Corporate governance

Thrane & Thrane's Board of Directors and Management Board are committed to good corporate governance, and the main principles are described below. With a few exceptions of minor importance, the company follows the corporate governance recommendations of NASDAQ OMX Copenhagen. These exceptions are explained in the table below.

SHAREHOLDERS

The shareholders in general meeting have the supreme decisionmaking authority in the company. All shareholders have the right to attend and vote at general meetings if their shares are recorded in the company's register of shareholders at the time the general meeting is convened.

All registered shareholders receive notices of general meetings by post, and the company advertises general meetings in the press. Thrane & Thrane communicates regularly with its shareholders. Such information is provided in annual and interim reports and announcements and is also posted on the company's website.

All shareholders are treated equally: they have the same access to information from the company, and all shares carry the same voting rights, without any restrictions or division into share classes.

The Board of Directors has adopted guidelines on trading in the company's shares. These guidelines apply to trading by the company as well as by members of the Board of Directors, the Management Board and management employees.

Similarly, the company has guidelines prohibiting the abuse and the passing on of inside information. The Board of Directors, the Management Board and other employees subject to the guidelines are permitted to buy and sell shares in the company only in a six week period from release of an annual report or interim report, and only if they do not possess inside information.

STAKEHOLDERS

Thrane & Thrane's management objective is to promote the longterm interests of the company, and thus of all shareholders, in all respects. The objective of creating long-term value assumes, among other things, that the company sets up durable and constructive relationships with its primary stakeholders: shareholders, customers, employees, suppliers and business partners. Such relations are based on the company's mission and on professional and commercial relations.

Regular customer satisfaction surveys are conducted to ensure that business relationships are rewarding and to retain customers.The surveys are designed to identify the customers' perception of the company as a business partner.

Thrane & Thrane respects all its employees and offers them equal opportunities to learn and develop in accordance with their individual requirements and capabilities and the company's circumstances in general. Employee satisfaction is measured regularly to ensure an adequate environment for and among the company's employees.

OPENNESS

Thrane & Thrane's communication policy defines the overall guidelines on how, when and with whom the company communicates.

All important information is available in a Danish-language and an English-language version. Within the boundaries of the stock exchange code of ethics, the company endeavors to maintain a high and uniform level of information to shareholders and analysts.

The company's communication policy offers all shareholders equal, adequate and timely access to information about the company and provides an open dialogue with all investors and analysts about the company's activities and financial results.

TASKS AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS

It is the overall task of Thrane & Thrane's Board of Directors to optimize the company's day-to-day management and organizational structure; to supervise the financial performance and day-to- day management of the company by the Management Board; to participate in the general management of the company and in defining the company's strategy; and to ensure that statutory corporate matters are reviewed and approved.

The Board of Directors elects a chairman of the Board. The duties of the chairman and of the other Board members are described in rules of procedure, which the Board of Directors reviews once a year and amends as necessary. Resolutions are generally passed by all members of the Board of Directors.

Board meetings are held at least six times a year. At one long annual meeting, the Board of Directors and the Management Board discuss the overall strategy of Thrane & Thrane. The Board of Directors held six meetings in the past financial year.

The Board of Directors appoints the Management Board, which is responsible for the day-to-day management of the company. The allocation of work between the Board of Directors and the Management Board is defined in the rules of procedure.

The Management Board briefs the Board of Directors at meetings and through written and oral communication. For Board meetings in connection with the presentation of interim reports, the Board is issued with written reporting on the past three months including, inter alia, strategic opportunities, developments in the external environment, the company's operations, the financial position, and expectations for the financial performance. In addition, the chairman is regularly briefed on any special events in the company.

Regularly and at least once a year, the Board of Directors performs a structured assessment of its own work and the work of the Management Board and of the collaboration between the Board of Directors and the Management Board. The chairman of the Board of Directors is in charge of this assessment, which is based on interviews between the chairman and each member of the Board of Directors, followed by a discussion by the entire Board.

COMPOSITION OF THE BOARD OF DIRECTORS

The company's articles of association provide that the Board of Directors consists of from three to seven members elected by the shareholders. At present, the Board has four members elected by the shareholders. Furthermore, the Board has two members elected by the company's employees as provided by the Danish Companies Act.

The shareholders elect members of the Board of Directors for terms of one year while the members elected by the employees are elected for terms of four years. There is no time limit on the total period a person may serve on the Board of Directors.

Three out of the four Board members elected by the shareholders are considered independent. Lars Thrane, one of the founders of Thrane & Thrane and the company's largest shareholder, is a member of the Management Board of the company and thus cannot be considered independent.

