common stock and Class A stock
which is exchanged for RCN common stock in the merger, and Exchangeable
Preferred Stock which is exchanged for Debentures which are then exchanged for
RCN common stock in the Debenture Offer (as defined in the merger agreement
attached to the enclosed prospectus), will be treated as having been preserved.
Exchangeable Preferred Stock which is exchanged for Debentures which are not
then exchanged for RCN Common Stock in the Debentures Offer will not be treated
as having been preserved.
If the value of the RCN stock issued in both the merger and the Debenture
Offer is at least 45% of the sum of the value of such stock and the value of the
Debentures which are not exchanged for RCN stock, Piper Marbury Rudnick & Wolfe
LLP is of the opinion that the continuity of interest requirement will be
satisfied. Based on the market price of RCN common stock as of March 28, 2000,
significantly more than the minimum required degree of continuity will be
preserved. However, if there were to occur a precipitous drop in the value of
RCN stock so that the 45% standard is not satisfied based on the value of RCN
stock at the time of Closing. Piper Marbury Rudnick & Wolfe LLP would be unable
to opine as to the tax-free status of the merger, and, depending on how low the
price has dropped, the merger could be taxable. In that case, the Company would
nonetheless be required to close.
- Change in Law. If a change in law (including a change in Treasury
Regulations or other administrative guidance) were to occur which
affected the status of the merger as a reorganization, the Company would
nonetheless be required to close. The Company is not aware of any
currently pending changes in law which would result in the merger being
taxable.
- Contingent and Escrowed Consideration. The IRS has published guidelines
addressing contingent and escrowed consideration in the context of
reorganizations. One of the requirements under these guidelines is that
at least 50% of the total number of shares which may be issued in the
transaction must be issued to stockholders at the time of closing. With
respect to the Contingent Deferred Payment and the Franchise Amount, the
dollar value is subject to a maximum which, based on the value of RCN
stock as of March 28, 2000, is (together with the RCN shares placed in
escrow)
11
<PAGE> 15
within this standard. However, because the number of shares potentially
payable with respect to these items will be determined based on the value
of RCN stock at a later point in time, it is possible that the aggregate
number of shares under the escrow, the Contingent Deferred Payment and
the Franchise Amount will exceed the number issued at closing. Because it
is possible that this may happen (whether or not it actually does), the
merger technically will not fall within the ruling guidelines.
Nonetheless, the ruling guidelines are not substantive law, and Piper
Marbury Rudnick & Wolfe LLP believes that this will not affect the
tax-free treatment.
However, if the price of RCN stock were to fall so that the 50% standard
were not satisfied based on the value of RCN stock at the time of the closing,
the matter would be less clear (although Piper Marbury Rudnick & Wolfe LLP would
nonetheless render an opinion that it should not affect the status of the merger
as a reorganization).
- Other Unforeseen Circumstances. In addition to the specific events
enumerated above, it is possible that other, unforeseen events could
occur prior to the closing which could adversely affect the status of the
merger as a reorganization, or which could affect the ability of Piper
Marbury Rudnick & Wolfe LLP to render an opinion. If any such event were
to occur, the Company would nonetheless be required to close.
POSSIBILITY OF QUALIFICATION AS ANOTHER FORM OF REORGANIZATION. The
preceding description is based on the intended characterization of the merger as
a so-called Type B reorganization. The Code also provides for other forms of
reorganization, some of which do not have a solely for voting stock requirement.
If RCN acquires at least 80% of the Debentures in the Debenture Offer, it is
possible that, even if the merger does not qualify as a Type B reorganization,
it may nonetheless qualify as another form of reorganization. However, other
forms of reorganization have certain additional requirements, and the merger
agreement does not contain provisions which are necessary to ensure that those
requirements will be satisfied. Therefore, if the merger fails to qualify as a
Type B reorganization, no assurance can be given that it will qualify as another
type of reorganization.
The preceding summary of the material federal tax consequences of the
merger does not purport to be a complete analysis or discussion of all potential
tax effects relevant to the merger. Thus, you are urged to consult your own tax
advisors as to the specific consequences to you of the merger, including tax
return reporting requirements, the applicability and effect of federal, state,
local, foreign and other tax laws and the effect of any proposed changes in the
tax laws.
12
<PAGE> 16
ANNEX 1
FAIRNESS OPINION
December 10, 1999
Board of Directors
21st Century Telecom Group, Inc.
350 N. Orleans Street, Suite 600
Chicago, IL 60654-1509
Members of the Board:
We understand that 21st Century Telecom Group, Inc. ("21st Century" or the
"Company"), RCN Corporation ("RCN") and 21st Holding Corp., a wholly owned
subsidiary of RCN ("Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger, substantially in the form of the draft dated December 10, 1999
(the "Merger Agreement"), which provides, among other things, for the merger
(the "Merger") of Acquisition Sub with and into 21st Century. Pursuant to the
Merger, 21st Century will become a wholly owned subsidiary of RCN and each
outstanding share of voting and non-voting common stock, no par value (the "21st
Century Common Stock"), of 21st Century and each outstanding share of Class A
Preferred Stock, no par value (the "21st Century Preferred Stock"), of 21st
Century, other than shares held in treasury or held by RCN or any affiliate of
RCN or 21st Century or as to which dissenters' rights have been perfected in
each case, will be converted into the right to receive a certain number of
shares of common stock, par value $1.00 per share (the "RCN Common Stock"), of
RCN determined pursuant to certain formulas set forth in the Merger Agreement
which are based, on among other things, an Exchange Ratio and the receipt of the
Franchise Amount, the Escrowed Common Consideration and the Escrowed Preferred
Consideration (collectively, the "Consideration"). The terms and conditions of
the Merger are more fully set forth in the Merger Agreement. Capitalized terms
used but not otherwise defined herein shall have the respective meanings
ascribed thereto in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be
received by the holders of shares of the 21st Century Common Stock and the 21st
Century Preferred Stock in the aggregate pursuant to the Merger Agreement is
fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and RCN;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections prepared by the
management of the Company;
(iv) reviewed certain financial projections for the Company and for
RCN contained in certain securities analysts' research reports;
(v) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of the Company;
(vi) discussed the past and current operations and financial condition
and the prospects of RCN, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of RCN;
(vii) reviewed the reported prices and trading activity for the RCN
Common Stock;
A-1
<PAGE> 17
(viii) compared the financial performance of the Company and RCN and
the prices and trading activity of the RCN Common Stock with that of
certain other comparable publicly-traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(x) reviewed the relevant provisions relating to the Notes and the
Exchangeable Preferred;
(xi) participated in discussions and negotiations among
representatives of the Company and RCN and their financial and legal
advisors;
(xii) discussed certain tax and accounting issues with senior
executives of the Company and with the Company's tax, accounting and legal
advisors;
(xiii) reviewed the draft Merger Agreement and certain related
documents; and
(xiv) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of information supplied or otherwise made available to us by
the Company and RCN for purposes of this opinion. With respect to the financial
projections, including information relating to certain strategic, financial and
operational benefits anticipated from the Merger, we have assumed that they have
been reasonably prepared on basis reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
RCN. As you know, RCN did not make available to us certain internal information
or financial projections, and consequently we have relied with your consent on
publicly available securities analysts' research reports on RCN. We have further
assumed with your consent that the Merger will be consummated on the terms set
forth in the Merger Agreement, including, among other things, that the Merger
will be treated as a tax-free reorganization and/or exchange, each pursuant to
the Internal Revenue Code of 1986. In addition, we have assumed that in
connection with the receipt of all necessary regulatory approvals for the
Merger, no restrictions will be imposed that would have a material adverse
effect on the Company, RCN or the contemplated benefits expected to be derived
in the Merger. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. In the past, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") and its affiliates have provided financial
advisory and financing services for RCN and have received fees for the rendering
of these services. In connection with the proposed Merger, Morgan Stanley, prior
to being retained by 21st Century, informally provided advice to RCN. Morgan
Stanley will not receive any fees from RCN in connection with the Merger, and
both RCN and 21st Century have waived any potential conflict of interest.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing required to be made by the Company in respect of the
Merger. Morgan Stanley expresses no opinion as to the relative valuations of
each of the voting and non-voting 21st Century Common Stock and the 21st Century
Preferred Stock. In addition, this opinion does not in any manner address the
prices at which the RCN Common Stock will trade following announcement or
consummation of the proposed Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the holders of the 21st Century Common Stock should
vote at the shareholders' meetings held in connection with the Merger.
A-2
<PAGE> 18
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of shares of the
21st Century Common Stock and the 21st Century Preferred Stock in the aggregate
pursuant to the Merger Agreement is fair from a financial point of view to such
holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ PAUL J. TAUBMAN
------------------------------------
Paul J. Taubman
Managing Director
A-3
<PAGE> 19
21ST CENTURY TELECOM GROUP, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE NOTE THAT ONLY HOLDERS OF VOTING COMMON STOCK AND CLASS A PREFERRED
STOCK OF 21ST CENTURY TELECOM GROUP, INC. ARE ENTITLED TO VOTE. HOLDERS OF
NON-VOTING COMMON STOCK AND WARRANTS ARE FURNISHED WITH THIS PROXY STATEMENT FOR
INFORMATIONAL PURPOSES ONLY.
The undersigned stockholder of 21ST CENTURY TELECOM GROUP, INC., an Illinois
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders, Proxy Statement and Prospectus, each dated March 31, 2000, and
hereby appoints Robert J. Currey and Ronald D. Webster and each of them proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the Special Meeting
of Stockholders of 21ST CENTURY TELECOM GROUP, INC., to be held on April 27,
2000 at 10:00 a.m., local time, at the headquarters of the Company at 350 North
Orleans, Suite 600, Chicago, Illinois 60654 and any adjournment(s) thereof, and
to vote all shares of voting common stock and class A preferred stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side.
