Resolved by the board of directors of IDEX Biometrics ASA on 21 April 2020
1. IMPLEMENTING AND REPORTING
This statement outlines the position of IDEX Biometrics ASA (the Company) in relation to the recommendations contained in the Norwegian Code of Practice for Corporate Governance dated 17 October 2018 (the Code). The Code is publicly available at www.nues.no. In the following, the Board of Directors (the Board) will address each recommendation of the Code and identify any areas where the Company does not fully comply with the recommendations and explain the underlying reasons for the deviations and any compensating measures where applicable.
2. IDEX’S BUSINESS
In the articles of association, the Company’s business is defined as “The objective of the Company is to deliver identification systems and other activities related to this.”
The Company’s business goals and key strategies are stated in a business plan adopted by the Board. The plan is reviewed and revised annually by the Board. The business goals and key strategies are presented in the annual report.
IDEX seeks to create sustained shareholder value. The Company makes every effort to comply with the wording and intent of the laws, rules and regulations in the countries and markets where it operates. IDEX is not aware of being or having been in breach of any such statutory laws, rules or regulations. The Company pays due respect to the norms of the various stakeholders in the business. In addition to the shareholders, the Company considers its employees, the Company’s business partners, the society in general and the authorities as stakeholders. IDEX is committed to maintain a high standard of corporate governance, be a good corporate citizen and demonstrate integrity and high ethical standards in all its business dealings.
The Board considers that the Board and the management have adequate monitoring and control systems in place to ensure insight in and control over the activities. The Board has resolved ethical guidelines which apply to all employees, consultants and contractors as well as the elected board members. The ethical guidelines also incorporate the Company’s guidelines on corporate social responsibility. The guidelines are available on the Company’s website, www.idexbiometrics.com.
3. CAPITAL STRUCTURE, EQUITY AND DIVIDENDS
IDEX has until now been a development company and consequently funded on equity. The Board is aware of and acknowledges the equity requirements and duty of action in connection with loss of equity, as set out in the Norwegian Public Limited Companies Act (PLCA). The capital structure will change in the commercial growth stage. IDEX’s working capital and fixed assets will need to be funded by a combination of supplier credit and borrowing from financial lenders. The Board will target an optimal capital structure that leverages the equity while maintaining a moderate risk.
At various points in time, as well as presently, the Company has been in need of raising equity to fund its activities. Share issues, hereunder private placements, have been resolved by the shareholders at general meetings or by the Board pursuant to authorizations from the general meeting. The Board has annually proposed to the general meeting reasonable authorizations for share issues. Such board authorizations have explicitly stated the type and purposes of transactions in which the authorizations may be applied.
Proposed authorizations to issue shares have been considered and voted separately by each type and purpose. The Board authorizations to issue shares have been valid until the next annual general meeting, as recommended by the Code. The proposals have been approved by the shareholders.
Further, the Company has in place a moderate incentive scheme in the form of a subscription rights program, as resolved by the general meeting. The subscription rights program is limited to a number of subscription rights representing 10% of the Company’s share capital. The Company is also in the process of implementing an employee share purchase plan (ESPP), whereby employees may convert a portion of cash remuneration to shares in the company. The ESPP serves to encourage employee ownership and represents a cash saving for the company.
The Company has not had in place any authorization to the Board to acquire own shares. As and when such authorization should be adopted, the Board will propose that the length of the authorization be limited to a period ending at the next annual general meeting of shareholders.
IDEX has not as yet declared or paid any dividends on its shares. The Company does not anticipate paying any cash dividends on its shares in the next few years. IDEX intends to retain future earnings, to finance operations and the growth of its business. Any future decision to pay dividends would be based on an amended dividend policy that may be instituted in due course, which policy would reflect the Company’s financial condition, results of operation and capital requirements.
4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES
The Company places great emphasis on ensuring equal treatment of its shareholders. There are no trading restrictions or limitations relating only to non‐residents of Norway under the articles of association.
In the authorizations to issue new shares where the shareholders resolve to waive the pre-emptive rights of existing shareholders, the rationale for doing so shall be included as part of the decision material presented to the general meeting. If and when such transactions are conducted, the justification will also be included in the announcements to the market.
All related‐party transactions, whether completed, in effect or future, have been and will be carried out on an arm’s length basis. Any not immaterial future related-party transactions shall be subject to an independent third‐party valuation unless the transaction by law requires shareholder approval. The Company takes legal and financial advice on these matters when relevant.
There are no clauses in the articles of association about trading in the Company’s own shares, nor has the general meeting issued any such authorizations.
