<PAGE>
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
RCN Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[LOGO OF RCN]
105 Carnegie Center
Princeton, New Jersey 08540
609-734-3700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 16, 2000
The Annual Meeting of Shareholders of RCN Corporation ("RCN" or the
"Company") will be held at The Princeton Marriott in Forrestal Village, 201
Village Boulevard, Princeton, New Jersey 08540, on Tuesday, May 16, 2000, at
11:00 A.M., local time. The meeting will be held for the following purposes:
1. To elect five (5) Directors to Class III to serve for a term of three
(3) years;
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000;
3. To adopt the Company's 2000 Employee Stock Purchase Plan; and
4. To approve amendments to the Company's 1997 Equity Incentive Plan.
Only shareholders of record at the close of business on March 24, 2000 will
be entitled to vote at the meeting either in person or by proxy. Each of these
shareholders is cordially invited to be present and vote at the meeting in
person.
In order to insure that your shares are represented and are voted in
accordance with your wishes, IT WILL BE APPRECIATED IF YOU WILL DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. IN THE
ALTERNATIVE, SHAREHOLDERS MAY VOTE VIA THE INTERNET OR TELEPHONE. If you
attend the meeting, you may personally vote your shares regardless of whether
you have signed a proxy.
/s/ John J. Jones
John J. Jones,
Executive Vice President,
General Counsel
and Corporate Secretary
Dated: April 20, 2000
<PAGE>
RCN CORPORATION
105 Carnegie Center
Princeton, New Jersey 08540
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, MAY 16, 2000
This Proxy Statement is being mailed to shareholders on or about April 20,
2000, in connection with the solicitation of proxies by the Board of Directors
of RCN Corporation ("RCN" or the "Company") for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Tuesday, May 16, 2000, at
11:00 A.M., local time, at The Princeton Marriott in Forrestal Village, 201
Village Boulevard, Princeton, New Jersey 08540, and at any adjournment or
postponement thereof.
At the Annual Meeting, shareholders of RCN eligible to vote will consider
and vote upon the following proposals: (i) to elect five (5) Class III
Directors to serve for a term of three (3) years; (ii) to ratify the
appointment of PricewaterhouseCoopers LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000; (iii) to adopt the
Company's 2000 Employee Stock Purchase Plan; and (iv) to approve amendments to
the Company's 1997 Equity Incentive Plan.
Any proxy may be revoked at any time prior to its exercise by notifying the
Corporate Secretary in writing, by delivering a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement in connection with the
solicitation made hereby, and if given or made, such information or
representation should not be relied upon as having been authorized by the
Company.
----------------
The date of this Proxy Statement is April 20, 2000.
1
<PAGE>
THE ANNUAL MEETING
Place, Date and Time
The Annual Meeting will be held at The Princeton Marriott in Forrestal
Village, 201 Village Boulevard, Princeton, New Jersey 08540, on Tuesday, May
16, 2000, at 11:00 A.M., local time.
Purpose of the Annual Meeting
Shareholders of the Company will consider and vote upon the following
proposals: (i) to elect five (5) Class III Directors to serve for a term of
three (3) years; (ii) to ratify the appointment of PricewaterhouseCoopers LLP
as independent auditors of the Company for the fiscal year ending December 31,
2000; (iii) to adopt the Company's 2000 Employee Stock Purchase Plan; and (iv)
to approve amendments to the Company's 1997 Equity Incentive Plan.
Record Date, Quorum, and Required Vote
The close of business on March 24, 2000, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting and at any adjournment or postponement thereof. On March 24,
2000, there were 81,139,956 outstanding shares of Common Stock, 1,660,267
shares of Series B 7% Senior Convertible Preferred Stock ("Preferred Stock")
and no other equity voting securities of the Company. The shares of Preferred
Stock, currently held by one shareholder, are convertible into an aggregate of
26,778,500 shares of Common Stock, except to the extent that the number of
shares to be issued upon conversion would entitle the holder to cast more than
15% of the aggregate votes that all shareholders are entitled to cast (or a
greater percentage under certain circumstances), in which event the excess
will be issued as shares of non-voting Class B Common Stock. The Preferred
Stock is entitled to be voted on an as converted basis, and the holder of the
Preferred Stock has agreed to vote its shares (i) with respect to the election
of members of the Board of Directors of the Company, for nominees who have
been recommended by the Board of Directors and (ii) with respect to all other
matters (and subject to exceptions in the case of proposals to approve a
change of control transaction or to approve a stock issuance), either pro rata
with the voting of other shareholders or as recommended by the Board of
Directors of the Company to shareholders generally, at the election of the
holder. See "Transactions with Related Parties."
The presence at the Annual Meeting, in person or by proxy, of shareholders
entitled to cast a majority of the votes entitled to be cast at the Annual
Meeting shall constitute a quorum at the Annual Meeting. Shareholders will be
entitled to one vote per share of common stock on all matters to be submitted
to a vote at the Annual Meeting. Shareholders do not have cumulative voting
rights with respect to the election of Directors.
In accordance with Delaware law, a shareholder entitled to vote for the
election of Directors can withhold authority to vote for all nominees for
Directors or can withhold authority to vote for certain nominees for
Directors.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. The approval of Proposal 2 (regarding the appointment of
PricewaterhouseCoopers LLP), Proposal 3 (regarding the 2000 Employee Stock
Purchase Plan), and Proposal 4 (regarding the 1997 Equity Incentive Plan)
requires the affirmative vote of a majority of the shares of Common Stock and
Preferred Stock present in person or by proxy and entitled to vote at the
Annual Meeting. Abstentions, votes withheld and broker non-votes (described
below) are counted in determining whether a quorum is present. Abstentions
with respect to any proposal other than the election of Directors will have
the same effect as votes against the proposal, because approval requires a
vote in favor of the proposal by a specified majority. Broker non-votes occur
when a broker or other nominee holding shares for a beneficial owner does not
receive voting instructions from the beneficial owner. Broker non-votes will
have no effect on the outcome of any of the proposals to be considered at the
Annual Meeting.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three (3) classes and is
currently comprised of fifteen (15) members. One (1) class is elected each
year for a three-year term. Class III Directors whose term will expire at the
Annual Meeting include the following nominees, all of whom are presently
Directors of the Company: David C. McCourt, James Q. Crowe, Eugene Roth,
William D. Savoy and Walter Scott, Jr. These five (5) nominees, if elected at
the 2000 Annual Meeting, will serve for a term of three (3) years expiring at
the Annual Meeting of Shareholders to be held in 2003.
It is not anticipated that any of the above nominees will become unavailable
for any reason, but, if any of the nominees should become unavailable before
the Annual Meeting, the persons named on the enclosed Proxy reserve the right
to substitute another person of their choice as nominee in place of such
person or to vote for such lesser number of Directors as may be prescribed by
the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE ELECTION OF
THESE FIVE (5) NOMINEES AS CLASS III DIRECTORS TO SERVE FOR A TERM OF THREE
(3) YEARS.
DIRECTOR INFORMATION
Information concerning the nominees for re-election as Class III Directors
and the other Directors of the Company is set forth below.
<TABLE>
<CAPTION>
Term
Director Expiring
Name of Director Age Since In
---------------- --- -------- --------
Nominees for Re-Election in Class III
-------------------------------------
<C> <C> <S> <C> <C>
David C. McCourt 43 Chairman, Chief Executive Officer and 1997 2000
Director of the Company since
September 1997; Chairman and Director
of Commonwealth Telephone
Enterprises, Inc. ("CTE"), an
affiliate of the Company, since
October 1993; Chief Executive Officer
of CTE from October 1993 to November
1998; Chairman, Director and Chief
Executive Officer of Cable Michigan,
Inc. from September 1997 to November
1998. He was also Chairman and Chief
Executive Officer, as well as a
Director of Mercom, Inc. from October
1993 to November 1998. He was a
Director of MFS Communications
Company, Inc. ("MFS/WorldCom") from
July 1990 to December 1996; and a
Director of WorldCom, Inc.
("WorldCom") from December 1996 to
March 1998; and President and
Director of Metropolitan Fiber
Systems/McCourt, Inc., a subsidiary
of MFS Telecom, Inc., from 1988 to
1997. Mr. McCourt is a Director of
Level 3 Telecom Holdings, Inc.
("LTH"), formerly Kiewit Telecom
Holdings, Inc., an affiliate of the
Company, Cable Satellite Public
Affairs Network ("C-SPAN") and Level
3 Communications, Inc. ("Level 3"),
formerly known as Peter Kiewit Sons',
Inc. ("PKS"), an affiliate of the
Company.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Term
Director Expiring
Name of Director Age Since In
---------------- --- -------- --------
<C> <C> <S> <C> <C>
James Q. Crowe 50 President and Chief Executive 1997 2000
Officer of Level 3 since August
1997; President and Chief Executive
Officer of MFS/WorldCom from June
1993 to June 1997 and Chairman of
the Board of Directors of
MFS/WorldCom from 1992 to 1996. Mr.
Crowe is a Director of CTE and
Inacom Communications, Inc., and he
was Chairman of the Board of
Directors of WorldCom from December
1996 to June 1997.
Eugene Roth 64 Senior Partner at Rosenn, Jenkins 1997 2000
and Greenwald L.L.P. (Attorneys)
since 1964. He is also a Director of
the Pennsylvania Regional Board of
Directors of First Union National
Bank, Geisinger Wyoming Valley
Medical Center, and CTE.
William D. Savoy 35 Mr. Savoy was appointed a Director 2000 2000
of the Company in February 2000,
pursuant to the Stock Purchase
Agreement between the Company and
Vulcan Ventures, Inc. ("Vulcan")
described under "Transactions with
Related Parties." He is President of
Vulcan Northwest, Inc., managing the
personal finances of Paul G. Allen,
and Vice President of Vulcan, a
venture capital fund wholly owned by
Mr. Allen. Mr. Savoy serves on the
Advisory Board of DreamWorks SKG and
also serves as Director of Charter
Communications, Inc., drugstore.com,
Go2Net, Inc., Harbinger Corporation,
High Speed Access Corporation,
Metricom, Inc., Telescan, Inc.,
Ticketmaster Online-CitySearch,
Inc., USA Networks, Inc., and Value
America.
Walter Scott, Jr. 68 Chairman of Level 3 since 1979 and 1997 2000
Director since April 1964; Chairman
and Chief Executive Officer of PKS
for over nineteen years. He is also
a Director of CTE, Berkshire
Hathaway, Inc., Burlington
Resources, Inc., MidAmerican Energy
Holdings Company, ConAgra, Inc., and
Valmont Industries, Inc. Mr. Scott
served as a Director of WorldCom
from December 1996 to July 1997.
