Answer: Under the new guidelines, the DBA will still be able to pre-approve development projects between foreign suppliers and Danish companies.

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1 8 April 2015 FAQ new guidelines for industrial co-operation Question 1: What is the impact of the new guidelines on current industrial cooperation contracts between foreign suppliers and the Danish Business Authority? Current industrial co-operation contracts (ICC) as well as agreements on banking and pre-qualification banking between foreign suppliers and the Danish Business Authority (DBA) will remain in force. DANISH BUSINESS AUTHORITY Dahlerups Pakhus Langelinie Allé 17 DK-2100 København Ø Denmark Tel Fax VAT no Question 2: What is the impact of the new guidelines on the DBA s approval of development projects and multipliers? MINISTRY OF BUSINESS AND GROWTH Under the new guidelines, the DBA will still be able to pre-approve development projects between foreign suppliers and Danish companies. The new guidelines will however influence the level of multipliers. For current ICCs signed under the previous rules, the scope of industrial co-operation activities is defined in the ICC. However, the ICC does not specify the level of multipliers for development projects. Therefore, the level of multipliers depends on when the development project is handed in to the DBA for pre-approval. In case the development project is handed in after the annulment of the previous rules on the 2 nd of April 2014, multipliers will be approved using the new guidelines. In case the development project is handed in after the 2 nd of April 2014, but where the foreign supplier can document that a dialogue between the DBA and the foreign supplier has already taken place on the specific development project before the 2 nd of April 2014, the multipliers can be approved under the previous rules.

2 2/9 In case the development project is handed in to the DBA before the 2 nd of April 2014, the multipliers will be approved using the previous rules. For ICCs signed after the commencement of the new guidelines on the 1 st of July 2014, multipliers will be approved using the new guidelines. Please note that no ICC has been signed during the period from 2 nd of April 2014 to 1 st of July. Question 3: Can the DBA approve activities that are carried out before the Ministry of Defence has signed the acquisition contract with the foreign supplier as eligible for industrial co-operation obligation settlement? No, according to the new guidelines the fulfilment may start from the point in time when a foreign supplier is selected for the specific acquisition, cf. point 5.4 in the guidelines. This is normally the point in time when the Ministry of Defence signs the acquisition contract. It is not until this point in time that the necessary basis for assessing if industrial co-operation is necessary to safeguard Denmark s essential security interests in relation to the specific acquisition, including the security of supply regarding the specific acquisition or related defence equipment or defence services. The DBA can however issue a conditioned pre-approval for a development project from that point in time where the obligations for industrial co-operation as well as the relevant strategic technology areas have been defined, and if the foreign supplier has signed a conditioned ICC with the DBA. This means that foreign suppliers are able to prepare themselves in due time for the fulfilment of a potential industrial co-operation obligation by securing conditional pre-approvals from the DBA on potential development projects and the corresponding multiplier levels. For the winning foreign supplier the pre-approved development projects can be launched immediately after the signing of the acquisition contract by the Ministry of Defence. For the unsuccessful foreign suppliers to the tender, the pre-approvals will no longer apply after the signing of the acquisition contract by the Ministry of Defence.

3 3/9 Please note that if the foreign supplier has another active ICC in force, and in case the pre-approved project falls under the scope of application for that ICC, the DBA will be able to approve the project and the industrial co-operation under that ICC. Question 4: Can banking agreements be signed under the new guidelines? It is not possible to enter into banking agreements or pre-qualification banking agreements under the new guidelines. The reason for this is that industrial co-operation has to be linked to the safeguarding of specific security interests identified on a case by case basis in relation to the individual acquisition. Current agreements on banking and pre-qualification banking remain in force. Banked credit on current agreements on banking and pre-qualification banking can be used for fulfilment of potential, future industrial cooperation obligations until the relevant agreement on banking or prequalification banking expires. If a foreign supplier with a banking agreement is imposed a new offset obligation as a result of a framework contract, the foreign supplier can choose to accept this obligation up front. By doing so, a part of the obligation equaling the banked credit can be fulfilled immediately. The amount to be fulfilled up-front should equal the expected maximum frame value of the contract. The expected maximum frame value is assessed by the Ministry of Defence. Question 5: Are dual-use products eligible for industrial co-operation? According to the new guidelines, dual-use products are not eligible for industrial co-operation since industrial co-operation has to concern defence equipment or defence services, cf. point 2.2 in the guidelines. In case the fulfilment of industrial co-operation takes place based on a current ICC under the previous rules, the fulfilment may also concern dual-use products if these are covered by the scope of application provided for in that ICC.

