RCN Corporation Adopts Innovative Outperform Stock Option Plan; Action Further Aligns Management Interests With Its Shareholders
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PRINCETON, N.J., July 18 /PRNewswire/ -- To further align the interests of
shareholders with its management team, RCN Corporation (NASDAQ:RCNC) has
adopted an Outperform Stock Option (OSO) program. Under this program, certain
members of RCN senior management will benefit from an increase in the market
value of RCN's shares only if RCN's stock performance exceeds the performance
of the general market, as measured by the Standard & Poor's (S&P) 500 Index,
and the value rises above the options' strike price. RCN is one of the few
companies, along with Level 3 Communications, that has adopted such a
progressive and innovative long-term compensation program.
This action is another step in a series of company initiatives to attract
and retain the best and the brightest employees in the industry. The company
noted that the OSO program is consistent with RCN's philosophy of employee
ownership, in which members of senior management are encouraged to buy RCN
stock with their own money, and in fact do have a significant stake in the
company. It is the company's belief that this kind of personal investment in
the company, combined with the OSO program, will help it achieve long-term
value creation for both shareholders and employees.
"This progressive compensation plan closely ties management's compensation
to true company performance and value creation," said David C. McCourt, RCN's
Chairman and Chief Executive Officer. "This provides a great incentive to our
management team to continue to make smart, entrepreneurial-minded business
decisions designed to help RCN outperform the stock market over the long
term."
"We based this plan on the Level 3 model. However, in this first grant, we
issued the options at $38.125, which was significantly above RCN's closing
price of $23.375 on the issue date of June 1, 2000," McCourt added. "For this
first grant, we have to get to 38.125, then additionally beat the S&P 500."
The OSO program is designed so that RCN's shareholders receive a market
return on their investment before OSO holders receive any return on their
options. The stock option value is based on the company's ability to
outperform the market in general, as measured by the S&P 500 Index.
Participants in the OSO program do not realize any value from the awards
unless the common stock price outperforms the S&P 500 Index and exceeds the
strike price, which adjusts based on the S&P 500 performance. When RCN 's
stock performance is greater than the S&P 500 Index performance, the value
received for the awards in the OSO plan is based on a formula involving a
multiplier related to the level by which the common stock outperforms the S&P
500 Index. The more RCN's stock outperforms the Index, the higher the
multiplier, up to a maximum of eight times.
"OSOs allow the company to properly balance shareholder and RCN management
team rewards by always rewarding the shareholder first," said Tim Stoklosa,
Executive Vice President and Chief Financial Officer of RCN. "Stockholders
receive an S&P 500 return before management participates. Even at the maximum
multiplier allowed under the plan, shareholders would receive greater than
three-fourths of the extra value created beyond the S&P 500 return."
Non-Cash Accounting Impact
"RCN plans to adopt Accounting for Stock-Based Compensation because we
think it is fairer for shareholders to actually see the non-cash impact rather
than try to calculate the value of our outstanding options. In addition, it
will have absolutely no effect on the operating cash flow," added Stoklosa.
"Level 3's plan has been well received, and we are convinced that it is the
right move to make for RCN."
RCN plans to adopt the recognition provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under SFAS No. 123, the fair
value of an option, OSO, or other stock-based compensation (as computed in
accordance with accepted option valuation models) on the date of grant is
amortized over the vesting periods of the options. The recognition provisions
of SFAS No. 123 are applied prospectively upon adoption. As a result, the
recognition provisions are applied to all stock awards granted this year.
The adoption of SFAS No. 123 will result in non-cash charges to operations
in 2000 and thereafter. The amount of the non-cash charge will be dependent
upon a number of factors, including the number of grants and the fair value of
each grant estimated at the time of its award. |