<CAPTION>
Other Directors of the Company in
Class I
---------------------------------
<C> <C> <S> <C> <C>
Michael A. Adams 42 President and Chief Operating 1999 2001
Officer of the Company since October
1999; President of the Technology
and Network Development Group since
September 1997; Vice President of
Technology with C-TEC Corporation
from November 1993 to September
1997. He is also a Director of CTE.
Stuart E. Graham 54 President of Skanska USA Inc. since 1997 2001
1994. Mr. Graham has been Chief
Executive Officer of several Skanska
USA Inc. subsidiaries, including
Sordoni Skanska, Slattery Skanska
and Skanska E&C. He is also a
Director of CTE.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Term
Director Expiring
Name of Director Age Since In
---------------- --- --------- --------
<C> <C> <S> <C> <C>
Michael J. Levitt 41 Partner of Hicks, Muse, Tate & 1999 2001
Furst, Incorporated ("Hicks
Muse") since 1996. From 1993
through 1995, Mr. Levitt was a
Managing Director and Deputy
Head of Investment Banking
with Smith Barney Inc. Mr.
Levitt was appointed to the
Board of Directors pursuant to
a Stock Purchase Agreement
between the Company and HMTF
Live Wire Investors, LLC,
described under "Transactions
with Related Parties." Mr.
Levitt also serves as a
Director of AMFM Inc., El
Sitio, Inc., Globix
Corporation, International
Home Foods, Inc., Metrocall,
Inc., Rhythms NetConnections
Inc., Regal Cinemas, Inc., STC
Broadcasting, Inc., and Ibero-
American Media Partners II
Ltd.
Thomas J. May 52 Chairman and Chief Executive 1997 2001
Officer of NSTAR, a
Massachusetts business trust,
and NSTAR Communications, Inc.
("NSTAR Communications"),
formerly known as BecoCom,
Inc., which is a party to a
joint venture with RCN Telecom
Services, Inc., now by name
change RCN Telecom Holding
Company (see "Transactions
with Related Parties"), and
its principal operating
companies. Mr. May has held
similar executive positions at
its predecessor companies, BEC
Energy and Boston Edison
Company ("BECO") since 1994.
Mr. May is also a Director of
Fleet Boston Corporation,
Liberty Mutual Insurance
Company, New England Business
Services, Inc. and NSTAR.
Thomas P. O'Neill, III 55 Chief Executive Officer of 1997 2001
GPC/O'Neill & Associates since
October 1999; Chairman and
founder of McDermott/O'Neill &
Associates since 1991 and
founder of Bay State
Investors, Inc. in 1983.
<CAPTION>
Other Directors of the Company
in Class II
------------------------------
<C> <C> <S> <C> <C>
Timothy J. Stoklosa 39 Executive Vice President and 2000 2002
Chief Financial Officer of the
Company since January 2000;
Senior Vice President and
Treasurer of the Company from
September 1997 to January
2000; Executive Vice President
and Chief Financial Officer,
and well as a Director of
Mercom, Inc. from 1997 to
1998; Treasurer of CTE from
1994 to 1997. He is also a
Director of CTE.
Alfred Fasola 50 Chief Executive Officer of 1997 2002
Jumbo Sports, Inc. since March
1999; Chairman of Hot Sports,
Inc. since 1997; Chief
Executive Officer of Herman's
Sporting Goods from 1992 to
1995.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Term
Director Expiring
Name of Director Age Since In
---------------- --- --------- --------
<C> <C> <S> <C> <C>
Edward S. Harris 43 Mr. Harris was appointed a Director 2000 2002
of the Company in February 2000,
pursuant to the Stock Purchase
Agreement between the Company and
Vulcan described under
"Transactions with Related
Parties." He is an Investment
Analyst for Vulcan, since 1998.
From 1992 to 1998, Mr. Harris was a
financial executive in the high
tech industry, and served as Chief
Financial Officer for three (3)
early stage companies: Claircom
Communications Group, L.P., an
affiliate of McCaw Cellular
Incorporated and provider of
specialized air-to-ground wireless
communications services; Starwave
Incorporated, a leading Internet
company, which was founded by Mr.
Allen; and Mirror Software, Inc., a
provider of medical imaging
software. Mr. Harris currently
serves as a Director for Apex
Learning, Inc. and Cencom V.
Richard R. Jaros 48 Private Investor since 1998; 1997 2002
President of Level 3 from 1996 to
1997 and Executive Vice President
of PKS from 1993 to 1997; Chief
Financial Officer of PKS from 1995
to 1997. Chairman of CalEnergy
Company, Inc. ("CECI"), now known
as MidAmerican Energy Holdings
Company, from 1993 to 1994 and
President of CECI from 1992 to
1993. Mr. Jaros served in various
capacities at PKS between 1980 and
1993. Mr. Jaros is also a Director
of Level 3, MidAmerican Energy
Holdings Company, Home Services.com
and CTE.
Michael B. Yanney 66 Chairman and Director of America 1997 2002
First Mortgage Investments,
Inc.("AFMI"). Mr. Yanney has served
as Chairman and Chief Executive
Officer of America First Companies
L.L.C. since 1984. He is also a
Director of Burlington Northern
Santa Fe Corporation, Forest Oil
Corporation, AFMI, America First
Apartment Investors, Magnum
Resources, Inc., Rio Grande Medical
Technologies, Inc., Telecom
Technologies, Inc. and Level 3. Mr.
Yanney served as Director of
WorldCom from December 1996 to July
1997 and as a Director of CTE from
August 1996 to September 1997.
</TABLE>
6
<PAGE>
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board of Directors of the Company held seven (7) meetings during 1999,
the Audit Committee met six (6) times and the Compensation Committee met three
(3) times. The Company does not have a Nominating Committee.
Executive Committee
The Executive Committee exercises, to the extent permitted by law and
delegated by the Board of Directors, all powers of the Board of Directors
between board meetings, except those functions assigned to specific
committees. The current Executive Committee consists of David C. McCourt,
Chairman, Walter Scott, Jr., William D. Savoy, Michael A. Adams and James Q.
Crowe.
Audit Committee
The principal functions of the Audit Committee are to (i) make
recommendations to the full Board of Directors concerning the appointment of
independent accountants; (ii) review the audit scope of the independent
accountants and internal auditors and related fees; (iii) be briefed on the
Company's accounting principles, policies and reporting practices by the
independent accountants, internal auditors and management; (iv) review with
the independent accountants the results of their audit and determine what
action, if any, is required with respect to the Company's internal audit
function; (v) meet quarterly with the independent accountants and the internal
auditors; (vi) consider other audit and non-audit matters from time to time as
requested by the full Board of Directors; and (vii) review Quarterly Reports
on Form 10-Q and the Annual Report on Form 10-K. The current Audit Committee
consists of Alfred Fasola, Chairman, Thomas P. O'Neill, III, Thomas J. May and
Michael J. Levitt.
Compensation Committee
The Compensation Committee makes recommendations to the Board of Directors
on matters related to employee compensation and plans concerning the orderly
succession of officers and key management personnel. The Compensation
Committee also administers the Company's 1997 Equity Incentive Plan and the
Executive Stock Purchase Plan. The current Compensation Committee consists of
Eugene Roth, Chairman, Alfred Fasola and Michael B. Yanney.
Directors' Compensation
Directors of RCN who are employees of the Company and its subsidiaries
receive no Directors' fees. Non-employee Directors of the Company receive on
January 1 an annual Directors' fee of $10,800 in common stock based upon the
average fair market value of the Common Stock during the ten (10) trading days
prior to such date, plus $1,000 in cash per board meeting. The committee
Chairmen and other committee members are paid $1,500 and $1,000 in cash,
respectively, for each committee meeting attended. Pursuant to the Company's
1997 Stock Plan for Non-Employee Directors, each non-employee Director
receives an annual grant of non-qualified options for 4,000 shares of Common
Stock on the date of the Annual Meeting with an exercise price equal to the
fair market value of the Common Stock on the date the options are granted.
7
<PAGE>
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the shareholders to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending December 31, 2000.
If the shareholders do not ratify this appointment, other independent
auditors will be considered by the Board of Directors. Notwithstanding the
shareholders' ratification of the selection of the independent auditors, the
Board reserves the right to select other independent auditors at its
discretion.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and will be able to respond to appropriate questions.
Ratification of PricewaterhouseCoopers LLP as the Company's independent
auditors for the year ending December 31, 2000 requires the affirmative vote
of a majority of the votes cast by holders of common stock.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO
RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
8
<PAGE>
PROPOSAL 3
PROPOSED ADOPTION OF THE 2000 EMPLOYEE STOCK PURCHASE PLAN
The Company is proposing to adopt a new Employee Stock Purchase Plan ("Stock
Purchase Plan"). The Stock Purchase Plan is intended to be qualified under
Internal Revenue Code Section 423. If a plan is qualified under Section 423,
our employees who participate in the plan will enjoy certain tax advantages,
as described below. In order for the plan to be qualified, our shareholders
must approve the plan.
The Stock Purchase Plan would allow our employees to purchase Common Stock
at a discount, without being subject to tax until they sell the stock, and
without having to pay any brokerage commissions with respect to the purchases.
In addition, an employee is not permitted to purchase stock exceeding $25,000
in fair market value for each calendar year.
The purpose of the Stock Purchase Plan is to encourage the purchase of
common stock by the Company's employees, to provide employees with a personal
stake in the Company, and to help retain employees and maintain
competitiveness in the external marketplace. In addition, the Board can
approve the participation of any subsidiaries. Currently, only employees of
the Company and its subsidiaries would participate in the Stock Purchase Plan.
The first offering period under the Stock Purchase Plan would commence on or
after July 1, 2000, as determined by its administrator.
The Stock Purchase Plan provides employees with the right to purchase shares
of Common Stock through payroll deductions. A total of 1,000,000 shares of
Common Stock are available for purchase under the Stock Purchase Plan, subject
to adjustment in the number and price of shares available for purchase in the
event the outstanding shares of Common Stock are increased or decreased
through stock dividends, recapitalizations, stock splits, reorganizations or
similar changes.
The Stock Purchase Plan is administered by the Board of Directors, which may
delegate responsibility for administration to a committee of the Board.
Subject to the terms of the Stock Purchase Plan, the Board or the committee
has authority to interpret the Stock Purchase Plan, prescribe, amend and
rescind rules and regulations relating to it and make all other determinations
deemed necessary or advisable in administering the Stock Purchase Plan.
A full-time employee is eligible to participate in the Stock Purchase Plan
if he or she is employed on the first day of an offering period. A part-time
employee is eligible to participate in the Stock Purchase Plan if, as of the
last day of the month immediately preceding the effective date of an election
to purchase the Company's common stock under the Stock Purchase Plan, he or
she has been employed by the Company on a part-time basis for 24 consecutive
months, or a shorter period of time as determined by the Company. An employee
is considered to be a part-time employee if the employee is scheduled to work
at least 20 hours per week. If the Stock Purchase Plan was effective as of
March 31, 2000, approximately 3,950 employees, including our Chief Executive
Officer and the Company's other executive officers, were eligible to
participate in the Stock Purchase Plan.
Any employee who, after purchasing Common Stock under the Stock Purchase
Plan, would own 5% or more of the total combined voting power or value of all
classes of our stock or any subsidiary corporation is not eligible to purchase
additional stock under the Stock Purchase Plan. Ownership of stock is
determined in accordance with the provisions of Section 424(d) of the Internal
Revenue Code. In addition, an employee is not permitted to purchase stock
exceeding $25,000 in fair market value for each calendar year.