1. Proposal to approve and adopt the merger agreement and to approve the Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve certain merger-related compensatory payments to officers
and highly compensated employees of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matter(s) as may properly come before the meeting (including any motion to
adjourn to a later time to permit further solicitation of proxies if necessary
to establish a quorum or to obtain additional votes in favor of one or more of
the proposals) or before any postponement or adjournments thereof.
<PAGE> 20
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE APPROVAL OF THE MERGER.
<TABLE>
<S> <C>
If your hold voting common stock, sign below to If you hold class A preferred stock, sign below
vote: to vote:
Both of such attorneys or substitutes (if both Both of such attorneys or substitutes (if both
are present and acting at said meeting or any are present and acting at said meeting or any
adjournment(s) thereof, or, if only one shall be adjournment(s) thereof, or, if only one shall be
present and acting, then that one) shall have present and acting, then that one) shall have
and may exercise all of the powers of said and may exercise all of the powers of said
attorneys-in-fact hereunder. attorneys-in-fact hereunder.
Dated: ----------------------------------------- Dated: -----------------------------------------
- ------------------------------------------------ ------------------------------------------------
(Signature) (Signature)
</TABLE>
If the shares are registered in the names of two or more persons, each
should sign. Executors, administrators, trustees, guardians and
attorneys-in-fact should give their full title. If the Shareholder is a
corporation, please give corporate name and have an authorized officer sign,
stating his title. If the Shareholder is a partnership, please sign in
partnership name by an authorized person.
Note: If the Shareholder is an entity and owns more than one percent by
value of the outstanding stock of the Company and its holdings of the stock of
the Company constitute 10 percent or more by value of its total assets, the
holders of the aggregate of more than 75 percent of the normal voting rights of
the Shareholder should also consent to and adopt the proxy set forth herein by
signing below.
The undersigned hereby consent to
and adopt the proxy set forth
herein.
Dated:
-------------------------------------
----------------------------------
----------------------------------
(Signature)
<PAGE> 1
EXHIBIT 99.6
RCN CORPORATION
CONSENT AND LETTER OF TRANSMITTAL
OFFER TO EXCHANGE COMMON STOCK OF RCN CORPORATION FOR
ANY AND ALL OUTSTANDING
13 3/4% SUBORDINATED EXCHANGE DEBENTURES DUE 2010
OF 21ST CENTURY TELECOM GROUP, INC.
AND SOLICITATION OF CONSENTS FOR
AMENDMENT OF THE RELATED INDENTURE
THE SOLICITATION OF CONSENTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON
APRIL 13, 2000 UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE
"CONSENT EXPIRATION DATE"). THE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY
TIME, ON APRIL 27, 2000 UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE EXTENDED,
THE "EXCHANGE OFFER EXPIRATION DATE"). HOLDERS WHO DESIRE TO RECEIVE THE EARLY
CONSENT PAYMENT AND THE OFFER CONSIDERATION MUST BOTH VALIDLY CONSENT TO THE
PROPOSED AMENDMENTS AND TENDER THEIR DEBENTURES PURSUANT TO THE OFFER ON OR
PRIOR TO THE CONSENT EXPIRATION DATE. HOLDERS WHO TENDER AFTER THE CONSENT
EXPIRATION DATE WILL RECEIVE ONLY THE OFFER CONSIDERATION. CONSENTS MAY ONLY BE
REVOKED PRIOR TO THE CONSENT EXPIRATION DATE, BUT MAY NOT BE REVOKED THEREAFTER.
TENDERS OF DEBENTURES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXCHANGE OFFER
EXPIRATION DATE.
The Exchange Agent for the Exchange Offer and the Consent Solicitation is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop -- Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>
By Facsimile Transmission:
(for Eligible Institutions Only)
(201) 296-4293
Confirm Facsimile by telephone ONLY:
(201) 296-4860
DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
HOLDERS WHO WISH TO CONSENT TO THE PROPOSED AMENDMENTS AND TO RECEIVE THE
EARLY CONSENT PAYMENT PURSUANT TO THE CONSENT SOLICITATION MUST VALIDLY TENDER
(AND NOT WITHDRAW) THEIR DEBENTURES TO THE EXCHANGE AGENT ON OR PRIOR TO THE
CONSENT EXPIRATION DATE.
<PAGE> 2
The instructions contained herein and in the Exchange Offer (as defined
below) should be read carefully before this Consent and Letter of Transmittal is
completed.
List below the Debentures to which this Consent and Letter of Transmittal
relates. If the space provided below is inadequate, list the certificate numbers
and principal amounts on a separately executed schedule and affix the schedule
to this Consent and Letter of Transmittal. Tenders of Debentures will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF DEBENTURES
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
AGGREGATE PRINCIPAL TENDERED AND AS TO
NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT WHICH CONSENTS ARE
(PLEASE FILL IN, IF BLANK) NUMBER(S)* REPRESENTED** GIVEN
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total Principal Amount of Debentures
- --------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer (see below).
** Unless otherwise indicated in the column labeled "Principal Amount Tendered And As To Which Consents Are Given" and
subject to the terms and conditions of the Prospectus, a Holder will be deemed to have tendered the entire aggregate
principal amount represented by the Debentures indicated in the column labeled "Aggregate Represented." See
Instruction 5.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE TOTAL CONSIDERATION PURSUANT
TO THE EXCHANGE OFFER AND THE CONSENT SOLICITATION MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR DEBENTURES AND VALIDLY CONSENT TO THE PROPOSED AMENDMENTS ON OR
PRIOR TO THE CONSENT EXPIRATION DATE. HOLDERS WHO VALIDLY TENDER THEIR
DEBENTURES AND THE RELATED CONSENT AFTER THE CONSENT EXPIRATION DATE WILL
RECEIVE ONLY THE EXCHANGE OFFER CONSIDERATION AND NOT THE EARLY CONSENT PAYMENT.
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution:
Account Number with DTC:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
Window Ticket No. (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Eligible Institution that Guaranteed Delivery:
If Delivered by Book-Entry Transfer:
Account Number with DTC:
Transaction Code Number:
3
<PAGE> 4
By the execution hereof, the undersigned acknowledges receipt of the
Prospectus and Consent Solicitation, dated March 31, 2000 (as the same may be
amended from time to time, the "Prospectus") of RCN Corporation, a Delaware
corporation ("RCN"), this Consent and Letter of Transmittal and instructions
hereto (the "Consent and Letter of Transmittal" and together with the
Prospectus, the "Exchange Offer"). The Exchange Offer consists of (i) RCN's
offer to exchange shares of common stock of RCN, par value $1.00 per share (the
"RCN Stock"), for any and all of the outstanding 13 3/4% Subordinated Exchange
Debentures due 2010 (the "Debentures") of 21st Century Telecom Group, Inc. (the
"Issuer"), upon the terms and subject to the conditions set forth in the
Prospectus, and (ii) RCN's solicitation (the "Consent Solicitation") of consents
(the "Consents") from each holder (each a "Holder" and, collectively, the
"Holders") of Debentures to certain proposed amendments (the "Proposed
Amendments") to the Indenture dated as of February 15, 1998, as amended (the
"Indenture"), between the Issuer and The Bank of New York (formerly IBJ
Schroeder Bank and Trust Company), as trustee (the "Trustee"), pursuant to which
the Debentures were issued. Holders who tender Debentures under this Consent and
Letter of Transmittal on or prior to the Consent Expiration Date will be deemed
to consent to the Proposed Amendments.
This Consent and Letter of Transmittal is to be used by Holders if (i)
certificates representing Debentures are to be physically delivered to the
Exchange Agent herewith by Holders, (ii) tender of Debentures is to be made by
book-entry transfer to the Exchange Agent's account at The Depositary Trust
Company ("DTC") pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer -- Procedures for Exchanging Debentures and Delivering
Consents -- Tender of Debentures Held Through DTC" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Debentures, unless such tender is made after the Consent
Expiration Date and an Agent's Message (as described in the Prospectus) is
delivered in connection with such book-entry transfer, or (iii) tender of
Debentures after the Consent Expiration Date is to be made according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer -- Procedures for Exchanging Debentures and Delivering Consents
- -- Guaranteed Delivery". Delivery of documents to DTC does not constitute
delivery to the Exchange Agent.
The undersigned has completed, executed and delivered this Consent and
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer and the Consent Solicitation.
The instructions included with this Consent and Letter of Transmittal must
be followed. Questions and requests for assistance or for additional copies of
the Prospectus, this Consent and Letter of Transmittal and the Notice of
Guaranteed Delivery must be directed to Salomon Smith Barney Inc. in its
capacity as the dealer manager for the Exchange Offer and Consent Solicitation
(the "Dealer Manager"), or ChaseMellon Shareholder Services, L.L.C. in its
capacity as the information agent (the "Information Agent"), in each case at the
address and telephone number set forth on the back cover page of this Consent
and Letter of Transmittal. See Instruction 13 below.
Holders that are tendering by book-entry transfer to the Exchange Agent's
account at DTC can execute the tender through the DTC Automated Tender Offer
Program ("ATOP"), for which the transaction will be eligible. DTC participants
that are accepting the Exchange Offer must transmit their acceptance to DTC,
which will verify the acceptance and execute a book-entry delivery to the DTC
account of ChaseMellon Shareholder Services, L.L.C. in its capacity as the
exchange agent (the "Exchange Agent"). DTC will then send an Agent's Message to
the Exchange Agent for its acceptance. DTC participants may also accept the
Exchange Offer after the Consent Expiration Date by delivering a Notice of
Guaranteed Delivery to the Exchange Agent.
To validly deliver a Consent with respect to Debentures transferred
pursuant to ATOP on or prior to the Consent Expiration Date (and thereby make a
valid tender), a DTC participant using ATOP must also properly complete and duly
execute, a Consent and Letter of Transmittal and timely deliver it to the
Exchange Agent. Pursuant to authority granted by DTC, any DTC participant which
has Debentures credited to its DTC account at any time (and thereby held of
record by DTC's nominee) may directly
4
<PAGE> 5
provide a Consent to the Proposed Amendments as though it were a registered
Holder by so completing, executing and delivering the Consent and Letter of
Transmittal.
