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Diligent CEO Sodi may get extra US$6.7 mln in tax-efficient bonus scheme

Wednesday 5th June 2013

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Diligent Board Member Services plans to offer an additional US$6.7 million of performance-related cash, shares and options to its chief executive after its earlier bonus scheme fell afoul of regulations.

CEO Alessandro Sodi will be offered 4.1 million units over five years, worth an estimated US$29.1 million, replacing an earlier package worth US$22.4 million, the New York based company said in a statement to the stock exchange today. Shareholders will vote on the proposal at the company's June 25 annual meeting in Auckland.

The new package offered to Sodi is fair to shareholders, according to an independent appraisal by Simmons Corporate Finance. While the gross value of Sodi's new scheme is higher, so is the potential level of taxable income, meaning the schemes are comparable on a post-tax basis, the Simmons report said.

For Diligent, the replacement grants are all tax deductible, compared with less than half of the grants under the previous scheme, Simmons said. Diligent expects to save US$9 million to US$13.5 million in tax as a result of the new scheme, outweighing an extra US$6.7 million which could be paid to Sodi.

Diligent's board, excluding Sodi, recommends shareholders vote for the new package. Failure to approve the new incentive plan could result in litigation from Sodi after his earlier non-compliant options were cancelled, and he could resign, Diligent said.

Shares in Diligent, whose software helps directors manage corporate governance information flows, fell 1.3 percent to $7.70, having gained 43 percent so far this year.

Separately, Diligent will seek ratification from shareholders for Deloitte & Touche LLP to be its new auditor. The company appointed Deloitte on April 3 after it discovered its previous arrangement with accounting firm Holtz Rubenstein Reminick LLP didn't meet New Zealand reporting requirements as it wasn't licenced in New Zealand and couldn't be registered because of its limited liability partnership status.

Similarly, Deloitte is not a registered audit firm in New Zealand because of its limited liability partnership status, Diligent said today. However Diligent said it's not aware of an alternative New Zealand based and registered audit firm with the expertise to audit its accounts in accordance with US GAAP rules.

The company plans to apply to the Financial Markets Authority and the New Zealand stock exchange for an exemption or waiver from the rules for this year if there is no law change to accommodate it in the interim. The FMA declined an exemption for the company's 2012 breach but said it would take no action against it.

Diligent said it will work with Deloitte and New Zealand regulatory authorities to find a solution ahead of preparing its financial statements for this financial year.

The company wants shareholders to give backdated approval for payments to directors since listing in 2007 after it failed to put the US$320,000 of proposed fees in its prospectus to a vote after listing, breaching listing rules.

Directors had agreed to halve their payments in 2008 through 2011 during the global financial crisis and because of financial difficulties experienced by the company in its early years, Diligent said. In 2012 the company paid a total of US$210,000 to directors.

The company will seek approval from shareholders to increase the total annual payment pool to non-executive directors by US$646,000 to US$856,000 from this financial year. Payments to directors would include shares to align their interests with those of other stock holders, the company said.

Diligent would use some of the extra money this year to pay directors Mark Weldon and Joe Carrabino US$75,000 each in recognition of their work on a special committee to investigate the company's problems with past stock issuances and stock option grants. The payments were decided after a review of similar work by remuneration consultant Compensia.

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