Stock will be available to be purchased during an offering period. The
offering period will be a period of time determined by the Board or committee,
and may be on a payroll period, bi-weekly, monthly, quarterly, semi-annual,
annual, bi-annual and/or other basis. Eligible employees may elect to
participate in the Stock Purchase Plan prior to the start of an offering
period. Shares of Common Stock will be deemed to have been
9
<PAGE>
purchased on the last day of the offering period. The purchase price per share
may be from 85% to 100% of the lesser of:
. the fair market value per share of Common Stock on the first day of the
offering period; or
. the fair market value per share of Common Stock on the last day of the
offering period.
If any of these dates is not a trading day, then the fair market value will
be determined on the next trading day after such date. The purchase price may
also be discounted by some lesser amount than determined above. The Board or
committee will determine, with respect to any offering period, the amount, if
any, by which the purchase price will be discounted, which will be between 0%
and 15%, as described above.
An eligible employee who wishes to participate in the Stock Purchase Plan
must file an election form with the Board or committee at least fifteen (15)
days before the beginning of an offering period. Each participant will have
payroll deductions made from his or her compensation on each regular payday
during the time he or she is a participant in the Stock Purchase Plan. All
payroll deductions will be credited to the participant's account under the
Stock Purchase Plan. A participant who is on an approved leave of absence may
authorize continuing payroll deductions.
If the total number of shares of Common Stock for which purchase rights are
exercised at the end of an offering period exceeds the maximum number of
shares of Common Stock available, the Board or committee will make a pro rata
allocation of shares available for delivery and distribution. The unapplied
account balances will be credited to participants' accounts for the next
succeeding offering or, at the participant's election, returned to the
participant, without interest, as soon as practicable following the end of the
offering period.
A participant may discontinue his or her participation in the Stock Purchase
Plan at any time, but no other change can be made during an offering period. A
participant may change the amount of payroll deductions for subsequent
offerings by giving written notice of such change to the Board or committee on
or before the 15th day of the month immediately preceding the beginning of an
offering period.
A participant may elect to withdraw all, but not less than all, of the
balance credited to the participant's account by providing a termination form
to the Board or the committee at any time before the end of the offering
period. All amounts credited to such participant's account shall be paid as
soon as practicable following receipt of the participant's termination form,
and no further payroll deductions will be made with respect to the
participant.
If a participant's employment terminates for any reason other than death,
all amounts credited to such participant's account will be returned to the
participant. If a participant's employment terminates due to death or the
participant dies after termination of employment but before the participant's
account has been returned, all amounts credited to such participant's account
will be returned to the participant's successor-in-interest.
All funds held or received by the Company under the Stock Purchase Plan may
be used for any corporate purpose until applied to the purchase of shares of
Common Stock or refunded to employees and shall not be required to be
segregated from the Company's general assets. Shares of the Common Stock
purchased under the Stock Purchase Plan will be issued from the Company's
authorized but unissued shares. The Company will pay all fees and expenses
incurred, excluding individual federal, state, local or other taxes, in
connection with the Stock Purchase Plan.
An employee's rights under the Stock Purchase Plan belong to the employee
alone and may not be transferred or assigned to any other person during the
employee's lifetime. After the shares of Common Stock have been issued under
the Stock Purchase Plan, such shares may be assigned or transferred the same
as any other shares.
10
<PAGE>
The Stock Purchase Plan would not be qualified under Section 401 (a) of the
Internal Revenue Code. The Company generally will not be entitled to a
deduction with respect to stock purchased under the Stock Purchase Plan,
unless the stock is disposed of less than one (1) year after it is purchased
by the employee, or less than two (2) years after the start of the offering
period pursuant to which the stock was purchased.
Generally, no tax consequences arise at the time an employee purchases
shares of Common Stock under the Stock Purchase Plan. In general, upon a
disposition of shares, the participant will receive compensation taxable as
ordinary income for the taxable year in which the disposition occurs in an
amount equal to the lesser of:
. the excess of the fair market over the purchase price value of the
shares at the beginning of the offering period, or
. the excess over the purchase price of (a) the amount actually received
for the shares if sold or exchanged or (b) the fair market value of the
shares on the date of any other termination of his or her ownership
(such as by gift).
The amount of such ordinary income is then added to the participant's basis
in his shares for purposes of determining capital gain or loss. This tax
treatment only applies if the following holding period requirement is
satisfied:
. the participant does not dispose of the shares for at least one (1) year
after the date of purchase, and
. the participant does not dispose of the shares for at least two (2)
years after the beginning of the offering period pursuant to which the
shares were purchased.
If a participant disposes of shares of Common Stock purchased under the
Stock Purchase Plan before the holding period is satisfied, he or she will
receive compensation taxable as ordinary income in the amount of the
difference between the amount paid for the shares and the fair market value of
the shares at the time of purchase. If the shares are sold or exchanged, the
amount of such ordinary income is added to the participant's basis in his
shares for purposes of determining capital gain or loss.
If a participant dies before disposing of the shares purchased under the
Stock Purchase Plan, he or she will be deemed to have realized compensation
income taxable as ordinary income in the taxable year closing with his or her
death in an amount equal to the lesser of:
. the excess of the fair market over the purchase price value of the
shares at the beginning of the offering period, or
. the excess over the purchase price of the fair market value of the
shares on the date of death.
He or she is deemed not to have realized any capital gain or loss because of
death.
The Board or the committee will have the right to amend, modify or terminate
the Stock Purchase Plan at any time without notice, provided that, upon any
termination, all shares or unapplied payroll deductions will be distributed to
participants, and provided further, that no amendment will affect the right of
a participant to receive his or her proportionate interest in the shares or
unapplied payroll deductions. Upon any amendment of the Stock Purchase Plan,
shareholder approval will be obtained if required by law.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF OUR PROPOSED
EMPLOYEE STOCK PURCHASE PLAN AS DESCRIBED IN THIS PROPOSAL 3.
11
<PAGE>
PROPOSAL 4
APPROVAL OF AMENDMENTS TO THE COMPANY'S
1997 EQUITY INCENTIVE PLAN
The Board believes that granting stock options, restricted stock,
outperformance options and other forms of equity compensation is an effective
method of attracting able persons to enter and remain in the employ of the
Company and its subsidiaries, and also serves to provide incentives and
strengthen the identity of interests between them and the Company. The Company
is proposing to adopt certain amendments to the 1997 Equity Incentive Plan
(the "Equity Incentive Plan" or the "Plan").
The Current Plan. As in effect prior to March 31, 2000, a total of
13,040,100 shares of Common Stock were subject to award under the Plan. Awards
may be made to employees of and consultants to the Company or its subsidiaries
and Directors of the Company. The Equity Incentive Plan is administered by the
Compensation Committee of the Board. The Board may amend or terminate the Plan
at any time.
Following is a general summary of the types of awards that may be made under
the Equity Incentive Plan:
Non-Qualified Options. Under a non-qualified option, the optionee has the
right to exercise the option after it vests and becomes exercisable in
exchange for the payment to the Company of the option price established at
the time the award is made. In general, for federal income tax purposes,
the optionee recognizes ordinary compensation income at the time of
exercise; on a subsequent sale of option stock, the optionee recognizes
capital gain or loss, which is long-term if the optionee has held the
option stock for more than one (1) year. The Company is entitled to a
deduction for compensation expense at the time of exercise of the option in
the same amount recognized by the optionee at that time.
Incentive Stock Options. Under an incentive stock option, the optionee
has the right to exercise the option after it vests and becomes exercisable
in exchange for the payment to the Company of the option price established
at the time the award is made, which, in most cases, must be at least 100%
of the fair market value of the option stock at the time of grant. In
general, for federal income tax purposes, if the optionee holds the option
stock for more than two (2) years from the date of grant and more than one
(1) year from the date of exercise, the optionee will recognize long-term
gain on the sale or other disposition of option stock equal to the excess
of the net sales proceeds over the option price. The Company is not
entitled to a deduction on the qualifying exercise and sale of option stock
granted under an incentive stock option.
Stock Appreciation Rights. Under a stock appreciation right ("SAR"), the
holder has the right to exercise the SAR after it vests and becomes
exercisable and receive payment in cash or stock in an amount equal to the
excess of the fair market value of a share of stock on the date of exercise
over the fair market value of a share of stock on the date of grant. In
general, for federal income tax purposes, the holder recognizes ordinary
income at the time of exercise equal to the amount of the payment and the
Company is entitled to a deduction for compensation expense in the same
amount at that time.
Restricted Stock. A grantee of restricted stock must forfeit the
restricted stock if the grantee terminates employment before the vesting
date or if any other conditions attached to vesting are not satisfied.
After the vesting conditions lapse, the grantee may retain the stock. In
general, for federal income tax purposes, the grantee recognizes ordinary
income at the vesting date equal to the fair market value of the stock on
that date and the Company is entitled to a deduction for compensation
expense in the same amount at that time.
Performance Shares. A grantee of performance shares is entitled to
receive shares of stock upon the satisfaction of pre-established
performance goals. For federal income tax purposes, the grantee recognizes
ordinary income equal to the value of the shares on the payment date and
the Company is entitled to a deduction for compensation expense in the same
amount at the same time.
Phantom Stock Units. A grantee of phantom stock is entitled to receive
shares of stock (or cash, in the discretion of the Compensation Committee)
upon the completion of vesting conditions established by
12
<PAGE>
the Compensation Committee, together with cash equal to the amount of
accrued dividend equivalents (measured by the amount of dividends paid per
share during the vesting period).
Outperformance Options. A holder of an outperformance option is entitled
to receive shares of stock (or cash, in the discretion of the Compensation
Committee) based on the performance of Common Stock of the Company compared
to the performance of a pre-established stock performance index. After an
outperformance option vests, the holder may exercise the outperformance
option and receive stock and/or cash having a value equal to a pre-
established multiple (not to exceed eight [8]) of the excess, if any, of
the per share fair market value of Common Stock of the Company at the date
of exercise over the "Adjusted Price." In general, the Adjusted Price is
equal to the fair market value of a share at the date of grant, as adjusted
for increases (but not decreases) in the pre-established performance index.
The number of shares that can be acquired by a holder on the exercise of an
outperformance option cannot be less than zero or exceed eight (8) times
the number of shares designated as the basis of the award at the time of
grant.
Since the adoption of the Plan on October 1, 1997, employees of the Company
have received awards under the Plan. The Compensation Committee has the
discretion to determine the vesting schedule of awards. In general, with the
exception of options that have been assumed by the Company pursuant to its
purchase of various companies, awards vest ratably over three (3) or five (5)
years. No single participant can receive awards for more than 2,000,000 shares
of Common Stock in any one year.
The Plan Amendments. Under the first amendment the Company is proposing to
adopt and that will be voted on by the shareholders at the meeting, the number
of shares of Common Stock authorized for issuance will be increased by
20,000,000 shares under the Plan.
Under the second amendment the Company is proposing to adopt, the number of
shares of Common Stock that may be subject to awards pursuant to the Plan for
any one participant in a year will be increased from 2,000,000 to 4,000,000.
Under the third amendment the Company is proposing to adopt the Adjusted
Price for outperformance options would both increase and decrease with the
changes in the performance of the pre-established performance index.