5. FREELY NEGOTIABLE SHARES
The Company has one class of shares. Each share carries one vote. There are no restrictions on voting rights of the shares. All shares are freely assignable. The articles of association do not contain any restrictions on the shares.
6. GENERAL MEETINGS
The general meeting of shareholders provides a forum for shareholders to discuss any matters with the Board. To the maximum degree possible, all members of the Board and the chair of the nomination committee shall be present at the general meeting. The Company’s CEO and the auditor shall also be present at the general meeting. The shareholders elect a person to chair the general meeting. The Board will arrange for an independent candidate if so requested by shareholders. Notice of a meeting of the shareholders shall be sent in a timely manner, and the Company shall issue the notice and documents for a general meeting, including the proxy form, no later than 21 days before the date of the general meeting. Foreign residents will receive the notice and any documents in English. The documents shall be precise and comprehensive to provide shareholders a basis for voting on the various matters. The articles of association state that documents which deal with matters that are to be handled at the general meeting need not be sent to the shareholders if the documents have been made available on the Company’s web site timely.
The Board endeavours to provide comprehensive information in relation to each agenda item in order to facilitate constructive discussions and informed resolutions at the meeting.
The notice will also provide information on the procedures shareholders must observe in order to participate in and vote at the general meeting. Shareholders who are unable to attend in person will be provided the option to vote by proxy in favor or against each of the Board’s proposals. The notice shall contain a proxy form as well as information of the procedure for proxy representation. Electronic voting or advance votes have not been introduced in the articles of association because there are as yet limited, if any, reliable systems or practices for such voting. At the meeting, votes shall be cast separately on each subject and for each office/candidate in the elections. Consequently, the proxy form shall to the extent possible, facilitate separate voting instructions on each subject and on each office/candidate in the elections. The notice, as well as the Company’s website, will set out that the shareholders have the right to propose resolutions in respect of matters to be dealt with at the general meeting.
7. NOMINATION COMMITTEE
The nomination committee is implemented in the Company’s articles of association, and the mandate for the nomination committee has been resolved by the annual general meeting. The mandate is compliant with the current version of the Code. The annual general meeting elects the chair and two committee members. No current board member or IDEX executive is a member of the nomination committee. The current chair of the nomination committee was formerly a board member of the Company.
The mandate states that the nomination committee shall comply with the relevant sections in the Code. The nomination committee shall prepare and present proposals to the annual general meeting in respect of the following matters:
• Propose candidates for election to the Board.
• Propose the remuneration to be paid to the Board members.
• Propose candidates for election to the nomi-nation committee.
• Propose the remuneration to be paid to the nomination committee members.
The nomination committee shall give a brief account of how it has carried out its work and shall sub¬stantiate its recommendations.
Information about the nomination committee, in¬cluding deadlines and contact details, is available on the Company’s web site.
8. BOARD OF DIRECTORS; COMPOSITION AND INDEPENDENCE
The Board acknowledges the Code’s recommendation that the majority of the members of the Board shall be independent of the Company’s executive management, material business contacts and the company’s larger shareholders. This is intended to ensure that sufficient independent advice and judgment is brought to bear. All board members are required to make decisions objectively in the best interest of the Company. The majority of the current Board meets the independence criteria of the Code. The Board meets the statutory gender requirements. The board members’ attendance statistics is included in the presentation of the board members in the annual report.
The articles of association state that there shall be from three to seven board members. The service period is not stated in the articles, hence the Board members stand for election every two years pursuant to the provisions of the PLCA. It follows from the articles of association that the chair of the Board shall be elected separately.
The Board considers that it is beneficial for the Company and its shareholders at large that the Board members hold shares in the Company and encourages such share ownership.
The Board pays attention to ensure that ownership shall not in any way affect or interfere with proper performance of the fiduciary duties which the Board members and the management owe the Company and all shareholders. As and when appropriate, the Board takes independent advice in respect of its procedures, corporate governance and other compliance matters.
9. THE WORK OF THE BOARD OF DIRECTORS
The division of responsibility and duties between the Board and the managing director is based on applicable laws and well‐established practices, which have been stated in board instructions in accordance with the PLCA. The Board instructions also set out the number of scheduled Board meetings per year and the procedures in connection with the Board’s work and meetings.
The Board instructions state that the Board has the ultimate responsibility for the organization and planning of the Company, as well as a control and supervisory function, hereunder a duty to keep itself informed. The Board shall appoint the managing director and determine his or her remuneration and also possibly give notice or dismiss the managing director. The Board shall ensure that the organization of the accounting and funds management includes adequate control procedures. The Board shall monitor and follow‐up the status and development of the Company’s operational, financial and other results.
