General principles, implementation and reporting on Corporate Governance

Otello strongly believes that strong corporate governance creates higher firm value. As a result, Otello is committed to maintaining high standards of Corporate Governance. Otello’s principles of Corporate Governance have been developed in light of the Norwegian Code of Practice for Corporate Governance (the “Code”), dated October 21, 2010, as required for all listed companies on the Oslo Stock Exchange. Otello views the development of high standards of Corporate Governance as a continuous process and will continue to focus on improving the level of Corporate Governance.

The Board of Directors has the overall responsibility for Corporate Governance in Otello, and ensures that the Company implements sound Corporate Governance. The Board of Directors has defined Otello’s basic corporate values, and the Company’s ethical guidelines and guidelines on corporate social responsibility are in accordance with these values. 
 

Otello’s activities

Otello’s vision is to deliver the best Internet experience on any device. This is reflected in Article 3 of the Articles of Association, which reads “The Company’s objective is development, production and sale of software and related services, and engagement in other companies or other similar business activities.” However, reaching this goal is about much more than leading the innovation of Web technologies. Our business is based on close relationships with customers, partners, investors, employees, friends, and communities all over the world — relationships we are committed to by conducting our business openly and responsibly. Our corporate policies are developed true to this commitment.

CSR guidelines

The Board of Directors has adopted corporate social responsibility (“CSR”) guidelines and Otello is a member of the UN Global Compact. The CSR guidelines cover a range of topics such as human rights, employee relations, Health, Environment & Safety, and anti-discrimination.

Equity and dividends

The Company’s equity is considered to be adequate to Otello’s objectives, strategy and risk profile.

To achieve its ambitious long-term growth objectives, it is Otello’s policy to maintain a high equity ratio. Otello believes its needs for growth can be met while also allowing for a dividend distribution as long as the Company is reaching its targeted growth and cash generation levels. For this reason, the Company will consider continuing to pay dividends over the next years. Dividend payments will be subject to approval by the shareholders at the Company’s Annual General Meetings.

Authorizations granted to the Board of Directors to increase the Company’s share capital will be restricted to defined purposes and will in general be limited in time to no later than the date of the next Annual General Meeting. To the extent that authorization to increase the share capital shall cover issuance of shares under employee share option schemes and other purposes, the Company will consider presenting the authorizations to the shareholders as separate items.

The Board of Directors may also be granted the authority to acquire own shares. Authorizations granted to the Board of Directors to acquire own shares will also be restricted to defined purposes. To the extent that authorization to acquire own shares shall cover several purposes, the Company will consider presenting the authorization to the shareholders as separate items. Such authority will apply for a maximum period of 18 months, and will state the maximum and minimum amount payable for the shares. In addition, an authorization to acquire own shares will state the highest nominal value of the shares which Otello may acquire, and the mode of acquiring and disposing of own shares. Otello may not at any time hold more than 10% of the total issued shares as own shares.

Equal treatment of shareholders and transactions with close associates

A key concept in Otello’s approach to Corporate Governance is the equal treatment of shareholders. Otello has one class of shares and all shares are freely transferable (with possible exceptions due to foreign law restrictions on sale and offering of securities). All shares in the Company carry equal voting rights. The shareholders exercise the highest authority in the Company through the General Meeting. All shareholders are entitled to submit items to the agenda, and to meet, speak, and vote at the General Meeting.

Any decision to waive the pre-emption rights of existing shareholders to subscribe for shares in the event of an increase in share capital will be explained. Where the Board of Directors resolves to carry out an increase in the share capital and waive the pre-emption rights of the existing shareholders on the basis of a mandate granted to the board, an explanation will be publicly disclosed in a stock exchange announcement issued in connection with the increase of the capital.

In 2010 there have been no significant transactions with closely related parties.

If the Company should enter into a not immaterial transaction with associated parties within Otello or with companies in which a director or leading employee of Otello or close associates of these have a material direct or indirect vested interest, those concerned shall immediately notify the Board of Directors.

