SmarTire Adopts EVA -R-
7 December 1999
SmarTire Adopts EVA -R-
RICHMOND, British Columbia--Dec. 7, 1999-- SmarTire Systems Inc. announced today that it has adopted Economic Value Added (EVA(R)) as the basis for measuring corporate, director and employee performance.Mark Desmarais, President and Chief Operating Officer of SmarTire, said: "While it may be unusual for an emerging technology company to subject itself to the rigors of EVA performance measurement, we believe that it demonstrates the company's commitment to shareholder value creation through the direct alignment of shareholder, director and employee interests."
EVA is simply defined as net operating profit after tax minus a charge for capital. The annual charge for capital has been set at 20% by the SmarTire Board. EVA is a financial measure that links shareholder and management interests, encouraging employees to think as shareholders and to focus on the common objective of adding value. EVA has been successfully employed by a number of major corporations and Wall Street investment management firms since the early 1980s. According to Mark Desmarais, "We believe that EVA can be used to create an entrepreneurial culture with an objective of increasing shareholder wealth. A new compensation system has been established in order to further that objective."
SmarTire has approved a three-year incentive compensation plan based upon EVA and Market Value Added (MVA). MVA is defined as the difference between the company's market capitalization and the capital actually invested in the company by its shareholders. During the plan's horizon, incentive compensation will be calculated based upon improvements in EVA and the absolute levels of EVA and MVA. In the MVA calculation, the company's market capitalization at the end of each fiscal year will be measured against actual paid-in capital at July 31, 1999, increased by 20% per annum compounded. Any new capital issued during the plan period will also be measured against a 20% annual compounded growth requirement. If the company's market capitalization exceeds the level of shareholder investment and the 20% annual compounded growth requirement, incentive compensation will accrue under the MVA test.
Accruals under the incentive compensation plan will be one-third paid and two-thirds deferred each year. The deferred portion will be subject to potential decreases as well as increases based upon the following two years' performance. Except in exceptional circumstances, all payments under the incentive compensation plan will be made in company shares, not in cash. SmarTire intends to purchase these shares in the open market.
SmarTire has also amended its policy on stock options. Future grants will be in the form of "premium priced options". Under the SmarTire premium priced option structure, exercise prices will increase at a rate of 20% compounded annually. Outside director compensation will consist of premium priced options. Those options will vest at the date of grant, but if not exercised by each anniversary date, the option will re-price to the next year's exercise price. Employee options will vest over a five-year term.
According to Mark Desmarais, "SmarTire's objective, subject to the achievement of forecasted shareholder value, is that its directors and employees will control at least 10% of its outstanding shares at the end of the three-year term of the incentive compensation plan, thereby further aligning shareholder, director and employee interests."
EVA is a registered trademark of Stern Stewart & Co. Additional information on EVA is available at www.sternstewart.com.
SmarTire Systems Inc. is an emerging technology company that develops and markets proprietary tire monitoring systems for the North American and European automotive aftermarkets. Through their strategic alliance, SmarTire and TRW Inc. are committed to providing superior tire monitoring systems for both aftermarket and original equipment applications. Additional information is available at www.smartire.com.
Kevin A. Carlson, CA, Chief Financial Officer
Except for the historical information contained herein, this news release contains forward looking statements that involve risks and uncertainties, including the impact of competitive products and pricing and general economic conditions as they affect the Company's customers. Actual results and developments may therefore differ materially from those described in this release.