CORP

CORPORATE GOVERNANCE GUIDELINES

FUNCOM N.V.

 

Introduction

It is essential to the Funcom Supervisory Board that all stakeholders have confidence in the company based on strong governance practices. These practices include treating all shareholders equally; having independent, competent people in the company's governing bodies; ensuring that all financial accounts are audited by qualified, independent auditors; and that information provided by the company provides an accurate picture of the underlying situation on an ongoing basis.

Funcom’s key principles of corporate governance, as summarized in this document, have been based upon the Dutch Corporate Governance Code and the Norwegian Code of Practice for Corporate Governance. This document describes Funcom’s adopted principles relative to the Norwegian Code (dated 7 Dec, 2004).

 

1. Implementation and reporting on corporate governance

The Supervisory Board must ensure that the company implements sound corporate governance. The board must provide a report on the company’s corporate governance in the annual report. Deviations from the recommended corporate governance codes must be explained in the report. The board shall define the company’s basic corporate values and formulate ethical guidelines in accordance with these values.

Funcom strongly believes that strong shareholder rights create higher firm value, higher profits, higher sales growth, and contributes to lower capital expenditures. As such, Corporate Governance is a real tool used in bridging the gap between management and shareholders, ensuring ethical corporate behavior.

Funcom has a set of values that guides the way we develop our products, as well as interact with our customers, partners, and investors. Funcom views the development of high standards of corporate governance as an on-going process rather than a one time event.

A key concept in Funcom’s approach to corporate governance is the equal treatment of all shareholders. All shares in the company carry equal voting rights and are freely transferable. The shareholders exercise the highest authority in the company through the General Meeting. All shareholders are entitled to submit items to the agenda, meet, speak, and vote at the General Meeting.

In order to clearly define the tasks and responsibilities of its board and management, Funcom has adopted Rules of Procedure for its Supervisory Board and written Instructions for its Chief Executive Officer and Management Board.

 

2. Business

Funcom’s key business objectives are defined in the Articles of Association as follows:

“The objective of the company shall be to develop, market and carry on business in computer games, hereunder massively multiplayer online games, online role playing games and related games on electronic devices of different kinds, to take and grant licenses and other industrial property interests, assume commitments in the name of any enterprises with which it may be associated within a group of companies, to take financial interests in such enterprises and to take any other action, such as but not limited to the granting of securities or the undertaking of obligations on behalf of third parties, which in the broadest sense of the term, may be related or contribute to the aforesaid objectives.”

The annual report shall include the business activities clause from the articles of association and describe the company’s objectives and principal strategies.

 

3. Equity and dividends

Funcom will maintain an equity ratio appropriate to its long-term growth targets. In view of the Company's planned expansion of its business, the Company is not planning to pay dividends in the medium term future. This policy will be regularly evaluated as appropriate according to the development of the company. Dividend payments will be subject to approval by the shareholders at the Company's annual General Meetings.

Mandates granted to the board of directors to increase the company’s share capital shall be restricted to defined purposes and shall also be limited in time to no later than the date of the next annual general meeting. This shall also apply to mandates granted to the board for the company to purchase its own shares.

 

4. Equal treatment of shareholders and transactions with close associates

The company has only one class of shares. Any decision to waive the pre- emption rights of existing shareholders to subscribe for shares in the event of an increase in share capital must be justified. Any transactions the company carries out in its own shares shall be carried out either through the stock exchange or at prevailing stock exchange prices if carried out in any other way. If there is limited liquidity in the company’s shares, the company shall consider other ways to ensure equal treatment of all shareholders.

In the event of any material transactions between the company and shareholders, members of the board of directors, members of the executive management or close associates of any such parties, the board shall arrange for a valuation to be obtained from an independent third party. This also applies to transactions between companies in the same group where any of the companies involved have minority shareholders.

The company has established guidelines to ensure that members of the board of directors and the executive management notify the board if they or any of their close associates have any material direct or indirect interest in any transaction entered into by the company.

 

5. Freely negotiable shares

Shares in the Company are freely negotiable. There is no form of restrictions on negotiability in the company’s articles of association.

 

6. General meeting

The board of directors shall take steps to ensure that as many shareholders as possible may exercise their rights by participating in general meetings of the company, and that general meetings are an effective forum for the views of shareholders and the board. Such steps include:

  • Sending shareholders the supporting information on the resolutions to be considered at the general meeting no later than two weeks prior to the date of the general meeting
  • Ensuring that the resolutions and supporting information distributed are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting
  • Setting any deadline for shareholders to give notice of their intention to attend the meeting as close to the date of the meeting as possible
  • Ensuring that shareholders who cannot attend the meeting in person can vote by proxy
  • Ensuring that the chairman of the board of directors and at least one other board member and the auditor are present at the general meeting
  • If requested in advance by at least 10% of the shareholders attending a general meeting, making arrangements to ensure an independent chairman for the meeting

The last two items are slightly less strict than what is recommended in the Norwegian Code of Practice for Corporate Governance. This is due to the size of the company and will be reevaluated in the future according to the development of the company.

 

7. Nomination committee

The Company shall not have a nomination committee, as such a committee is not customary for a Dutch N.V.. Furthermore, such a committee is not deemed to be required given the company’s current size. The company will, however, reevaluate this policy according to its development in the future. The board shall carry out the duties of proposing the candidates for election to the board of directors and to the corporate assembly (to the extent this exists) and the fees to be paid to members of these bodies. The board shall justify such recommendations.

