REPORT ON THE PRINCIPLES OF GOOD CORPORATE GOVERNANCE PRACTICE FOR 2006


Starting from 1 January 2006 AS Starman (“Starman”) subjected its activities to
the Estonian Principles of Good Corporate Governance Practice (“PGCGP”). This
report (“Report”) describes management of Starman in 2006 as well as compliance
thereof with the PGCGP. To the best of its knowledge, in 2006 Starman followed
the PGCGP, unless otherwise stated in this Report. 

STARMAN

Starman is a public limited company registered in the Republic of Estonia and
has its registered office located at 28 Akadeemia tee, Tallinn, registry code
10069659. The share capital of Starman in 2006 amounted to 130,535,700 EEK,
consisting of one class of registered shares with a nominal value of 10 EEK.
The Starman shares have been listed in the main list (the Baltic Main List) of
the Tallinn Stock Exchange under an abbreviated name of SMT1T. The share
register of Starman is maintained by the registrar of the Estonian Central
Securities Depositary. Starman has approximately 510 shareholders. 

GENERAL MEETING

The General Meeting of shareholders is the highest directing body of Starman.
General Meetings are either ordinary or extraordinary. The competence of the
General Meeting has been regulated by the Estonian Commercial Code and by the
Articles of Association of Starman (the Articles are available on the website
of Starman at www.starman.ee). The General Meeting is among other matters
competent to amend the Articles of Association of Starman, approve of the
Annual Report, decide on the distribution of profits and elect members of the
Supervisory Board. Each Starman share grants one vote to its holder at the
General Meeting and shareholders are entitled to participate in and vote at the
General Meeting either personally or through a representative. The General
Meeting is generally competent to adopt resolutions if over one-half of the
votes represented by shares are present. A resolution of the General Meeting is
considered adopted if more than one-half of the votes represented at the
General Meeting are in favour, with the exception of certain cases (e.g.
amendment of the Articles of Association, increase and reduction of share
capital, issue of convertible bonds and merger, division and reorganisation of
Starman), where the decision is considered adopted if at least two-thirds of
the votes represented at the General Meeting are in favour. 

In 2006, the annual General Meeting of shareholders took place on 25 May. The
General Meeting approved of the Annual Report and of the proposal for
distribution of profits for the financial year 2005, elected an auditor for the
financial year 2006 and approved of the procedure for remuneration of the
Supervisory Board members. No extraordinary General Meeting of shareholders was
called in 2006. 

The Management Board of Starman publishes a notice calling an ordinary General
Meeting at least three weeks in advance and a notice calling an extraordinary
General Meeting at least one week in advance in at least one national daily
newspaper. The notice calling the ordinary General Meeting in 2006 was
published in the data system of the Tallinn Stock Exchange on 13 April 20006
and in “Postimees” daily on 28 April 2006. The notice calling the General
Meeting was also published on the website of Starman on the day of publication
of the notice in the national daily newspaper. The agenda set out in the notice
did not give rise to any questions or proposals. 

The ordinary General Meeting of 2006 was not attended by Nigel Philip Williams,
Chairman of the Supervisory Board of Starman, for the reasons not attributable
to Starman (PGCGP clause 1.3.2). 

Hence, the 2006 General Meeting of Starman was called and held in accordance
with the PGCGP, except for PGCGP clause 1.3.2, which was complied with
partially. 

SUPERVISORY BOARD

The Supervisory Board plans the business of Starman, elects members of the
Management Board and exercises supervision over the activities of the
Management Board. According to the Articles of Association of Starman, the
consent of the Supervisory Board is required for concluding transactions and
conducting business in all spheres and matters, which are beyond the scope of
everyday economic activities of Starman (e.g. major changes in Starman's
business, conclusion of agreements with the shareholders and their affiliates,
etc.). 

According to the Articles of Association, the Supervisory Board of Starman has
five to eight members, who are elected by the General Meeting for a term of
three years. In 2006, the members of the Supervisory Board of Starman were:
Nigel Philip Williams, Roman Babka, Jaak Ennuste, Indrek Kuivallik, Hans
Larsson, Rain Lõhmus and Sven Ilmar Oksaar. The members of the Supervisory
Board elect a chairman from among themselves. In 2006, the functions of the
chairman of the Supervisory Board were performed by Nigel Philip Williams. 

The members of the Supervisory Board have been remunerated in accordance with
the resolution of the 2006 ordinary General Meeting of shareholders. In 2006,
the remuneration paid to the chairman of the Supervisory Board amounted to
29,250 EEK and the remuneration paid to the other members of the Supervisory
Board amounted to 22,500 EEK per meeting of the Supervisory Board. No
remuneration for a meeting was paid to non-attending members of the Supervisory
Board. The members of the Supervisory Board were not paid any other fees or
bonuses. 

