Telio is listed on the Oslo Stock Exchange and is subject to Norwegian securities legislation and stock exchange regulations. In this respect, the company complies with the Norwegian Code of Practice for Corporate Governance based on the latest revision of 21 October 2010. The topic of corporate governance is discussed and reviewed by the board of directors annually or more often if deemed necessary. This includes all documents related to corporate governance and the following description of the company’s corporate governance guidelines which forms an integral part of the company’s annual report for 2010. An important aim of these guidelines is to define the roles and responsibilities between the governing bodies of the company:

1. Reporting on corporate governance

The board has decided that the company’s guidelines for corporate governance should be based on the Norwegian Code of Practice for Corporate Governance. Telio's guidelines for corporate governance aim to strengthen the confidence in the company and contribute to optimal added value over time, to the benefit of shareholders, employees and other stakeholders. In order to comply with the Code of Practice, the company will apply the “follow or explain principle”. It is the company’s aim to follow all recommendations in the Code of Practice. Instances where Telio’s guidelines depart from the Code of Practice will be followed by an explanation.

Telio’s corporate values and ethical guidelines are an important foundation for these guidelines on corporate governance. Telio’s corporate values are:

• Innovative: - In Telio we strive to build a culture that inspires innovation and continuous improvement through all fields of our business
• Respectful: - In Telio we respect our customers, shareholders, colleagues and partners by being accountable and committed to deliver results and quality. We emphasize being honest, showing empathy and always being service minded
• Simplistic: - In Telio we strive for simplicity in our communication, operations, product portfolio and development process
• Courageous: - In Telio we dare to think different, dare to do the impossible, dare to challenge the existing, dare to prioritize
• Fun: - In Telio we celebrate the success, achievements and challenges!

The company is planning to establish, but has not yet established, specific guidelines on corporate social responsibility.

2. Operations

The objective of the company is stated in the Articles of Association to be as follows:
"The company's business is to develop and sell IP based telephony solutions, render consultancy services, and participate in other activities."

It is the board of directors' view that the company's business is clearly stated in the Articles of Association, that the company, within the objectives stated in the Articles of Association, has distinct goals and strategies for its business. The company's goals and principal strategies are discussed in the board of directors’ report.

3. Equity and dividend

Equity
Telio will at all times ensure that it has a strong balance sheet with a sufficiently high equity ratio. Telio had an equity ratio of 43 per cent in the Group at the end of 2010. The board considers the equity to be satisfactory.

Dividend policy
The dividend policy of the company will be to distribute an annual dividend to its shareholders. It is Telio's intention to return to its shareholders an amount of 2/3 of consolidated profit after tax. The dividend level is a balance between the shareholders wish for a regular direct return on investment and the company's need to retain capital for development of the business. Therefore, the level of dividend may be higher or lower than 2/3 of profit after tax, depending on the company’s evaluation of expected cash flows, capital expenditure plans, financing requirements and appropriate financial flexibility. A dividend will be paid as soon as possible after a decision by the AGM.

Capital increase
At the ordinary general meeting on April 15, 2010 it was resolved to authorize the board of Directors to increase the company's share capital as follows:

• The share capital may be increased by up to NOK 944,635 for general corporate purposes, acquisitions, strategic investments and other objectives in the interest of the Company including situations as mentioned in the securities trading act section 6-17. The authority remains in force until the next ordinary general meeting, however not longer than for 18 months.
• The share capital may be increased by up to NOK 25,000 in connection with the company’s incentive and option programs.

Purchase of treasury shares
The general meeting on 15 April 2010 also granted the board of directors authority to purchase own shares at an aggregate face value of NOK 193,927 (equal to 10 per cent of total outstanding share capital). This authority remains in force until and including the next ordinary general meeting, however no longer than for 18 months. The shares shall be acquired at an amount per share of between NOK 0.1 and the market price plus 10% of the market price, maximum NOK 100.

4. Equal treatment of shareholders and transactions with close associates

Class of shares
Telio has one class of shares, and each share entitles to one vote at the company's general meeting.

Increase of share capital
If the board, in accordance with proxy given by the AGM, decides to derogate from the shareholders’ pre-emption rights pursuant to the public limited liability companies act, then this decision will be justified in a stock exchange notice in connection with the capital increase.

Trading in treasury shares
Transactions in the company’s own shares (share buy-back) are carried out through the Oslo Stock Exchange at prevailing stock exchange prices. The company emphasizes equal treatment of shareholders when it comes to price sensitive information. Telio Holding ASA is listed on the Oslo Stock Exchange and is therefore obliged to follow all relevant information requirements. The company publishes all price sensitive information to the stock market through relevant information systems and also on the company’s web site at www.telioholding.no.

