RCN to acquire NEON Communications Group

JUNE 25, 2007 -- The transaction combines RCN, a competitive provider of video, data, and voice services to residential and business customers in the Northeast, mid-Atlantic, and Chicago metro markets, with NEON's pure-play network transport services to carrier and enterprise customers in the twelve-state New England and mid-Atlantic regions.

JUNE 25, 2007 -- RCN Corp. (search for RCN) and NEON Communications Group Inc. (search for NEON) have entered into a definitive agreement for RCN to acquire NEON for up to $5.25 per share of NGI common stock, in cash, for an expected total consideration of up to approximately $260 million.

The transaction has been approved by the Board of Directors of both companies and is expected to close during the fourth quarter of 2007, subject to regulatory approvals and the approval of NEON's stockholders as well as certain other closing conditions described below.

The transaction combines RCN, a competitive provider of video, data, and voice services to residential and business customers in the Northeast, mid-Atlantic, and Chicago metro markets, with NEON's pure-play network transport services to carrier and enterprise customers in the twelve-state New England and mid-Atlantic regions. According to RCN representatives, NEON offers a complementary network and a customer base that fits very well into RCN Business Solutions' growth strategy.

Pro forma for the quarter ended March 31, 2007 (assuming that the transaction had closed on January 1, 2007), combined RCN Business Solutions' annualized Revenue and EBITDA would have been approximately $160 million and $40 million, respectively, nearly twice the actual results of RCN Business Solutions, says RCN. These figures exclude an estimated $10 million of expected revenue and expense synergies to be achieved during the integration period following the closing of the transaction.

In addition, the acquisition expands RCN's overall network footprint, including over 1,000 combined on-net commercial locations, creating an opportunity to increase its addressable residential homes in markets both inside and adjacent to its existing core footprint.

According to RCN, the NEON acquisition brings:
• A densely built fiber-optic network with approximately 4,800 route miles, over 230,000 fiber miles, 22 colocation facilities, and more than 200 points of presence (PoPs) from Maine to Virginia;
• A facilities-based wholesale communications provider that supplies high-bandwidth fiber-optic capacity and comprehensive end-to-end telecom services to approximately 120 carrier and enterprise customers;
• Unique fiber routes along utility rights-of-way, expanding RCN's commitment to diversity from the legacy telecom infrastructure;
• A complementary network and similar sales approach, which will help facilitate integration and open up new markets for RCN products; and
• A complementary customer base.

"This is a significant strategic acquisition for RCN that scales our high-value commercial segment with another premier regional service provider in our own footprint," reports Peter Aquino, president and CEO of RCN. "NEON brings an extensive fiber network in New England and the mid-Atlantic with diverse intercity fiber assets. This combination of NEON, ConEd Communications, and RCN's existing metro and intercity rings will now reach into both Tier 1 and Tier 2 markets for enterprise and carrier customers who are looking for robust alternatives to incumbent providers," he says

NEON and RCN have had a positive, long standing working relationship," adds Kurt Van Wagenen, president and CEO of NEON Communications Group. "Through this merger, our customers gain access to an enhanced set of services, additional on-net buildings, and an expanded geography, including a network in Chicago and deeper capillarity in New York City and Washington, DC. The combined entity will have more than 14,000 route miles and more than 1,000 on-net buildings," he notes.

RCN expects to fund the purchase price for the transaction with $250 million of debt financing, consisting of a combination of senior secured term loans as well as unsecured borrowings, with the remainder funded from its existing cash reserves. RCN has received commitment from affiliates of Deutsche Bank to provide the full $250 million of debt financing. Neither the acquisition nor the additional debt financing require the consent of RCN's existing lenders, say RCN representatives.

The transaction is expected to close during the fourth quarter of 2007, subject to FCC and state regulatory approvals, NEON's stockholder approval, and NEON achieving minimum agreed-upon revenue and EBITDA milestones during the second half of 2007. In addition, assuming the required approvals are received and minimum financial milestones are met, the purchase price could be reduced by up to $0.10 per share if NEON does not meet supplementary revenue targets specified in the agreement during the second half of 2007.

Deutsche Bank Securities, Inc. and Andrews Kurth LLP acted as financial and legal advisors to RCN, and The Bank Street Group LLC and Clifford Chance US LLP acted as financial and legal advisors to NEON.


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