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To Stave Off Delisting, RCN Eyes Reverse Split

RCN Corp. has asked shareholders to approve a reverse split of its common stock, a move that would increase its share price and avert a delisting from the NASDAQ small-cap market exchange.

In a document filed with the Securities and Exchange Commission on April 4, RCN said NASDAQ had notified the company Sept. 25 that its stock has traded below the minimum $1 per share price needed for continued listing on the exchange. Because RCN was able to keep its market capitalization above $50 million, though, it received a 180-day extension, until Sept. 22, 2003, to get its share price above $1 each for 10 consecutive days.

RCN stock was priced at 70 cents per share in 4 p.m. trading April 9.

The Princeton, N.J.-based telecommunications service provider did not detail the terms of the split, stating that it would depend on its share price for the five days prior to the transaction.

RCN also did not reveal the ratio of the reverse split, but said its share price would climb to $5 apiece immediately after the transaction. Shareholders will get to vote on the proposal at RCN's annual meeting, set for May 8 in Princeton.

In addition, RCN said it would ask shareholders to approve an increase in the number of its outstanding common shares, from 300 million to 500 million.

In the SEC document, RCN said the increase would give it greater flexibility to issue stock for general corporate purposes like additional stock splits, raising equity capital, acquisitions, establishing strategic relationships with other companies and repurchasing debt.

Once one of the high flyers of the telecom industry — its stock was as high as $75 per share in 2000 — RCN hit hard times as the telecom bubble burst. At one point last year, the company was in danger of defaulting on its substantial debt, but it cut a deal in March to restructure its bank obligations.

According to that bank agreement, RCN agreed to reduce the amount available under its $187.5 million revolving loan facility, under which it currently has no borrowings outstanding, to $15 million. It also agreed to maintain a cash collateral account of at least $100 million for the benefit of the lenders under the credit facility.

RCN can incur up to $500 million of new senior indebtedness that may be secured by a second lien on RCN's assets and use up to $125 million of existing cash and the proceeds of new debt to repurchase outstanding senior notes. Future asset sales, up to the first $100 million, must be shared equally with the bank group, and 80 percent — 20 percent in the bank's favor thereafter — must go toward paying down its senior secured-term loans.

In February, RCN sold its Princeton, N.J., cable systems to Patriot Media & Communications, headed by former Simmons Communications president Steve Simmons, for $245 million. Much of the proceeds from that deal went to pay off debt.

Last month, RCN announced that its chief financial officer, Jeff White, would resign in the second quarter for personal reasons. That was the same month that RCN reported a $1.57 billion loss for 2002, despite subscriber and revenue gains.

Revenue for the year increased about 10 percent, and RCN boosted its cable-modem subscribers ranks by 50 percent. But the high cost of bundling voice, video and data — and acquiring the necessary infrastructure — pushed losses higher.