Sealegs wants options

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Only months after torpedoing one share purchase scheme at a cost to shareholders of $3.1 million, Sealegs is seeking approval for a new directors' options plan.

The new options plan would see some directors able to buy shares in the company at less than a fifth of the price the now sunken scheme offered.

The amphibious boat designer and builder plans to issue options to buy 9 million shares at 10 cents each. Of these, 4 million will go to each of chief executive David McKee Wright and company founder Maurice Bryham, while 1 million will go to Australian director William Burrell.

Shareholders will vote on the measure at the annual meeting on July 17.

In April Sealegs advised that it had cancelled 12 million employee share options (10 million of which were split between McKee Wright and Bryham) approved by shareholders in August 2007. These options had an exercise price of 55 cents each.

"Despite the company’s continued revenue growth, factors including the recent worldwide economic downturn mean the options have not been successful in creating value or incentive for employees," the company said when cancelling the options. "Further to this the board did not support carrying forward the accounting expense of an ineffective option plan given it had no foreseeable future benefit for employees."

Because of the way options schemes have to be treated under the new international accounting rules, there was a charge of $3.1 million against the company in the year ended March. This contributed to Sealegs' all-up loss of $5.76 million.

"No options were ever exercisable under the scheme and no remuneration costs incurred," chairman James Hill said in the annual report. "No benefits were received by the employees. In these circumstances the financial effect of this [international financial reporting standard] appears perverse," he said.

There was only one oblique reference in Sealegs' annual report that it intended to put up a replacement options scheme, but full details have been provided in the notice of meeting.

In addition, KPMG has prepared an independent appraisal report, in which it says the issue of options is fair to shareholders.

It is planned for the shares to be exercisable in tranches over the next four years, but they can be exercised only if "trigger" prices of 12 cents, 14c, 17c and 20c are achieved in those four years.

KPMG says the escalating trigger price performance hurdle seeks to ensure that a tranche of options can only be exercised if Sealegs' shareholders have received a positive return on their investment.

It also says while the cancellation of the August 2007 options and the issue of the new options at a lower price "could be considered a potential negative feature of the proposed transaction", KPMG believes this should be "viewed in the context of the decline in financial markets globally and consideration of whether the previous options were still effective in motivating the senior executives".

KPMG points out that McKee Wright and Bryham have each voluntarily reduced their salaries by $50,000. Burrell receives directors’ fees but not a salary.

Shareholders are also being asked to approve, separately, another issue of 1.65 million options on the same terms as those going to the directors. These will be distributed to "certain employees".

- © Fairfax NZ News