Ann: WAV/RULE: DIL: DIL - Application for Waiver

• Release Date: 02/04/12 17:03
• Summary: WAV/RULE: DIL: DIL - Application for Waiver from NZSX Listing Rule 3.6.2(b
• Price Sensitive: No
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DIL
02/04/2012 15:03
WAV/RULE

REL: 1503 HRS Diligent Board Member Services INC (NS)

WAV/RULE: DIL: DIL - Application for Waiver from NZSX Listing Rule 3.6.2(b

30 March 2012

NZX Market Supervision Decision

Diligent Board Member Services Incorporated

Application for Waiver from NZSX Listing Rule 3.6.2(b)

Background

1. Diligent Board Member Services Incorporated ("DIL") is an Issuer listed on
NZX's Main Board.

2. In the course of reviewing DIL's notice of meeting for its annual general
meeting to be held on 17 April 2012 (released over MAP on 20 March 2012), NZX
Market Supervision ("NZXMS") identified that DIL's Audit Committee comprised
of only two members, rather than the three members required by NZSX Listing
Rule ("Rule") 3.6.2(b).

3. NZXMS queried DIL regarding its non-compliance with Rule 3.6.2(b) and DIL
advised that on 12 April 2011, Mr Peter Huljich, an Independent Director of
DIL and a member of DIL's Audit Committee resigned from DIL's Board and,
consequentially, as a member of DIL's Audit Committee.

4. Since Mr Huljich's resignation, DIL's Audit Committee has comprised of
only two members, Mr Rick Bettle and Mr Mark Russell, who are both
Independent Directors of DIL.

Application

5. Following NZXMS's query as to the composition of its Audit Committee, DIL
applied for a temporary waiver from Rule 3.6.2(b) until 30 June 2012 to allow
its Audit Committee to be comprised of only two members.

6. In support of its application DIL submits that:

(a) The US Federal Sarbanes-Oxley Act (to which DIL is subject) requires that
all members of DIL's Audit Committee be independent directors. Therefore, it
is not possible for DIL to appoint one of its other two existing directors
(being Alessandro Sodi and David Liptak) to fill the vacancy on the Audit
Committee, because neither of them is an Independent Director. Instead, DIL
must appoint a new, independent director as the third member of its Audit
Committee;

(b) Mr Huljich's resignation was effective immediately, meaning that the DIL
Board was only made aware of his intention to resign at the same time that he
actually submitted his resignation;

(c) DIL recognises that the appointment of an additional Independent Director
(and member of the Audit Committee) needs to be completed as quickly as
possible. Since the second quarter of 2011, DIL has been engaged in an active
search for a suitably qualified and experienced, US-based Independent
Director (who, it is intended, will also be a member of DIL's Audit
Committee);

(d) Until a third member is appointed, DIL's Audit Committee will be
comprised solely of Independent Directors, one of whom (Rick Bettle) has
already been determined by the DIL Board to have the appropriate accounting
or financial expertise required by the Rules;

(e) Since Mr Huljich's resignation, DIL's Audit Committee has continued to
operate in the same way that it operated prior to Mr Huljich's resignation
and has not been hampered in any respect by Mr Huljich's resignation or by
the absence of a replacement appointment;

(f) The DIL Board anticipates that an appointment of a new Independent
Director and member of DIL's Audit Committee will be made within the next
three months;

(g) The granting of a waiver in respect of Rule 3.6.2(b) would have no
adverse effect on DIL shareholders; and

(h) At the request of NZXMS, DIL's external auditor, Holtz Rubnstein
Reminick, provided NZXMS with confirmation that DIL's Audit Committee has
functioned efficiently and in a professional manner at all its meetings in
2011.

Rule

7. Rule 3.6.2 provides as follows:

"The Audit Committee shall: ...

(b) have a minimum of three members; and
(c) have a majority of members that are Independent Directors; ...".

Decision

8. On the basis that the information provided by DIL to NZXMS is full and
accurate in all material respects, NZXMS declines to grant DIL a temporary
waiver from Rule 3.6.2(b) until 30 June 2012.

Reasons

9. In declining to grant DIL a temporary waiver from Rule 3.6.2(b), NZXMS has
considered the following:

(a) Rule 3.6.2(b) is of importance to the intergrity of the market as it
ensures that Issuers maintain an appropriately comprised audit committee, and
thereby maintain a robust audit process;

(b) DIL did not take any immediate steps to approach NZXMS seeking a waiver
upon Mr Huljich's resignation. Mr Huljich resigned in April 2011, but DIL
only applied for a temporary waiver upon NZXMS raising the issue of a breach
in February 2012;

(c) There may be policy reasons supporting the granting of a waiver. The US
Federal Sarbanes-Oxley Act, to which DIL is subject, requires that all
members of DIL's Audit Committee be independent directors. This requirement
is more onerous than the Rule requirement that a majority of the Audit
Committee be Independent Directors. Therefore, DIL must appoint a third
Independent Director to its Audit Committee in order to comply with US
Federal law.  DIL could have potentially complied with the Rule (by
appointing a non-Independent Director to the Audit Committee) but for the US
Federal law requirements; and

(d) DIL elected to incorporate as a company in Delaware in the US and to be
accordingly subject to the US Federal law requirements on the composition of
its Audit Committee.

10. On balance, and due to the fact that DIL has been in breach of Rule
3.6.2(b) for a period of approximately 10 months, the breach cannot be
described as minor and NZXMS does not consider it appropriate to grant DIL a
temporary waiver.

11. NZXMS reminds all Issuers of the importance of complying with the
corporate governance provisions of the Rules and the need to promptly
self-report any breaches of the Rules to NZXMS if it comes to an Issuer's
attention that it is currently in breach of the Rules.

ENDS
End CA:00221461 For:DIL    Type:WAV/RULE   Time:2012-04-02 15:03:54