The Board will set out an annual plan for its work, focusing on business goals and key strategies, cf. Section 2 above. The Board instructions also list inter alia the following tasks:
• Issue interim and annual financial statements and other statutory reports;
• Issue notice of the annual general meeting;
• Resolve the annual plan and budget, including capital expenditure budget;
• Resolve investment in and disposals of subsidiaries and associated companies, and in real estate;
• Resolve and issue guarantees and other commitments and the pledging of assets;
• Resolve customer-related or revenue-generating agreements as well as other agreements and activities which are significant and would be expected to have a significant impact on the Company’s results and financial position; and
• Determine whether legal proceedings should be commenced or settled.
The Board instructions state that in situations when the chair cannot or should not lead the work of the Board, the deputy chair shall chair the Board. If the deputy chair is also prevented from chairing the meeting, the longest-serving board member present shall chair the meeting until an interim chair has been elected by and among the board members present.
The Board conducts a self-evaluation of its performance and expertise annually.
IDEX is not obliged to have a separate audit committee and in view of the small number of Board members, the audit committee consists of all Board members who are not also executives or have similar roles in the Company. The Board instructions include instructions for the audit committee.
In 2019, the Board elected two of its members to serve as a compensation committee. The compensation committee is advisory to the Board, and also serves as an advisory forum to the managing director. The mandate for the compensation committee will be finalised in 2020.
Members of the Board and the management are obliged to notify the Board if they have any material direct or indirect interest in any transaction contemplated or entered into by the Company or any other matter that will be considered by the Board.
10. RISK MANAGEMENT AND INTERNAL CONTROL
The Board has adopted rules and guidelines regarding, amongst other matters, risk management and internal control. The rules and guidelines duly take into account the extent and nature of the Company’s activities as well as the Company’s corporate values and ethical guidelines, including corporate social responsibility. The Board conducts an annual review of the Company’s most important areas of exposure to risk and its internal control arrangements, including the reporting procedures.
In view of the size of the Company and the number of Board members, the Board has chosen to elect the full Board to constitute the audit committee. The audit committee policies and activities are compliant with the PLCA.
IDEX issues interim financial reports each quarter and an annual financial report. The accounting policies applied when preparing the reports satisfy regulatory requirements. The Board reviews monthly financial reports for the group, comparing actual results to budget or plan. The size of the Company’s operation and staff numbers necessarily leads to dependence on key individuals. However, the same factors also provide for transparency and inherent risk reduction. The subsidiaries are operationally integrated in the parent company, and the group works as one, unified company with staff on several sites. Legal and financial interaction between the group companies is conducted on arm’s length terms.
IDEX’s activities and financials are controlled by the parent company. The audit committee regularly meets separately with the external auditor to review risk factors and measures, and any incidents and issues. The audit committee reviews all interim and annual financial reports before resolution by the Board. The Board has resolved a financial manual, which sets out policies and procedures for financial management and reporting in the group. This manual provides instructions for financial planning, treasury, accounting and reporting. It is reviewed annually by the audit committee, and updated as and when appropriate. The Board acknowledges that, having operations spread over four sites on three continents outside Norway, business control is a practical challenge. In addition to the financial framework and systems, IDEX has implemented comprehensive IT systems and quality management systems and standardised operating procedures which ensures adequate business controls.
IDEX does not operate a separate internal audit function. The CFO department conducts internal reviews of the group companies. Each review is conducted by a staff member not involved in transaction processing in the entity in question, and the findings are reported to the audit committee.
As regards share trading by IDEX’s Board members, employees and individual contractors, as well as their close relations and controlled entities, the Board has adopted an insider manual with ancillary documents. The insider manual is intended to ensure that, among other things, trading in the Company’s shares by insiders are conducted in accordance with applicable laws and regulations.
11. REMUNERATION OF THE BOARD OF DIRECTORS
A reasonable cash remuneration to the Board members for their services from the annual general meeting in 2018 until the annual general meeting in 2019 was proposed to and resolved at the annual general meeting 2019. To lessen the cash outflow and stimulate shareholding among the Board members, the annual general meeting granted an option for the Board members to receive the remuneration partly or fully in the form of shares. Three of the board members took up this option in 2019. Amount details are disclosed in the financial statements.
The nomination committee shall propose board remuneration for the period between the annual general meetings of 2019 and 2020. No share-based incentives have been granted as board remuneration. Any Board member performing work for the Company beyond the board duty shall ensure that such assignments do not in any way affect or interfere with proper performance of the fiduciary duties as a board member. Moreover, the Board, without the parti¬cipation of the interested member, shall approve the terms and conditions of any such arrangements. Adequate information about the remuneration shall be disclosed in the annual financial statements.