If a Holder desires to tender Debentures pursuant to the Exchange Offer
after the Consent Expiration Date and prior to the Exchange Offer Expiration
Date and (a) certificates representing such Debentures are not immediately
available, (b) time will not permit such Holder's Consent and Letter of
Transmittal, certificates representing such Debentures and all other required
documents to reach the Exchange Agent on or prior to the Exchange Offer
Expiration Date, or (c) the procedures for book-entry transfer (including
delivery of an Agent's Message) cannot be completed on or prior to the Exchange
Offer Expiration Date, such Holder may nevertheless tender such Debentures with
the effect that such tender will be deemed to have been received on or prior to
the Exchange Offer Expiration Date. Holders may effect such a tender of
Debentures in accordance with the guaranteed delivery procedures set forth in
the Prospectus under "The Exchange Offer -- Procedures for Exchanging Debentures
and Delivering Consents -- Guaranteed Delivery." See Instruction 2 below.
5
<PAGE> 6
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer and
Consent Solicitation, the undersigned hereby tenders to RCN the principal amount
of Debentures indicated above and consents to the Proposed Amendments.
Subject to, and effective upon, the acceptance for exchange of the
principal amount of Debentures tendered with this Consent and Letter of
Transmittal, the undersigned hereby assigns and transfers to, or upon the order
of, RCN, all right, title and interest in and to the Debentures that are being
tendered hereby, waives any and all other rights with respect to the Debentures
(including without limitation, any existing or past defaults and their
consequences in respect of the Debentures and the Indenture under which the
Debentures were issued) and releases and discharges RCN from any and all claims
such Holders may have now, or may have in the future, arising out of, or related
to, the Debentures, including without limitation, any claims that such Holder is
entitled to receive additional principal or interest payments with respect to
the Debentures to participate in any redemption or defeasance of the Debentures,
and also consents to the Proposed Amendments. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
also acts as the agent of RCN) with respect to such Debentures, with full power
of substitution and resubstitution (such power-of-attorney being deemed to be an
irrevocable power coupled with an interest) to (i) present such Debentures and
all evidences of transfer and authenticity to, or transfer of ownership of, such
Debentures on the account books maintained by DTC to, or upon the order of, RCN,
(ii) present such Debentures for transfer ownership on the books of RCN, (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Debentures and (iv) deliver to RCN, the Issuer and the Trustee this
Consent and Letter of Transmittal on or prior to the Consent Expiration Date as
evidence of the undersigned's Consent to the Proposed Amendments and as
certification that validly tendered and not revoked Consents from the holders of
at least a majority in aggregate principal amount of Debentures outstanding (the
"Requisite Consents") to the Proposed Amendments, duly executed by Holders of
such Debentures, have been received, all in accordance with the terms and
conditions of the Exchange Offer and Consent Solicitation as described in the
Prospectus. Valid execution and delivery of this Consent and Letter of
Transmittal on or prior to the Consent Expiration Date will also be deemed to
constitute a Consent to the Proposed Amendments.
The undersigned agrees and acknowledges that, by the execution and delivery
hereof, the undersigned makes and provides the written Consent, with respect to
the Debentures tendered hereby, to the Proposed Amendments as permitted by
Article Nine of the Indenture if this Consent and Letter of Transmittal is
executed and delivered on or prior to the Consent Expiration Date. The
undersigned understands that the Consent provided hereby shall remain in full
force and effect until such Consent is revoked in accordance with the procedures
set forth in the Prospectus and this Consent and Letter of Transmittal, which
procedures are hereby agreed to be applicable in lieu of any and all other
procedures for revocation set forth in the Indenture, which are hereby waived.
The Proposed Amendments will be embodied in an amendment to the Indenture
in the form set forth in a Supplemental Indenture (as described in the
Prospectus). The Supplemental Indenture will become effective upon execution by
the Issuer, at RCN's direction, and the Trustee on the Consent Expiration Date.
The undersigned understands that the Proposed Amendments will not become
operative until the Debentures are accepted for exchange by RCN pursuant to the
Exchange Offer.
The undersigned understands that tenders of Debentures may be withdrawn or
revoked by written notice of withdrawal or revocation received by the Exchange
Agent at any time on or prior to the Exchange Offer Expiration Date, but neither
the Exchange Offer consideration nor the early consent payment (as such terms
are described in the Prospectus) shall be payable in respect of Debentures so
withdrawn. Consents may not be revoked after the Consent Expiration Date.
Holders may not deliver Consents without tendering their Debentures in the
Exchange Offer, and may not revoke Consents on or prior to the Consent
Expiration Date without withdrawing the previously tendered Debentures to which
such Consent relates.
6
<PAGE> 7
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, assign and transfer the Debentures tendered
hereby and to give the Consent contained herein, and that when such Debentures
are accepted for exchange by RCN, RCN will acquire good title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or RCN to be
necessary or desirable to complete the assignment and transfer of the Debentures
tendered hereby, to perfect the undersigned's Consent to the Proposed Amendments
and to complete the execution of the Supplemental Indenture reflecting such
Proposed Amendments.
The undersigned understands that tenders of Debentures pursuant to any of
the procedures described in the Prospectus and in the instructions hereto and
acceptance thereof by RCN will constitute a binding agreement between the
undersigned and RCN, upon the terms and subject to the conditions of the
Exchange Offer and Consent Solicitation.
For purposes of the Exchange Offer, the undersigned understands that RCN
will be deemed to have accepted for exchange validly tendered Debentures if, as
and when RCN gives written notice thereof to the Exchange Agent. For purposes of
the Consent Solicitation, Consents received by the Exchange Agent will be deemed
to have been accepted if, as and when the Issuer and the Trustee execute the
Supplemental Indenture promptly after the Consent Expiration Date, even though
the early consent payment will not be made unless and until RCN has accepted the
Debentures for exchange pursuant to the Exchange Offer.
The undersigned understands that RCN's obligation to accept for exchange
Debentures validly tendered pursuant to the Exchange Offer is conditioned upon
the satisfaction of the conditions described in the Prospectus under "The
Exchange Offer -- Conditions to the Exchange Offer and the Consent
Solicitation". Any Debentures not accepted for exchange will be returned
promptly to the undersigned at the address set forth above unless otherwise
indicated herein under "Special Delivery Instructions" below.
All authority conferred or agreed to be conferred by this Consent and
Letter of Transmittal shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Consent and Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives.
The undersigned understands that the delivery and surrender of the
Debentures is not effective, and the risk of loss of the Debentures does not
pass to the Exchange Agent, until receipt by the Exchange Agent of this Consent
and Letter of Transmittal (or a manually signed facsimile hereof) properly
completed and duly executed, together with all accompanying evidences of
authority and any other required documents in form satisfactory to RCN or
receipt of an Agent's Message. All questions as to the form of all documents and
the validity (including time of receipt) and acceptance of tenders and
withdrawals of Debentures and deliveries and revocations of Consents will be
determined by RCN, in its sole discretion, which determination shall be final
and binding.
Unless otherwise indicated under "Special Issuance Instructions" below,
please deliver the certificates representing RCN Stock from the Exchange Agent
for the total consideration (as described in the Prospectus) or Exchange Offer
consideration, as the case may be, for any Debentures tendered hereby that are
exchanged, and/or return any certificates representing Debentures not tendered
or not accepted for exchange in the name(s) of the Holder(s) appearing under
"Description of Debentures." Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail the certificates representing RCN
Stock for the total consideration or Exchange Offer consideration, as the case
may be, and/or return any certificates representing Debentures not tendered or
not accepted for exchange (and accompanying documents, as appropriate) to the
address(es) of the Holder(s) appearing under "Description of Debentures." In the
event that both the Special Issuance Instructions and the Special Delivery
Instructions are completed, please deliver the certificates representing RCN
Stock for the total consideration or Exchange Offer consideration, as the case
may be, and/or return any certificates representing Debentures not tendered or
not accepted for exchange (and any accompanying documents, as appropriate) to
the person or persons so indicated. In the case of a book-entry delivery of
Debentures, please credit the account maintained at DTC with any Debentures not
tendered or not accepted for exchange. The undersigned recognizes that RCN does
not have any obligation pursuant to the Special Issuance Instructions to
transfer any Debentures from the name of the Holder thereof if RCN does not
accept for exchange any of the Debentures so tendered.
7
<PAGE> 8
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL CONSENTING AND TENDERING HOLDERS
REGARDLESS OF WHETHER DEBENTURES ARE BEING
PHYSICALLY DELIVERED HEREWITH, UNLESS AN AGENT'S MESSAGE IS
DELIVERED IN CONNECTION WITH A BOOK-ENTRY
TRANSFER OF SUCH DEBENTURES)
The completion, execution and delivery of this Consent and Letter of
Transmittal on or prior to the Consent Expiration Date will be deemed to
constitute a Consent to the Proposed Amendments.
This Consent and Letter of Transmittal must be signed by the registered
holder(s) of Debentures exactly as their name(s) appear(s) on certificate(s) for
Debentures or, if tendered by the registered holder(s) of Debentures exactly as
such participant's name appears on a security position listing as the owner of
Debentures, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Consent and Letter of
Transmittal. If the signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below
under "Capacity" and submit evidence satisfactory to RCN of such person's
authority to so act. See Instruction 6 below.
If the signature appearing below is not of the registered holder(s) of the
Debentures, then the registered holder(s) must sign a valid proxy.
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY)
Dated:
- --------------------------- , 2000.
Name(s):
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
- --------------------------------------------------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTIONS 1 AND 6 BELOW)
Certain Signatures Must be Guaranteed by a Medallion Signature Guarantor
- --------------------------------------------------------------------------------
(NAME OF MEDALLION SIGNATURE GUARANTOR GUARANTEEING SIGNATURE)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)) OF
FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
Date:
- --------------------------- , 2000.
