The main corporate governance objective of Electromagnetic Geoservices ASA ("EMGS" or the "Company") is to have systems for communication, monitoring, responsibility and incentives that create the greatest value over time for shareholders, clients and employees.

The objective of EMGS is to comply with all relevant laws and regulations affecting the Company and its business activities, as well as the Norwegian Code of Practice for Corporate Governance ("Code of Practice"). The Company's board of directors has adopted the Code of Practice dated 4 December 2007. The Company may deviate from the principles of the Code of Practice if required for special purposes.

In the following it is set out how the Code of Practice is accommodated through the financial year 2008 for each section. Any deviations from the Code of Practice are addressed in relation to the relevant section.

1. Corporate values and ethical guidelines

The Company has established a Code of Ethics and Conduct. Corporate Governance is in focus at all levels of the organisation, and is reflected in EMGS's corporate documents, its articles of association and its business strategy.

 

2. Business

EMGS is the market leader in electromagnetic (EM) imaging. Pursuant to the Company's articles of association, the Company's purpose is:

"The Company's activity is to engage, by itself or through proprietary interests in other companies, in the prospecting for hydrocarbon deposits in connection with the exploration, development and production of hydrocarbons."

The article of purpose shall ensure the shareholder's control with the business and its risk profile without interfering with the roles of the board the management. A more detailed description of EMGS goals and strategies is presented in the annual report.

 

3. Equity and dividends

As of 31 of December the Company's equity is deemed to be satisfactory by the board of directors in connection with its objective, strategy and risk profile. The Company's equity position is subject to continuing evaluation to ensure that it is in correspondence with applicable regulations and the articles of association. The Company aims to create value for its shareholders over the long term through the increase of the share price in addition to dividends. At present the Company does not intend to pay dividends. Board authorisations on share capital increases and acquisition of own shares shall, as a main rule, be restricted to defined purposes and shall be limited in time to no later than the date of the next annual general meeting.

 

4. Equal treatment of shareholders and transactions with close associates

The EMGS shares are all of the same class and are equal in all respects. Equal treatment of shareholders is a main focus area in EMGS. Pursuant to the Norwegian Public Limited Liability Companies Act, existing shareholders have pre-emption rights in connection with share capital increases; however this right can be waived. Any decision to waive the pre-emption right must be justified by the board of directors. Any transactions the Company carries out in its own shares shall, as a main rule, be carried out on the Oslo Børs.

In the event of any material transaction 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 of directors shall, as a main rule, arrange for a valuation to be obtained from an independent third party.

EMGS has implemented procedures for the board of directors and the board committees to ensure that any conflict of interest connected to agreements that are entered into by the Company is reported to the board of directors.

 

5. Freely negotiable shares

The shares in EMGS are freely negotiable and the articles of association do not contain any restrictions on negotiability
 

6. General meetings

EMGS encourages all shareholders to participate in general meetings. The board of directors uses their best endeavours in terms of fixing the time for and organising the general meeting 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 of directors.

The notice calling the general meeting with a form for appointing a proxy and sufficiently detailed support information to the general meeting, including proposals for resolutions and comments on matters where no resolution is proposed, is sent to all shareholders with known address no later than two weeks prior to the date of the general meeting. Shareholders that are unable to attend the general meetings may be represented and exercise their voting rights through proxy.

Board representatives shall, if possible, attend the general meeting. The collective board of directors and auditor shall attend the general meeting when the circumstances require it. In any case, the auditor shall be present at the ordinary general meeting. Normally, the Chief Executive Officer and Chief Financial Officer will also be present at the general meeting.

The Code of Practice stipulates that the board of directors should have arrangements to ensure an independent Chairman for the general meeting. The Company's articles of association stipulate that the Chairman of the board should chair the general meeting. The Code of Practice stipulates that the board of directors should have arrangements to ensure an independent Chairman for the general meeting. The Company evaluated the stipulation in the Code of Practice but decided that it was in the interest of the Company and the shareholders that the general meeting is chaired by the Chairman.

 

7. Nomination committee

The Code of Practice recommends that a nomination committee is established. On account of the current size of the Company and its ownership structure, EMGS does not have a nomination committee. It is the policy of the board of directors to review periodically the appropriateness of establishing such a committee.
 

8. Composition and independence of the board of directors

In accordance with the articles of association the board of directors shall consist of 5 to 10 board members. The current composition of the board of directors is set out in the annual report. Members of the board of directors are elected by the shareholders, and any proposals on such board members are made with the view to ensure that the board of directors can attend to the shareholders common interest, and the Company's need for competence, capacity and diversity. It is taken into consideration when proposing and electing board members that the board shall function well as a collegial body. The Chairman of the board shall be elected by the general meeting. Board members own or are encouraged to own shares in the Company.

The majority of the board members are independent of the Company's executive management, substantial business associations and major shareholders. The Chairman of the board of directors performs services for the Company beyond the work directly related to his directorship, and consequently might not be considered independent of the executive management. The other shareholder elected board members are all independent of the executive management and significant business relations. See the annual report for further information about the members of the board of directors.

Two of the shareholders elected board members are employed by, and therefore connected to, the Company's largest shareholder.

