NEXT Biometrics : Remuneration report 2021

NEXT Biometrics Group ASA

Annual Remuneration Report 2021

1 CONTEXT FOR THE REMUNERATION REPORT

This Remuneration Report describes the principles for the remuneration of the members of the Board of Directors (the Board), the Chief Executive Officer (CEO) and of the members of Executive Management Team of NEXT Biometrics Group ASA (NEXT), and how these principles have resulted in actual remuneration. The Remuneration Policy is designed to attract, retain and motivate the Board members, the CEO and the Executive Management Team at a competitive level. Remuneration is designed to align the interests of the executives with those of the shareholders. The Remuneration Report complies with the requirements defined in the Norwegian Public Limited Companies Act § 6-16a and 6-16b.

REMUNERATION COMMITTEE

The Board has a Remuneration Committee consisting of two Board members. This committee is established to ensure that remuneration arrangements support the strategy of the business and enable the recruitment, succession planning and leadership development, and motivation and retention of senior executives. It needs to comply with the requirements of regulatory and governance bodies and satisfy the expectations of shareholders. We value ongoing dialogue with our shareholders and other stakeholders to ensure that our Remuneration Policy remains fit for purpose and helps drive execution of the NEXT's strategy.

Further, the committee shall ensure that the overall organizational structure is set up to deliver on the company's strategy going forward.

The Committee has in 2021 focused on:

• • Discussing the performance achievement in 2021 as well as reviewing the NEXT's short-term and long-term incentive plans.

•

Reviewing the peer group used for benchmarking of executive remuneration.

2

REMUNERATION OF THE BOARD

The remuneration of the Board members in 2021 is not performance based but based on a fixed annual fee. None of the shareholder-elected Board members have pension schemes or termination payment agreements with the company. The Board of Directors was a part of the company's long-term incentive program in 2019 and 2020 (NEXT stock options program). However, the board was not a part of the company's 2021 stock option. Hence, no board members were not awarded any additional stock options during 2021. The General Meeting decides the remuneration of the Board and the sub-committees. The Nomination Committee proposes the remuneration of the Board to the General Meeting and ensures that it reflects the responsibility of its members and the time spent on Board work. The Board must approve any Board member's consultancy work for the company and remuneration for such work. Information about all remuneration paid to individual Board members is provided in Note 20 in the NEXT 2021 annual report.

The development of the fixed fee remuneration paid to Board of Directors can be found in table 1. The fixed fee renumeration for the Board of Directors has remained unchanged from 2019-2021 while additional fees for participation in board committees were removed from 2020 onwards.

Table 1 - Board and committee fee levels 2019-2021
Amounts in NOK 1000	2021	2020	2019
Chairman of the board	500	500	500
Board member	200	200	200
Audit committee, Chair	-	-	100
Audit committee, member	-	-	30
Remuneration committee, Chair	-	-	100
Remuneration committee member	-	-	30
Nomination committee, chairman	30	30	30
Nomination committee, member	20	20	20
Notes:
Reflects renumeration paid to board and committee members from May 2019 to May 2020 (2019), May 2020 to May 2021 (2020) and May 2021 to May 2022 (2021).

The Board of Director's holdings of shares in the NEXT as per 31 December 2021 and changes during 2021 can be found in Note 19 in the NEXT 2021 annual report.

The Board of Director's holdings of options in the NEXT as per 31 December 2021 and changes during 2021 is provided in table 2 below. All of the options issued to the board of directors are fully vested per 31 December 2021. Odd Harald Hauge and Live Haukvik hold options in the 2020 option program that expires on 19 June 2023. Emine Lundkvist and Petter Fjellstad hold option both in the 2020 option program (with expiration date as set out above) and in the 2019 program that expires on 20 May 2025. None of the currently outstanding board of directors share options subject to a holding period or performance conditions.

Table 2 - Overview of board of directors holding of stock options as per 31 December

Accumulated

Accumulated
quantity options	Expired/
awarded as per 1	adjusted	Exercised
Board of director name:	January 2021	options	options	2021	options
Petter Fjeldstad, Chairman	1,030,000	-	-	1,030,000	2.66
Odd Harald Hauge	200,000	-	-	200,000	2.49
Emine Lundkvist	230,000	-	-	230,000	3.27
Live Haukvik	200,000	-	-	200,000	2.49
Total	1,660,000	-	-	1,660,000

quantity vested Average

options as per exercise price

31 December outstanding

3 REMUNERATION OF EXECUTIVE PERSONNEL

The Executive Management received an annual remuneration in accordance with the Remuneration Policy, which may consist of the following fixed and variable remuneration components:

•

Base salary

•

Pension

•

Contribution in kind/benefits

•

Performance-based bonus

•

Long-term incentive plan (option program)The remuneration package of the Executive Management is guided by our Policy and are set to support business needs with a clear link to the business strategy and shareholders' interests.

Members of the Executive Management do not receive any additional fees from participation in committees or other internal Board positions within the NEXT Biometrics Group.

