Corporate Governance Policy

As resolved by the Board of Directors on 26 June 2015

Introduction to the Corporate Governance policy

This corporate governance policy document (the "Corporate Governance Policy" or the "Policy") is prepared and approved by the Board of Directors of Sevan Drilling Limited (the “Company”, "we", "our" or "us").

This Policy addresses the framework of guidelines and principles regulating the interaction between the Company’s shareholders, the Board of Directors (the “Board”), the Chief Executive Officer (the “CEO”) and the Company’s senior management team (the “Executive Management Team”). Through this Policy the Company aims to follow the Norwegian Corporate Governance Code[1] in force from time to time (the "Code") in all material respects, but certain exceptions may apply. The Policy remains subject to amendments by the Board, and is reviewed on annual basis.

As a company incorporated in Bermuda, the Company is also subject to Bermuda laws and regulations with respect to corporate governance.

Business activity

In compliance with the Bermuda Companies Act, the Company's Memorandum of Association describes its objects and purposes as unrestricted. This represents a deviation from the Code, but the Company has clear values and objectives as described below under point 3 which are communicated to the shareholders.

Values and objectives

The Company’s long term objective is to become a premier drilling contractor owning and operating units specializing in offshore ultra-deep water operations.

The Company will pursue the following main strategies to reach its overall objective:

  • Monetize its current design and technology by delivering safe, efficient and cost effective service and delivering new build units on time and within budget,
  • Pursue technological advancements with our unique hull design to maximize its flexibility to expand into growth areas in offshore drilling; and
  • Develop a strong, motivated work force that delivers outstanding service and results
HSE guidelines

“Ensuring the safety and health of our employees, taking care of the environment and deliver quality in everything we do”, are the core business principles to the Company.

The Company believes that all incidents and accidents that cause personal injury or environmental damage can be prevented. We strive to achieve zero incidents and accidents by developing a culture where all employees take responsibility for their own safety, for the safety of their co-workers, for process safety and to protect the environment. We will endeavor all employees to report all unsafe activity or conditions and to stop activities until appropriate risk measures are in place.

A QHSE Management System is established with participation from the employees, ensuring acknowledgement and commitment to the following:

  • Health
    We shall evaluate and mitigate the risks to reduce the hazards at work places to an acceptable level. We shall monitor occupational health for our employees.
  • Safety
    We shall manage our activities based on our own, the regulators and the clients' standards. We focus on the communication and implementation of these standards.
  • Environment
    We shall protect the environment and minimize the amount and effect of discharges, emissions and waste disposals from our operating facilities.
  • Quality Management
    We shall fulfill our customers' needs and expectations and make commitments we fully understand.
  • Continuous improvement
    We shall verify that our operations meets agreed requirements; monitor and continuously improve these operations and the organization’s performance.
  • Risk Management
    Risk assessments are carried out using competent personnel, recognized tools and methodology. Focus is given by a correct approach to the different assessments performed: (e.g. HAZID, HAZOP, Qualitative Risk Assessment, Emergency Preparedness Analysis, SJA, PTW system etc.).
  • Compliance
    We shall comply with HSE legal requirements and other requirements applicable to our operations.
Ethical guidelines

The Company will aim to maintain a high ethical standard in its business concept and relations with customers, suppliers and employees. The following ethical guidelines will be practiced in the Company, applicable to all employees:

  • Employees shall not accept or offer gifts, money or entertainment from other parties or organizations or individuals where these might reasonably be considered likely to influence business transactions. Gifts, other than trivial ones with a low value, shall not be accepted. In a culture where such an action may cause offence, the gift shall be declared to the Company and, if practical, donated to an appropriate charity;
  • Mutual trust and confidence between Sevan Drilling and our customers is vital. All employees shall strive to consistently deliver service excellence and value for money, meeting customers’ expectations and anticipating their changing needs;
  • All suppliers are entitled to fair treatment and all potential suppliers shall have a reasonable opportunity to win Sevan Drilling business. It is our policy to pay suppliers on time in accordance with agreed terms of trade. We set high standards for our suppliers in the context of our own ethical policy;
  • Sevan Drilling will always compete strongly, but will seek to do so in a fair and ethical way. Competitive success is built on providing good value and service excellence. Competitors should not be disparaged. When in contact with competitors, employees will avoid discussing confidential information and no attempt will be made to improperly acquire competitors’ trade secrets or any other confidential information. Employees must not discuss pricing strategies or undertake any arrangements or practices which would conflict with the laws applicable to the business concerned; and
  • Employees shall endeavor to protect the Company's assets and ensure their efficient use. All Company assets should be used for legitimate business purposes and not for personal gain.
Company capital and dividend

The Board aims to maintain a satisfactory equity ratio in the Company in light of the Company's goals, strategy and risk profile, thereby ensuring that there is an appropriate balance between equity and other sources of financing. The Board shall regularly assess the Company’s capital requirements in light of the Company’s strategy and risk profile.