Lars Thrane is a member of the Board of Directors and of the Management Board. The Board of Directors believes this is appropriate considering that Lars Thrane's extensive knowledge of the company, the market and relevant technologies is crucial to the Board's work. The Board regularly reviews the expediency of retaining Lars Thrane both as a member of the Board of Directors and of the Management Board.

Directorships and shareholdings held by the Board members are disclosed in the annual report.

The Board of Directors believes the current composition of the Board is adequate considering the company's tasks. Before nominating new members, the Board carefully considers the required diversity, in particular with respect to the competencies that can help strengthen the company and its Board of Directors. New Board members are offered a thorough introduction to Thrane& Thrane and its external environment.

REMUNERATION OF THE BOARD OF DIRECTORS AND THE MANAGEMENT BOARD

Members of the Board of Directors of Thrane & Thrane receive a fixed annual remuneration for their work as Board members. The company discloses the individual amounts of remuneration and emoluments paid to members of the Board of Directors and the Management Board in its annual report.

The Management Board has an incentive scheme comprising an annual cash bonus plan with a targeted value of a maximum of 50% of the base salary. The cash bonus for the past financial year was determined based on three elements: growth, profitability (operating margin) and the company's ability to generate positive cash flows. Achievement of all targets entitles the Management Board to a full bonus.

In addition, the company's Management Board and certain management and key employees have been granted warrants. Warrants held by the Management Board are disclosed in the annual report.

On termination of a member of the Management Board, such member is entitled to 12–24 months' salary inclusive of bonus. Walther Thygesen, CEO, and Svend Åge Lundgaard Jensen, CFO, have notice periods of 12 months. Lars Thrane has a notice period of 24 months.

RISK MANAGEMENT AND INTERNAL CONTROLS

The section on Risk factors in the annual report (page 30) describes the principal risk factors that may influence the company's activities.

Thrane & Thrane is committed to timely and correct reporting as a precondition for professional management and credibility in relation to the company's stakeholders.

The company's risk management and internal controls with respect to the financial reporting process is organized so as to ensure:

presentation of internal financial statements that make it possible to measure the Group's performance and follow up on goals, plans and budgets
presentation of external financial statements that are in accordance with the International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies, and which give a true and fair view free from material misstatement.

The company's internal controls and risk management systems are updated on a regular basis and designed to detect and eliminate any errors and omissions in the financial statements. However, as there will always be a risk of misappropriation of assets, unforeseen losses, etc., the internal controls and risk management systems may provide reasonable, but not absolute, assurance that all significant errors and omissions are detected and corrected.

A more detailed description of Thrane & Thrane's risk management and internal controls with respect to the financial reporting process is posted here. This description together with the description of the company's corporate governance forms the statutory corporate governance reporting required under section 107b of the Danish Financial Statements Act.

AUDIT

The shareholders at the annual general meeting appoint one firm of state-authorized public accountants for a term of one year to audit the company's accounting. The auditor attends meetings of the Board of Directors at least once a year, generally in connection with the presentation of the long-form audit report and the review of the annual report.

Effective as from the 2009/10 financial year, Thrane & Thrane has set up an audit committee consisting of Morten Eldrup-Jørgensen, chairman, and Jim Hagemann Snabe, both members of the Board of Directors.

The audit committee held four meetings in the financial year.

DEVIATIONS FROM NASDAQ OMX COPENHAGEN RECOMMENDATIONS
It is recommended that a deputy chairman is appointed, who should be able to perform the functions of the chairman in case of his/her absence and also be an effcient sounding board to the chairman (IV, 2c).	In view of its size, the Board of Directors has not considered it necessary to appoint a deputy chairman.
It is recommended that members of a company's management board are not members of the company's board of directors (V, 4b).	Lars Thrane is a member of the Board of Directors and of the Management Board. The Board of Directors believes this is appropriate considering that Lars Thrane's extensive knowledge of the company, the market and relevant technologies is crucial to the Board's work. The Board regularly reviews the expediency of retaining Lars Thrane both as a member of the Board of Directors and of the Management Board.
It is recommended that the company fixes an age limit for board members (V, 8).	The Board considers it vital to retain valuable competencies. Accordingly, the Board of Directors has not fixed an age limit.
It is recommended that the board of directors considers and decides whether to establish committees, including nomination, remuneration and audit committees (V, 10a).	The Board of Directors has established an audit committee. In view of its size, the Board of Directors has not considered it necessary to establish a nomination and a remuneration committee.
It is recommended that, if the remuneration of the management board includes share options or warrants, the exercise price should be higher than the market price at the time of granting (VI, 3c).	In the applicable warrant program, the subscription price is fixed as last year's subscription price plus 6% or the share price on the allocation date if this is higher than last year's subscription price plus 6%, less expected dividend in the period until one year after the final allocation.