 

8. Corporate assembly and Supervisory Board: composition and independence

Funcom has a two-tier board structure, comprised of a non-executive Supervisory Board (referred to in this document as the “board” or “board of directors”) that advises and supervises the Management Board, which again is responsible for the daily management of the company.

To the extent that the company has a corporate assembly, its composition shall be determined to ensure that it represents a broad cross-section of the company’s shareholders.

The composition of the board of directors shall ensure that the board can attend to the common interests of all shareholders and meets the company’s need for expertise, capacity and diversity. Attention shall be paid to ensure that the board can function effectively as a collegiate body. The composition of the board of directors shall ensure that it can operate independently of any special interests. At least half of the shareholder-elected members of the board shall be independent of the company’s executive management and material business contacts. The company will aim at having at least two of the members of the board independent of the company’s principal shareholders.

The board of directors shall not include representatives of the company’s executive management. The chairman shall be elected by the general meeting. The term of office for members of the board of directors shall not be longer than two years at a time. The annual report shall provide information to illustrate the expertise and capacity of the members of the board of directors and identify which members are considered to be independent. Members of the board of directors are encouraged to own shares in the company.

 

9. The work of the board of directors

The board of directors shall produce an annual plan for its work, with particular emphasis on objectives, strategy and implementation. The board of directors shall issue instructions for its own work as well as for the executive management with particular emphasis on clear internal allocation of responsibilities and duties. The board of directors must ensure that the company has good internal control in accordance with the regulations that apply to its activities, including the company’s own corporate values and ethical guidelines. The board of directors shall provide information in the annual report on how the company’s internal control procedures are organized.

A deputy chairman shall be elected for the purpose of chairing the board in the event that the chairman cannot or should not lead the work of the board. The board of directors shall yearly consider appointing board committees in order to help ensure thorough and independent preparation of matters relating to financial reporting and compensation paid to the members of the executive management. Currently, the Company has an audit committee but no other such committees. Membership of such committees shall if they are established be restricted to members of the board who are independent of the company’s executive management. The board of directors shall provide details in the annual report of any board committees appointed. The board of directors shall evaluate its performance and expertise annually.

 

10. Remuneration of the board of directors

The remuneration of the board of directors shall reflect the board’s responsibility, expertise, time commitment and the complexity of the company’s activities.

The company will from time to time consider granting share options to members of its board. This goes against the recommendations of the Norwegian Code of Practice for Corporate Governance. The company views share options as an important tool for remuneration of board members, e.g., to be able to have a board composition which reflects the global nature of its business.

Members of the board of directors and/or companies with which they are associated shall not take on specific assignments for the company in addition to their appointment as a member of the board unless such assignments have been disclosed to and approved by the full board. The remuneration for such additional duties shall also be approved by the board. The annual report shall provide information on all remuneration paid to members of the board of directors. Any remuneration in addition to normal directors’ fees shall be specifically identified.

 

11. Remuneration of the executive management

The board of directors has established guidelines for the remuneration of the members of the executive management. These guidelines shall be communicated to the general meeting for information. The salary and other remuneration of the chief executive shall be decided by a convened meeting of the board of directors. Share option schemes and arrangements to award shares to employees shall be approved in advance by the general meeting. Proposals on share option schemes shall include details of the allocation criteria, the actual value of the option schemes, the accounting consequences for the company and the potential share dilution. The annual report shall provide details of all elements of the chief executive’s remuneration, together with composite figures for the remuneration of other members of the executive management.

 

12. Information and communications

Communication with shareholders, investors and analysts is a priority for Funcom N.V.. The board of directors has established guidelines for the company’s reporting of financial and other information based on openness and taking into account the requirement for equal treatment of all participants in the securities market. The company shall publish on its web site an overview each year of the dates for major events such as its annual general meeting, publication of interim reports, public presentations, dividend payment date if appropriate etc. All information distributed to the company’s shareholders shall be published on the company’s web site at the same time as it is sent to shareholders. The board of directors has established guidelines for the company’s contact with shareholders other than through general meetings.

 

13. Takeovers

The board of directors shall not seek to hinder or obstruct take-over bids for the company’s activities or shares unless there are particular reasons for this. In the event of a take-over bid for the company’s shares, the company’s board of directors shall not exercise mandates or pass any resolutions that obstruct the take-over bid unless this is approved by the general meeting following announcement of the bid. Any transaction that is in effect a disposal of the company’s activities will be decided by a general meeting, except in cases where such decisions are required by law to be decided by the corporate assembly.

 

14. Auditor

The auditor shall submit the main features of the plan for the audit of the company to the board of directors annually. The auditor shall participate in meetings of the board of directors that deal with the annual accounts. At these meetings the auditor shall review any material changes in the company’s accounting principles, comment on any material estimated accounting figures and report all material matters on which there has been disagreement between the auditor and the executive management of the company. The auditor shall at least once a year present to the board of directors a review of the company’s internal control procedures, including identified weaknesses and proposals for improvement. The board of directors shall hold a meeting with the auditor at least once a year at which neither the chief executive nor any other member of the executive management is present.

The board of directors has established the following guidelines in respect of the use of the auditor by the company’s executive management for services other than the audit:

  • The auditor can be used for services that are directly related to the financials and tax matters of the company
  • Use of any other services performed by the auditor must be approved by the board

The board shall receive annual written confirmation from the auditor that the auditor continues to satisfy the requirements for independence. In addition, the auditor shall provide the board with a summary of all services in addition to audit work that have been undertaken for the company. The board of directors must report the remuneration paid to the auditor at the annual general meeting, including details of the fee paid for audit work and any fees paid for other specific assignments.