It is an objective for the Company to generate return to the shareholders in the form of dividends and capital appreciation, at a level which is at least equal to other investment possibilities with comparable risk. The Board will establish a dividend policy at a point when the Company is in a position to pay dividends.

According to the Bye-laws, the Board may declare cash dividends or distributions out of contributed surplus to be paid to the shareholders according to their rights and interests including such interim dividends as appear to the Board to be justified by the position of the Company. This is a deviation from section 3 of the Code which states that the background to any proposal for the board to be given a mandate to approve a distribution of dividends should be explained, but is in accordance with Bermudian law.

The Board is authorized to repurchase treasury shares and to issue any unissued shares within the limits of the authorized share capital. These authorities are neither limited to specific purposes nor to a specific period as recommended in the Code. This constitutes a deviation from section 3 of the Code, but is in accordance with Bermudian law.

One class of shares

The Company has one class of shares with equal rights.

Transactions with related parties

[Any transactions, agreements or arrangements between the Company and its shareholders, members of the Board, members of the Executive Management Team or close associates of any such parties shall only be entered into as part of the ordinary course of business and on arm's length basis. The Board shall consider to arrange for a valuation to be obtained from an independent third party unless the transaction, agreement or arrangement in question must be considered to be immaterial. The Company’s financial statements will in accordance with applicable accounting principles provide further information about transactions with related parties.]

Board Members and members of the Executive Management Team shall immediately notify the Board if they have any material direct or indirect interest in any transaction entered into by the Company.

Transfer of shares

The shares in the Company may be freely transferred.

The General Meeting

All registered shareholders have the right to participate in the General Meetings of the Company, which exercise the highest authority of the Company.

The Bye-laws of the Company provide that at least 7 days' notice of a general meeting shall be given to each shareholder entitled to attend and vote thereat, stating the date, time, place and the general nature of the business to be considered at the meeting. This is a deviation from section 6 of the Code, which requires a minimum of 21 days' notice period but in line with practice for Bermuda companies. The Company will aim to give shareholders longer notice of general meetings than the minimum requirement. Where appropriate, efforts should be made to arrange for representatives from the Board and the Company’s auditor to be present at General Meetings.

The Bye-laws of the Company provide that the Chairman of the Board shall preside as chairman at every general meeting. This is a deviation from section 6 of the Code, which requires routines to ensure an independent chairing in the general meeting, but in line with practice for Bermuda companies.

Notices for General Meeting shall provide information on the procedures shareholders must observe in order to participate in and vote at the General Meeting. The notice should also set out: (i) the procedure for representation at the meeting through a proxy, including a form to appoint a proxy, to allow for shareholders who are unable to attend in person will be able to vote by proxy and (ii) the right for shareholders to propose resolutions in respect of matters to be dealt with by the General Meeting.

Nomination Committee

The Company has not established a nomination committee. This is a deviation from Section 7 of the Code which recommends that all listed companies shall have a Nomination Committee. The reason for the deviation is that the Company is of the view that a nomination committee is not required with the current shareholder structure. Members of the Board identify and evaluate proposed candidates for nomination to the Board which are to be appointed by the Annual General Meeting. The Board of Directors will consult shareholders with respect to nominations of new directors to the board.

The Board composition

The Board is appointed by the General Meeting. The Board should have the requisite competency to independently evaluate the cases presented by the Executive Management Team as well as the Company's operations, and function well as a body of colleagues.

The composition of the board of directors should as far as possible 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 should be paid to ensuring that the Board can function effectively as a collegiate body.

Board Members shall be encouraged to own shares in the Company. Board Members may, subject to shareholder approval, also receive options for shares.

Sub-committees of the board

The Company shall have a remuneration committee appointed by the Board.

The Company shall have an audit committee appointed by the Board.

The Board may from to time also appoint other sub-committees, as deemed necessary or appropriate.