Advokatfirmaet Ræder AS, in which IDEX’s chair, Morten Opstad, is a partner, renders legal services to the Company. Generally, such services are largely undertaken by lawyers at Ræder other than Mr Opstad. In the cases where legal services provided by Ræder are carried out by Mr Opstad, such services, which are outside Mr Opstad’s duties as chair, are invoiced by Ræder. The legal fees to Ræder are disclosed in the financial statements.
Larry Ciaccia, who was last re-elected board member at the annual general meeting on 9 May 2019, has served on IDEX’s Strategy Advisory Council (SAC) since January 2014 and continues his tenure on the SAC, for which he is remunerated separately. Mr Ciaccia also provides consulting services to IDEX for a fixed annual fee, and he has been granted incentive subscription rights in his capacity as adviser to IDEX. The fees and share-based remuneration to Mr Ciaccia are disclosed in the financial statements.
12. REMUNERATION TO THE MANAGEMENT
IDEX offers market‐based compensation packages for the executives and employees in order to attract and retain the competence which the Company needs. The company has in place an incentive subscription rights plan for its employees, including management. Managers may also participate in the ESPP currently being implemented in the Company. The terms of these programmes are the same for managers as for other employees.
Senior managers have notice periods of 3 to 6 months. No so‐called golden parachutes are in effect, and post‐employment pay will only apply in case the Company invokes contractual non‐competition clauses.
The Board shall determine the compensation of the CEO. The cash incentive remuneration per calendar year is limited to an amount or a percentage of annual base pay. It follows from the nature of the incentive subscription rights programme resolved by the annual general meeting that the limit does not apply to the possible gain on subscription rights. The Board has adopted a policy for the CEO’s remuneration of the employees.
At the annual general meeting, the Board will present to the shareholders a statement of remuneration to officers in a separate document attached to the notice of the annual general meeting. The statement shall clearly state which aspects of the guidelines are advisory and which are binding, and the general meeting will resolve the aspects separately. The resolution by the annual general meeting is binding to the extent it relates to share‐based compensation, and advisory in other aspects.
13. INFORMATION AND COMMUNICATIONS
The Board places great emphasis on the relationship and communication with the shareholders. The primary channels for communication are the interim reports and presentations, the annual report and the associated financial statements. IDEX also issues other notices to shareholders when appropriate. The general meeting of shareholders and the presentations provide fora for shareholders to discuss any matters with the Board.
The Company publishes its annual financial calendar for the following year. All reports and other notices are issued and distributed according to the rules and practices at Oslo Børs. The notices to the market are published on the Oslo Børs newssite, www.newsweb.no. The reports and other pertinent information are also available on the Company’s website, www.idexbiometrics.com.
The Board has adopted the following policies:
• Policy for reporting of financial and other information and investor relations;
• Policy for contact with shareholders outside general meetings; and
• Policy for information management in unusual situations attracting or likely to attract media or other external interest.
The financial reporting of IDEX is fully compliant with applicable laws and regulations. IDEX prepares and presents its annual financial reports in accordance with IFRS. The content of the interim reports is compliant with IFRS.
The current information practices are adequate under current rules. IDEX complies with the Oslo Børs code of practice for IR information.
There are no takeover defence mechanisms in place. The Board will endeavor that shareholder value is maximised and that all shareholders are treated equally. The Board acknowledges its duty to not obstruct take‐over bids and to not discourage or hinder competing bids. Any agreement with a bidder that acts to limit the Company’s ability to arrange other bids should only be entered into where it is self-evident that such an agreement is in the common best interest of the Company and its shareholders.
The Board will avoid compensation to a bidder whose bid does not complete, and limit any such com¬pensation to the costs the bidder has incurred in making the bid. The Board shall otherwise ensure full compliance with section 14 of the Code.
IDEX’s auditor is fully independent of the Company. IDEX represents a minimal share of the auditor’s business. IDEX does not obtain business or tax planning advice from its auditor. The auditor may provide certain technical and clerical services in connection with the preparation of the annual tax return and other secondary reports, for which IDEX assumes full responsibility. IDEX’s auditor is Ernst & Young AS (EY). EY has been the auditor of the Company since 1996.
The Board reviews the auditor’s annual plan, and the auditor presents to the board the findings and recommendations after the audits. The auditor attends the board meetings when annual financial statements are considered and resolved, and the board regularly meets separately with the auditor to review risk factors and measures, and any incidents and issues. Accounting policies and any changes are subject to the statutory audit.
The Board has established written guidelines to the CEO in respect of assignments to the auditor other than the statutory audit. The Board shall otherwise ensure full compliance with section 15 of the Code.