As discussed in Note 3 and Note 15, in December 2012 the Board of Directors of the Company appointed a Special Committee of independent directors to examine Diligent's past stock issuances and stock option grants and found that certain option awards exceeded the applicable plan caps on the number of shares covered by an award issued to a single recipient in a particular year. It is the intention of the Company that the options will be cancelled in 2013 and the Special Committee is working to develop appropriate alternative compensation packages for the two affected employees (see Note 20 – Subsequent Events).

 

As part of its work, the Special Committee also reviewed the Company's compliance with applicable regulations and has identified a number of instances where it appears that Diligent was not, or may not have been, in compliance with its regulatory obligations. The Special Committee has recommended, and the Board fully endorses, that the Company work with its regulators to resolve these issues. It is of course possible that fines or penalties for non-compliance could be imposed. The Company believes it is probable it will be assessed fines and remediation costs from the NZX, and has recorded a reserve for this contingency, which is included in Special Committee Expenses on the Consolidated Statements of Operations.