Transactions with close associates
In the board’s opinion, there have been no material transactions between the company and shareholders, members of the board, members of the executive management or close associates of any such parties in 2010. Related party transactions are disclosed in the notes to the financial statements.

Guidelines for directors and corporate management
Guidelines for directors and corporate management in the event of conflict of interests are covered in the company’s ethical guidelines.

5. Freely negotiable shares

All shares in Telio are freely negotiable. All shares are publicly traded and there are no trade barriers. All Telio’s shareholders are entitled to the same dividend payments, and have equal rights in the event of share capital increases (unless waived by the general meeting).

6. General meetings

The company’s Annual General Meeting (AGM) is open for all shareholders and all shares have the same voting rights. All shareholders can be represented either in person or through a power of attorney. There are no ownership limitations and no known shareholder agreements. The notice of the AGM will be sent out with at least 21 days prior notice, in accordance with the law. The notice and additional documents, including the recommendations of the nomination committee, will be made available at the company’s website. According to the Company’s Articles of Association, the board of directors may resolve not to send documents concerning matters to be considered at general meetings to the shareholders when such documents have been made available to the shareholders on the Company’s website. A shareholder may nonetheless contact the Company and demand to receive the documents free of charge. The resolutions and supporting information shall be sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting. The deadline for shareholders to give notice of their intention to attend the meeting will be set as close to the date of the meeting as possible.

The board of directors and the person chairing the meeting should make appropriate arrangements for the general meeting to vote separately on each candidate nominated for election to the company’s corporate bodies. The chairman, the nomination committee and the auditor will be present at the general meeting. The board members are encouraged to attend, however, since the board also has foreign members it is not always practical for everyone to attend. Arrangements are in place to ensure an independent chairman for the general meeting. For shareholders who cannot attend the meeting in person, information is given in the notice to the general meeting on how to be represented through a proxy. The company will nominate a person who will be available to vote on behalf of shareholders as their proxy. A proxy form allows separate voting instructions to be given for each matter to be considered by the meeting and for each of the candidates nominated for election.

The 2011 AGM is scheduled for April 12. Minutes of general meetings are made available through the stock exchange information system and on the company’s web site.

7. Nomination committee

According to the company’s Articles of Association, the company shall have a nomination committee. The nomination committee shall issue an explained proposal to the general meeting regarding the election of shareholder elected board members. The nomination committee shall consist of from two to three members. The members of the committee shall be elected by the company’s annual general meeting for two years at a time. The general meeting also appoints the committee’s chairman. The general meeting determines the remuneration of the committee’s members and may also resolve instructions for the nomination committee’s work. The nomination committee’s costs are covered by the company.

8. Corporate assembly and Board of Directors, composition and independence

Telio does not have a corporate assembly. The company aims to ensure a balanced composition of the board of directors taking into account the competence, experience and relevant background of the individuals. The composition of the board of directors complies with the requirements stated in the Norwegian Code of Practice for Corporate Governance with respect to the directors' independence towards the company's management and towards the company's material business contacts. The directors' independence is further demonstrated by the fact that there are few cases of disqualification of members in cases considered by the board of directors. There are no representatives from executive personnel on the board of directors. The board consists of five members: Erik Osmundsen (chairman), Aril Resen, Marit Wetterhus, Odd Johnny Winge and Liv Bergtorsdottir (Richard Kosowsky and Ingrid Simunic resigned from the board after the AGM in April 2010). . The directors are elected for two-year terms. Ingrid Simunic and Marit Wetterhus were re-elected at the AGM in 2009 for a new two-year term.

Additional information on each of the directors, their experience, qualifications and ownership of options/shares in Telio is available at www.telioholding.no.

9. The work of the Board of Directors

Responsibilities of the board
The board of directors' duties are laid down by Norwegian law. The board has the ultimate responsibility for managing the Group and supervising the Group’s operations which should be conducted in accordance with the Articles of Association and guidelines and framework given by the shareholders through the general meeting. The work of the board of directors includes the following main areas: strategy, organization, control and other tasks. The board defines the objectives for the financial structure and approves the Group’s plans and budgets. Issues of significant financial or strategic importance are handled by the board. The board hires the CEO and determines the CEO’s work instructions, authority and benefits.

Discussions of any matter in which the chairman is, or has been, actively involved will be chaired by some other member of the board.

