INCENTIVE SCHEMES

2. september 2016

Daniel L. Høgtun

Advokatfirmaet Selmer DA Doc. ref.: 901595 2

Shares and options – The two dimensions

Two dimensions: Employer and employee

1.Why does the company wants to compensate the employee with shares and /or options?

• Attract or retain key employees

• Cash management

• Align employees with the company (economically and emotionally)

2.Why does employees want to obtain or buy shares and / or options in the Company?

• Higher salary

• Greater upside

• Take part in building their "own" company

Advokatfirmaet Selmer DA Doc. ref.: 901595 3

Generally about incentive schemes in Norway

What arrangements are there?−Purchase or granting of shares−Granting of share options (subscription rights, warrants, options)−Cash bonus (bonus, synthetic shares)

Who should be included in the scheme?−Management and selected employees, or a wider/general arrangement?−Several different schemes?

On what basis?−Revenue, profit, EBITDA and other economic variables−Work effort, hours−Innovation, milestones−Customer satisfaction−Pure discretion−Company level, department level, individually?

Combinations

Advokatfirmaet Selmer DA

EMPLOYEE EMPLOYER

4

Risk, financing and tax - different models

Options∙ Low or no risk of loss until after exercise∙ Low or no financing for employees until exercise∙ Employment income on the option gain (up to

approximately 47%)

Shares∙ Investment and risk of loss∙ Financing necessary∙ Favourable taxation of gains (capital not employment

income)∙ Discount from FMV considered as employment income

Options∙ Does not charge the company's liquidity (dilution) if

shares are issued∙ Tax deduction equal to gain if the company has or obtains

shares that are awarded to the employees∙ Employers' national insurance contribution on the gain

Shares∙ No financing for the company∙ Tax deduction on discount if the company has or obtains

shares that are awarded to the employees∙ Employers' national insurance contribution on any discount

from FMV at the time of acquisition

Doc. ref.: 2185942

Bonus∙ No downside for employees∙ No financing for employees∙ Employment income (up to approximately 47%)

Bonus∙ Must be financed by the company – charges the liquidity∙ Employers' national insurance contribution and holiday

pay∙ Deduction for the cost

Advokatfirmaet Selmer DA Doc. ref.: 2901595 5

Some important considerations

∙What type of program? − Shares have an additional incentive through risk− The value of the company is important

− Early stage / low value (shares)− Late stage / high value (shares and/or options)

∙Strategy / exit− The program should be aligned with the company's

strategy∙The economics of the program

− What shall give entitlement to shares/options (result, days etc.)

− Number of shares that can be purchased / subscribed for− What price (discount, FMV etc.)

∙Timing− Ongoing, permanent or periodical models− Situational exercise (milestones)− Flexible exercise?

∙Financing

− Consider both the need for financing and the costs of the program (for shareholders. company and employees)

∙Dilution / control

− Consider effects

− Set limitations

− Different types of shares (e.g. limited voting rights)∙Lock up etc.∙Sales restrictions (potential tax effects)∙Good leaver / bad leaver∙Exercise restrictions

∙Ownership

− Through a personal holding company?

− Must be controlled by employee?