8
<PAGE> 9
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6, 7 AND 8)
To be completed ONLY if certificates representing RCN Stock to be exchanged
for Debentures or early consent payments to be made in connection with the
Exchange Offer and Consent Solicitation are to be issued to the order of,
someone other than the person or persons whose signature(s) appear(s) within
this Consent and Letter of Transmittal or issued to an address different from
that shown in the box entitled "Description of Debentures" within this Consent
and Letter of Transmittal.
Name
- -----------------------------------------------
(PLEASE PRINT)
Address
- ---------------------------------------------
(PLEASE PRINT)
------------------------------------------------------
ZIP CODE
------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6, 7 AND 8)
To be completed ONLY if certificates for Debentures not exchanged and/or
certificates representing RCN Stock to be exchanged for Debentures are to be
sent to someone other than the person or persons whose signature(s) appear(s)
within this Consent and Letter of Transmittal to an address different from that
shown in the box entitled "Description of Debentures" within this Consent and
Letter of Transmittal.
Name
- -----------------------------------------------
(PLEASE PRINT)
Address
- ---------------------------------------------
(PLEASE PRINT)
------------------------------------------------------
ZIP CODE
SIGNATURE GUARANTEE
(SEE INSTRUCTION 1 BELOW)
CERTAIN SIGNATURES MUST BE GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR
------------------------------------------------------
(NAME OF MEDALLION SIGNATURE GUARANTOR
GUARANTEEING SIGNATURE)
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
OF FIRM (INCLUDING AREA CODE))
------------------------------------------------------
(AUTHORIZED SIGNATURE)
------------------------------------------------------
(PRINTED NAME)
------------------------------------------------------
(TITLE)
DATE:
- ------------------, 2000
9
<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER AND CONSENT
SOLICITATION
1. GUARANTEE OF SIGNATURES. Signatures on this Consent and Letter of
Transmittal must be guaranteed by a recognized participant in the Securities
Transfer Agents Medallion Program, (a "Medallion Signature Guarantor"), unless
the Debentures tendered and Consents delivered thereby are tendered and
delivered (i) by a registered Holder of Debentures (or by a participant in DTC
whose name appears on a security position listing as the owner of such
Debentures) who has not completed any of the boxes entitled "Special Delivery
Instructions" on the Consent and Letter of Transmittal, or (ii) for the account
of a member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. ("NASD") or a commercial bank
or trust company having an office or correspondent in the United States (each of
the foregoing being referred to as an "Eligible Institution"). If the Debentures
are registered in the name of a person other than the signer of the Consent and
Letter of Transmittal or if Debentures not accepted for exchange or not tendered
are to be returned to a person other than the registered Holder, then the
signature on this Consent and Letter of Transmittal accompanying the tendered
Debentures must be guaranteed by a Medallion Signature Guarantor as described
above. Beneficial owners whose Debentures are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if they
desire to tender Debentures and deliver Consents with respect to Debentures so
registered. See "The Exchange Offer -- Procedures for Exchanging Debentures and
Delivering Consents" in the Prospectus.
2. REQUIREMENTS OF TENDER. This Consent and Letter of Transmittal is to be
completed by Holders of Debentures if certificates representing such Debentures
are to be forwarded herewith, or if delivery of such certificates is to be made
by book-entry transfer to the account maintained by DTC, pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer -- Procedures
for Exchanging Debentures and Delivering Consents," unless such Debentures are
being transferred through ATOP in connection with a tender after the Consent
Expiration Date. For a holder to validly tender Debentures and deliver Consents
pursuant to the Exchange Offer and the Consent Solicitation, a properly
completed and duly executed Consent and Letter of Transmittal (or a manually
signed facsimile thereof), together with any signature guarantees and any other
documents required by these Instructions, must be received by the Exchange Agent
at its address set forth herein on or prior to the Consent Expiration Date or
Exchange Offer Expiration Date, as applicable, and either (i) certificates
representing such Debentures must be received by the Exchange Agent at its
address or (ii) such Debentures must be transferred pursuant to the procedures
for book-entry transfer described in the Prospectus under "The Exchange
Offer -- Procedures for Exchanging Debentures and Delivering Consents," and a
Book-Entry Confirmation must be received by the Exchange Agent, in each case, on
or prior to the Consent Expiration Date or Exchange Offer Expiration Date, as
applicable; provided, however, that no early consent payment will be made to
Holders who tender Debentures and deliver their Consents after the Consent
Expiration Date. A Holder who desires to tender Debentures and who cannot comply
with procedures set forth herein for tender on a timely basis or whose
Debentures are not immediately available must comply with the guaranteed
delivery procedures discussed below, but only if such Notice of Guaranteed
Delivery is transmitted after the Consent Expiration Date and prior to the
Exchange Offer Expiration Date.
If a Holder desires to tender Debentures pursuant to the Exchange Offer
after the Consent Expiration Date and (a) certificates representing such
Debentures are not immediately available, (b) time will not permit such Holder's
Consent and Letter of Transmittal, certificates representing such Debentures and
all other required documents to reach the Exchange Agent on or prior to the
Exchange Offer Expiration Date, or (c) the procedures for book-entry transfer
(including delivery of an Agent's message) cannot be completed on or prior to
the Exchange Offer Expiration Date, such Holder may nevertheless tender such
Debentures with the effect that such tender will be deemed to have been received
on or prior to the Exchange Offer Expiration Date if the procedures set forth in
the Prospectus under "The Exchange Offer -- Procedures for Exchanging Debentures
and Delivering Consents -- Guaranteed Delivery," are followed. Pursuant to such
procedures, (i) the tender must be made by or through an Eligible Institution,
(ii) a properly completed and duly executed Notice of Guaranteed Delivery or an
Agent's Message with respect to a guaranteed delivery that is accepted by RCN,
must be received by the Exchange Agent on or prior to the Exchange Offer
Expiration Date, and (iii) the certificates for the tendered Debentures, in
proper form for transfer (or a Book-Entry Confirmation of the transfer of such
Debentures into the Exchange Agent's account at DTC as described in the
Prospectus), together with a Consent and Letter of Transmittal (or manually
signed facsimile thereof) properly
10
<PAGE> 11
completed and duly executed, with any required signature guarantees and any
other documents required by the Consent and Letter of Transmittal or a properly
transmitted Agent's Message, must be received by the Exchange Agent within three
business days after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Consent and Letter of Transmittal, the
Debentures and all other required documents, including delivery through the DTC
and acceptance of Agent's Message transmitted through ATOP, is at the option and
risk of the tendering Holder. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed for such documents to reach the Exchange
Agent.
No alternative, conditional or contingent tenders shall be accepted. All
tendering Holders, by execution of this Consent and Letter of Transmittal (or a
manually signed facsimile thereof), waive any right to receive any notice of the
acceptance of their Debentures for exchange.
3. CONSENTS TO PROPOSED AMENDMENTS. A valid Consent to the Proposed
Amendments may be given only by a Holder or its attorney-in-fact. A beneficial
owner who is not a Holder must arrange with the Holder to execute and deliver a
Consent on its behalf, obtain a properly completed irrevocable proxy that
authorizes such beneficial owner to consent to the Proposed Amendments on behalf
of such Holder or become a Holder. Notwithstanding the foregoing, any DTC
participant which has Debentures credited to its DTC account at any time (and
thereby held of record by DTC's nominee) may directly provide a Consent to the
Proposed Amendments as though it were the registered Holder by so completing,
executing and delivering the Consent and Letter of Transmittal. To validly
deliver a Consent with respect to Debentures transferred pursuant to ATOP on or
prior to the Consent Expiration Date, a DTC participant using ATOP must also
properly complete and duly execute a Consent and a Letter of Transmittal and
deliver it to the Exchange Agent on or prior to the Consent Expiration Date.
4. WITHDRAWAL OF TENDERED DEBENTURES AND REVOCATION OF CONSENTS. Tenders
of Debentures may be withdrawn at any time on or prior to the Exchange Offer
Expiration Date, but neither the Exchange Offer consideration nor the early
consent payment shall be payable in respect of the Debentures so withdrawn. A
valid withdrawal of tendered Debentures effected on or prior to the Consent
Expiration Date will constitute the concurrent valid revocation of such Holder's
related Consent. In order for a Holder to revoke a Consent, such Holder must
withdraw the related tendered Debentures. Tenders of Debentures may be validly
withdrawn if the Exchange Offer is terminated without any Debentures being
exchanged thereunder. In the event of a termination of the Exchange Offer, the
Debentures tendered pursuant to the Exchange Offer will be promptly returned to
the tendering Holder, the Supplemental Indenture will not become operative and
the Consents will be deemed revoked. If the Consent Solicitation is amended on
or prior to the Consent Expiration Date in a manner determined by RCN, in its
sole discretion, to constitute a material adverse change to the Holders, RCN
promptly will disclose such amendment and, if necessary, extend the Consent
Solicitation for a period deemed by RCN to be adequate to permit Holders to
withdraw their Debentures and revoke their Consents. In addition, RCN may, if it
deems appropriate, extend the Consent Solicitation for any other reason. If RCN
makes a material change in the terms of the Exchange Offer or the information
concerning the Exchange Offer or waives a material condition of the Exchange
Offer, RCN will disseminate additional Exchange Offer material and extend such
Exchange Offer to the extent required by law. If the consideration to be paid in
the Exchange Offer is increased or decreased or the principal amount of
Debentures subject to the Exchange Offer is decreased, the Exchange Offer will
remain open at least 10 business days from the date RCN first gives notice to
Holders, by public announcement or otherwise, of such increase or decrease. In
addition, RCN may, if it deems appropriate, extend the Exchange Offer for any
other reason.
For a withdrawal of tendered Debentures or the revocation of Consents, as
the case may be, to be effective, a written or facsimile transmission notice of
withdrawal or revocation must be received by the Exchange Agent on or prior to
the Exchange Offer Expiration Date or Consent Expiration Date, as applicable, at
its address set forth on the cover of this Consent and Letter of Transmittal.
