Duties and Liabilities of Directors and Officers

Set forth below are (A) a summary of the "duty of care" by which a director's actions will be measured, (B) a brief list of other principal sources of director liability and (C) a list of fundamental steps a director should take to avoid liability. These principles apply equally to committee chairs and members.

A. Summary of the Duty of Care The director's duty of care can be summarized by three propositions:

1. Role of the Director The board of directors is responsible for the direction of policy and important decisions in the management of corporate affairs. The board may delegate implementation of these policies and decisions to others, including committees who are responsible for carrying out the delegated duty and keeping the board informed in this regard.

2. Standard of Care A member of the board of directors or a committee must act in good faith in the manner he or she believes to be in the best interests of the corporation, and with the care, including reasonable inquiry, that an ordinary prudent person in a like position would use under similar circumstances.

3. Reliance on Others A director or committee member is, in general, entitled to rely on information supplied by officers, employees, experts, and committees of the board with respect to matters the director or committee member reasonably believes to be within the competence of such persons.

B. Other Duties and Sources of Liabilities Other duties and matters affect the potential liability of a director or committee member.

1. Duty of Loyalty A director or committee member owes a duty of loyalty to the corporation, including the obligation (i) not to usurp a corporate opportunity; (ii) not to compete with the corporation or act on behalf of competitors; (iii) not to obtain secret or unfair profits through a transaction with the corporation, nor to derive profits from inside information; and (iv) not to disclose confidential information of the corporation.

2. Responsibilities Under Other Law Directors have responsibilities and potential liabilities under federal and state anti-trust laws, laws regulating employee and consumer safety, equal employment opportunity and other areas.

3. Additional Duties as Officers Directors or a committee chair who also are officers or employees, of course, must carry out the specific duties of the office or position involved.

4. Liability for Illegal Dividends, Loans and Distributions of Assets Directors who approve or abstain from the vote approving an illegal dividend, distribution, loan or guaranty of a loan to a director, officer or member of the corporation may have liability to creditors or members of the corporation.

C. Steps to Take and Problems to Avoid Liability as a director or officer can be avoided and minimized by taking certain steps and avoiding problem areas. In all cases, good common sense and judgment must be exercised.

1. Steps to Take

a. Obtain a copy of the bylaws and follow its rules.

b. Obtain a copy of any policy of the board empowering action and stay within the authority delegated.

c. With respect to meetings of directors or a committee: (i) make sure proper notice was given at the time required by law and the bylaws; (ii) make sure a quorum is present; (iii) make sure written minutes are prepared and filed which describe the actions taken and records the votes accurately.

d. Make sure statutorily required officer positions are filled (president, chief financial officer and secretary).

e. Make sure the annual report of the corporation to members is prepared and disseminated as required.

f. Make sure all reports, certificates, financial statements, public notices or documents, and books and records of the corporation are accurate and complete.

g. Allow members to inspect books and records to the extent authorized by law.

h. Define in writing, the authority of officers and employees to bind the corporation as to important matters, such as contracts, writing checks, filing documents with government agencies and similar items.

i. Delegate authority to persons you believe competent in the area, and in this respect:

(i) define specific tasks;

(ii) set time tables;

(iii) require written reports.

j. Disclose your personal interests with respect to any corporate transaction or matter.

k. Do not permit any loan or guaranty of a loan to a director or officer except pursuant to a formal employee benefit plan adopted by the board of directors.

l. Make sure the corporation is withholding and remitting income and other employment taxes and otherwise is complying with the tax laws.

m. Make sure any political activity of any kind is cleared by the board of directors.

n. Make sure the corporation complies with its obligations under law and contract.

o. Do not misuse insider information.

p. Do not permit the corporation to libel or slander other persons.

q. Do not permit the corporation to pay bribes or make other illegal payments.

r. Make sure corporate assets are not wasted.

s. Investigate thoroughly any transaction between the corporation and a director, officer or affiliated entity.