Responsibilities of Board Members > Corporate Governance

1 The Combined Code

1.1 The Combined Code is appended to the Listing Rules and sets out principles of good governance and code provisions applicable to all listed companies incorporated in the Uruted Kingdom and is derived from a review of the role and effectiveness of non-executive directors by Derek Higgs and a review of audit committees by a group led by Sir Robin Smith, the Hampel Committee's final report and the Cadbury and Greenbury Reports. While the provisions of the Combined Code are not strictly applicable to AIM companies, it is recommended that as a matter of good practice, AIM companies should follow the same core recommendations relating to corporate governance. An AIM company will be required to report on how it applies the principles in the Combined Code and to confirm that it complies with the Code provisions or - where it does not - provide an explanation. A copy of the Combined Code is attached to this memorandum as Appendix: A.

Section 1 sets out the Principles of Good Governance:

1.2 Directors

1.2.1 Each company should be headed by an effective board which is collectively responsible for the success of the Company.

1.2.2 There should be a clear division of responsibilities between the Chairman and CEO and no one individual should have unfettered powers of decision.

1.2.3 There should be a balance of executive and non-executive directors (including independent non-executives).

1.2.4 The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable itto discharge its duties. Ail directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.

1.2.5 There should be a formal and transparent procedure for the appointment of new directors.

1.2.6 Ail directors should submit to re-election at least every three years.

1.3 Directors Remuneration

1.3.1 Levels of remuneration should be sufficient to attract retain and motivate directors, but companies should not pay more than necessary .. A significant proportion of executive directors' remuneration should be structured so as to link rewards to corporate and individual performance.

1.3.2 There should be formal and transparent procedures for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding rus or her own remuneration.

1.3.3 The annual report should: contain a statement of remuneration policy and details of remuneration of each director.

1.4 Relations with Shareholders

1.4.1 Dialogue with institutional shareholders encouraged.

1.4.2 Companies should use AGM to communicate with private investors and to encourage their participation.

1.5 Accountability and Audit

1.5.1 The board should present a balanced and understandable assessment of the Company's
position and prospects.

1.5.2 The board should maintain a sound system of internal control to safeguard shareholders' investment and the company's assets.

1.5.3 The board should establish formal and transparent arrangements for considering how they should apply financial reporting and internal control principles and for monitoring relations with auditors. The board should establish an audit committee of at least two non-executive directors, with written terms of reference. The Code of Best Practice sets out specific provisions as to how the principles set out above are to be put into practice. There are schedules setting out provisions on the design of performance related remuneration and provisions on what should be included in the remuneration report.

1.6 Board Procedure

The board of directors should meet regularly. The Chairman should en sure that the directors of the Company receive accurate, timely and clear information. In particular, ail directors should have access to the company secretary and the right to take independent professional advice at the Company's ' expense. Directors should use their independent judgement on all issues. Training should be provided both for new directors and on an on-going basis.

1.7 Non-Executive Directors

The Combined Code places great emphasis on the importance of a strong non-executive presence on the board of directors. The Company should have at least two independent non-executive directors. The Chairman should also meet the independence criteria set out in the Combined Code on appointment. The Chairman should hold meetings with the non-executive directors without the executives present. The board should appoint a senior independent non-executive director, who with the other non-executive directors should meet with the Chairman at least annually to appraise the Chairman's performance. Non-executives should be appointed for specific terms subject to re-election. The fees of non-executive directors should be decided by the board as a whole unless the board is permitted by the company's constitution to delegate this role to a committee.

1.8 Committees

1.8.1 The board of directors should establish committees of non-executive directors to deal with audit matters, executive remuneration and nominations to the board. The role of the audit committee has already been discussed in the section above on financial information. The remuneration of executive directors is a chief concern of the Combined Code and there are a number of provisions relating to the level and make-up of remuneration, remuneration policy, service con tracts and compensation. The remuneration committee should be made up of at least two members, who should ail be non-executive directors. 'A majority of members of the nomination committee should be independent non-executive directors. The remuneration and nomination committee should make available their terms of reference, an explanation of their role and the authority delegated to them by the board. The Chairman should maintain contact with principal shareholders about remuneration in the same way as for other matters. The chairman of the audit, remuneration, and nomination committees should be available to answer questions at each annual general meeting.

1.9 Paragraph 12.43A of the Listing Rules applicable to listed companies provides that in the case of a listed company the following additional items must be included in its annual report and accounts:

1.9.1 a narrative statement of how it has applied the principles set out in Section 1 of the Combined Code, providing explanation which enables its shareholders to evaluate how the principles have been applied;

1.9.2 a statement as to whether or not it has complied throughout the accounting period with the Code provisions set out in Section 1 of the Combined Code. Any failure to comply must identify the failure and provide reasons fornon-compliance; and

1.9.3 information on executive directors' remuneration broken down into different elements, information on share options and other incentives, explanations of assessment and performance criteria, details of service con tracts, policy on granting options, pensions. The Company's auditors are required to review the statements and give an opinion as to whether or not compliance has been made.