Incentive Scheme

Karolinska Development has introduced two different incentive programs. One is a long term program consisting of a combined warrant and profit sharing plan for CEO, CFO and VP Portfolio Management, comprising five annual parts of which three (covering 2008, 2009 and 2010) have already been launched and two (2011 and 2012) still remain to be launched. The other is a profit sharing program for other categories of personnel.

Long term program for CEO, CFO and investment managers

The long term incentive program consists of two parts: a warrant part based on warrants issued by Karolinska Development and a profit sharing part related to the value change of the portfolio. The program covers the period 2008-2012. The 2008-2010 part thereof has already been implemented following resolutions by the board of directors and shareholder´s meetings. Each annual part of the program requires resolutions with a qualified majority from a shareholders meeting, in accordance with the Swedish Companies Act.

Warrant part
The part of the incentive plan consisting of warrants entails that Karolinska Development during a period of five years issues warrants annually. At full exercise the warrants correspond to (calculated per issue) 0.5 per cent of all outstanding shares in the company at each issue. After five years the dilution will thus amount to 2.5 per cent (number of shares). The warrants are issuead to a wholly owned subsidiary which thereafter transfers the warrants to the participators against a market price consideration.

Profit sharing part
Profit sharing plans are launched annually during the five year period 2008-2012. The 2008 plan refers to Karolinska Development´s portfolio as of 31 December 2007. The subsequent plans refer to investments in the portfolio as of December 31, and wich the company has carried out during the calendar year immediately preceding the issue of the annual plan.

Each annual plan comprises a cash payment corresponding to, in aggregate, 5 per cent of the part of the realized return from the investments to which the annual plan relates that exceeds a threshold interest of 6 per cent for the years 2008-2012 and 8 per cent for year 2013 and onwards.

Payment in accordance with each annual plan is limited. To the extent the surplus returns exceeds an annual (annually compounded) return of 35 per cent, the part of the surplus return exceeding that percentage, to which the participants in the plan are entitled, shall be reduced to 2.5 per cent. To the extent that the surplus return exceeds 50 per cent, the surplus return on that part is reduced to 1.25. No return is calculated above 60 per cent.

Besides payment as described above, the participants in the plans for the years 2010, 2011 and 2012 are also entitled to a payment corresponding to a total of 37.5 per cent of the so called "KDAB Carried Interest" in accordance with the Limited Partnership agreement entered into by Karolinska Development and European Investment Fund ("EIF") regarding KCIF Co-Investment Fund KB ("KCIF"). KDAB Carried Interest can be described as 20 per cent of return exceeding an annual threshold interest of 6 per cent calculated on (and after payment of) all amounts paid by Karolinska Development and EIF to the KCIF fund. According to the agreement with EIF, Karolinska Development is entitled to the described part of the KDAB Carried Interest provided that it is transferred to the incentive plan. That means that regarding this payment to the plan Karolinska Development does not refrain from any revenue (besides incurred social security costs).

Participation in each annual plan requires participation in the warrant program for the corresponding year.

Profit sharing program for other categories

The plan was introduced 2008 and includes all permanently employed personnel, other than CEO, CFO and investment managers. A general condition for profit sharing for a year is that the profit exceeds 10 MSEK. The participators share (with distribution within the group based on salary) a set percentage of the profit exceeding 10 MSEK. The percentage corresponds to 0.57 per cent at a profit of 10 MSEK and is gradually reduced to 0.22 per cent at a profit of 1,700 MSEK. No more than an amount corresponding to an annual salary will be paid to each participant. Profit in this context means profit/loss before financial items according to audited annual report. Payment is made in arrears.