Responsibility of the Board of Directors

The Board shall prepare an annual plan for its work with special emphasis on goals, strategy and implementation. The Board’s primary responsibility shall be (i) participating in the development and approval of the Company’s strategy, (ii) performing necessary monitoring functions and (iii) acting as an advisory body for the Executive Management Team. Its duties are not static, and the focus will depend on the Company’s ongoing needs. The Board is also responsible for ensuring that the operation of the Company is in compliance with the Company’s values and ethical guidelines. The Chairman of the Board shall be responsible for ensuring that the Board’s work is performed in an effective and correct manner.

The Board shall ensure that the Company has a good management with clear internal distribution of responsibilities and duties. The CEO is responsible for the executive management and day-to-day operations of the Company.

All members of the Board shall on a monthly basis receive information about the Company’s operational and financial development. The Company’s strategies shall regularly be subject to review and evaluation by the Board.

The Board shall evaluate its work on an annual basis.

Risk management and internal control

The Board shall seek to ensure that the Company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the Company’s activities. The internal control and the systems should also encompass the Company’s corporate values and ethical guidelines. The objective of the risk management and internal control shall be to manage exposure to risks in order to ensure successful conduct of the Company’s business and to support the quality of its financial reporting.

The Board shall seek to ensure that reviews of the Company’s most important areas of exposure to risk and its internal control arrangements are carried out at least annually.

The Board shall seek to provide an account in the annual report of the main features of the Company’s internal control and risk management systems as they relate to the Company’s financial reporting.

Board compensation

The General Meeting shall from time to time determine the Board’s remuneration. Remuneration of Board Members shall be reasonable and based on the Board's responsibilities, work, time invested and the complexity of the enterprise. The compensation shall be a fixed annual amount. The Chairman of the Board may receive a higher compensation than the other Board Members. The Board shall be informed if individual Board Members perform other tasks for the Company than exercising their role as Board Members. Work in sub-committees may be compensated in addition to the remuneration received for Board membership.

The Company’s financial statements shall provide information about the Board’s compensation.

Compensation to Executive Management

The Board decides the salary and other compensation to the CEO, however so that any compensation linked to the value of the Company's shares shall be approved by the General Meeting. The CEO’s salary and bonus shall be determined on the basis of an evaluation with emphasis on the following factors: financial results, business development, employee and customer satisfaction. Any fringe benefits shall be in line with market practice, and should not be substantial in relation to the CEO’s basic salary. The Board shall annually carry out an assessment of the salary and other remuneration to the CEO.

The Company’s financial statements shall provide information about salary and other compensation to the CEO and the Executive Management Team.

The CEO determines the remuneration of executive employees. The Board shall (through the Remuneration Committee) issue guidelines for the remuneration of the Executive Management Team. The guidelines shall lay down the main principles for the Company’s management remuneration policy. The salary levels should not be of a size that could harm the Company’s reputation, or above the norm in comparable companies. The salary levels should, however, ensure that the Company can attract and retain executive employees with the desired expertise and experience.

Information and communication

The Board and the Executive Management Team assign considerable importance to giving the shareholders quick, relevant and current information about the Company and its activity areas. Emphasis is placed on ensuring that the shareholders receive identical and simultaneous information.

Sensitive information will be handled internally in a manner that minimizes the risk of leaks. All contracts to which the Company becomes a party, should contain confidentiality clauses.

The Company shall have clear routines for who is allowed to speak on behalf of the Company on different subjects, and who shall be responsible for submitting information to the market and investor community. The CEO and the CFO shall be the main contact persons of the Company in such respects.

Auditor

Each year the auditor shall present to the Board a plan for the audit work and confirm that the auditor satisfies established requirements as to independence and objectivity.

When deemed necessary by the Board, the auditor shall be present at Board meetings where the annual accounts are on the agenda. Whenever necessary, the Board shall meet with the auditor to review the auditor’s view on the Company's accounting principles, risk areas, internal control routines etc.

The use of the auditor as a financial advisor to the Company should be sought limited to cases where such use of the auditor does not have the ability to affect or question the auditors’ independence and objectiveness as auditor for the Company. Only the Company’s CEO and/or CFO shall have the authority to enter into agreements in respect of such counseling assignments.

At the Annual General Meeting, the Board shall present a review of the auditor’s compensation as paid for auditory work as far as required by law and remuneration associated with other assignments.

In connection with the auditor's presentation to the Board of the annual work plan, the Board should specifically consider if the auditor to a satisfactory degree also carries out a control function.

The Board shall arrange for the auditor to attend General Meetings as and where appropriate.

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