Section 162(m) of the Internal Revenue Code precludes a public corporation
such as RCN from taking a deduction for compensation paid in excess of
$1,000,000 per person to its Chief Executive Officer or any of its four (4)
other highest paid officers. Certain performance-based compensation, however,
is exempt from the deduction limitation. Performance-based compensation must
be determined by a committee comprised solely of two (2) or more outside
Directors. In order to qualify as an outside Director, a person may not be an
employee of the Company and generally may not receive, directly or indirectly,
compensation for services other than in that person's capacity as a Director.
Currently, the members of the Compensation Committee meet the preceding
criteria.
In addition, in order to qualify as performance-based compensation, the Plan
under which the awards are granted must state the maximum number of shares
that any one participant may receive during a specified time period. This
individual limit must be disclosed to and approved by shareholders. If a plan
containing this individual limit is not approved by shareholders, and any
awards under the Plan result in the Chief Executive Officer or one of the four
(4) highest paid officers receiving compensation in excess of $1,000,000, then
the compensation in excess of $1,000,000 will not be deductible by the
Company. To that end, in order to achieve the favorable tax treatment the
Company desires, the Board will amend the Equity Incentive Plan to increase
the individual limit.
On April 14, 2000, the last reported sales price of the Common Stock of RCN
as reported on Nasdaq was $40.44 per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
AMENDMENTS TO OUR EQUITY INCENTIVE PLAN AS DESCRIBED IN THIS PROPOSAL 4.
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below is information as of March 31, 2000 with
respect to the number of shares of Common Stock beneficially owned by: (i)
each person or entity known by the Company to own more than 5% of the Common
Stock; (ii) each Director of the Company; (iii) each of the named executive
officers below; and (iv) all Directors and executive officers as a group. To
the Company's knowledge, unless otherwise indicated, each person or entity has
voting and investment power with respect to the shares set forth opposite the
person's or entity's name.
<TABLE>
<CAPTION>
Common Stock
-----------------------
Number of
Shares
Beneficially Percent of
Name of Beneficial Owner Owned Shares(%)
- ------------------------ ------------ ----------
<S> <C> <C>
Michael A. Adams(1)(2)................................. 236,896 *
James Q. Crowe(3)(11).................................. 31,000 *
Alfred Fasola(3)....................................... 9,102 *
Bruce C. Godfrey(1)(14)................................ 53,935 *
Stuart E. Graham(3).................................... 18,221 *
Edward S. Harris....................................... 550 *
Mark Haverkate(1)(15).................................. 65,864 *
Richard R. Jaros(3)(11)................................ 28,230 *
John J. Jones(1)(4).................................... 34,480 *
Michael J. Levitt(13).................................. -0- *
Michael J. Mahoney(1)(5)(16)........................... 138,175 *
Thomas J. May(3)....................................... 11,418 *
David C. McCourt(1)(6)(7)(11).......................... 1,628,892 1.97%
Thomas P. O'Neill, III(3).............................. 12,798 *
Eugene Roth(3)......................................... 20,953 *
William D. Savoy....................................... -0- *
Walter Scott, Jr.(3)(11)............................... 10,300 *
Timothy J. Stoklosa(1)(12)............................. 88,376 *
Michael B. Yanney(3)(11)............................... 18,756 *
All Directors and Executive Officers as a Group (22
persons).............................................. 2,590,174 3.12%
Level 3 Telecom Holdings, Inc.(7)...................... 26,640,970 32.83%
HM4 RCN Partners(8).................................... 6,865,693 7.80%
Vulcan Ventures Incorporated(9)........................ 30,185,600 27.97%
NSTAR Communications, Inc.(10)......................... 4,097,193 5.05%
</TABLE>
- --------
(*) Less than 1% of outstanding shares.
(1) Includes Share Units (further defined below) relating to the Common Stock
acquired by each such named participant in lieu of current compensation
and the vested Share Units credited to the Executive Stock Purchase Plan
("ESPP") account of each such named participant, as of March 31, 2000,
including matching Share Units scheduled to vest within 60 days
thereafter: Mr. McCourt, 112,821 shares; Mr. Mahoney, 36,828 shares; Mr.
Godfrey, 37,984 shares; Mr. Haverkate, none; Mr. Adams, 22,443 shares;
Mr. Stoklosa, 784 shares; and Mr. Jones, 2,961 shares. Under the ESPP,
participants who defer current compensation are credited with "Share
Units" with a value equal to the amount of the deferred pretax
compensation. The value of a Share Unit is based on the value of a share
of Common Stock. The Company also credits each participant's matching
account under the ESPP with 100% of the number of Share Units credited
based on the participant's elective contributions. Share Units credited
to participants' elective contribution accounts are fully and immediately
vested. Share Units credited to participants' matching accounts generally
vest on the third anniversary of the date they are credited, subject to
continued employment. Share Units credited to
14
<PAGE>
a participant's matching account become fully vested on a change in control
of the Company or on the participant's death or disability while actively
employed. If dividends are paid on Common Stock, a dividend equivalent is
deemed paid with respect to Share Units and credited to participants'
accounts in the form of additional Share Units. The Company has established
a grantor trust to hold Common Stock corresponding to the number of Share
Units credited to participants' accounts in the ESPP. Participants do not
have the right to vote Share Units, provided that the Company may, but is
not required to, make arrangements for participants to direct the trustee
of the grantor trust as to how to vote a number of shares held by the
grantor trust corresponding to the number of Share Units credited to the
participants' matching account.
(2) Includes options to purchase 212,500 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(3) Includes options to purchase 8,000 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(4) Includes options to purchase 26,668 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(5) Includes options to purchase 13,334 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(6) Includes options to purchase 1,445,834 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(7) As a result of PKS separating its construction and mining management
businesses ("Construction Group") from its other businesses on March 31,
1998 (the "Split-Off"), PKS no longer owns any interest in the
Construction Group. Following the Split-Off, PKS changed its name to
"Level 3 Communications, Inc." and the company formed in the Split-Off to
hold the Construction Group's business changed its name to "Peter Kiewit
Sons', Inc." Level 3 holds 90% of the common stock of LTH and all of the
preferred stock of LTH. David C. McCourt owns the remaining 10% of the
common stock of LTH. The address of Level 3 and LTH is 1025 Eldorado
Boulevard, Broomfield, Colorado 80021.
(8) Consists of 6,863,026 shares of Common Stock deemed beneficially owned by
HM4 RCN Partners by virtue of its ownership of record of 267,658 shares
of Series A 7% Senior Convertible Preferred Stock convertible into
6,863,026 shares of Common Stock. HM4 RCN Partners is a general
partnership of which the limited partners are HM4 RCN Qualified Fund,
L.P., HM4 RCN Private Fund, L.P. and HM4 RCN Coinvestors, L.P., each a
limited partnership of which the sole general partner is Hicks, Muse GP
Partners IV, L.P., a limited partnership of which the sole general
partner is Hicks, Muse Fund IV LLC, a limited liability company of which
Thomas O. Hicks is the sole member. Accordingly, Mr. Hicks may be deemed
to be the beneficial owner of all or a portion of the stock owned of
record by such limited partnerships. Mr. Hicks expressly disclaims (i)
the existence of any group and (ii) beneficial ownership with respect to
any shares of Common Stock not owned of record by him. The address of
Thomas O. Hicks is 200 Crescent Court, Suite 1600, Dallas, Texas 75201-
6950. Michael J. Levitt, a senior executive officer of Hicks, Muse Fund
IV LLC and a limited partner of Hicks, Muse GP Partners IV, L.P., has
been designated by HM4 RCN Partners to serve as a Director of the
Company.
(9) Consists of 3,407,100 shares of Common Stock owned of record by Vulcan
and 26,778,500 shares of Common Stock deemed beneficially owned by Vulcan
by virtue of its ownership of record of 1,660,267 shares (or 100%) of the
Preferred Stock which are convertible into an aggregate of 26,778,500
shares of Common Stock. Paul G. Allen is the sole shareholder of Vulcan
and may be deemed to be the beneficial owner of shares beneficially owned
by Vulcan. The address of Vulcan and Paul G. Allen is 110-110th Avenue
N.E., Suite 550 Bellevue, Washington 98004. Vulcan has designated William
D. Savoy and Edward S. Harris to serve as Directors of the Company.
(10) Consists of 4,097,193 shares of Common Stock which were acquired
pursuant to an Exchange Agreement by and between BecoCom, Inc., now by
name change NSTAR Communications, and C-TEC Corporation, the former
corporate parent of RCN dated June 17, 1997, pursuant to which NSTAR
Communications has the right, from time to time in accordance with the
terms thereof, to sell to the Company all or a portion of
15
<PAGE>
NSTAR Communications' membership interest in a joint venture with RCN
Telecom Holding Company in exchange for shares of the Common Stock of the
Company. The address of NSTAR is 800 Boylston Street, Boston,
Massachusetts 02199.
(11) Does not include shares beneficially owned by LTH. As an officer,
director or shareholder of Level 3 or LTH, this person may be deemed to
beneficially own all of the shares of Common Stock beneficially owned by
LTH.
(12) Includes options to purchase 66,288 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(13) Does not include shares beneficially owned by HM4 RCN Partners.
(14) Bruce C. Godfrey resigned as the Company's Executive Vice President and
Chief Financial Officer effective January 18, 2000.
(15) Mark Haverkate's employment with the Company terminated on October 19,
1999.
(16) Michael J. Mahoney resigned as the Company's President and Chief
Operating Officer effective October 4, 1999.
16
<PAGE>
COMPENSATION INFORMATION
Executive Compensation
The following table sets forth, for the fiscal years ending December 31,
1997, 1998 and 1999, the cash compensation, as well as certain other
compensation, paid or accrued to the top five (5) most highly compensated
Officers (the named executive officers). The Company carried out a two-for-one
stock split of the Common Stock (in the form of a stock dividend) during 1998.
Shareholders of record at the market close on March 20, 1998 received an
additional share of Common Stock for each share held. The distribution date
for the stock dividend was April 3, 1998. All share and per share data, stock
option data and market prices (including historical trading prices) of Common
Stock have been restated to reflect this stock dividend.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation Awards
------------------------ ------------------------------------
Restricted Securities All Other
Stock Underlying Compensation
Name and Position Year Salary($) Bonus($) Awards($)(2) Options(#) ($)(3)
- ----------------- ---- ----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt........ 1999 500,000 2,000,000 310,000 275,000 47,646
Chairman and Chief 1998 500,000 1,250,000 310,000 -0- 38,165
Executive Officer 1997 500,000 1,400,000 380,000 1,000,000 8,144
Michael A. Adams........ 1999 210,000 400,000 82,000 75,000 2,940
President and Chief 1998 210,327 200,000 72,000 -0- 576
Operating Officer 1997 203,269 150,000 70,654 230,000 16,045
Bruce C. Godfrey(4)..... 1999 250,000 -0- 116,500 80,000 5,686
Former Executive Vice 1998 250,327 300,000 116,500 -0- 6,176
President and Chief 1997 243,077 500,000 148,615 400,000 5,763
Financial Officer
John J. Jones........... 1999 210,000 150,000 57,000 40,000 5,767
Executive Vice 1998 210,000 75,000 -0- 100,000 202
President,
General Counsel and
Corporate Secretary
Michael J. Mahoney(5)... 1999 250,000 -0- 117,500 80,000 5,996
Former President and 1998 250,327 250,000 117,500 -0- 6,176
Chief Operating Officer 1997 248,654 500,000 149,731 400,000 5,871
Mark Haverkate(6)....... 1999 183,346 -0- 62,000 56,250 5,484
Former Executive Vice 1998 210,327 200,000 62,000 -0- 5,576
President 1997 205,192 100,000 61,038 80,000 2,985
</TABLE>
- --------
(1) Includes the amount of the deferred compensation contributed by the named
executive officers to purchase share units pursuant to the ESPP. Such
contributions are matched by the Company. Refer to footnote (2) below.
