The Board of Directors of AdultShop.com Limited is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of AdultShop.com Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. In March 2003, the Australian Stock Exchange Corporate Governance Council's released its "Principles of Good Corporate Governance and Best Practice Recommendations", which are as follows: Principle 1. Lay a solid foundation for management and oversight Principle 2. Structure the board to add value Principle 3. Promote ethical and responsible decision making Principle 4. Safeguard integrity in financial reporting Principle 5. Make timely and balanced disclosure Principle 6. Respect the rights of shareholders Principle 7. Recognise and manage risk Principle 8. Encourage enhanced performance Principle 9. Remunerate fairly and responsibly Principle 10. Recognise the legitimate interests of stakeholders AdultShop.com Limited's corporate governance practices are compliant, unless otherwise stated, with the Corporate Governance Council's principles and recommendations Structure and Composition of the Board The composition of the Board is determined in accordance with the following principles and guidelines: The Board shall comprise at least 3 directors, increasing where additional expertise is considered desirable in certain areas. The Board should comprise a majority of independent non-executive directors. The Chairperson should be a non-executive director. Directors should bring characteristics, which allow a mix of qualifications, skills and experience both nationally and internationally. The Board reviews its composition on an annual basis to ensure that the Board has the appropriate mix of expertise and experience. When a vacancy exists, for whatever reason, or where it is considered that the Board would benefit from the services of a new director with particular skills, the Board will select appropriate candidates with relevant qualifications, skills and experience. External advisers may be used to assist in such a process. The Board will then appoint the most suitable candidate who must stand for election at the next general meeting of shareholders. The Australian Stock Exchange Corporate Governance Council's "Principles of Good Corporate Governance and Best Practice Recommendations" recommends the appointment of a Nomination Committee for prospective Board appointments. The Board considers that the Company and the Board are currently not of sufficient size to warrant the establishment of a Nomination Committee. The terms and conditions of the appointment and retirement of directors is set out in a letter of appointment which covers remuneration, expectations, terms, the procedures for dealing with conflicts of interest and the availability of independent professional advice. The performance of all directors is reviewed by the Chairman each year. Directors whose performance is unsatisfactory will be asked to retire. Click here for details of the Company's directors Directors of AdultShop.com Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with - or could reasonably be perceived to materially interfere with - the exercise of their unfettered judgment. The following directors of AdultShop.com Limited are considered to be independent: Name Position K Heitman Chairman, Non-Executive Director H Moser Non-Executive Director B Moore Non-Executive Director Each director has the right to seek independent professional advice at the Company's expense. However, prior approval of the Chairman will be required, which will not be unreasonably withheld. Responsibilities of the Board The Board is responsible for: Overseeing the Company, including its control and accountability systems. Appointing and removing the Managing Director and Company Secretary. Ratifying the appointment or removal of the Chief Financial Officer. Input into and approving the group strategy, ensuring sufficient resources are available to implement the strategy and assessing management's performance against the strategy. Reviewing and ratifying systems of risk management and internal compliance and controls, codes of conduct and legal compliance. Approving and monitoring the progress of major capital expenditure, capital management, business acquisitions and disposals. Approving and monitoring financial and other reporting. Code of Conduct and Trading Policy for Directors and Executives The Company has introduced a Code of Conduct and a Trading Policy to guide the directors and key executives to the practices necessary to maintain confidence in the Company's integrity. The principles of the Code of Conduct are: To act honestly, in good faith and in the best interest of the Company. Not use property, information or position, or opportunities arising from these, for personal gain or to compete with the Company. To keep confidential non-public information except where disclosure is authorised or legally mandated. To deal fairly with all Company's customers, suppliers, competitors and employees. Protect and ensure the proper and efficient use of the Company's assets for legitimate business purposes. To actively comply with and promote compliance with laws and regulations. Encourage the reporting of unlawful or unethical behavior. The Company's policy for trading in its securities requires that any director wishing to buy or sell Company securities shall consult with either the Chief Executive Officer or the Chief Financial Officer of the Company, and the Chairman of the Board (or one other non-executive member of the board in the case of the Chairman himself), prior to transacting. The above policy is not mandatory for other executives; however they are encouraged to adopt it. The Company expects all employees to act appropriately