Any such notice of withdrawal must (i) specify the name of the person who
tendered the Debentures to be withdrawn or to which the revocation of Consents
relates, (ii) contain the description of the Debentures to be withdrawn and
identify the certificate number or numbers shown on the particular certificates
evidencing such Debentures (unless such Debentures were tendered by book-entry
transfer) and the aggregate principal amount represented by such Debentures, and
(iii) be signed by the Holder of such Debentures in the same manner as the
original signature on the Consent and Letter of Transmittal by which such
Debentures were
11
<PAGE> 12
tendered (including any required signature guarantees) or the related Consent
was given, or be accompanied by evidence sufficient to the Exchange Agent that
the person withdrawing the tender or revoking the Consent has succeeded to the
beneficial ownership of the Debentures. If the Debentures to be withdrawn have
been delivered or otherwise identified to the Exchange Agent, a signed notice of
withdrawal is effective immediately upon written or facsimile notice of such
withdrawal even if physical release is not yet effected.
Any valid revocation of Consents will automatically render the prior tender
of the Debentures to which such Consents relate defective and RCN will have the
right, which it may waive, to reject such tender as invalid. Any permitted
withdrawal of Debentures and revocation of Consents may not be rescinded. Any
Debentures properly withdrawn will thereafter be deemed not validly tendered and
any Consents revoked will be deemed not validly delivered for purposes of the
Exchange Offer; provided, however, that withdrawn Debentures may be re-tendered
and revoked Consents may be re-delivered by again following one of the
appropriate procedures described herein at any time on or prior to the Exchange
Offer Expiration Date or the Consent Expiration Date, as applicable. Consents
may not be revoked after the Consent Expiration Date.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal and revocation of Consents will be determined
by RCN, in RCN's sole discretion (whose determination shall be final and
binding). Neither RCN, the Exchange Agent, the Dealer Manager, the Information
Agent, the Trustee nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
revocation of Consents, or incur any liability for failure to give any such
notification.
5. PARTIAL TENDERS AND CONSENTS. Tenders of Debentures pursuant to the
Exchange Offer (and the corresponding Consents thereto pursuant to the Consent
Solicitation) will be accepted only in principal amounts equal to $1,000 or
integral multiples thereof. If less than the entire principal amount of any
Debentures evidenced by a submitted certificate is tendered, the tendering
Holder must fill in the principal amount tendered in the last column of the box
entitled "Description of Debentures" herein. The entire principal amount
represented by the certificates for all Debentures delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Debentures is not tendered or not accepted for
exchange, certificates for the principal amount of Debentures not tendered or
not accepted for exchange will be sent (or, if tendered by book-entry transfer,
returned by credit to the account at DTC designated herein) to the Holder unless
otherwise provided in the appropriate box in this Consent and Letter of
Transmittal (see Instruction 7) promptly after the Debentures are accepted for
exchange.
6. SIGNATURES ON THIS CONSENT AND LETTER OF TRANSMITTAL, BOND POWERS AND
ENDORSEMENT; GUARANTEE OF SIGNATURES. If this Consent and Letter of Transmittal
is signed by the registered Holder(s) of the Debentures tendered hereby or with
respect to which Consent is given, the signature(s) must correspond with the
name(s) as written on the face of the certificate(s) without alteration,
enlargement or any change whatsoever. If this Consent and Letter of Transmittal
is signed by a participant in DTC whose name is shown as the owner of the
Debentures tendered hereby, the signature must correspond with the name shown on
the security position listing the owner of the Debentures.
IF THIS CONSENT AND LETTER OF TRANSMITTAL IS EXECUTED BY A HOLDER OF
DEBENTURES WHO IS NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST
SIGN A VALID PROXY, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY A
MEDALLION SIGNATURE GUARANTOR, UNLESS THE SIGNATURE IS THAT OF AN ELIGIBLE
INSTITUTION. IN ADDITION, SUCH TENDER MUST BE ACCOMPANIED BY A VALID CONSENT OR
PROXY OF SUCH REGISTERED HOLDER(S), SINCE DEBENTURES MAY NOT BE TENDERED ON OR
PRIOR TO THE CONSENT EXPIRATION DATE WITHOUT A CONSENT TO THE PROPOSED
AMENDMENTS AND ONLY REGISTERED HOLDER(S) ARE ENTITLED TO PROVIDE CONSENTS TO THE
PROPOSED AMENDMENTS. SIGNATURES ON SUCH CONSENT OR PROXY MUST BE GUARANTEED BY A
MEDALLION SIGNATURE GUARANTOR UNLESS THE SIGNATURE IS THAT OF AN ELIGIBLE
INSTITUTION.
If any of the Debentures tendered hereby (and with respect to which Consent
is given) are owned of record by two or more joint owners, all such owners must
sign the Consent and Letter of Transmittal. If any tendered Debentures are
registered in different names on several certificates, it will be necessary to
complete, sign and submit
12
<PAGE> 13
as many separate copies of this Consent and Letter of Transmittal and any
necessary accompanying documents as there are different names in which
certificates are held.
If this Consent and Letter of Transmittal is signed by the Holder, the
certificates for any principal amount of Debentures not tendered or accepted for
exchange are to be issued (or if any principal amount of Debentures that is not
tendered or not accepted for exchange is to be reissued or returned) to or, if
tendered by book-entry transfer, credited to the account at DTC of the
registered Holder, and certificates representing RCN Stock for Debentures to be
exchanged and early consent payments to be made in connection with the Exchange
Offer and Consent Solicitation are to be issued in the name of the registered
Holder, then the registered Holder need not endorse any certificates for
tendered Debentures, nor provide a separate bond power. In any other case
(including if this Consent and Letter of Transmittal is not signed by the
registered Holder), the registered Holder must either properly endorse the
certificates for Debentures tendered or transmit a separate properly completed
bond power with this Consent and Letter of Transmittal (in either case, executed
exactly as the name(s) of the registered holder(s) appear(s) on such Debentures,
and, with respect to a participant in DTC whose name appears on a security
position listing as the owner of Debentures, exactly as the name(s) of the
participant(s) appear(s) on such security position listing), with the signature
on the endorsement or bond power guaranteed by a Medallion Signature Guarantor,
unless such certificates or bond powers are executed by an Eligible Institution.
See Instruction 1.
If this Consent and Letter of Transmittal or any certificates of Debentures
or bond powers 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, the
proper evidence satisfactory to RCN of their authority to so act must be
submitted with this Consent and Letter of Transmittal.
When this Consent and Letter of Transmittal is signed by the registered
Holder(s) of the Debentures listed and transmitted hereby, no endorsements of
Debentures or separate instruments of transfer are required unless exchange is
to be made, or Debentures not tendered or exchanged are to be issued, to a
person other than the registered Holder(s), in which case the signatures on such
Debentures or instruments of transfer must be guaranteed by a Medallion
Signature Guarantor.
Endorsements on certificates for Debentures, signatures on bond powers and
proxies and Consents provided in accordance with this Instruction 6 by
registered holders not executing this Consent and Letter of Transmittal must be
guaranteed by a Medallion Signature Guarantor. See Instruction 1.
7. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders
should indicate in the applicable box or boxes the name and address to which
Debentures for principal amounts not tendered or not accepted for exchange or
certificates representing RCN Stock for Debentures to be exchanged and early
consent payments to be made in connection with the Exchange Offer and Consent
Solicitation are to be issued or sent, if different from the name and address of
the registered Holder signing this Consent and Letter of Transmittal. In the
case of issuance in a different name, the taxpayer identification or social
security number of the person named must also be indicated. If no instructions
are given, Debentures not tendered or not accepted for exchange will be returned
to the registered Holder of the Debentures tendered. For Holders of Debentures
tendering by book-entry transfer, Debentures not tendered or not accepted for
exchange will be returned by crediting the account at DTC designated above.
8. TAXPAYER IDENTIFICATION NUMBER. Each tendering Holder is required to
provide the Exchange Agent with the Holder's correct taxpayer identification
number ("TIN"), generally the Holder's social security or federal employer
identification number, on the Substitute Form W-9, which is provided under
"Important Tax Information" below or, alternatively, to establish another basis
for exemption from backup withholding. A Holder must cross out item (2) in the
Certification box on Substitute Form W-9 if such Holder is subject to backup
withholding. Failure to provide the information on the form may subject the
tendering Holder to 31% federal income tax backup withholding on the payment,
including the early consent payment, made to the Holder or other person with
respect to Debentures exchanged pursuant to the Exchange Offer. The box in Part
3 of the form should be checked if the tendering Holder has not been issued a
TIN and has applied for a TIN or intends to apply for a TIN in the near future.
If the box in Part 3 is checked and the Exchange Agent is not provided with a
TIN, the Exchange Agent will withhold 31% from all such payments with respect to
the Debentures to be exchanged and the early consent payments to be made until a
TIN is provided to the Exchange Agent. In any case, if such Holder does not
provide the Exchange Agent its TIN within 60 days, the Exchange Agent will remit
the withheld amount to the IRS.
13
<PAGE> 14
9. TRANSFER TAXES. Each tendering Holder shall be responsible for all
transfer taxes imposed on such Holder.
10. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tendered Debentures or
delivery of Consents pursuant to any of the procedures described above will be
determined by RCN in RCN's sole discretion (whose determination shall be final
and binding). RCN reserves the right to reject any or all tenders of any
Debentures or Consents determined by it not to be in proper form or, in the case
of Debentures, if the acceptance for exchange of, such Debentures may, in the
opinion of RCN's counsel, be unlawful. RCN also reserves the absolute right, in
its sole discretion, to waive any of the conditions of the Exchange Offer or to
waive any defect or irregularity in any tender with respect to Debentures or
Consents of any particular Holder, whether or not similar defects or
irregularities are waived in the case of other Holders. RCN's interpretation of
the terms and conditions of the Exchange Offer and the Consent Solicitation
(including the Consent and Letter of Transmittal and the Instructions thereto)
will be final and binding. Neither RCN, the Exchange Agent, the Dealer Manager,
the Information Agent, the Trustee or any other person will be under any duty to
give notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. If RCN waives its right to
reject a defective tender of Debentures, the Holder will be entitled to the
Exchange Offer consideration.
