In pursuance of Section 69 b of the Danish Companies Act, Topsil Semiconductor Materials A/S has laid down the following overall guidelines for incentive-based remuneration of the Board of Directors and Management Board of the company and its wholly-owned subsidiaries.
Group of Persons
The Board of Directors may, on behalf of the company, enter into agreements on incentive-based remuneration with the company’s Management Board at any given time and, to the extent to which this is found necessary, the Board of Directors may also enter into agreements on incentive-based remuneration with senior employees or other key employees.
In accordance with the company’s corporate governance rules, the Board of Directors’ remuneration cannot be linked to incentive-based remuneration schemes.
Incentive-Based Remuneration
The Board of Directors may solely allot share options to the above group of persons in accordance with authorisations registered in the company’s Articles of Association.
Furthermore, the Board of Directors may allot cash bonus schemes to the above group of persons.
The authorisation for the Board of Directors to issue share options shall be adopted as a separate item on the agenda at the company’s General Meeting.
Allotment of Share options
Share options may be allotted to the above group of persons in accordance with the Board of Directors’ authorisation and in accordance with the following overall criteria:
1. The company’s wish to attract and hold on to qualified employees.
2. The company’s wish to promote long-term conduct for its Management Board, senior employees and key employees.
3. The company’s wish to recognise and reward an outstanding performance.
The Board of Directors will, moreover, lay down the further criteria and terms for the individual incentive-based remuneration schemes that the Board of Directors prepares in accordance with the authorisation granted.
The subscription price for the shares for which the share options give a right of subscription must not be below par and shall, moreover, be fixed by the Board of Directors in connection with the preparation of the individual incentive-based remuneration scheme.
The Current Incentive-Based Remuneration Scheme
In 2006 and 2007, the company’s Board of Directors allotted the company’s two managers and seven present or former senior employees a share option scheme, applicable to the 2006-2008 accounting years, for a total of 17,011,036 share options in accordance with authorisation granted by the General Meeting.
Each share option entitles the holder to subscribe for one share of a nominal value of DKK 0.25 in the company at a stipulated exercise price (strike price).
In connection with the exercise of the share options, the company will issue new shares, which, in pursuance of the company’s Articles of Association, shall be issued with a legal status that is identical to the status of the company’s other shares in any and all respects:
a) The existing shareholders shall not have a right of pre-emption to the new shares
b) The new shares shall be paid up in cash on exercise of the option
c) The new shares shall be negotiable instruments
d) The new shares shall be registered in the name of the holder
e) The new shares shall be freely negotiable
f) The new shares shall entitle the shareholder to a dividend and other rights in the company from the time at which the increase in share capital is registered with the Danish Commerce and Companies Agency
g) If changes have been implemented in the rights attached to the company’s shares in general, the new shares shall have the same rights as the company’s other shares
h) The company shall pay all costs connected with the issue and implementation of the increase in share capital
i) The share options cannot be assigned to another party
j) The share options cannot be made the object of pledging or execution.
Further details about the group of persons and their holdings of shares and share options are disclosed on page 28 and in note 7 regarding ”Share-Based Remuneration”, pages 50-52 in the Annual Report for 2007, which will be published on 25 March 2008.
The share options may be exercised in the following periods:
a) Up to 6 weeks after publication of the Announcement of the Annual Accounts for 2006.
b) Up to 6 weeks after publication of the Announcement of the Annual Accounts for 2007.
c) Up to 6 weeks after publication of the Announcement of the Annual Accounts for 2008.
As a general rule, the holder may exercise 1/3 of the allotted share options for each exercise period, provided that he/she has been employed with the company throughout the calendar year.
In accordance with Sub-articles 3.6 and 3.8 of the company’s Articles of Association, the Board of Directors has been authorised to issue a total of 25 million share options to the Management Board and senior employees. There are currently 7,988,964 unexercised share options of a total nominal value of DKK 1,997,241 under this scheme.
In 2007, a total of 4,999,998 share options were exercised to subscribe for a corresponding number of new shares. 5,287,290 of the remaining share options may be exercised in 2008 and 5,861,873 in 2009. On 29 February 2008, the Management Board and three senior employees exercised a total of 4,569,061 share options.
The share options shall lapse if the holder does not exercise the options within the stipulated 6-week exercise periods. The same shall apply if the option holder’s employment terminates. 861,875 options lapsed in 2007 due to termination of employment.
If the share majority in the company passes to a third party or if the company is wound up by a merger or split-up, the option holder shall be entitled to exercise all share options in the next exercise period. If the share options are not exercised in the next period, they shall lapse.
If a resolution is adopted on an increase in share capital through a bonus issue before the exercise of the share options, the option holder shall be entitled to subscribe for further shares to prevent any dilution of the option holder’s shareholding.
If a resolution is adopted on an increase in share capital, the issue of share options, convertible instruments of debt or the like at a price that is not lower than the option holder’s strike price, this will not affect the terms.
If the price is lower than the option holder’s strike price, the number of shares that may be subscribed for in accordance with the share options and the subscription price for these shares shall be adjusted so that the option holder is placed in the same position, in relation to both share trading and subscription price, as if the share options had been exercised immediately prior to said change in the company’s capital structure.
Fair Value of Share options
The fair value of the incentive scheme is based on Cox, Ross and Rubinstein’s Binomial Tree. The fair value will depend on a number of parameters, including historical volatility, the level of interest rates, etc. These parameters may, and will, vary up to the time of the allotment of the options. The fair value per option amounted to DKK 0.96 as at 31.12.2007. This means that, on full exercise of the Board of Director’s authorisation, the incentive-based remuneration scheme had a fair value of DKK 10,677,000 as at 31 December 2007.
Bonus Schemes
The Management Board and senior employees are covered by bonus schemes for the 2006-2007 calendar years, which are linked to individually fixed performance targets and which have been allotted in accordance with the same criteria as for the share options. The value of the bonus schemes amount to 6% of the profit for the year before tax, distributed as follows:
2% to the Chief Executive Officer
1% to the Sales and Marketing Manager
½% to each of the present six senior employees
Publication
The present overall guidelines are recommended by the company’s Board of Directors for discussion and approval at the company’s ordinary General Meeting on 2 April 2008. If the guidelines are approved, they will immediately be published at the company’s website www.topsil.com. In addition, a provision will be included in the company’s Articles of Association that overall guidelines for incentive-based remuneration of the company’s Management Board, senior employees and other key employees have been adopted on 2 April 2008.