(2) These amounts reflect the market value on the date of grant of matching
share units pursuant to the ESPP.
The aggregate holdings and the value of Share Units for the named
participants in the ESPP as of March 15, 2000 are as follows: Mr. McCourt,
164,310 share units, aggregate value $10,659,611; Mr. Adams, 33,436 share
units, aggregate value $2,169,161; Mr. Godfrey, 52,448 share units,
aggregate value $3,402,564; Mr. Jones, 5,922 share units, aggregate value
$384,190; Mr. Mahoney, 51,084 share units, aggregate value $3,314,075; and
Mr. Haverkate, none. See also, footnote (1) under "Security Ownership of
Certain Beneficial Owners and Management.".
17
<PAGE>
(3) Includes the following amounts for the last fiscal year:
David C. McCourt: $396--Company paid life insurance; $5,600--401(k) Company
match; $41,650--Company provided transportation.
Michael A. Adams: $396--Company paid life insurance; $2,544--401(k) Company
match.
Bruce C. Godfrey: $396--Company paid life insurance; $5,290--401(k) Company
match.
John J. Jones: $396--Company paid life insurance; $5,371--401(k) Company
match.
Michael J. Mahoney: $396--Company paid life insurance; $5,600--401(k)
Company match.
Mark Haverkate: $396--Company paid life insurance; $5,088--401(k) Company
match.
(4) Bruce C. Godfrey resigned as the Company's Executive Vice President and
Chief Financial Officer effective January 18, 2000. In connection with
his resignation, Mr. Godfrey and the Company entered into an agreement
under which Mr. Godfrey would continue as a non-executive employee of the
Company through February 28, 2000 at his then current salary of $250,000
per year.
(5) Michael J. Mahoney resigned as the Company's President and Chief
Operating Officer effective October 4, 1999. In connection with his
resignation, Mr. Mahoney and the Company entered into an agreement under
which Mr. Mahoney would continue as a non-executive employee of the
Company through October 31, 2000.
(6) Mark Haverkate's employment with the Company terminated on October 19,
1999.
18
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Numbers of % of Total Price
Securities Options Appreciation for
Underlying Granted to Exercise or Option Term
Options Employees in Base Price Expiration -----------------
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10% ($)
---- ----------- ------------ ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt........ 68,750 2.03 25.6250 02/16/2004 486,763 1,075,529
68,750 2.03 45.5000 05/03/2004 864,301 1,909,720
68,750 2.03 40.3750 08/02/2004 766,948 1,694,614
68,750 2.03 47.4375 11/01/2004 901,105 1,991,041
Michael A. Adams........ 18,750 0.55 25.6250 02/16/2004 132,754 293,326
18,750 0.55 45.5000 05/03/2004 235,718 520,833
18,750 0.55 40.3750 08/02/2004 209,168 462,168
18,750 0.55 47.4375 11/01/2004 245,756 543,011
Bruce C. Godfrey........ 20,000 0.59 25.6250 02/16/2004 141,604 312,881
20,000 0.59 45.5000 05/03/2004 251,433 555,555
20,000 0.59 40.3750 08/02/2004 223,112 492,979
20,000 0.59 47.4375 11/01/2004 262,140 579,212
John J. Jones........... 10,000 0.29 25.6250 02/16/2004 70,802 156,441
10,000 0.29 45.5000 05/03/2004 125,717 277,778
10,000 0.29 40.3750 08/02/2004 111,556 246,489
10,000 0.29 47.4375 11/01/2004 131,070 289,606
Michael J. Mahoney...... 20,000 0.59 25.6250 02/16/2004 141,604 312,881
20,000 0.59 45.5000 05/03/2004 251,433 555,555
20,000 0.59 40.3750 08/02/2004 223,112 492,979
20,000 0.59 47.4375 11/01/2004 262,140 579,212
Mark Haverkate.......... 18,750 0.55 25.6250 02/16/2004 132,754 293,326
18,750 0.55 45.5000 05/03/2004 235,718 520,833
18,750 0.55 40.3750 08/02/2004 209,168 462,168
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Options At Value of Unexercised In-The-Money
Acquired on Fiscal Year End(1) Options at Fiscal Year End(2)
Exercise Value --------------------------------- ---------------------------------
Name (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- ----------- ------------ --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt........ -- -- 1,300,000 975,000 50,739,100 26,509,697
Michael A. Adams........ -- -- 194,000 221,000 7,352,340 5,691,237
Bruce C. Godfrey........ -- -- 300,000 320,000 11,110,900 8,666,250
John J. Jones........... -- -- 20,000 120,000 510,000 2,390,625
Michael J. Mahoney...... 360,000 14,132,725 -0- 100,001 -0- 2,881,678
Mark Haverkate.......... 126,000 5,181,321 -0- -0- -0- -0-
</TABLE>
- --------
(1) Denominated in shares of Common Stock.
(2) The fair market value of Common Stock at December 31, 1999 was $48.50 per
share.
19
<PAGE>
COMPENSATION COMMITTEE REPORT
The compensation programs for the Company's executive officers are
administered by the Compensation Committee (the "Compensation Committee") of
the Company's Board of Directors. The Compensation Committee makes
recommendations and/or determinations with respect to all executive
compensation matters.
The Compensation Committee submits the following report on compensation for
the Company's executive officers for the 1999 fiscal year:
Compensation Philosophy
As an emerging telecommunications company in highly competitive markets, the
Company's compensation philosophy must provide a framework for flexibility,
with a core component of compensation being performance based, with
significant portions of pay at risk. To insure the competitiveness of the
Company's compensation program, the Company utilized an Executive Value Index
("EVI") which was developed in 1998. The EVI includes predictive compensation
models designed from comparisons to a combination of public and private
compensation survey data as well as specific data from the proxy statements of
publicly-traded companies. The Company continued to use the basic philosophy
of providing senior level base salaries below that of the Company's peer
group, a short-term (annual) incentive opportunity equal to that of the peer
group, and a long-term incentive opportunity significantly above that of the
Company's peer group. The peer group is a selected group of high-technology
telecommunications and Internet companies.
The Chief Executive Officer, with the review and approval of the
Compensation Committee, determines senior level base salaries and makes
recommendations with respect to short-term incentive grants and stock option
grants as he deems appropriate and consistent with the EVI guidelines and the
compensation philosophy of the Company.
To further align the interests of the Company's executives with that of
shareholders, the Company encourages executives to acquire and maintain an
equity stake in the Company. To assist executives in accumulating this equity
position on a pre-tax basis, the Company implemented the ESPP pursuant to
which an executive may purchase Company stock through deferral of earned and
otherwise payable compensation, which is matched by the Company.
Executive Officer Compensation
The salaries paid to executive officers by the Company for 1999 were
targeted to be below that of executive officers of the Company's peer group
and were based upon the consideration of certain employment data, an
assessment of the Company's and the officers' performance during the prior
year and certain subjective criteria.
The amount of cash bonuses paid to executive officers for 1999 pursuant to
the bonus plan, as adopted by the Company was determined through a combination
of factors including the attainment of certain corporate business unit and
individual objectives (financial and non-financial), the compensation
practices of the Company's peer group, results of corporate and business unit
financial performances and certain subjective criteria.
Stock options were granted to the executive officers named in the "Summary
Compensation Table." The Compensation Committee believes that such stock
options assist in recruiting, incentivizing and retaining executive talent and
the creation of shareholder value in the long-term, since the full benefit of
the compensation package cannot be realized unless the price of the Company's
stock appreciates over a specified number of years and the executive continues
to perform services for the Company. The number of stock options granted to
each executive officer and/or mid-level management employee was based on the
individual's salary band, title and evaluation of each executive's individual
performance and contribution to the Company's performance as presented to the
Compensation Committee. Certain stock option awards which were granted in
February 1999 and approved by the Compensation Committee were quarterly awards
rather than annual awards, with a five (5) year option exercise period rather
than a ten (10) year option exercise period, with vesting of one-third of the
option shares granted in each of the initial three (3) years of the five (5)
year option term.
20
<PAGE>
Chief Executive Officer Compensation
Mr. McCourt was paid a base salary and bonus of $500,000 and $2,000,000,
respectively for services rendered in 1999. Mr. McCourt's compensation for
1999 was structured so that his base compensation was below the level paid to
persons holding similar positions at similarly situated companies. Mr.
McCourt's short-term incentive award for 1999, which was earned under the
short-term plan adopted by the Company, reflects the outstanding
accomplishments that took place in 1999, the attainment of certain strategic
corporate objectives, and achievement of certain corporate financial and non-
financial goals including the acquiring and integrating of numerous Internet
companies intended to increase shareholder value. Specifically, Mr. McCourt
was instrumental in securing a total of $3,600,000,000 of additional capital
for the Company through convertible preferred offerings including an
investment from Vulcan, a senior bank facility, an equity offering, and a
senior notes offering.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
denies a deduction by an employer for certain compensation in excess of
$1,000,000 per year paid by a publicly traded corporation to the Chief
Executive Officer and the four (4) most highly compensated executive officers
other than the Chief Executive Officer, unless such compensation is awarded
pursuant to a qualified performance-based program. Subject to the needs of the
Company, the Company's compensation plans are generally intended to qualify
for such qualified performance-based exemption.
COMPENSATION COMMITTEE
Eugene Roth, Esq., Chairman
Alfred Fasola
Michael B. Yanney
Dated: April 7, 2000
21
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of RCN Common Stock
to the Nasdaq Stock Market (U.S.) Index and the Nasdaq Telecommunications
Index. The graph assumes that the value of the investment in RCN Common Stock
and each index was $100 at September 22, 1997.
[GRAPH]
NASDAQ STOCK NASDAQ
RCN CORPORATION MARKET INDEX TELECOMMUNICATIONS INDEX
09/97 100 100 100
12/97 125 93 110
03/98 184 109 140
06/98 145 112 148
09/98 95 101 131
12/98 130 131 181
03/99 246 147 225
06/99 305 161 240
09/99 301 164 222
12/99 356 237 316
* $100 INVESTED ON 9/22/97 IN RCN STOCK OR ON 8/31/97 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
22
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
David C. McCourt, Chairman, Chief Executive Officer and Director of the
Company, is a Director of C-SPAN. In 1999, the Company paid approximately
$172,000 to C-SPAN for programming services.