FIXED PAY - BASE SALARY

Base salary levels are determined considering the nature of the individual role, individual considerations, the market positioning, and remuneration conditions at NEXT Biometrics. The base salary is reviewed annually to ensure that it is set at the right level and potential annual percentage increases are aligned with those of employees in general, except in specific circumstances. The CEO base salary is determined by the Board. Adjustment of the base salaries for other senior executives is decided by the CEO with input from the Board.

During 2021 there were no fee extraordinary items relating to Executive Management compensation.

FIXED PAY - PENSION

Pension for NEXT employees and executive management is based on a defined contribution plan, and is capped at twelve times the National Insurance scheme basic amount (12G) for all employees including the executive management. Still, the CEO is entitled to a pension benefit of 15% of annual target salary (base salary plus bonus). The CEO's pension benefits for the salary and bonus amount that is in excess of the National Insurance scheme contribution is paid out annually (unfunded defined contribution plan) and is included in the base salary category in NEXT renumeration reporting.

VARIABLE PAY - BONUS

The company's bonus system is designed to promote performance in line with the company's strategy.

The bonus for the CEO and Executive Management Team, is determined by a qualitative assessment of the company's performance on a set of key performance indicators (KPIs) and Company Priorities, which include financial KPIs, product development, design wins, sales and marketing initiatives that are critical for the company's future success. The bonus is awarded annually (one-year) based on achieved performance. The financial KPIs include revenues, adjusted gross margin and adjusted EBITDA. See page 74 in the NEXT 2021 annual report for definitions of NEXT's adjusted performance metrics.

The resulting financial KPIs and Company Priorities status are assessed by the Renumeration Committee in the process of deciding the final bonus outcome. Accordingly, the committee may exercise its discretion to decide the final bonus outcome upwards or downwards. NEXT's financial KPIs for 2021 includes total revenues, Adjusted gross margin and Adjusted EBITDA. The CEO has maximum bonus potential corresponding to 50 percent of salary. For other members of Executive Management Team, the maximum bonus varies from 0 percent to 30 percent of base salary. There is currently no bonus program agreed for employees outside the Executive Management team. The CEO was awarded a bonus in 2021 by the board of directors. No other members of the Executive Management team were awarded a bonus. The CEO bonus award was based on the recommendation from the Renumeration Committee. When reaching the conclusion on performance achievement in 2021, the Renumeration Committee performed a qualitative assessment of overall performance, which was based on the achievement of the company's cost reduction program, increase in number of design wins and new customer contracts/purchase orders. See also summary below for further details on NEXT's progress in 2021.

Performance achievement in 2021 can be summarized by an improvement in Adjusted gross margin from 17% in 2020 to 30% for 2021. Moreover, OPEX ex options was reduced to NOK 47.2 million in 2021, compared to NOK 87.6 million in 2020. The improvement in gross margin and reduced cost base led to that NEXT's Adjusted EBITDA improved from of NOK -77.5 million in 2020 to NOK -32.0 million in 2021. NEXT continued to add design wins during 2021, which will contribute to future revenue growth. NEXT also announced two major FAP20 partnership contracts and started high volume production and shipments of its FAP20 sensors.

OTHER PAY - LONG-TERM INCENTIVE PLAN

In line with our Policy, Executive Management and key employees received annual grants under the long-term incentive plan in 2021 in the form of stock options. The total reported remuneration to members of the Executive Management for 2021 can be found in table 3, which also includes the annual grant value of share-based long-term incentive awards during 2021. The 2021 Employee Stock Option Plan has a vesting period of three years followed by an exercise period up and until June 2024.

The 2020 Employee Stock Option Plan had a vesting period of two years followed by an exercise period up and until June 2023. All options under the 2020 Employee Stock Option Plan have vested as per 31 December 2021. NEXT management also holds options under the 2019 Employee Stock Option Plan that had a vesting period of three years (2020-2022) an exercise period up and until December 2025. The NEXT option plans are described in Note 19 in the NEXT 2021 annual report.

The Remuneration Report and the company's Annual Report 2021 utilizes the same methodology for calculating and reporting the value of granted options and compensation cost.

There is no capping of the maximum total payment that can result from the exercise of employee stock options. Moreover, there is no possibilities for the company to reclaim remuneration that are paid out that result from the exercise of employee stock options. Still, there is a possibly to cancel any unexercised stock options following summary dismissal of an Option Holder's employment for Cause due to gross breach of duty or other serious breach of the contract of employment in accordance with section 15-14 of the Norwegian Working Environment Act. No base salary, bonus or long-term incentive plan awards from previous years have been clawed back from members of the Executive

Management team.

OTHER TERMS AND BENEFITS

The CEO has a 6-month mutual notice period. The other members of the NEXT Executive Management have 3 months mutual notice period. Executives receive non-monetary benefits such as mobile phones/subscriptions, broadband etc. aligned with local practice. The below table shows the remuneration for the executive management team in NEXT Biometrics for 2020 and 2021. The bonus column reflects paid bonus during the period.