Any such transaction must be approved by the Board of Directors, and where required also as soon as possible publicly disclosed to the market.

In the event of not immaterial transactions between the Company and shareholders, a shareholder’s parent company, members of the Board of Directors, executive personnel or close associates of any such parties, the Board of Directors will arrange for a valuation to be obtained from an independent third party, unless the transaction requires the approval of the General Meeting.

The Company has an established and closely monitored insider trading policy.

Any transaction the Company carries out in its own shares will be carried out either through the stock exchange or at prevailing stock exchange prices if carried out in any other way.

Freely negotiable shares

Otello has no limitations on the transferability of shares and has one class of shares. Each share entitles the holder to one vote.

General Meetings

Through the General Meeting, the shareholders exercise the highest authority in the Company. General Meetings are held in accordance with the Code. All shareholders are entitled to submit items to the agenda, meet, speak and vote at General Meetings. The Annual General Meeting is held each year before the end of June. Extraordinary General Meetings may be called by the Board of Directors at any time. The Company’s auditor or shareholders representing at least five percent of the total share capital may demand that an Extraordinary General Meeting be called.

General Meetings are convened by written notice to all shareholders with known addresses no later than 21 days prior to the date of the meeting. Proposed resolutions and supporting information, including information on how to be represented at the meeting, vote by proxy and the right to propose items for the General Meeting, is generally made available to the shareholders no later than the date of the notice. According to the Company’s Articles of Association, attachments to the calling notice may be posted on the Company’s website and not sent to shareholders by ordinary mail. Shareholders who wish to receive the attachments may request the Company to mail such attachments free of charge. Resolutions and the supporting information are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered in the meeting.

Shareholders who are unable to be present, are encouraged to participate by proxy and a person who will be available to vote on behalf of shareholders as their proxy will be nominated. Proxy forms will allow the proxy-holder to cast votes for each item separately. A final deadline for shareholders to give notice of their intention to attend the meeting or vote by proxy will be set in the notice for the meeting.

The Chairman, Vice-Chairman, Chairman of the Nomination Committee, CEO, CFO and the auditor are all required to be present at the meeting in person. The Chairman for the meeting is generally independent. Notice, enclosures and protocol of meetings are available on Otello's website.

The General Meeting elects the members of the Board of Directors (excluding employee representatives), determines the remuneration of the members of the Board of Directors, approves the annual accounts and decides such other matters which by law, by separate proposal or according to the Company’s Articles of Association are to be decided by the General Meeting. The General Meeting will normally vote separately on each candidate for election for the Board of Directors, the Nomination Committee and any other corporate bodies to which members are elected by the General Meeting.

The Board of Directors may decide to allow electronic participation in General Meetings, and will consider this before each General Meeting.

Nomination Committee

The Nomination Committee is a body established pursuant to the Articles of Association and consists of four members. The members and the chairperson are elected by the General Meeting. Members of the Nomination Committee serve for a two-year period, but may be re-elected. The members of the Nomination Committee are independent of the Board of Directors and the executive personnel. Currently, no member of the Nomination Committee is a member of the Board of Directors. Any member who is also a member of the Board of Directors will normally not offer himself or herself for re-election.

The tasks of the Nomination Committee are to propose candidates for election as shareholder-elected members of the Board of Directors and members of the Nomination Committee. Further, the Committee shall make recommendations regarding the remuneration of the members of the Board of Directors. Its recommendations will normally be explained. The tasks of the Nomination Committee are further described in the Company’s Nomination Committee guidelines. Remuneration of the members of the Nomination Committee will be determined by the General Meeting. Information regarding deadlines for proposals for members to the Board of Directors and the Nomination Committee will be posted on Otello’s website. Please see Otello’s website for further information regarding the Nomination Committee.