4 4/9 Question 6: What types of ICCs exist under the new guidelines? The DBA operates with two ICC templates under the new guidelines one for acquisition contacts and one for framework contracts. In the future however, there will be no distinction between ICC1, ICC2 and ICC3 based on the size of the industrial co-operation obligation. Current ICC1s, ICC2s and ICC3s remain in place. Question 7: Will swap agreements (an agreement under which obligations for industrial co-operation are evened out between countries) be accepted under the new guidelines? No new swap agreements will be made under the new guidelines. The reason is that industrial co-operation has to be linked to the safeguarding of specific security interests identified on a case by case basis in relation to the individual acquisition. Current agreements on swap remain in force. Question 8: How will the DBA ensure that the fulfilment of the obligation takes place within the specific strategic areas of technology mentioned in the ICC and that it is related to the acquisition or corresponding defence equipment or services? The DBA continuously monitors the fulfilment of obligations for industrial co-operation in connection to both the individual foreign supplier and in general. The foreign supplier must report to the DBA on the fulfilment of obligations for industrial co-operation once a year. The reporting is based on the specific ICC. If the ICC in question is signed under the new guidelines, the foreign supplier must state the relevant strategic areas of technology and confirm that the fulfilment relates to the acquisition or corresponding defence equipment or services. If the ICC in question is signed under the previous rules, the foreign supplier must confirm that the fulfilment takes place within the framework of the relevant ICC.

5 5/9 The reports must be made in a template provided by the DBA. This ensures that the reports contain all relevant information. Reporting in connection with development projects must take place within the framework of the relevant pre-approval. If the development project is based on an ICC under the new guidelines the reporting must include the relevant strategic areas of technology, and the foreign supplier must confirm that the activity is related to the acquisition or corresponding defence equipment or services. The DBA reviews all reports. In that regard, the DBA can obtain a written statement from the relevant Danish company or from the Ministry of Defence (regarding the definition of defence equipment or services). The DBA s approval is based on a case by case assessment. Finally, fulfilment is a standing item on the agenda in the ongoing dialogue between the DBA and the individual foreign suppliers. Question 9: How are penalties calculated in connection to framework contracts? The penalty is calculated as 50 per cent of the amount which has not been fulfilled three years after the termination of the framework contract. When imposing an obligation for industrial co-operation, the Ministry of Defence defines the maximum amount of the framework contract for the total duration of the contract. The ICC will mention the potential maximum amount but the final obligation will depend on the actual sale to the Danish Armed Forces in the duration of the contract. The Ministry of Defence informs the DBA of the sale to the Danish Armed Forces on a yearly basis. And the DBA informs the foreign supplier of the actual obligation. Because the actual obligation can change throughout the duration of the framework contract it is not possible to set a milestone for 50 per cent fulfilment. Therefore, the penalty in connection with framework contracts is linked to the time of the termination of the contract. Hence the penalty is set as 50 per cent of the amount which has not been fulfilled three years after the termination of the framework contract.

6 6/9 Question 10: What is the reasoning behind the new multipliers? Multipliers are determined individually and based on Denmark s essential security interests. Transfer of technology is given higher priority than other activities such as the foreign supplier s funding of activities carried out by the Danish company, which is credited lower than technology transfer. A higher multiplier can therefore be approved for transfer of technology. The multipliers are determined on the basis of the specific type of activity: 1. The foreign supplier transfers technology (machines, equipment, software, licenses, IP rights etc.) to a company in Denmark which then owns that technology or those rights. Multipliers up to a maximum of 7 may be approved. 2. The foreign supplier funds development activities performed by the Danish company or the foreign supplier funds the counselling of the Danish company in connection to the development project. This may include both advisory services performed by the foreign supplier s own experts and advisory services performed by external experts including training and education. Multipliers up to a maximum of 5 may be approved. 3. The foreign supplier makes facilities available for free for the Danish company. This could be test facilities or a booth at an exhibition where the Danish company meets new potential customers and business partners in connection to a specific development project. A multiplier up to a maximum of 3 may be approved. 4. The foreign supplier procures defence equipment or services from companies in Denmark. A multiplier of 1 may be approved. Question 11: How does Denmark define industrial cooperation related to the acquisition or corresponding defence equipment? Industrial cooperation must be necessary for development, production, maintenance, operation and performance of tasks related to the acquisition or corresponding defence equipment or services. Consequently, development and production, the practical employment in the field, but also service and support related to the acquisition or corresponding defence equipment are considered relevant as industrial cooperation.