The Code of Practice recommends that board members of a company should serve for a period of two years. The board of EMGS does not comply with this recommendation because continuity in the board is believed to be of benefit to the Company. The board undertakes to keep its policy in this respect under review.

 
 

9. The duties of the board of directors

The board of directors is responsible for the Company's business and supervision of the executive management, including the responsibility to implement control systems and to ensure that the Company is operated in accordance with applicable legislation and the Code of Practice. The board of directors annually prepares a plan for its work, focusing on goals, strategy and implementation, in addition to instructions from the board of directors to the executive management.

The board of directors' working methods and interaction is subject to annual revision. In this respect, the board of directors evaluates its effort in relation to corporate governance. The board of directors has not regarded it necessary to engage external consultants to assess the evaluation of its own work.

The board of directors has established and stipulated instructions for an audit committee and a remuneration committee to assist the board of directors. The committees of the Company comprise of board members.

According to the Code of Practice, the board of directors should elect a Deputy Chairman. The Company has not considered it necessary to appoint a Deputy Chairman

 

10. Risk management and internal control

The board of directors oversees that the Company has a sound risk management and internal control system that are appropriate in relation to EMGS's activities. The risk management and internal control systems in EMGS are based on the Company's corporate values and ethics guidelines. The board of directors annually reviews the Company's internal controls and the main areas of risks. A description of the Company's internal control and risk assessment systems for financial reporting is included in the annual report.
 

11. Remuneration to the board of directors

The ordinary general meeting decides the remuneration paid to members of the board of directors annually. The remuneration of the board of directors shall reflect the board's responsibility, expertise, time commitment and complexity of the Company's activities. The Code of Practice recommends that the remuneration of the board of directors should not be linked to the company's performance and, further, that the Company should not grant options to members of its board of directors. EMGS believes that shareholders' return is more likely to be maximised when members of the board of directors are given incentives linked to the Company's share price performance. The Company believes that the shareholders, many of whom are international investors, agree with this approach. The Company has not granted options to members of the board of directors after its shares were listed on the Oslo Stock Exchange.

The Chairman of the board has an agreement with the Company for services performed for the Company beyond the work directly related to his directorship, which has been approved by the general meeting. The remuneration set out in this agreement covers his services related to his directorship and all other services performed for the Company. Except for the Chairman, none of the shareholder elected board members are engaged by the Company apart from the duty as board members.

The members of the board committees receive additional remuneration for their committee work as set out in the notes to the annual report.

See the annual report for further information about the remuneration to the board of directors for 2009.

12. Remuneration of the executive management

The board of directors determines salary and other remuneration systems for key personnel of the management pursuant to the provisions of the Norwegian Public Limited Liability Companies Act. The Chief Executive Officer's employment conditions and remuneration are determined by the board of directors and is presented to the ordinary general meeting. The board of directors carries out a thorough evaluation of salary and other remuneration to the Chief Executive Officer on an annual basis.

The guidelines of the remuneration system for the executive management is determined by the board of directors and is presented to the general meeting through a declaration on principles for management remuneration required by law.

The board of directors believes that the salary levels of executive management shall be competitive.

 

13. Information and communications

The Company makes public quarterly and annual reports pursuant to the stock exchange regulations. The board of directors presents information to the shareholders and the public in a correct, complete and timely manner. The annual report is sent to the shareholders. The Company's financial calendar is published on EMGS's web page and through the Oslo Stock Exchange's information service.

The board of directors treats all shareholders equal with regards to information from the Company, unless otherwise required on the basis of special considerations. It is considered as material to keep shareholders and investors informed about the Company's progress, economic and financial status.

Open investor presentations are held in connection with the Company's annual and quarterly reports. Presentation material is made public no later than simultaneously with the commencement of the presentation.

In addition to the dialogue between the shareholders in the general meeting, the board of directors aspires to arrange for contact with shareholders other than through general meetings. This takes place through the Chairman of the board, the Chief Executive Officer and/or the Chief Financial Officer and is subject to guidelines laid down by the board of directors.

 

14. Take-overs

Given the present composition of the Company's shareholders according to the register of shareholders, with one shareholder holding approximately 67% of the issued share capital of the Company, the Company does not believe it necessary to have a detailed take-over policy. In the event of a take-over, the board of directors will, as a main rule, look to the principles of the Code of Practice and evaluate the measures to be carried out in case of any concrete situation.
 
15. Auditor
The auditor annually presents a plan covering the main features for carrying out the audit. The auditor participates in meetings of the board of directors that deal with the annual accounts, and reviews any material changes in the Company's accounting principles, any other circumstances of importance to estimated accounting figures as well as any disagreement between the auditor and the executive management of the Company.

The auditor annually reviews the Company's internal control procedures together with the board of directors, including identified weaknesses and proposals for improvements. The board of directors holds a meeting with the auditor at least once a year at where neither the Chief Executive Officer nor the Chief Financial Officer are present.

The board of directors has adopted instructions as to the executive management's access to the use of the auditor for services other than auditing. The auditor provides an overview of his remuneration divided on fee paid for audit work and any fees paid for other specific assignments, which will be presented in the annual general meeting, in addition to the annual report.

The auditor has given the board of directors a written notification confirming that the requirements for independence are satisfied.