Board instructions
The company has established instructions and guidelines for the work of the board. The board instructions cover the following items: the purpose of the work of the board, notification and content of board meetings, the composition of the board – resources, rights and duties, work plan and the relation to the CEO, CEO – his tasks and duties towards the board, framework and main tasks for work of the board, board decisions, the keeping of minutes and notification for general meeting and the secretary function.

Instructions to the CEO
There is a clear division of responsibilities between the board and the executive management. The CEO is responsible for the Group’s day-to-day operations. The board has established separate instructions for the CEO.

Financial reporting
The board of directors receives monthly financial reports from the administration and an overview of important key performance indicators of a financial and operational nature.

Board meetings
The board schedules board meetings in an annual plan for the work of the board. Normally, 6-8 board meetings are held during a calendar year. 4 meetings are in connection with the release of quarterly financial results and there is one strategy session mid-year and a follow-up strategy and budget/planning meeting in December. Additional meetings are convened on an ad hoc basis.

All board members receive regular information on the operations of the company and background information related to the scheduled board meetings is sent out well in advance of the meetings. The agenda for the board meetings are agreed upon between the CEO and the Chairman. In addition to the board members, the board meetings are normally attended by an observer to the board, the CEO, the CFO and the CTO.

In a board meeting in December, the board draws up a plan for the work of the board for the following year.

Board committees
The company has established a nomination committee and an audit committee.

Evaluation of the board’s work
The board will perform an annual evaluation of its own work during the last year.

10. Risk management and internal control

The Group has established a risk management process for identifying, evaluating and monitoring/mitigating risks related to Telio’s business. Risks are identified and evaluated with respect to probability of occurrence and the impact of the risk. Actions are then defined in order to monitor or mitigate the risk. This process involves all departments and executive management before the outcome is reported to and reviewed by the board at least annually.

In addition, risk management and internal control is performed through various processes within the Group, both on a board level and in daily management of the company. The board performs risk management and internal control through board meetings. Each month the board receives a board report from management outlining the financial and operational performance of the company. An annual planning and budgeting process which ends with a budget approved by the board sets the framework for the coming year. In this process, the board carries out a review of the company’s most important areas of exposure to risk.

Risk management and internal control on a management level is carried out through monthly reviews of financial performance. Financial risk management and internal control procedures are carried out both on a group level and in each subsidiary.
The board presents a review of the Group’s financial status in the annual directors’ Report including a description of the Group’s risk management and internal control.

There are currently no internal control routines in place for following up the Group’s corporate values and ethical guidelines.

11. Remuneration to the Board of Directors

Remuneration to the board of directors is decided at the annual general meeting. The board's remuneration is not linked to the financial results. The board does not plan to use options as incentive for board members. For further information about remuneration, see note 27 to the financial statements.

12. Remuneration to the executive management

Remuneration to the company's Chief Executive Officer is decided by the board of directors once a year. The remuneration guidelines for executive management and details of remuneration to executive management are disclosed in the notes to the financial statements. See note 27.

13. Information and communication

Telio aims to have a financial reporting in which investors have confidence. The company endeavors to give accurate and sufficiently extensive information each quarter and publish this information as quickly as possible. The company does not give concrete guidance on future revenue and results. The company will ensure that all relevant information is accessible for the market. Information will be given shareholders and other parties in the market simultaneously and with the most efficient methods. All financial information, including various company presentations, may be found at Telio's web site, and the company ensures that all shareholders have equal access to financial information. Responsibility for investor relations and price sensitive information rests with the company’s CEO and CFO. In meetings with shareholders, analysts and others, special emphasis is given to not discussing issues that are considered to be price sensitive. The Group’s financial calendar is published through the Oslo Stock Exchange and is also available on the corporate website. The board has established guidelines for contact with shareholders outside the general meeting.

14. Take-overs

The board of Director’s primary objective is to give the best possible long term return on investment for the shareholders. Unless specific conditions apply, the board will not prevent or make obstacles in the event that a bid is made for the company or its shares. In such situations, the board will evaluate the offer(s), where an independent valuation will be included in the board’s evaluation, and make a statement which is communicated to the shareholders. A decision is made through a general meeting.

15. Auditor

Telio uses the same firm of auditors in the parent company and all subsidiaries of significance. The auditors are also used as advisors for financial due diligence in connection with possible acquisition of new businesses and in connection with the preparation of tax returns and tax advice in general. The auditors are not used as advisors for strategic issues or in connection with operational tasks for the company. The auditor participates in the board meeting that approves the annual financial statements, and in the same meeting will give its opinions as to the company’s accounting principles, risk areas, internal control and accounting routines. The board ensures that the board and the auditor may discuss relevant issues without the presence of management. The audit fees are approved at the annual general meeting and are described in the notes to the financial statements.