The Company paid NSTAR Communications approximately $42,000,000 for network
construction and paid BECO approximately $452,000 for utility services. Thomas
J. May, a Director of the Company, is Chairman and Chief Executive Officer of
BECO, as well as NSTAR Communications, which is a party to the joint venture
with RCN Telecom Holding Company.
On April 7, 1999, the Company announced that Hicks Muse through HM4 RCN
Partners L.P. purchased $250 million of a new issue of Series A 7% Senior
Convertible Preferred Stock ("Series A Preferred Stock") of the Company in a
private placement transaction. The Series A Preferred Stock will have an
annual dividend rate of 7% payable quarterly in cash or additional shares of
Series A Preferred Stock at the option of the Company and will have an initial
conversion price of $39.00 per share (which represents a 30% premium over the
average five-day closing price of the Common Stock as of March 18, 1999). The
Series A Preferred Stock is convertible into Common Stock at any time. The
issue has a final maturity of fifteen (15) years, but may be called by the
Company after four (4) years. In connection with the placement of Series A
Preferred Stock, the Company agreed to provide HM4 RCN Partners L.P. with the
right to appoint one (1) Director to the Company's Board of Directors so long
as HM4 RCN Partners L.P. owns at least 50% of its initial investment and to
provide HM4 RCN Partners L.P. with certain registration rights. Michael J.
Levitt has been appointed to the Company's Board of Directors in connection
with this agreement.
The Company agreed to provide or cause to be provided certain specified
services (management services) to CTE for a transitional period pursuant to
the Distribution Agreement dated as of September 5, 1997. The transitional
services to be provided include the following: (i) accounting; (ii) payroll;
(iii) management supervision and Office of the Chairman; (iv) cash management;
(v) human resources and benefit plan administration; (vi) insurance
administration; (vii) legal; (viii) tax; (ix) internal audit; (x) investor and
public relations; and (xi) other miscellaneous administrative services. The
fee per year for these services was 3.5% of the first $175 million of revenue
of CTE and 1.75% of any additional revenue. The total fees for 1999 and 1998
were approximately $5,235,000 and $7,016,000, respectively. During 1999, the
majority of the transitional services were transferred to CTE from RCN and
therefore the fee was adjusted downward accordingly. The transitional services
remaining in 2000 include legal and Office of the Chairman. The fee for these
services in 2000 is estimated to be approximately $2,000,000.
CTE provided to the Company financial data processing applications, lockbox
services, storage facilities, local area network and wide area network support
services, building maintenance and other miscellaneous administrative
services. These services are no longer provided by CTE to the Company.
The Company's subsidiary, RCN Long Distance Company ("RCN LD"), entered into
an agreement with CTE whereby CTE and its subsidiaries purchased long-distance
service from RCN LD. In 1999, CTE incurred approximately $8,200,000 of
expenses associated with this long-distance resale agreement and related
customer service expenses. This agreement is the result of arm's length
negotiations and fees are paid to RCN LD based on usage. In addition, CTE paid
RCN LD $143,000 for network costs.
The Company paid Commonwealth Telephone Company ("CT") and CTSI, Inc., a
subsidiary of CTE ("CTSI"), approximately $732,000 in access charges as a
result of the Company originating and terminating traffic on CT and CTSI's
networks. CT also received approximately $420,000 in long-distance switch
rental revenue from RCN LD. In addition, CT and CTSI received approximately
$1,000,000 for local services, telephone access, and vertical service revenue
from the Company.
During 1999, CT leased certain facilities owned by the Company. CT paid rent
to the Company on said facilities totaling approximately $47,000.
23
<PAGE>
The Company paid CTE, doing business as Commonwealth Communications,
approximately $310,000 in 1999 for engineering design and consulting service
business.
The Company paid Level 3 approximately $4,000,000 for network construction
and approximately $3,340,000 for circuit costs. Messrs. Crowe, Scott and Jaros
are Directors of Level 3. Mr. McCourt, Chairman, Chief Executive Officer and
Director of the Company is also a Director of Level 3.
The Company paid First Union Corporation approximately $257,000 for
financial services. Mr. Roth, a Director of the Company, is a Director of the
Pennsylvania Regional Board of Directors of First Union National Bank.
The Company paid Sordoni Skanska, Slattery Skanska and Skanska E & C
approximately $2,900,000 for network construction. Mr. Graham, who is the
President of Skanska USA, Inc., is a Director of the Company.
The Company paid the Hanify & King law firm approximately $172,000 for legal
services. Terence P. McCourt, Esq., a partner in the firm, is a brother of
David C. McCourt, Chairman, Chief Executive Officer and Director of the
Company.
The Company paid USA Networks, Inc. approximately $952,000 for programming
services. William D. Savoy is a Director of the Company and USA Networks, Inc.
On October 4, 1999, the Company announced that Vulcan, the investment
organization of Paul Allen, had agreed to make a $1.65 billion investment in
the Company. The investment is in the form of mandatorily convertible
preferred stock (the "Preferred Stock"), which may be converted into Common
Stock, par value $1.00 per share, no later than seven (7) years after it is
issued. Vulcan agreed to purchase 1,650,000 shares of Preferred Stock. The
Preferred Stock has a liquidation preference of $1,000 per share and is
convertible into common stock at a price of $62 per share.
If Vulcan were to convert its Preferred Stock into Common Stock immediately,
it would receive 26,778,500 shares of Common Stock, which, together with the
3,407,100 shares of Common Stock currently owned by Vulcan, would represent
approximately 27.4% of the outstanding common stock after such conversion and
assuming the conversion of the Company's currently outstanding Series A 7%
Preferred Stock. Vulcan is, however, generally limited to owning Common Stock
representing no more than 15% of the vote entitled to be cast by the Company's
shareholders; provided that, if a change of control transaction is proposed to
the shareholders for approval, the 15% limitation is increased to an amount
equal to the voting percentage of LTH, which owns 26,640,970 shares of Common
Stock. In order to accommodate the voting limitation, the Preferred Stock is
also convertible into the Company's Class B Common Stock, par value $1.00 per
share ("Class B Stock"), which is essentially identical to the Common Stock
except that it is not entitled to vote. Vulcan has agreed to vote the Common
Stock it holds (i) with respect to the election of members of the Board of
Directors of Company, for nominees who have been recommended by the Board of
Directors, and (ii) with respect to all other matters (and subject to
exception in the case of proposals to approve a change of control transaction
or to approve a stock issuance), either pro rata with other shareholders or as
recommended by the Board of Directors of the Company to shareholders
generally, at the election of Vulcan. The Preferred Stock is entitled to vote,
but will be voted pro rata with other shareholders with certain limited
exceptions. William D. Savoy and Edward S. Harris have been appointed to the
Company's Board of Directors in connection with Vulcan's investment in the
Company.
Level 3, the Company's controlling shareholder, and/or its affiliates has a
substantial stock ownership in LTH and the Company. These companies share
mutual Director representation on their respective boards.
OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
24
<PAGE>
GENERAL INFORMATION
Financial Information
A copy of the Company's 1999 Annual Report to Shareholders containing the
Consolidated Financial Statements of the Company, including the report thereon
dated March 8, 2000, of PricewaterhouseCoopers LLP, independent accountants,
accompanies this Proxy Statement.
Upon the written request of any person who, on March 24, 2000, was a record
owner of Common Stock or who represents in good faith that he was on such date
a beneficial owner of such Common Stock entitled to vote at the Annual
Meeting, the Company will furnish, without charge, a copy of the Company's
2000 Annual Report on Form 10-K, including the financial statements, schedules
and exhibits, filed with the Securities and Exchange Commission ("SEC").
Written requests for the Annual Report should be directed to: Investor
Relations Department, RCN Corporation, 105 Carnegie Center, Princeton, New
Jersey 08540, Attn: Valerie Haertel, Senior Vice President of Investor
Relations, e-mail: [email protected].
Solicitation of Proxies
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mail, proxies may be solicited by officers, Directors and
regular employees of the Company, personally or by telephone, telecopy or
telegraph, and the Company may reimburse persons holding stock in their names
or those of their nominees for their expenses in forwarding soliciting
materials to their principals.
It is important that proxies be returned promptly. Therefore, shareholders
are urged to promptly fill in, date, sign and return the enclosed proxy in the
enclosed envelope, to which no postage need be affixed if mailed in the United
States. This will not prevent you from voting in person at the meeting. It
will, however, help to assure a quorum and to avoid added proxy solicitation
costs. In the alternative, shareholders are urged to promptly vote their proxy
via the internet or by telephone. Check your card or other information
forwarded by your broker, bank or other holder of record to see which options
are available to you.
Shareholder Proposals
In order for a nomination for the election of a Director or any other
proposal to be presented by a shareholder at the 2001 Annual Meeting of
Shareholders, notice of the nomination or other proposal containing the
information required by the relevant provisions of the Company's Bylaws must
be delivered by the shareholder to the Secretary of the Company at its
principal executive offices not less than 60 nor more than 90 days before the
Annual Meeting and, in the case of a proposal, the proposal must be an
appropriate subject for shareholder action under applicable law. In the event
that the Company receives notice within the time frame set forth above of a
shareholder proposal to be presented at the 2001 Annual Meeting of
Shareholders and which is not intended to be included in the Company's proxy
materials, then, so long as the Company included in its proxy statement for
such Annual Meeting of Shareholders advice on the nature of the matter and how
the named proxyholders intend to vote the shares for which they have received
discretionary authority, such proxyholders may exercise discretionary
authority with respect to such proposal, except to the extent limited by the
SEC's rules governing shareholder proposals.
By order of the Board of Directors.
/s/ John J. Jones
John J. Jones,
Executive Vice President,
General Counsel and
Corporate Secretary
Dated: April 20, 2000
25
<PAGE>
Appendix A
RCN CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
-------
The RCN Corporation 2000 Employee Stock Purchase Plan (the "Plan") is
intended to encourage and facilitate the purchase of Shares of the Common Stock
of RCN Corporation (the "Company") by employees of the Company and any
Participating Companies, thereby providing employees with a personal stake in
the Company and a long range inducement to remain in the employ of the Company
and Participating Companies. It is the intention of the Company that the Plan
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
2. Definitions.
-----------
(a) "Account" means a bookkeeping account established by the Committee on
-------
behalf of a Participant to hold Payroll Deductions.
(b) "Approved Leave of Absence" means a leave of absence that has been
-------------------------
approved by the applicable Participating Company in such a manner as the Board
may determine from time to time.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means the Committee appointed pursuant to section 14 of
---------
the Plan.
(f) "Company" means RCN Corporation.
-------
(g) "Compensation" means an Employee's cash compensation payable for
------------
services to a Participating Company during an Offering Period.
(h) "Election Form" means the form acceptable to the Committee which an
-------------
Employee shall use to make an election to purchase Shares through Payroll
Deductions pursuant to the Plan.
(i) "Eligible Employee" means an Employee who meets the requirements for
-----------------
eligibility under section 3 of the Plan.
(j) "Employee" means a person who is an employee of a Participating
--------
Company.
<PAGE>
(k) "Fair Market Value" means the closing price per Share on the principal
-----------------
national securities exchange on which the shares are listed or admitted to
trading or, if not listed or traded on any such exchange, on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or if not listed or traded on any such exchange or system,
the fair market value as reasonably determined by the Board, which determination
shall be conclusive.
