Rood Testhouse International N.V. (further referred to as Rood Technology) considers the application of the Dutch Code of Corporate Governance (further referred to as the Code) in the light of the company’s scale. Therefore Rood Technology has decided on a trend-follower position. The system of the Code will be leading in this chapter. The numbers used correspond with the numbers of the Code.

I. Enforcement of and appliance of the Code

Rood Technology is following all principles of the code and applies almost all best practices. Deviations from the code will be explained in the remainder of the chapter.

II. The Board of Management

1.1 to 1.7: Tasks and working methods

Our CEO has a 4-year contract. In compliance with article 12 of the Preamble of the Code, this term shall also apply to any new board members to be appointed. The CEO shall resign at the General Meeting of Shareholders’ request, provided that it concerns a broadly supported wish, rather than the request of one dominant shareholder. Such a resignation shall be considered as the company’s notice of termination of the CEO’s contract.

The supervisory board supervises the policy of the board of management, as well as the general courses of the corporate affairs and business, and provides advice to the board of management. The board of management must keep the supervisory board informed, consult with the supervisory board on important matters and submit certain important decisions to the supervisory board for its prior approval. In the course of the years it has become tradition that the Supervisory Board and the Board of Management determine Rood Technology’s operational and financial objectives and targets of the company in consultation. This also applies for the strategy and the framework conditions to be implemented. The habit of including the highlights in the annual report will be continued.

The company has an internal risk management and control system, which includes (a) risk analysis of the operational and financial objectives of the company, (b) a code of ethics for principal executives and financial officers and a code of conduct applicable to the board of management and employees, which is published on the company’s website, (c) guidelines for the layout of financial reports and the procedures to be followed drawing up the reports, (d) a system of disclosure controls.

The risk management and control system proved to function adequately and effectively. This was achieved by extra focus on the operating and control system. The organisation was reinforced by a full-time CFO, which is the basis on which we are working on further reinforcement. By the end of 2005, further organisational adjustments were implemented, including selection of ‘empowered’ management. Based on this decision, each business unit manager is now accountable for the performance and management of his/her business unit and shall report accordingly in the future. The necessity for optimisation of the organisation was discussed with the Supervisory Board on several occasions last year.

With reference to the section on Risk Control, the sales levels and results are highly sensitive for the upswings and downswings in the market. However, customer structure also plays an important role.

Employees of Rood Technology have the opportunity to report suspected irregularities within the company without jeopardising their legal position. The whistle-blower policy of Rood Technology enables employees to report any suspected irregularities of a general, operational or financial nature within the company and its subsidiaries without having to fear for their legal position. Insofar the suspected irregularities do not involve Rood Technology’s Managing Director(s) under the Articles of Association; any such reports should be addressed to the Chairman of Rood Technology’s Executive Board. However, if the report concerns actions or lack of action by Rood Technology’s Managing Director(s) under the Article of Association, the whistle-blower is to communicate this to the Chairman of Rood Technology’s Supervisory Board.

Before an employee may invoke that his/her legal position has been jeopardised as a consequence of a report as described above, the Chairman of the Executive Board (in the case of a report not involving suspicions against Rood Technology’s Managing Director(s) under the Articles of Association) or the Chairman of the Supervisory Board (in the case of a report involving suspicions against Rood Technology’s Managing Director(s) under Articles of Association) must issue an assessment in writing. This assessment document must be provided within 14 days after the relevant request.

Members of Rood Technology’s Executive Board do not hold the post of Board member in other listed companies. The contract with Board members stipulates that accepting other posts in a business environment is subject to approval by Rood Technology’s Supervisory Board. Insofar this was applicable; the company complied with this stipulation.

2.1 to 2.14: Remuneration

Options on shares are one of the company’s remuneration components. Granting these options depends on achieving targets (which are based on a 4 year strategic plan of the company), as well as the market situation in general. An overview of the granted options can be found in the annual accounts of the company.

Regarding possession and transactions of shares by Board Members, other than those issued by the ‘own’ company, the Supervisory Board has decided on deviation from the Code. It is not permitted for Board Members to hold direct or indirect interests amounting to more than 5 % in other listed companies or companies in the semiconductor industry, unless the Supervisory Board has granted specific permission. Furthermore, Board Members need to report changes in possession of shares in other listed or semiconductor companies to the Chairman of the Supervisory Board.

The existing employment contract with the CEO includes a clause regarding compensation in case of termination of employment. This redundancy payment amounts to a maximum of one annual salary. No personal loans or guarantees were provided to the CEO.