7 7/9 The rationale is that obligations for industrial cooperation must contribute to maintain and develop competences and capabilities within specific strategic areas of technology in the National Defence Industrial Strategy that are considered necessary and proportionate for the protection of Denmark s essential security interests. These specific strategic areas of technology will be assessed in connection with each of the acquisitions on a case by case basis and will be included in the tender documents from the Danish Ministry of Defence. As a general rule this means that industrial cooperation in connection to e.g. an armoured military vehicle must be related to the relevant acquisition or corresponding mobile, armoured, military platforms. Accordingly defence equipment or services including technologies related to the relevant acquisition that may also be utilized on corresponding mobile, armoured, military platforms is considered relevant as industrial cooperation. This covers development, production, maintenance, operation as well as performance of tasks. The prerequisite is that the industrial cooperation must contribute to maintain and develop competences and capabilities within the specific strategic areas of technology identified in connection with the acquisition. Whether a specific product or service is considered as related to the acquisition or corresponding defence equipment or services will be assessed specifically in connection with the administration of the industrial cooperation fulfilment. If in doubt, the Danish Business Authority will consult the Ministry of Defence. The foreign supplier may request the Danish Business Authority to preapprove whether specific defence equipment or a defence service is considered as related to the relevant acquisition or corresponding defence equipment or services. The Danish Business Authority pre-approves based on the Article 346 assessment in connection to the specific acquisition. When applying for a pre-approval the foreign supplier must specify which strategic areas of technology the specific defence equipment is related to. And the foreign supplier must confirm that the fulfilment is related to the relevant acquisition or corresponding defence equipment. The Danish Business Authority s pre-approval will be based on the information provided by the foreign supplier. If in doubt, the foreign supplier may contact the Danish Business Authority with any questions for clarification.

8 8/9 Question 12: Can the DBA pre-approve an incentive mechanism on the follow-on sales from a Danish company to the foreign supplier in the pre-approval of an industrial co-operation project? For pre-approvals of industrial co-operation development projects the DBA will pre-approve an incentive mechanism linked to the follow-on sale from the Danish company to the foreign supplier of the relevant product/service in the project. The purpose of this incentive mechanism is to anchor new competencies and capabilities achieved through the project in the Danish company and to support long term strategic relations between the foreign supplier and the Danish company. This option applies to all foreign suppliers submitting an industrial cooperation development project under which a projected follow-on sale from the Danish company to the foreign supplier is included. The incentive mechanism takes the form of a milestone bonus that will be offset against the foreign supplier s obligation for industrial co-operation. The milestone bonus will be released when a pre-defined follow-on sales target is attained. It is a condition that the follow-on sale is only covering the specific product/service developed in the project. It is also a condition that the follow-on sale takes place within a three-year period from the conclusion of the development phase of the project. Consequently, the pre-defined target for the follow-on sale must be attained within this three-year period. The milestone bonus will be set at 50 % of the value of the follow-on sales from the Danish company to the foreign supplier. The value of the follow-on sale as well as the milestone bonus will count as industrial co-operation and be offset against the foreign supplier s obligation for industrial co-operation. A maximum ratio will be applied in order to ensure a balanced ratio between the value of the development phase and the offset value of the follow-on sale including the milestone bonus of the development project. The total offset value of the follow-on sale including the value of the milestone bonus cannot be more than 25 times the value of the development phase of the project. For instance, if the foreign supplier transfers technology and technical consulting to the Danish company valued at 1m DKK, the total combined offset value of the follow-on sale including the milestone bonus cannot exceed 25m DKK. Any additional follow-on sale will be credited on a 1:1 basis. The follow-on sale and the milestone bonus will have to concern defence equipment/services.

9 9/9 Question 13: Can the DBA pre-approve follow-on sales from a Danish company to third parties as fulfillment of an industrial co-operation obligation in the pre-approval of an industrial co-operation project? The DBA will pre-approve follow-on sale from the Danish company to third parties as part of the pre-approval of a development project. The value of this follow-on sale will count as fulfillment of the foreign supplier s obligation for industrial co-operation. It is a condition that the follow-on sale only covers the specific product/service developed in the project. It is also a condition that the follow-on sale takes place within a three-year period from the conclusion of the development phase of the project. A third party is understood as a party not covered by the Eligible Parties paragraph, cf. Articles 5 and 14 of the ICC. The value of the follow-on sale is offset against the foreign supplier s obligation for industrial co-operation. Follow-on sale to third parties will be credited on a 1:1 basis. The purpose of approving follow-on sale to third parties in development projects as fulfillment of an industrial co-operation obligation is to anchor new competencies and capabilities achieved through the project in the Danish company. The follow-on sale to third parties will have to concern defence equipment/services.