(l) "Five Percent Owner" means an Employee who, with respect to a
------------------
Participating Company, is described in section 423(b) of the Code.
(m) "Offering" means an offering of Shares to Eligible Employees pursuant
--------
to the Plan.
(n) "Offering Commencement Date" means the first day of an Offering
--------------------------
Period; provided that the first Offering Commencement Date shall be on or after
July 1, 2000, as determined by the Committee.
(o) "Offering Period" means the period extending from an Offering
---------------
Commencement Date through the following Offering Termination Date. Offering
Periods may be on a payroll period, bi-weekly, monthly, quarterly, semi-annual,
annual, bi-annual or other basis, as determined by the Committee.
(p) "Offering Termination Date" means the last day of an Offering Period.
-------------------------
(q) "Option Price" means 85 percent of the lesser of: (1) the Fair Market
------------
Value per Share on the Offering Commencement Date, or if such date is not a
trading day, then on the next trading day thereafter or (2) the Fair Market
Value per Share on the Offering Termination Date, or if such date is not a
trading day, then on the next trading day thereafter. Notwithstanding the
preceding, the Option Price for an Offering Period may be a greater amount, as
determined by the Committee prior to the start of the applicable Offering.
(r) "Participant" means an Employee who meets the requirements for
-----------
eligibility under section 3 of the Plan and who has timely delivered an Election
Form to the Committee.
(s) "Participating Company" means, as provided in Schedule A, the Company
---------------------
and subsidiaries of the Company, within the meaning of section 424(f) of the
Code, if any, that are approved by the Board from time to time and whose
employees are designated as Employees by the Board.
(t) "Payroll Deductions" means amounts withheld from a Participant's
------------------
Compensation pursuant to the Plan, as described in section 5 of the Plan.
<PAGE>
(u) "Plan" means RCN Corporation 2000 Employee Stock Purchase Plan, as set
----
forth in this document, and as may be amended from time to time.
(v) "Plan Termination Date" means the earlier of:
---------------------
(1) The Offering Termination Date for the Offering in which the
maximum number of Shares specified in section 5 of the Plan have been issued
pursuant to the Plan; or
(2) The date as of which the Board chooses to terminate the Plan as
provided in section 15 of the Plan.
(w) "Shares" means shares of common stock of the Company, $1.00 par value
------
per Share.
(x) "Successor-in-Interest" means the Participant's executor or
---------------------
administrator, or such other person or entity to whom the Participant's rights
under the Plan shall have passed by will or the laws of descent and
distribution.
(y) "Termination Form" means the form acceptable to the Committee which an
----------------
Employee shall use to withdraw from an Offering pursuant to section 8 of the
Plan.
3. Eligibility and Participation.
-----------------------------
(a) Initial Eligibility. Except as provided in section 3(b) of the Plan,
-------------------
each individual who is an Employee on an Offering Commencement Date shall be
eligible to participate in the Plan with respect to the Offering that commences
on that date.
(b) Ineligibility. An Employee shall not be eligible to participate in
-------------
the Plan if such Employee:
(1) Is a Five Percent Owner;
(2) Has not customarily worked more than 20 hours per week during a
24-consecutive-month period (or a shorter period of time as determined by the
Committee and applied on a uniform basis with respect to an Offering) ending on
the last day of the month immediately preceding the effective date of an
election to purchase Shares pursuant to the Plan; or
(3) Is restricted from participating under section 3(d) of the Plan.
<PAGE>
(c) Leave of Absence. A Participant who goes on an Approved Leave of
----------------
Absence before an Offering Termination Date after having filed an Election Form
with respect to such Offering shall continue to be eligible to participate in
the Plan through the end of such Offering Period. Termination by the
Participating Company of an Employee's Approved Leave of Absence, other than
return to non-temporary employment, shall terminate an Employee's employment for
all purposes of the Plan and shall terminate such Employee's participation in
the Plan and the right to exercise any option. An Approved Leave of Absence
shall be considered active employment for purposes of sections 3(b)(2) and
3(b)(3) of the Plan.
(d) Restrictions on Participation. Notwithstanding any provisions of the
-----------------------------
Plan to the contrary, no Employee shall be granted an option to participate in
the Plan if:
(1) Immediately after the grant, such Employee would be a Five
Percent Owner; or
(2) Such option would permit such Employee's rights to purchase stock
under all employee stock purchase plans of the Participating Companies which
meet the requirements of section 423(b) of the Code to accrue at a rate which
exceeds $25,000 in fair market value (as determined pursuant to section
423(b)(8) of the Code) for each calendar year in which such option is
outstanding.
(e) Commencement of Participation. An Employee who meets the eligibility
-----------------------------
requirements of sections 3(a) and 3(b) of the Plan and whose participation is
not restricted under section 3(d) of the Plan shall become a Participant by
completing an Election Form and filing it with the Committee on or before the
15th day of month immediately preceding the Offering Commencement Date for the
first Offering to which such Election Form applies. Payroll Deductions for a
Participant shall commence on the applicable Offering Commencement Date when his
or her authorization for Payroll Deductions becomes effective, and shall end on
the Plan Termination Date, unless sooner terminated by the Participant pursuant
to section 8 of the Plan.
4. Shares Per Offering.
-------------------
The Plan shall be implemented by a series of Offerings that shall terminate
on the Plan Termination Date. Offerings shall be made with respect to
Compensation payable for each Offering Period occurring on or after adoption of
the Plan by the Board and ending with the Plan Termination Date. Shares
available for any Offering shall be the difference between the maximum number of
Shares that may be issued under the Plan, as determined pursuant to section
10(a) of the Plan, for all of the Offerings, less the actual number of Shares
<PAGE>
purchased by Participants pursuant to prior Offerings. If the total number of
Shares for which options are exercised on any Offering Termination Date exceeds
the maximum number of Shares available, the Committee shall make a pro rata
allocation of Shares available for delivery and distribution in as nearly a
uniform manner as practicable, and as it shall determine to be fair and
equitable, and the unapplied Account balances shall be returned to Participants
as soon as practicable following the Offering Termination Date.
5. Payroll Deductions.
------------------
(a) Amount of Payroll Deductions. An Eligible Employee who wishes to
----------------------------
participate in the Plan shall file an Election Form with the Committee at least
15 days before the Offering Commencement Date for the first Offering for which
such Election Form is effective on which he or she may elect to have Payroll
Deductions of such amounts designated by the Committee on the Election Form from
time to time made from his or her Compensation on each regular payday during the
time he or she is a Participant in the Plan, provided that the rules established
by the Committee shall be consistent with section 423(b)(5) of the Code.
(b) Participants' Accounts. All Payroll Deductions with respect to a
----------------------
Participant pursuant to section 5(a) of the Plan shall be credited to the
Participant's Account under the Plan.
(c) Changes in Payroll Deductions. A Participant may discontinue his
-----------------------------
participation in the Plan as provided in section 8(a) of the Plan, but no other
change can be made during an Offering, including, but not limited to, changes in
the amount of Payroll Deductions for such Offering. A Participant may change
the amount of Payroll Deductions for subsequent Offerings by giving written
notice of such change to the Committee on or before the 15th day of the month
immediately preceding the Offering Commencement Date for the Offering for which
such change is effective.
(d) Leave of Absence. A Participant who goes on an Approved Leave of
----------------
Absence before the Offering Termination Date after having filed an Election Form
with respect to such Offering may:
(1) Withdraw the balance credited to his or her Account pursuant to
section 8(b) of the Plan;
(2) Discontinue contributions to the Plan but remain a Participant in
the Plan through the Offering Termination Date;
<PAGE>
(3) Remain a Participant in the Plan during such Approved Leave of
Absence through the Offering Termination Date and continue the authorization for
the Participating Company to make Payroll Deductions for each payroll period out
of continuing payments to such Participant, if any.
6. Granting of Options.
-------------------
On each Offering Termination Date, each Participant shall be deemed to have
been granted an option to purchase the number of whole Shares equal to the
quotient obtained by dividing the balance credited to the Participant's Account
as of the Offering Termination Date, by the Option Price.
7. Exercise of Options.
-------------------
(a) Automatic Exercise. With respect to each Offering, a Participant's
------------------
option for the purchase of Shares granted pursuant to section 6 of the Plan
shall be deemed to have been exercised automatically on the Offering Termination
Date applicable to such Offering.
(b) Fractional Shares and Minimum Number of Shares. Fractional Shares
----------------------------------------------
shall not be issued under the Plan. Amounts credited to an Account remaining
after the application of such Account to the exercise of options shall be
credited to the Participant's Account for the next succeeding Offering, or, at
the Participant's election, returned to the Participant as soon as practicable
following the Offering Termination Date, without interest.
(c) Transferability of Option. No option granted to a Participant pursuant
-------------------------
to the Plan shall be transferable other than by will or by the laws of descent
and distribution, and no such option shall be exercisable during the
Participant's lifetime other than by the Participant.
(d) Delivery of Certificates for Shares. The Company shall deliver
-----------------------------------
certificates for Shares acquired on the exercise of options during an Offering
Period as soon as practicable following the Offering Termination Date.
8. Withdrawals.
-----------
(a) Withdrawal of Account. A Participant may elect to withdraw the
---------------------
balance credited to the Participant's Account by providing a Termination Form to
the Committee at any time before the Offering Termination Date applicable to any
Offering.
(b) Amount of Withdrawal. A Participant may withdraw all, but not less
--------------------
than all, of the amounts credited to the Participant's Account by giving a
<PAGE>
Termination Form to the Committee. All amounts credited to such Participant's
Account shall be paid as soon as practicable following the Committee's receipt
of the Participant's Termination Form, and no further Payroll Deductions will be
made with respect to the Participant.
(c) Termination of Employment. Upon termination of a Participant's
-------------------------
employment for any reason other than death, including termination due to
disability or continuation of a leave of absence beyond 90 days, all amounts
credited to such Participant's Account shall be returned to the Participant. In
the event of a Participant's (1) termination of employment due to death or (2)
death after termination of employment but before the Participant's Account has
been returned, all amounts credited to such Participant's Account shall be
returned to the Participant's Successor-in-Interest.
(d) Leave of Absence. A Participant who is on an Approved Leave of
----------------
Absence shall, subject to the Participant's election pursuant to section 5(d) of
the Plan, continue to be a Participant in the Plan until the end of the first
Offering ending after commencement of such Approved Leave of Absence. A
Participant who has been on an Approved Leave of Absence for more than 90 days
shall not be eligible to participate in any Offering that begins on or after the
commencement of such Approved Leave of Absence so long as such leave of absence
continues.
9. Interest.
--------
No interest shall be paid or allowed with respect to amounts paid into the
Plan or credited to any Participant's Account.
10. Shares.
------
(a) Maximum Number of Shares. No more than 1,000,000 Shares may be issued
------------------------
under the Plan. Such Shares shall be authorized but unissued shares of the
Company. The number of Shares available for any Offering and all Offerings
shall be adjusted if the number of outstanding Shares of the Company is
increased or reduced by split-up, reclassification, stock dividend or the like.
All Shares issued pursuant to the Plan shall be validly issued, fully paid and
nonassessable.