The remuneration of the CEO consists of a fixed salary plus a variable part that will be paid out in options. The granting of options as mentioned before depends on the achievement of targets that were set by the Supervisory Board and are a consequence of the 4 years plan of the company. The achievement of the targets by the CEO will be evaluated every half a year and new targets will be set, taking significant changes in circumstances such as market development into account. The targets for the CEO in 2005 can be found in the annual accounts.

The contract length of the CEO concerns 4 years. The employment may be terminated by giving 6 months notice in writing to the end of each calendar month. With regard to stipulation II.2.7 Rood Technology applies the Code.

Rood Technology has no formal pension regulation concerning the CEO. However, the pension payment concerns 10 % of the salary of the CEO. Furthermore there are no early retirement regulations for the CEO.

3.1 to 3.4: Conflicting interests

According to article 22 of Rood Technology’s Articles of Association, the company shall be represented by the Chairman of the Supervisory Board in the event of a conflict of interest with a Managing Director. The company complies with all stipulations of the Code regarding refraining from competing with the company, accepting or requesting gifts for the Managing Director and/or his/her immediate family, providing unjustifiable benefits charged to the company, the Managing Director and/or his/her immediate family using business opportunities that are intended for the company, and the obligation to report a (potential conflict of interest to the Chairman of the Supervisory Board. Furthermore, the Managing Director will hold aloof from the discussion about the event, in which he/she has a conflict of interest. Moreover, all transactions, concerning a conflict of interest have to be approved by the Supervisory Board and will be reported in the annual report.

III. The Supervisory Board

1.1 to 1.9: Task and working methods

The Supervisory Board prepared a set of rules a number of years ago, which is available for the shareholders’ and certificate holders’ inspection at the company offices. These include regulations for the intercourse with the Board of management. The Articles of Association of the company provide the regulations regarding the intercourse with the shareholders. The report of the Supervisory Board, which is included in this annual report shall provide the specific details regarding the Members of the Supervisory Board as required by the Code.

2.1 to 2.3: Independence

Rood Technology complies with the Code, which recommends that the Supervisory Board should not include more than one non-independent Member.

3.1 to 3.6: Expertise and composition

The profile for the supervisory board is available on Rood Technology’s website.

In view of the scale of the company, Rood Technology does not comply with the Code regarding having a financial expert on the Supervisory Board. However, financial knowledge in general is sufficient amongst the Members of the Supervisory Board.

All new Members of the Supervisory Board shall be required to attend an introduction program, with attention for general financial and legal issues, the financial reporting of the company, the specific aspects of the company’s activities and the responsibilities of a supervisor. Current Supervisory Board Members will yearly evaluate their need to training. The company shall play a facilitating role in this.

Rood Technology’s Articles of Association stipulate that a member of the Supervisory Board shall be appointed for a maximum term of four years, and be re-instated for a maximum of three times. The resignation roster has been pointed out in the report of the Supervisory Board.

4.1 to 4.3: Role of the Chairman of the Supervisory Board and the Company Secretary

Rood Technology applies these stipulations of the Code. The company appointed a Company Secretary, who assures the usage of certain procedures and assures that the company operates in accordance with legal and Articles of Association’s obligations.

5.1 to 5.13: Composition and the role of three core committees amongst the Supervisory Board

The company does not intend to extend the Supervisory Board, which currently consists of two members. If this should change in the future, the relevant committees (audit committee, remuneration committee and selection and appointment committee) shall be installed. The company shall, in that event, apply the relevant stipulations of the Code regarding this topic. As long as this is not the case, the responsibilities of the core committees shall be performed by the entire Supervisory Board.

6.1 to 6.7: Conflict of interest

A supervisor with a conflict of interest as described in the Code in III.6.1 reports this to the Chairman of the Supervisory Board and the supervisor will hold aloof from the discussion on the topic, on which the supervisor has the conflict of interest. Moreover, all transactions, concerning a conflict of interest have to be approved by the Supervisory Board and will be reported in the annual report.

If relevant, the company shall comply with the stipulation 6.4 concerning transactions between the company and natural persons or legal entities holding 10 % or more of the company’s share capital.

Regulations regarding dealing with (potentially) conflicting interests of CEO’s, Managing Directors, Board Members, including Supervisory Board members, and the external auditor shall be added by laws of the Supervisory Board.

The company shares the Committee’s opinion regarding the tasks and authority of a delegated Member of the Supervisory Board.

7.1 to 7.4: Remuneration

The remuneration of the Supervisory Board shall be approved by the General Meeting of Shareholders (see also Article 24 sub 4 of the Articles of Association). Regarding the remuneration of the Supervisory Board, shares and/or options to shares as part of the remuneration will not be granted. The by-laws of the Supervisory Board, to be published on the company website, shall be extended with the relevant Articles of the Code.