Ulf Ritsvall was employed as SVP Sales and Marketing effective from 18 October 2021. There were no other changes in NEXT's Executive Management team during 2021.

Table 3 - Executive remuneration 2020-2021

Fixed remuneration	Variable remuneration	Long-term incentive plan
NOK 1 000 SalaryOther benefitsPension cost	Bonus	Fair value granted optionsTotal remunerationProportion of fixed and variable remuneration
Peter Heuman, CEO 2021 2020 3,534 3,148 4 145 7 110	1,700 377	3,209 2,594 8,592 6,236 80% / 20% 94% / 6%
Eirik Underthun, CFO 1) 2021 2020 1,731 1,451 5 145 7 119	- -	1,257 987 3,138 2,564 100% / 0% 100% / 0%
Ulf Ritsvall, SVP Sales and marketing 2) 2021 366 5 -	-	180 551 100% / 0%
Former managment team members:
Knut Stålen, CFO 3) 2020 1,703 2 19	-	-678 1,046 100% / 0%
Dan Cronin, COO 4) 2020 2,732 1,030 -	-	722 4,484 100% / 0%

• 1) Eirik Underthun was CFO effective from 29 February 2020.

• 2) Ulf Ritsvall was SVP sales and marketing effective from 18 October 2021.

• 3) Knut Stålen was CFO until 29 February 2020.

• 4) Dan Cronin was COO until 31 October 2020 and consultant to the company from 1 November 2020.

The Executive Management's holdings of options in the NEXT as per 31 December 2021 can be found in table 4 below. None of the currently outstanding management share options subject to a holding period or performance conditions.

Table 4 - Executive team holdings of options as per 31 December 2021

Name of Director, position

Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Peter Heuman, CEO Eirik Underthun, CFO Eirik Underthun, CFO Eirik Underthun, CFO Eirik Underthun, CFO Ulf Ritsvall, SVP Sales and marketing

Ulf Ritsvall, SVP Sales and marketing

Ulf Ritsvall, SVP Sales and marketing

The main conditions of share option plansSpecification of plan

Award	Vesting
date	date
12/2/2019	12/2/2020

Exercise period 12/2/2020 to 12/1/2025

12/2/2019 12/2/2020

12/2/2019 12/2/2021

2019

12/2/2019 12/2/2021

12/2/2019 12/2/2022

12/2/2019 12/2/2022

6/19/2020 8/30/2020

2020

2021

6/19/2020 8/30/2021

5/25/2021 8/30/2021

5/25/2021 8/30/2022 5/25/2021 8/30/2023

2020

6/19/2020 8/30/2021 5/25/2021 8/30/2021

2021

5/25/2021 8/30/2022 5/25/2021 8/30/2023

21/09/2021 8/30/2022

21/09/2021 8/30/2023

2021

21/12/2021 8/30/2022

12/2/2020 to 12/1/2025

12/2/2021 to 12/1/2025

12/2/2021 to 12/1/2025

12/2/2022 to 12/1/2025

12/2/2022 to 12/1/2025

8/30/2020 to 6/19/2023

8/30/2021 to 6/19/2023

8/30/2021 to 6/19/2024

8/30/2022 to 6/19/2024 8/30/2023 to 6/19/2024

8/30/2021 to 6/19/2023 8/30/2021 to 6/19/2024

8/30/2022 to 6/19/2024 8/30/2023 to 6/19/2024

8/30/2022 to 6/19/2024

8/30/2023 to 6/19/2024

8/30/2022 to 6/19/2024

Information regarding the reported financial yearDuring the yearStrike price 3.13

Share options awarded at the beginning of the year 36,666

Ulf Ritsvall, SVP Sales and marketing

21/12/2021 8/30/2023 8/30/2023 to 6/19/2024

5.97 5.97 7.45 7.45 6.65

2.49 5.97

5.97 5.97

5.97

2.49

2.49

3.13

3.13

3.13

3.13

3.13

6.65

1,250,000 -

1,250,000

500,000 -

36,667

36,667

36,667

36,667

36,666

- - - - -

- --Share options awarded -

266,667 266,666 150,000 150,000

- 266,667

666,667 666,666

- - - - - - - 666,667

50,000

50,000

Share
options
Share	awarded	Share	Sum
options	and	options	options
vested	unvested	vested	outstanding
-	36,666	36,666
-	36,666	36,666
-	36,667	36,667
-	36,667	36,667
36,667	-	36,667
36,667	-	36,667
-	1,250,000	1,250,000
-	1,250,000	1,250,000
-	666,667	666,667
666,667	-	666,667
666,666	-	666,666
-	500,000	500,000
-	266,667	266,667
266,667	-	266,667
266,666	-	266,666
150,000	-	150,000
150,000	-	150,000
50,000	-	50,000
50,000	-	50,000
5

- 36,667 36,667 - - - 1,250,000 666,667

-- -500,000 266,667

- - - - -

-