11. WAIVER OF CONDITIONS. RCN expressly reserves the absolute right, in
its sole discretion, to waive any of the conditions to the Exchange Offer or the
Consent Solicitation in the case of any Debentures tendered or Consents
delivered, in whole or in part, at any time and from time to time.
12. MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATES FOR DEBENTURES. Any
Holder of Debentures whose certificates for Debentures have been mutilated,
lost, stolen or destroyed should write to or telephone The Bank of New York, 101
Barclay, 21 West, New York, New York 10286, Attention: Mary Lagumina, telephone
(212) 815-5783.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering Debentures and consenting to the Proposed Amendments
and requests for assistance or additional copies of the Prospectus and this
Consent and Letter of Transmittal may be directed to, and additional information
about the Exchange Offer and Consent Solicitation may be obtained from, either
the Dealer Manager or the Information Agent, whose address and telephone number
appear on the last page hereto.
14
<PAGE> 15
IMPORTANT TAX INFORMATION
Under federal income tax laws, in order to avoid "backup withholding," a
Holder whose tendered Debentures are accepted for exchange is required to
provide the Exchange Agent (as payer) with such Holder's correct TIN on
substitute Form W-9 below or otherwise establish a basis for exemption from
backup withholding. If such Holder is an individual, the TIN is his social
security number. If the Exchange Agent is not provided with the TIN, a $50
penalty may be imposed by the Internal Revenue Service, and payments, including
any early consent payment, made with respect to Debentures exchanged pursuant to
the Exchange Offer may be subject to backup withholding. Failure to comply
truthfully with the backup withholding requirements also may result in the
imposition of severe criminal and/or civil fines and penalties.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding requirements.
Exempt Holders should still complete Form W-9 to avoid possible erroneous backup
withholding. Exempt Holders should furnish their TIN, write "Exempt" on the face
of the Substitute Form W-9, and sign, date and return the Substitute Form W-9 to
the Exchange Agent. A foreign person, including an entity, may qualify as an
exempt recipient by submitting to the Exchange Agent a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to that Holder's foreign status. A Form W-8 can be obtained from the Information
Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments, including any total
consideration or Exchange Offer consideration, as the case may be, made with
respect to Debentures exchanged pursuant to the Exchange Offer, the Holder is
required to provide the Exchange Agent with either (i) the Holder's correct TIN
by completing the form below, certifying under penalties of perjury that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (a) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (b) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered holder of
the Debentures. If the Debentures are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
15
<PAGE> 16
- --------------------------------------------------------------------------------
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT -------------------------------
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number(s)
(If you do not have a TIN but have submitted an or
application for one or intend to do so in the near Employer Identification Number
future, write "Applied For" for instead) -------------------------------
-------------------------------------------------------------------------------------------
PART 2 -- CERTIFICATION -- Under Penalties of PART 3 --
DEPARTMENT OF THE Perjury, I Certify that: Awaiting TIN [ ]
TREASURY
INTERNAL REVENUE SERVICE (1) The number shown on this form is my correct
Taxpayer Identification Number (or I am
PAYER'S REQUEST FOR waiting for a number to be issued to me);
TAXPAYER IDENTIFICATION
NUMBER (TIN) (2) I am not subject to backup withholding either
because I have not been notified by the
Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of
failure to report all interest or dividends,
or because the IRS has notified me that I am
no longer subject to backup withholding; and
(3) and any other information provided in this
Form is true and correct.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION INSTRUCTIONS --
You must cross out item (2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding because of under reporting
interest or dividends on your tax return. However, if after being notified by
the IRS that you were subject to backup withholding you received another
notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE
- -----------------------------------------------------------------------------
DATE -------------------- , 2000
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER AND
CONSENT SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days of the date
payment is made, the 31 percent backup withholding amount will be remitted to
the IRS.
Signature:
- --------------------------------------------------------------------- Date:
- ------------------------ , 2000
16
<PAGE> 17
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER AND THE CONSENT SOLICITATION IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop -- Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>
By Facsimile Transmission:
(For Eligible Institutions Only)
(201) 296-4293
Confirm facsimile by telephone ONLY:
(201) 296-4860
Any questions or requests for assistance or additional copies of this
Prospectus, the Consent and Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
location listed below. You may also contact your broker, dealer, commercial bank
or trust company or nominee for assistance concerning the Exchange Offer and the
Consent Solicitation.
THE INFORMATION AGENT FOR THE EXCHANGE OFFER AND THE CONSENT SOLICITATION IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
44 Wall Street
7th Floor
New York, NY 10005
Toll Free: (888) 566-9474
Bank and brokers: (917) 320-6286
THE DEALER MANAGER FOR THE EXCHANGE OFFER AND THE CONSENT SOLICITATION IS:
SALOMON SMITH BARNEY
390 Greenwich Street
New York, New York 10013
Attn: Liability Management Group
(212) 723-6106
Toll Free: (800) 558-3745
<PAGE> 1
EXHIBIT 99.7
RCN CORPORATION
NOTICE OF GUARANTEED DELIVERY
PURSUANT TO THE
OFFER TO EXCHANGE COMMON STOCK OF RCN CORPORATION FOR
ANY AND ALL OUTSTANDING
13 3/4% SUBORDINATED EXCHANGE DEBENTURES DUE 2010
OF 21ST CENTURY TELECOM GROUP, INC.
AND SOLICITATION OF CONSENTS FOR
AMENDMENT OF THE RELATED INDENTURE
The Exchange Agent for the Exchange Offer and the Consent Solicitation is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop -- Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
By Facsimile Transmission:
(for Eligible Institutions
Only)
(201) 296-4293
Confirm Facsimile by Telephone
ONLY:
(201) 296-4860
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
As set forth in the Prospectus and Consent Solicitation dated March 31,
2000 (as it may be supplemented and amended from time to time, the "Prospectus")
of RCN Corporation, a Delaware Corporation ("RCN"), under "The Exchange
Offer -- Procedures for Exchanging Debentures and Delivering Consents," and in
the Instructions of the Consent and Letter of Transmittal (the "Consent and
Letter of Transmittal"), this form, or one substantially equivalent hereto, or
an Agent's Message (as defined in the Consent and Letter of Transmittal and
described in the Prospectus) relating to the guaranteed delivery procedures,
must be used to accept RCN's offer (the "Exchange Offer") to exchange common
stock of RCN, par value $1.00 per share (the "RCN Stock"), for any and all of
the outstanding 13 3/4% Subordinated Exchange Debentures Due 2010 (the
"Debentures") of 21st Century Telecom Group, Inc. (the "Issuer"), if, after the
Consent Expiration Date and prior to the Exchange Offer Expiration Date (as such
terms are defined in the Consent and Letter of Transmittal and described in the
Prospectus), (a) certificates representing such Debentures are not immediately
available, (b) time will not permit the Consent and Letter of Transmittal,
certificates representing such Debentures and other required documents to reach
the Exchange Agent on or prior to the Exchange Offer Expiration Date, or (c) the
procedures for book-entry transfer cannot be completed, on or prior to the
Exchange Offer Expiration Date.
In conjunction with the Exchange Offer, RCN is also soliciting (the
"Consent Solicitation") consents (the "Consents") to certain proposed amendments
(the "Proposed Amendments") to the Indenture, dated as of February 15, 1998, as
amended (the "Indenture"), between the Issuer and The Bank of New York (formerly
IBJ Schroeder Bank and Trust Company), as trustee (the "Trustee"), pursuant to
which the Debentures were issued. This form must be delivered by an Eligible
Institution (as defined herein) by mail or hand delivery or transmitted via
facsimile to the Exchange Agent as set forth above.
<PAGE> 2
THIS NOTICE OF GUARANTEED DELIVERY MAY NOT BE USED TO TENDER DEBENTURES OR
DELIVER CONSENTS ON OR PRIOR TO THE CONSENT EXPIRATION DATE.
This form is not to be used to guarantee signatures. If a signature on the
Consent and Letter of Transmittal is required to be guaranteed by a Medallion
Signature Guarantor (as such term is defined in the Consent and Letter of
Transmittal and described in the Prospectus) under the instructions thereto,
such signature guarantee must appear in the applicable space provided in the
Consent and Letter of Transmittal.
The undersigned hereby tender(s) to RCN, upon the terms and subject to the
conditions set forth in the Prospectus and the Consent and Letter of Transmittal
(receipt of which is hereby acknowledged), the principal amount of the
Debentures specified below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Procedures for
Exchanging Debentures and Delivering Consents -- Guaranteed Delivery." The
undersigned hereby authorizes the Exchange Agent to deliver this Notice of
Guaranteed Delivery to RCN, the Issuer and the Trustee with respect to the
Debentures tendered pursuant to the Exchange Offer.
The undersigned understands that holders who desire to tender their
Debentures pursuant to the Exchange Offer and receive the total consideration
(as described in the Prospectus) are required to provide Consents to the
Proposed Amendments with respect to such Debentures on or prior to the Consent
Expiration Date. Holders who validly tender thereafter will only receive the
Exchange Offer consideration (as described in the Prospectus).
The undersigned understands that RCN will accept for exchange Debentures
validly tendered on or prior to the Exchange Offer Expiration Date. This Notice
of Guaranteed Delivery may only be utilized after the Consent Expiration Date
and prior to the Exchange Offer Expiration Date. The undersigned also
understands that tenders of Debentures may be withdrawn at any time prior to the
Exchange Offer Expiration Date but neither the Exchange Offer consideration nor
the early consent payment (as described in the Prospectus) shall be payable in
respect of the Debentures so withdrawn. For a valid withdrawal of a tender of
Debentures to be effective, it must be made in accordance with the procedures
set forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal
of Tendered Debentures and Revocation of Consents." The undersigned understands
that a valid withdrawal of tendered Debentures on or prior to the Consent
Expiration Date will constitute a concurrent valid revocation of the related
Consent.
