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Principle 2 The Directors and Officers Shall have Full Loyalty to the Company

2.1 Personal Accountability. Each director and officer should understand that under the Company Law he is personally accountable to the company and the shareholders if he violates his legal duty of loyalty to the company, and that he can be personally sued by the company or the shareholders for such violations.

The duty of loyalty includes a duty not to use property of the company for his personal needs as though it was his own property, not to disclose confidential information of the company or use it for his personal profit, not to take business opportunities of the company for himself, not to compete in business with the company, and to serve the company's interest in any transactions with the company in which he has a personal interest. He should be considered to have a "personal interest" in a transaction with the company if:

•   he himself, or
•   a member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters), or
•   another company of which he is a director or controlling shareholder,

is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)

2.2 Avoidance of Conflicts of Interest. Each director and officer should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the company.

2.3 Disclosure of Conflicts of Interest. Each director and officer shall inform the entire board of conflicts of interest as they arise and abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure shall include all material facts in the case of a contract or transaction involving the director or officer. The directors and officers must understand that any approval of a conflict transaction is effective only if all material facts are known to the authorizing persons and the conflicted person did not participate in the decision.

Recommendation: The board should establish formal procedures for:
•   periodic disclosure and updating of information by each director and officer on his actual and potential conflicts of interest, and
•   advance approval by disinterested directors or shareholders of all transactions in which a company director or officer has a personal interest. The board should require such advance approval in every case.

2.4 Disclosure of Conflicts of Interest to Shareholders. The company shall disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and shall disclose to its shareholders any authorization of a conflict of interest contract or transaction in accordance with the Company Law.

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