at work and has introduced "Standards of Conduct' which provides guidelines aimed at attaining high ethical standards and appropriate corporate behavior. Audit Committee The role of the Audit Committee is documented in a Charter, which is approved by the Board of Directors. In accordance with this Charter, a majority of the members of the Committee must be independent non-executive directors. The Chairman should not be the Chairman of the Board of Directors. The role of the Committee is to advise on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity. The Audit Committee also gives the Board of Directors additional assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies or for inclusion in the financial report. The external auditors are invited to Audit Committee meetings at the discretion of the Committee. The responsibilities of the Audit Committee include: Reviewing the financial report and other financial information distributed externally. Reviewing any new accounting policies to ensure compliance with Australian Accounting Standards and generally accepted accounting principles. Reviewing external audit reports to ensure that where major deficiencies or breakdowns in controls or procedures have been identified, appropriate and prompt remedial action is taken by management. Considering whether non-audit services provided by the external auditor are consistent with maintaining the external auditor's independence. Review the nomination and performance of the external auditor. Liaising with the external auditors and ensuring that the annual and half-year statutory audit and review are conducted in an effective manner. Monitoring the completeness and accuracy of the corporate governance practices reported by the Company. Monitoring the procedures in place to ensure compliance with the Corporations Act 2001 and Stock Exchange Listing Rules for the purposes of financial reporting. Addressing any matters outstanding with auditors, Australian Taxation Office, Australian Securities and Investment Commission, Australian Stock Exchange and financial institutions. Reviewing reports on any major defalcations, frauds and thefts from the Company. Improving the quality of the accounting function. The external audit lead partner is rotated off in compliance with legislative requirements. If it becomes necessary to replace the external auditors, the Audit Committee will propose a replacement for approval by the shareholders in general meeting. Click here to view a copy of the "Audit Committee Charter" Continuous Disclosure and Communication with Shareholders The Chief Executive Officer is responsible, in consultation with the Board, for interpreting and monitoring the Company's compliance with the continuous disclosure requirements of the Australian Stock Exchange whilst the Company Secretary is responsible for all communications with Australian Stock Exchange. Communication with shareholders is conducted through the following mechanisms: Announcements lodged with Australian Stock Exchange Australian Stock Exchange Quarterly Cashflow Reports Half Yearly and Preliminary Final Reports Annual Reports Annual general meetings The Company also posts corporate information in the investor section of its Company website. Remuneration The Board is responsible for determining and reviewing compensation arrangements for the directors themselves, the chief executive officer and the executive team. To assist them in this task, the Board has established a Remuneration Committee comprising the three non-executive directors. It is the Company's objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the Remuneration Committee links the nature and amount of executive directors' and officers' emoluments to the Company's financial and operational performance. The expected outcomes of the remuneration structure are: Retention and motivation of key executives. Attraction of quality management to the Company. Performance incentives which allow executives to share the rewards of the success of the Company. In relation to the payments of bonuses, options and other incentive payments, discretion is exercised by the Board, having regard to the overall performance of AdultShop.com Limited and the performance of the individual during the period. Click here to view a copy of the "Remuneration Committee Mandate" Risk Management The Board monitors and receives advice on areas of operational and financial risk and the control framework, and considers strategies for appropriate risk management arrangements. Specific areas of risk identified initially and which are regularly considered at Board Meetings include compliance with credit card regulations and regulations covering the company's operating activities, foreign currency fluctuations, performance of activities, human resources, the environment and continuous disclosure obligations. Code of Ethics and Conduct The Company expects all employees to act appropriately at work and in the conduct of the Company's affairs and to this end has developed policies and procedure aimed at maintaining high ethical standards, corporate behavior and accountability. Standards of conduct contained in the Policy and Procedures Manual include provisions covering: Proper use of and care of the Company's and customers assets. The requirement to act responsibly, with integrity, honesty and decency. Respect for fellow employees. Avoiding actions that would damage the Company's reputation and / or financial position. Breaches of confidentiality and security of information. Compliance with fire and safety rules. Conflicts of interest. Acceptance of gifts from clients, contractors or suppliers. Electronic security, email use and copyright. Customer service standards