Corporate assembly

Otello does not have a corporate assembly as the employees have voted, and the General Meeting in 2010 approved, that the Company should not have a corporate assembly.

Composition and independence of the Board of Directors

The Board of Directors has overall responsibility for the management of the Company. This includes a responsibility to supervise and exercise control of the Company’s activities. The Board of Directors shall consist of 5-10 members, employee representatives inclusive. The proceedings and responsibilities of the Board of Directors are governed by a set of rules of procedure. It is the Company’s intention that the members of the Board of Directors will be selected in the light of an evaluation of the Company’s needs for expertise, capacity and balanced decision making, with the aim of ensuring that the Board of Directors can operate independently of any special interests and that the Board of Directors can function effectively as a collegial body.

The Chairman of the Board of Directors will normally be elected by the General Meeting, unless statutory law prescribes that the Chairman must be elected by the Board of Directors. The Board members are encouraged to own shares in the Company. Please see Otello’s website for a detailed description of the Board members, including share ownership. Pursuant to the Code, at least half of the members of Board of Directors shall be independent of the Company’s management and its main business connections. At least two of the shareholder-elected members of the Board of Directors shall be independent of the Company’s main shareholder(s). Executive personnel should normally not be included in the Board of Directors. In the opinion of the Company, these requirements are met. The term of office for members of the Board of Directors is two years unless the General Meeting decides otherwise, but a director may be re-elected.

The work of the Board of Directors

The conduct of the Board of Directors follows the adopted rules of procedure for the Board of Directors. A specific meeting and activity plan is adopted towards the end of each year for the following period, and normally revisited twice a year. The Board of Directors will meet a number of times within a year, including for strategy meetings, and will hold additional meetings under special circumstances. Its working methods are openly discussed. Between meetings, the Chairman and Chief Executive Officer update the Board members on current matters. There is frequent contact regarding the progress and affairs of the Company. Each Board meeting includes a briefing by one of the functional or department managers of the Company followed by Q&A. The Board meetings are a continuous center of attention for the Board of Directors ensuring executive personnel maintains systems, procedures and a corporate culture that promote compliance with legal and regulatory requirements and high ethical conduct.

The Board of Directors has further established a Remuneration Committee and an Audit Committee. Each Committee consists of three members from the Board of Directors. According to the Code, a majority of the members of each Committee should be independent from the Company. If the requirements for independence are not met, Otello will explain the reasons therefore in its Annual Report. Currently, Audun W. Iversen (Chairperson), Arve Johansen and Karl Øygard are members of the Audit Committee, whereas Kari Stautland (chairperson), Marianne Blystad and Stig Halvorsen are members of the Remuneration Committee. The requirements for independence are thus met.

The Audit Committee’s main responsibilities include following up on the financial reporting process, monitoring the systems for internal control and risk management, having continuous contact with the appointed auditor, and reviewing and monitoring the independence of the auditor. The Board of Directors maintains responsibility and decision making in all such matters. Please see below under the section “Remuneration of the Executive Personnel”, and the “Board Rules of Procedure” for the tasks to be performed by the Remuneration Committee.

The Board will consider evaluating its work, performance and expertise annually, and any report from such evaluation will upon request be made available to the Nomination Committee. The Board plans to carry out a self evaluation process in May 2011. In order to ensure a more independent consideration of matters of a material character in which the Chairman of the Board of Directors is, or has been, personally involved, such matters will be chaired by some other member of the Board of Directors. Please see Otello's website for further information regarding the Rules of Procedure for the Board of Directors and the instructions for its Chief Executive Officer. The Company has also established Rules of Procedure for its Executive personnel.

Risk management and internal control

Otello has established comprehensive internal procedures and systems to mitigate risks and to ensure reliable financial reporting.

The Board of Directors has ensured that the Company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the Company’s activities. The Company has performed a scoping of the financial risks in the Company, and established written control descriptions and process descriptions. The controls are executed on a monthly, quarterly or yearly basis.