(b) Participant's Interest in Shares. A Participant shall have no interest
--------------------------------
in Shares subject to an option until such option has been exercised.
(c) Registration of Shares. Shares to be delivered to a Participant under
----------------------
the Plan shall be registered in the name of the Participant.
<PAGE>
(d) Restrictions on Exercise. The Board may, in its discretion, require as
------------------------
conditions to the exercise of any option such conditions as it may deem
necessary to assure that the exercise of options is in compliance with
applicable securities laws.
11. Expenses.
--------
The Participating Companies shall pay all fees and expenses incurred
(excluding individual Federal, state, local or other taxes) in connection with
the Plan. No charge or deduction for any such expenses will be made to a
Participant upon the termination of his or her participation under the Plan or
upon the distribution of certificates representing Shares purchased with his or
her contributions.
12. Taxes.
-----
The Participating Companies shall have the right to withhold from each
Participant's Compensation an amount equal to all Federal, state, city or other
taxes as the Participating Companies shall determine are required to be withheld
by them. In connection with such withholding, the Participating Companies may
make any such arrangements as are consistent with the Plan as it may deem
appropriate, including the right to withhold from Compensation paid to a
Participant other than in connection with the Plan and the right to withdraw
such amount from the amount standing to the credit of the Participant's Account.
13. Plan and Contributions Not to Affect Employment.
-----------------------------------------------
The Plan shall not confer upon any Eligible Employee any right to continue
in the employ of the Participating Companies.
14. Administration.
--------------
The Plan shall be administered by the Board, which may delegate
responsibility for such administration to a committee of the Board (the
"Committee"). If the Board fails to appoint the Committee, any references in
the Plan to the Committee shall be treated as references to the Board. The
Board, or the Committee, shall have authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, and to make
all other determinations deemed necessary or advisable in administering the
Plan, with or without the advice of counsel. The determinations of the Board or
the Committee on the matters referred to in this paragraph shall be conclusive
and binding upon all persons in interest.
<PAGE>
15. Amendment and Termination.
-------------------------
The Board may terminate the Plan at any time and may amend the Plan from
time to time in any respect; provided, however, that upon any termination of the
Plan, all Shares or Payroll Deductions (to the extent not yet applied to the
purchase of Shares) under the Plan shall be distributed to the Participants,
provided further, that no amendment to the Plan shall affect the right of a
Participant to receive his or her proportionate interest in the Shares or his or
her Payroll Deductions (to the extent not yet applied to the purchase of Shares)
under the Plan, and provided further that the Company may seek shareholder
approval of an amendment to the Plan if such approval is determined to be
required by or advisable under the regulations of the Securities or Exchange
Commission or the Internal Revenue Service, the rules of any stock exchange or
system on which the Shares are listed or other applicable law or regulation.
16. Effective Date.
--------------
The Plan shall be effective on the date it is adopted by the Board, subject
to approval by the Company's shareholders within one year of the adoption of the
Plan by the Board. Any option granted before the approval of the Plan by the
Company's shareholders shall be expressly conditioned upon such approval, and no
Share certificates shall be issued until such approval. If shareholder approval
is not received within 12 months before or after the date of the initial
adoption of the Plan by the Board, no Share certificates shall be issued with
respect to any automatic exercises which may have occurred pursuant to section 7
of the Plan, and all amounts credited to Participants' Accounts with respect to
such Shares shall be returned to Participants as soon as administratively
practicable.
17. Government and Other Regulations.
--------------------------------
(a) In General. The purchase of Shares under the Plan shall be subject to
----------
all applicable laws, rules and regulations, and to such approvals by any
governmental agencies as may be required.
(b) Securities Law. The Committee shall have the power to make each grant
--------------
under the Plan subject to such conditions as it deems necessary or appropriate
to comply with the then-existing requirements of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, including Rule
16b-3 (or any similar rule) of the Securities and Exchange Commission.
18. Non-Alienation.
--------------
No Participant shall be permitted to assign, alienate, sell, transfer,
pledge or otherwise encumber his interest under the Plan prior to the
distribution to him of Share certificates. Any attempt at assignment,
alienation, sale, transfer, pledge or other encumbrance shall be void and of no
effect.
<PAGE>
19. Notices.
-------
Any notice required or permitted hereunder shall be sufficiently given only
if delivered personally, telecopied, or sent by first class mail, postage
prepaid, and addressed:
If to the Company:
-----------------
RCN Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-3875
Attention: Employee Stock Purchase Plan Committee
Or any other address provided pursuant to written notice.
If to the Participant:
---------------------
At the address on file with the Company from time to time, or to such other
address as either party may hereafter designate in writing by notice
similarly given by one party to the other.
20. Successors.
----------
The Plan shall be binding upon and inure to the benefit of any successor,
successors or assigns of the Company.
21. Severability.
------------
If any part of this Plan shall be determined to be invalid or void in any
respect, such determination shall not affect, impair, invalidate or nullify the
remaining provisions of this Plan which shall continue in full force and effect.
22. Acceptance.
----------
The election by any Eligible Employee to participate in this Plan
constitutes his or her acceptance of the terms of the Plan and his or her
agreement to be bound hereby.
23. Applicable Law.
--------------
<PAGE>
This Plan shall be construed in accordance with the law of the State of
Delaware, to the extent not preempted by applicable Federal law.
IN WITNESS WHEREOF, the foregoing Plan is adopted this ___ day of
______________, 2000.
[CORPORATE SEAL] RCN CORPORATION
By:________________________________________
ATTEST:__________________________
<PAGE>
SCHEDULE A
Participating Companies
-----------------------
RCN Corporation
<PAGE>
Appendix B
AMENDMENT 2000-1
RCN CORPORATION 1997 EQUITY INCENTIVE PLAN
________________________________________________________________________________
______
WHEREAS, RCN Corporation (the "Corporation") has adopted the RCN 1997
Equity Incentive Plan (the "Plan"); and
WHEREAS, pursuant to Section 18 of the Plan, the Corporation has
reserved the right to amend the Plan;
NOW, THEREFORE, BE IT RESOLVED, the Corporation hereby amends the Plan
as follows:
1.
Section 5(a) is amended and restated in its entirety as follows:
"The aggregate number of shares of Stock made subject to all Awards
referenced above may not exceed 33,040,000;"
2.
Section 5(d) is amended and restated in its entirety as follows:
"No Participant may receive Awards under the Plan with respect to more
than 4,000,000 shares of Stock in any one year; and"
3.
Section 8(c) is amended and restated in its entirety as follows:
"The Initial Price shall be adjusted upward or downward as of the date
of exercise of such Outperformance Option (the "Adjusted Price"), by a
percentage equal to the annualized percentage increase or decrease in the
Standard & Poor's 500 Index (the "Annualized Percentage S&P Performance")
over the period (the "S&P Period") beginning on the date of grant and
ending on the trading day immediately preceding the date of exercise. For
purposes of determining the Annualized Percentage S&P Performance with
respect to any S&P Period, the Standard & Poor's 500 Index as of the last
day of the S&P Period shall be deemed to equal the average closing value of
such index over the ten-consecutive-trading day period ending on the last
day of such S&P Period."
<PAGE>
FURTHER RESOLVED, that this Amendment 2000-1 shall be effective on the
date of execution indicated below.
Executed this ___ day of ______________, 2000
RCN Corporation
Attest: ______________________ By: ___________________________
Title: ________________________
<PAGE>
<TABLE>
<S> <C>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS Please mark
MADE, THIS PROXY WILL BE VOTED FOR ALL OF THE PROPOSALS. your votes as [_]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE PROPOSALS.
1. Election of five (5) Directors to Class III to serve for a 2. Ratification of the appointment of
term of three (3) years. PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal
year ending December 31, 2000.
(Instructions: To withhold authority to vote for any individual nominee, strike FOR AGAINST ABSTAIN
a line through the nominee's name in the list below.) [_] [_] [_]
01. David C. McCourt, 02 James Q. Crowe, 03 Eugene Roth, 04 William D. Savoy,
and 05 Walter Scott, Jr.
VOTE FOR VOTE
all nominees withheld from all
nominees
[_] [_]
3. Adoption of the Company's 2000 Employee Stock 4. Approval of amendments to the Company's 1997 Equity
Purchase Plan. Incentive Plan.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[_] [_] [_] [_] [_] [_]
Signature ______________________________________ Signature _______________________________________ Date ___________________
Please sign exactly as your name(s) appear on proxy. If held in joint tenancy, all persons must sign. Trustees, Administrators,
etc., should include title and authority.
....................................................................................................................................
FOLD AND DETACH HERE
[LOGO] VOTE BY TELEPHONE OR INTERNET [LOGO]
QUICK * * * EASY * * * IMMEDIATE
YOUR VOTE IS IMPORTANT! - YOU CAN VOTE IN ONE OF THREE WAYS:
1. TO VOTE BY PHONE: call toll-free 1-800-840-1208 on a touch tone telephone 24 hours a day-7 days a week
There is NO CHARGE to you for this call. - Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box in the lower right hand corner of this form
OPTION 1: To vote as the Board of Directors recommends on ALL proposals, press 1
When asked, please confirm by Pressing 1.
OPTION 2: If you choose to vote on each proposal separately, press 0. You will hear these instructions:
Proposal 1 - To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the instructions
Proposal 2 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, please confirm by Pressing 1.
The instructions are the same for all remaining proposals.
or
--
2. VOTE BY INTERNET: Follow the instructions at our Website Address: http://www.eproxy.com/rcnc
If you wish to view RCN Corporations' Annual Report and Proxy Statement on-line, and receive your proxy card via E-Mail in the
future, please vote via the internet and register your E-Mail address on-line.
or
--
3. TO VOTE BY MAIL: Mark, sign and date your proxy card and return promptly in the enclosed envelope. To vote in accordance
with the Board of Directors' recommendations just sign above; no boxes need to be marked.
NOTE: If you vote by internet or telephone, THERE IS NO NEED TO MAIL BACK your Proxy Card.
THANK YOU FOR VOTING.
</TABLE>
<PAGE>
RCN CORPORATION
105 Carnegie Center
Princeton, New Jersey 08540
PROXY - Annual Meeting of Shareholders - May 16, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby revoking any contrary proxy previously given,
hereby appoints David C. McCourt, James Q. Crowe and Richard R. Jaros, and each
of them, his true and lawful agents and proxies, with full power of substitution
and revocation, to vote as indicated below, all the Common Stock of the
undersigned in RCN CORPORATION (the "Company") entitled to vote at the Annual
Meeting of Shareholders of the Company to be held at The Princeton Marriott in
Forrestal Village, 201 Village Boulevard, Princeton, New Jersey, 08540, on May
16, 2000 at 11:00 a.m., local time, and at any adjournment or postponement
thereof, all as set forth in the related notice and proxy statement for the
2000 Annual Meeting.
This proxy also delegates discretionary authority with respect to any other
matter as may properly come before the Annual Meeting and at any adjournment or
postponement thereof.
Change of Address
________________________________________________________________________________
________________________________________________________________________________
email:__________________________________________________________________________
(See Voting Instructions on Reverse Side)
FOLD AND DETACH HERE