In contrast to the Code, it is determined that a Member of the Supervisory Board is not permitted to hold direct or indirect interests amounting to more than 5 % in the share capital of other listed companies or companies in the semiconductor industry. Furthermore, Supervisors need to report changes in possession of shares in other listed or semiconductor companies to the Chairman of the Supervisory Board.

Rood Technology did not provide personal loans and guarantees to Members of the Supervisory Board.

IV. The (General Meeting of) Shareholders

1.1 to 1.7: Scope of authority

The General meeting of shareholders has authority regarding the suspension or removal of managing and supervisory directors, unless there is a majority of votes, according to the Articles of Association of Rood Technology.

The company complies with the Code regarding decision-making of the General Meeting of Shareholders on the following items:

• The voting rights on finance-preferential shares;
• The public announcement and motivation of the Board’s point of view with regard to a published, serious private bid on a company division or participation in the company, with a value exceeding the limit as stated in the new Article 2:107a BW (Dutch Civil Code), first sub, point c;
• The Allocation and Dividend policy, as well as the proposal regarding paying out dividends and giving discharge to CEO’s Managing Directors and members of the Supervisory Board as separate items on the agenda of the General Meeting of Shareholders;
• The determination of a registration date for exercising voting and attendance rights;

2.1 to 2.8: Certifications of shares

No share certificates were issued, and therefore this part of the Code is not applicable to Rood Technology.

3.1 to 3.9: Providing information / logistics of the General Meeting of Shareholders

The best-practice stipulations are in accordance with the methods practiced within the company, aiming to inform shareholders and other parties on the financial market simultaneously and similarly regarding issues that may affect the share price. The company however, will, based on assessment of costs and benefits, not spend money in technology aimed at attending meetings on distance.

The company shall continue to provide the General Meeting of Shareholders with all relevant information required for properly exercising its rights and authorities, unless a substantial company interest prevents it from sharing certain information. In accordance with the Code, Rood Technology publishes presentations to analysts on its website after the event. If necessary, the company shall request to suspend trade in Rood Technology certificates during such presentations.

Rood Technology will publish or make available all information pursuant to Corporate Law and Securities Legislation.

In accordance with best-practice stipulation 3.7, the company will inform the General Meeting of Shareholders by a circular letter about all facts and circumstances relevant for approval, delegation or authorization by the General Meeting of Shareholders. The circular letter will be published on the website of the company.

Furthermore, the company shall, at first request, make the minutes of any General Meeting of Shareholders available to all shareholders latest three months after the date of the relevant meeting. Shareholders have, on their turn, three months to submit reactions to the minutes. Subsequently, the minutes shall be approved by the Chairman of the meeting and the person who prepared the minutes, in accordance with Article 31, sub 1 of Rood Technology’s Articles of Association.

The company does not have a protective construction against take-overs. Reason for this is that for a relatively small company, such as Rood Technology, it would not be unfavourable for the shareholders as well as the operational entity, to be part of a bigger framework in the semi-conductor industry.

4.1 – 4.3 Responsibility of institutional investors

Nowadays, Rood Technology does not have any institutional investors. If this may change in the future, Rood Technology will request the institutional investors to apply these best-practices stipulations of the Code. However, Rood Technology does not regard application of the best-practice stipulations as a requirement, since the company does not want to restrict any potential institutional investors.

V. The audit of financial reporting and the position of the internal audit function and the external auditor.

1.1 to 1.3: Financial reporting

Rood Technology’s Supervisory Board monitors the reporting and publication of the annual report, the annual accounts and other financial information that needs to be done according to internal procedures.

The Board of Management carries the responsibility for the internal procedures that assure the adequacy, accuracy and reliability of the external financial reporting.

2.1 to 2.3: Role, appointment, remuneration and assessment of the external auditor’s performance

The external auditor will attend the General Meeting of Shareholders in order to be available for any questioning regarding the accuracy of the annual accounts. The company’s Board of Management reports annually to the Supervisory Board regarding developments in the relationship with the external auditor. According to the company’s Articles of Association (Article 25 sub 2), the General Meeting of Shareholders is competent to appoint the external auditor.

3.1: Internal audit function

Rood Technology does not have an internal auditor.

4.1 to 4.3: Relation and communication with the external auditor and the departments of the company

The external auditor is present during meetings of the Supervisory Board where the external auditor’s report and the annual accounts are discussed. Furthermore, the external auditor receives all financial information he/she requires for performing his/her tasks. The external auditor submits an annual management letter to the Board of Management and the Supervisory Board, which is discussed during the combined Board of Management and Supervisory Board meeting.