The undersigned understands that payment for Debentures exchanged by the
issuance of certificates representing RCN Stock will be made only after timely
receipt by the Exchange Agent of (i) such Debentures, or a Book-Entry
Confirmation, and (ii) a Consent and Letter of Transmittal (or a manually signed
facsimile thereof), including by means of an Agent's Message, the transfer of
such Debentures into the Exchange Agent's account at DTC, as defined in the
Consent and Letter of Transmittal and described in the Prospectus) with respect
to such Debentures properly completed and duly executed, with any signature
guarantees and any other documents required by the Consent and Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
execution hereof. The undersigned also understands that under no circumstances
will interest be paid by RCN by reason of any delay in making payment to the
undersigned and that the Exchange Offer consideration for Debentures tendered
pursuant to the guaranteed delivery procedures will be the same as that for
Debentures delivered to the Exchange Agent after the Consent Expiration Date and
on or prior to the Exchange Offer Expiration Date, even if the Debentures to be
delivered pursuant to the guaranteed delivery procedures are not so delivered to
the Exchange Agent, and therefore payment by the Exchange Agent on account of
such Debentures is not made, until after the Exchange Offer Expiration Date. THE
UNDERSIGNED IS AWARE THAT, ON OR PRIOR TO THE CONSENT EXPIRATION DATE, TENDERS
OF DEBENTURES AND THE RELATED CONSENTS CANNOT BE DELIVERED USING THE GUARANTEED
DELIVERY PROCESS AND THAT USE OF THE GUARANTEED DELIVERY PROCESS COULD RESULT IN
A TENDER OF DEBENTURES AND THE RELATED CONSENT BEING DEFECTIVE.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to give the Consent to the Proposed Amendments. All
authority conferred or agreed to be conferred by this Notice of Guaranteed
Delivery shall not be affected by, and shall survive, the death or incapacity of
the undersigned, and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, executors, administrators,
trustees in bankruptcy, personal and legal representatives, successors and
assigns of the undersigned.
2
<PAGE> 3
<TABLE>
<CAPTION>
PLEASE SIGN AND COMPLETE
<S> <C>
Signature(s) of Registered Holder(s) or Date: ---------------------------------------------
Authorized Signatory: Address ------------------------------------------
- --------------------------------------------------- ---------------------------------------------------
- --------------------------------------------------- ---------------------------------------------------
Name(s) of Registered Holder(s): ---------------------------------------------------
- --------------------------------------------------- Area Code and Telephone No.
- --------------------------------------------------- ---------------------------------------------------
Principal Amount of Debentures Tendered: If Debentures will be delivered by book-entry
- --------------------------------------------------- transfer, check trust company below:
- --------------------------------------------------- [ ] The Depository Trust Company
Certificate No.(s) of Note (if available) Exchange Agent
- --------------------------------------------------- Account No. -------------------------------------
- ---------------------------------------------------
</TABLE>
HOLDERS WHO DESIRE TO RECEIVE THE TOTAL CONSIDERATION MUST CONSENT TO THE
PROPOSED AMENDMENTS AND VALIDLY TENDER THEIR DEBENTURES ON OR PRIOR TO THE
CONSENT EXPIRATION DATE. HOLDERS SHOULD BE AWARE THAT, ON OR PRIOR TO THE
CONSENT EXPIRATION DATE, TENDERS OF DEBENTURES AND THE RELATED CONSENTS CANNOT
BE DELIVERED USING THE GUARANTEED DELIVERY PROCESS AND THAT USE OF THE
GUARANTEED DELIVERY PROCESS COULD RESULT IN A TENDER OF DEBENTURES AND THE
RELATED CONSENT BEING DEFECTIVE.
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear(s) on certificate(s) for Debentures or on a security
position listing as the owner of Debentures, or by person(s) authorized to
become Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Name(s): ------------------------------------------------------------
------------------------------------------------------------
Capacity: ------------------------------------------------------------
------------------------------------------------------------
Address(es): ------------------------------------------------------------
------------------------------------------------------------
</TABLE>
DO NOT SEND DEBENTURES WITH THIS FORM. DEBENTURES SHOULD BE SENT TO THE
EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED CONSENT AND
LETTER OF TRANSMITTAL.
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of the Securities Transfer Agents Medallion
Program (an "Eligible Institution"), hereby represents that the tender of
Debentures hereby complies with Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and guarantees that the Debentures tendered
hereby are in proper form for transfer (pursuant to the procedures set forth in
the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering
Debentures and Delivering Consents -- Guaranteed Delivery"), and that the
Exchange Agent will receive (a) such Debentures, or a Book-Entry Confirmation of
the transfer of such Debentures into the Exchange Agent's account at DTC and (b)
a properly completed and duly executed Consent and Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other
documents required by the Consent and Letter of Transmittal, or a properly
transmitted Agent's Message, within three New York Stock Exchange, Inc. trading
days after the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Consent and Letter of
Transmittal and Debentures to the Exchange Agent within the time period shown
herein. Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm:
- --------------------------------------------------------------------------------
Authorized Signature
- --------------------------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone Number:
- ---------------------------------------------------------------------------
Dated:
- ---------------------------, 2000
4
<PAGE> 1
EXHIBIT 99.8
RCN CORPORATION
OFFER TO EXCHANGE COMMON STOCK OF RCN CORPORATION FOR
ANY AND ALL OUTSTANDING
13 3/4% SUBORDINATED EXCHANGE DEBENTURES DUE 2010
OF 21ST CENTURY TELECOM GROUP, INC.
AND SOLICITATION OF CONSENTS FOR
AMENDMENT OF RELATED INDENTURE
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus and Consent Solicitation
(the "Prospectus") and a form of Consent and Letter of Transmittal (the "Consent
and Letter of Transmittal" and together with the Prospectus, the "Exchange
Offer"), relating to the offer by RCN Corporation, a Delaware corporation
("RCN") to exchange common stock of RCN, par value $1.00 per share (the "RCN
Stock") for any and all of the outstanding 13 3/4% Subordinated Exchange
Debentures due 2010 (the "Debentures") of 21st Century Telecom Group, Inc. (the
"Issuer"). In conjunction with the Prospectus, RCN is soliciting (the "Consent
Solicitation") consents (the "Consents") for certain proposed amendments (the
"Proposed Amendments") to the Indenture, dated as of February 15, 1998, as
amended (the "Indenture"), between the Issuer and The Bank of New York (formerly
IBJ Schroeder Bank and Trust Company), as trustee (the "Trustee") pursuant to
which the Debentures were issued.
The total consideration available for each $1,000 principal amount of
Debentures tendered pursuant to the Prospectus shall be RCN Stock representing
101% of principal amount plus accrued and unpaid interest to the date of
exchange. Of the total consideration, 4% of shall constitute the early consent
payment and 97% shall constitute the Exchange Offer consideration.
THE SOLICITATION OF CONSENTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME,
ON APRIL 13, 2000 UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE
"CONSENT EXPIRATION DATE"). THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK
CITY TIME, ON APRIL 27, 2000 UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE
EXTENDED, THE "EXCHANGE OFFER EXPIRATION DATE"). HOLDERS WHO DESIRE TO RECEIVE
THE EARLY CONSENT PAYMENT AND THE EXCHANGE OFFER CONSIDERATION MUST BOTH VALIDLY
CONSENT TO THE PROPOSED AMENDMENTS AND TENDER THEIR DEBENTURES PURSUANT TO THE
EXCHANGE OFFER ON OR PRIOR TO THE CONSENT EXPIRATION DATE. HOLDERS WHO TENDER
AFTER THE CONSENT EXPIRATION DATE WILL RECEIVE ONLY THE EXCHANGE OFFER
CONSIDERATION. CONSENTS MAY ONLY BE REVOKED PRIOR TO THE CONSENT EXPIRATION
DATE, BUT MAY NOT BE REVOKED THEREAFTER. TENDERS OF DEBENTURES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXCHANGE OFFER EXPIRATION DATE.
<PAGE> 2
For your information and for forwarding to your clients for whom you hold
Debentures registered in your name or in the name of your nominee, we are
enclosing the following documents.
1. Prospectus and Consent Solicitation dated March 31, 2000.
2. A Consent and Letter of Transmittal for each of the Debentures for
your use and for the information of your clients, together with Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9
providing information relating to backup U.S. federal income tax
withholding.
3. A Notice of Guaranteed Delivery for each of the Debentures to be
used to accept the Exchange Offer if the Debentures and all other required
documents cannot be delivered to ChaseMellon Shareholder Services L.L.C. in
its capacity as the exchange agent (the "Exchange Agent"), by the Exchange
Offer Expiration Date.
4. A printed form of letter which may be sent to your clients for
whose accounts you hold Debentures registered in your name or in the name
of your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer and Consent Solicitation.
This form will enable your clients to tender all Debentures that they own.
DTC participants will be able to effect tenders and deliver Consents
through the DTC Automated Tender Offer Program.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE IN ORDER TO
OBTAIN THEIR INSTRUCTIONS.
Any inquiries you may have with respect to the Exchange Offer and Consent
Solicitation should be addressed to ChaseMellon Shareholder Services L.L.C. in
its capacity as the information agent (the "Information Agent"), at (917)
320-6286 or at the address set forth on the back cover of the Prospectus or to
Salomon Smith Barney Inc., in its capacity as the dealer manager for the
Exchange Offer and Consent Solicitation (the "Dealer Manager"), at the telephone
number set forth below. Additional copies of the enclosed materials may be
obtained from the Information Agent.
Very truly yours,
SALOMON SMITH BARNEY INC.
Telephone: (212) 723-6106
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF RCN, THE DEALER MANAGER, THE INFORMATION AGENT, THE EXCHANGE AGENT,
OR ANY OF THEIR RESPECTIVE AFFILIATES, OR AUTHORIZE YOU OR ANY OTHER PERSON TO
USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION
WITH THE EXCHANGE OFFER AND CONSENT SOLICITATION OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE> 1
EXHIBIT 99.9
RCN CORPORATION
OFFER TO EXCHANGE COMMON STOCK OF RCN CORPORATION FOR
ANY AND ALL OUTSTANDING
13 3/4% SUBORDINATED EXCHANGE DEBENTURES DUE 2010
OF 21ST CENTURY TELECOM GROUP, INC.