The internal controls and systems also encompass the Company’s corporate values, ethical guidelines and guidelines for corporate social responsibility.

The Board of Directors carries out an annual review of the Company’s most important areas of exposure to risk and its internal control arrangements.

Remuneration of the Board of Directors

Remuneration for Board members is a fixed annual sum proposed by the Nomination Committee and approved at the Annual General Meeting. The remuneration reflects the responsibility, qualifications, time commitment and the complexity of their tasks in general. No Board members elected by the shareholders have assumed special tasks for the Company beyond what is described in this document, and no such member has received any compensation from Otello other than ordinary Board of Directors remuneration.

A large number of the Company's shareholders are international investors with a different view on some of the recommendations in the Code. This practice will be further limited in the future, but will not be excluded as a tool to enhance the interest of any particular international expert or senior executive to join the Board of Directors. Any Board member who takes on assignments for the Company in addition to his or her appointment as a Board member will disclose such assignments to the Board of Directors, which will determine the appropriate remuneration for the assignment in question.

Remuneration of the executive personnel

A Remuneration Committee has been established by the Board of Directors. The Committee shall act as a preparatory body for the Board of Directors with respect to (i) the compensation of the CEO and other members of the Executive Team and (ii) Otello’s corporate governance policies and procedures, which in each case are matters for which the Board of Directors maintains responsibility and decision making.

The performance-related remuneration to the executive personnel is subject to an absolute limit. The Board of Directors assesses the CEO and his terms and conditions once a year. The General Meeting is informed about incentive programs for employees, and pursuant to section 6-16 a) of the Public Limited Companies Act, a statement regarding remuneration policies for the Executive Team will be presented to the General Meeting.

Information and communications

Communication with shareholders, investors and analysts is a high priority for Otello. The Company believes that objective and timely information to the market is a prerequisite for a fair valuation of the Company’s shares and, in turn, the generation of shareholder value. The Company continually seeks ways to enhance its communication with the investment community.

The Otello corporate website (www.otellocorp.com) provides the investment community with information about the Company, including a comprehensive investor relations section. This section includes the Company’s investor relations policy, annual and quarterly reports, press releases and stock exchange announcements, share price and shareholding information, a financial calendar, an overview of upcoming investor events and other relevant information.

During the announcement of quarterly and annual financial results, there is a forum for shareholders and the investment community to ask questions of the Company’s management team. Otello also arranges regular presentations in Europe and the USA, in addition to holding meetings with investors and analysts. Important events affecting the Company are reported immediately to the Oslo Stock Exchange in accordance with applicable legislation, and posted on Otello’s Website. All material information is disclosed to recipients equally in terms of content and timing.

Take-overs

The Board of Directors endorses the recommendation of the Norwegian Code of Practice for Corporate Governance. The Articles of Association of Otello do not contain any restrictions, limitations or defense mechanisms on acquiring the Company’s shares.

In accordance with the Securities Trading Act and the Code, the Board has adopted guidelines for possible takeovers. In the event of an offer, the Board of Directors will not seek to hinder or obstruct takeover bids for Otello’s activities or shares, unless there are particular reasons for this. If an offer is made for the shares of Otello, the Board of Directors will make a recommendation on whether the shareholders should or should not accept the offer, and will normally arrange a valuation from an independent expert.

Auditor

The auditor participates in meetings of the Board of Directors that deal with the annual accounts, and upon special request. Every year, the auditor will present to the Audit Committee a report outlining the audit activities in the previous fiscal year and highlighting the areas that caused the most attention or discussions with management; the auditor also reviews the Company’s internal control procedures, including identified weaknesses and proposals for improvement. The auditor will make himself available upon request for meetings with the Board of Directors at which time no member of the executive management is present, as will the Board of Directors upon auditor's request.
The Board of Directors has established guidelines with respect of the use of the auditor by the Company’s executive personnel for services other than the audit.