AND SOLICITATION OF CONSENTS FOR
AMENDMENTS OF RELATED INDENTURE
To Our Clients:
Enclosed for your consideration is a Prospectus and Consent Solicitation
(the "Prospectus") and a form of Consent and Letter of Transmittal (the "Consent
and Letter of Transmittal" and together with the Prospectus, the "Exchange
Offer"), relating to the offer by RCN Corporation, a Delaware corporation
("RCN") to exchange common stock of RCN, par value $1.00 per share (the "RCN
Stock") for any and all of the outstanding 13 3/4 Subordinated Exchange
Debentures due 2010 (the "Debentures") of 21st Century Telecom Group, Inc. (the
"Issuer"). In conjunction with the Exchange Offer, RCN is soliciting (the
"Consent Solicitation") consents (the "Consents") for certain proposed
amendments (the "Proposed Amendments") to the Indenture dated as of February 15,
1998, as amended (the "Indenture"), between the Issuer and The Bank of New York
(formerly IBJ Schroeder Bank and Trust Company), as trustee (the "Trustee"),
pursuant to which the Debentures were issued.
The total consideration available for each $1,000 principal amount of
Debentures tendered pursuant to the Exchange Offer shall be RCN Stock
representing 101% of principal amount plus accrued and unpaid interest to the
date of exchange. Of the total consideration, 4% shall constitute the early
consent payment and 97% shall constitute the Exchange Offer consideration.
THE SOLICITATION OF CONSENTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME,
ON APRIL 13, 2000 UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE
"CONSENT EXPIRATION DATE"). THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK
CITY TIME, ON APRIL 27, 2000 UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE
EXTENDED, THE "EXCHANGE OFFER EXPIRATION DATE"). HOLDERS WHO DESIRE TO RECEIVE
THE EARLY CONSENT PAYMENT AND THE EXCHANGE OFFER CONSIDERATION MUST BOTH VALIDLY
CONSENT TO THE PROPOSED AMENDMENTS AND TENDER THEIR DEBENTURES PURSUANT TO THE
EXCHANGE OFFER ON OR PRIOR TO THE CONSENT EXPIRATION DATE. HOLDERS WHO TENDER
AFTER THE CONSENT EXPIRATION DATE WILL RECEIVE ONLY THE EXCHANGE OFFER
CONSIDERATION. CONSENTS MAY ONLY BE REVOKED PRIOR TO THE CONSENT EXPIRATION
DATE, BUT MAY NOT BE REVOKED THEREAFTER. TENDERS OF DEBENTURES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXCHANGE OFFER EXPIRATION DATE.
Holders (as defined in the Indenture) who desire to tender their Debentures
pursuant to the Exchange Offer and receive the Exchange Offer consideration and
the early consent payment are required to consent to the Proposed Amendments
with respect to such Debentures. Holders who validly tender their Debentures
after the Consent Expiration Date but prior to or on the Exchange Offer
Expiration Date will receive only the Exchange Offer consideration. The
completion, execution and delivery of the Consent and Letter of Transmittal by a
Holder in connection with the tender of Debentures will constitute a Consent to
the Proposed
<PAGE> 2
Amendments with respect to such Debentures. A Holder may not consent to the
Proposed Amendments without tendering the Debentures related thereto.
This material relating to the Exchange Offer and Consent Solicitation is
being forwarded to you as the beneficial owner of Debentures carried by us for
your account or benefit but not registered in your name. A tender of any
Debentures and delivery of the related Consent with respect to any Debentures
may only be made by us as the registered Holder and pursuant to your
instructions. Therefore, RCN urges beneficial owners of Debentures registered in
the name of a broker, dealer, commercial bank, trust company or other nominee to
contact such registered Holder promptly if they wish to tender Debentures
pursuant to the Exchange Offer or deliver Consents pursuant to the Consent
Solicitation.
Accordingly, we request instructions as to whether you wish us to tender
and deliver consent with respect to any or all of the Debentures held by us for
your account. We urge you to read carefully the Prospectus, the Consent and
Letter of Transmittal and the other materials provided herewith before
instructing us to tender your Debentures and to deliver the related Consents
with respect to such Debentures.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Debentures and deliver the related Consents on your
behalf in accordance with the provisions of the Exchange Offer and the Consent
Solicitation.
PLEASE NOTE THAT TENDERS OF DEBENTURES AND DELIVERY OF CONSENTS MUST BE
RECEIVED BY THE CONSENT EXPIRATION DATE TO RECEIVE THE EARLY CONSENT PAYMENT AND
THAT THE EXCHANGE OFFER WILL EXPIRE ON THE EXCHANGE OFFER EXPIRATION DATE.
Tenders of Debentures may be withdrawn at any time prior to or on the
Exchange Offer Expiration Date but neither the Exchange Offer consideration nor
the early consent payment shall be payable in respect of the Debentures so
withdrawn. A valid withdrawal of Debentures will constitute the concurrent valid
revocation of such Holder's related Consent.
Consents may only be revoked at any time prior to the Consent Expiration
Date, but a valid revocation of a Consent will also constitute a withdrawal of
the Debentures, unless waived by RCN.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Debentures that are
outstanding.
2. If you desire to consent with respect to any Debentures pursuant to
the Consent Solicitation and receive the early consent payment as well as
the Exchange Offer consideration, we must receive your instructions in
ample time to permit us to effect a tender of Debentures and submit the
related Consent on your behalf on or prior to midnight, New York City time,
on the Consent Expiration Date.
3. If you desire to tender any Debentures pursuant to the Exchange
Offer and receive the Exchange Offer consideration, we must receive your
instructions in ample time to permit us to effect a tender of Debentures on
your behalf on or prior to midnight, New York City time, on the Exchange
Offer Expiration Date.
4. RCN's obligation to pay the Exchange Offer consideration for
tendered Debentures and early consent payment for properly submitted
Consents is subject to certain conditions set forth in the Prospectus under
the caption "The Exchange Offer -- Conditions to the Exchange Offer and
Consent Solicitation".
If you wish to have us tender any or all of your Debentures held by us for
your account or benefit and deliver your Consents pursuant to the Exchange Offer
and Consent Solicitation, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying
Consent and Letter of Transmittal is furnished to you for informational purposes
only and may not be used by you to tender Debentures held by us and registered
in our name for your account or to deliver Consents.
2
<PAGE> 3
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer and the Consent
Solicitation of RCN with respect to the Debentures.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF DEBENTURES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED AND TO
DELIVER THE UNDERSIGNED'S CONSENT WITH RESPECT TO THE PRINCIPAL AMOUNT OF
DEBENTURES INDICATED BELOW, PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN
THE PROSPECTUS AND CONSENT SOLICITATION DATED MARCH 31, 2000, AND THE CONSENT
AND LETTER OF TRANSMITTAL.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
13 1/4% SUBORDINATED EXCHANGE DEBENTURES
WHICH CONSENT TO THE PROPOSED AMENDMENTS
IS TO BE GIVEN
AND WHICH ARE TO BE TENDERED UNLESS OTHERWISE INDICATED:
- --------------------------------------------------------------------------------------------------------------------------
13 1/4% SUBORDINATED EXCHANGE DEBENTURES
PRINCIPAL ARE TO BE TENDERED AND RELATED CONSENTS GIVEN
CERTIFICATE NUMBERS AMOUNT ("YES" OR "NO")*
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
* Unless otherwise indicated, "yes" will be assumed. Any tender response indicated or assumed to be "yes" will be
deemed to include a Consent to the Proposed Amendments notwithstanding any contrary entry in the Consent box.
Holders who desire to receive the total consideration must both validly consent to the Proposed Amendments and
tender their Debentures on or prior to the Consent Expiration Date.
- --------------------------------------------------------------------------------------------------------------------------
PLEASE SIGN HERE
- --------------------------------------------------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------------------------------------------------
Name(s) (Please Print)
- --------------------------------------------------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------------------------------------------------
Area Code and Telephone No.
- --------------------------------------------------------------------------------------------------------------------------
Tax Identification or Social Security No.
- --------------------------------------------------------------------------------------------------------------------------
My Account Number With You
- --------------------------------------------------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 1
EXHIBIT 99.10
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
GIVE THE TAXPAYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under state law
7. Sole proprietorship account The owner(3)
- ------------------------------------------------------------
- ------------------------------------------------------------
GIVE THE TAXPAYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
8. A valid trust, estate, or pension The legal entity
trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(4)
9. Corporate account The corporation
10. Religious, charitable, or The organization
educational organization account
11. Association, club, or other tax- The organization
exempt organization
12. Partnership account held in the The partnership
name of the business
13. A broker or registered nominee The broker or
nominee
14. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a Social Security number, that
person's name must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show your individual name. You may also enter your business name. You may
use either your social security number or your employer identification
number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") and apply for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 who regularly acts as a broker are exempt. Payments subject to reporting
under sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except a corporation that
provides medical and health care services or bills and collects payments for
such services is not exempt from backup withholding or information reporting.
Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions and patronage dividends.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), an IRA, or a
custodial account under section 403(b)(7) if the account satisfies the
requirements of Section 401(f)(2).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Section 404 distributions made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if $600 or more of interest is paid in the
course of the payer's trade or business to a payee and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments of mortgage interest to you.
- Payments made to an appropriate nominee.
Exempt payees described above should file substitute Form W-9 to avoid possible
erroneous backup withholding. IF YOU ARE EXEMPT FROM BACKUP WITH-HOLDING, FILE
THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE
"EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE
PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP
WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE
OF FOREIGN STATUS).
Certain payments other than interest, dividends and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A(a), 6045, and 6050A and 6050N
of the Code and the regulations promulgated thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return. The
IRS may also provide this information to the Department of Justice for civil and
criminal litigation and to cities, states and the District of Columbia to carry
out their tax laws. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