In 2006, the Supervisory Board of Starman held 5 meetings. The Supervisory
Board approved of the Annual Report for 2005, of the budget for 2007 and of the
forecasts for 2007-2009. At its meetings, the Supervisory Board adopted
resolutions on the corporate development strategies, new business perspectives,
remuneration of the management as well as on a number of other issues. The
Management Board submitted to the Supervisory Board regular overviews of the
performance and financial position of Starman Group. The Audit Committee, which
was formed of the members of the Supervisory Board in 2005 and was in 2006
chaired by Sven Okssaar, with Hans Larsson and Roman Babka acting as the
members, advised the Supervisory Board on the matters concerning supervision. 

According to the law and the Articles of Association authorisation of
conclusion of transactions between a member of the Supervisory Board and
Starman is the competence of the General Meeting. Furthermore, a member of the
Supervisory Board may not compete with Starman without prior consent of the
General Meeting of shareholders. As of the date of this Report, the members of
the Supervisory Board have not notified the Management Board of Starman of any
conflict of interest in 2006. 

Hence, in 2006 the Supervisory Board acted in accordance with the PGCGP.

MANAGEMENT BOARD

The Management Board is a directing body of Starman, which is in charge of the
daily management and representation of Starman. According to the Articles of
Association of Starman the Management Board has three to six members who are
elected by the Supervisory Board for a term of three years. Starman may be
represented in all legal acts either by the chairman of the Management Board
alone or by two members of the Management Board jointly. The chairman of the
Management Board is appointed by the Supervisory Board. 

In order to achieve the goals of Starman, the Management Board analyses the
risks related to the business and financial objectives of Starman. The
Management Board of Starman has adopted a resolution establishing the Rules of
Handling Insider Information of Starman Group along with other internal rules
and procedures. The Management Board is bound by the lawful orders of the
Supervisory Board. In 2006, the Management and Supervisory Board of Starman
exchanged information with the Management Board on an on-going basis, in
particular, the Management Board gave the Supervisory Board regular overviews
of the performance and financial position of Starman Group. 

In 2006, the members of the Management Board of Starman were the chairman
Peeter Kern,CEO, Rändy Hütsi, CFO, and Henri Treude, Marketing Director. 

The amounts and terms of remuneration and severance benefits of the Management
Board members have been defined in the service contracts signed with the
members. The incentives plan for the members of the Management Board has been
established by a resolution of the Supervisory Board. In 2006, Starman did not
comply with clause 2.2.7 of the PGCGP, which prescribes publication of the
benefits and incentives plans provided to each member of the Management Board
on the website and in this Report, as well as introduction of the principles of
remuneration of the Management Board members at the General Meeting. At the
moment, publication of such information does not serve the interests of Starman
Group. 

However, Starman has published the total remuneration paid to the members of
the Supervisory and Management Board in the given period in its Annual Report
for 2006. In 2006, the total remuneration and bonuses of the members of the
Management Board amounted to 4,385 thousand EEK and the total remuneration of
the members of the Supervisory Board to 335 thousand EEK. According to the
incentives plan established for the management by the Supervisory Board of
Starman, options have been issued to the members of the Management Board, which
upon fulfilment of certain conditions entitle the members of the Management
Board to buy the total of 600 000 shares in Starman. In the event where a
member of the Management Board is dismissed or is not re-elected, the member is
entitled to a severance benefit, provided that he or she has not violated any
provision of the service contract concluded with the respective member of the
Management Board. The said benefits under the concluded contracts total 984
thousand EEK. 

The law and the Articles of Association prescribe that all transactions to be
concluded between a member of the Management Board and Starman shall be
approved by the Supervisory Board and that no member of the Management Board
may provide competition to Starman without prior consent of the Supervisory
Board. As of the date of this Report, the members of the Management Board have
not notified the Supervisory Board of Starman of any conflict of interest in
2006. 

Hence, in 2006 the Management Board of Starman acted in compliance with the
PGCGP, except with clause 2.2.7 of the PGCGP. 

DISCLOSURE OF INFORMATION

The information specified in the PGCGP, including the Articles of Association,
financial statements, information about the Supervisory and Management Board as
well as other data have been published on Starman's website www.starman.ee. 

The website does not indicate information on the times and venues of the
meetings with analysts, presentations for analysts and investors or press
conferences (PGCGP clause 5.6).  According to the Rules of the Tallinn Stock
Exchange Starman shall disclose all relevant and price-sensitive information
first via the Exchange system, therefore information stated at meetings and
press conferences was limited only  to the information already disclosed. All
information disclosed is also available on Starman's website.  The website
provides the contact numbers for the shareholders to request additional
information. At the present moment Starman does not find disclosure of the
meetings' schedule on the website important. 

Starman has not disclosed separately the general strategies approved by the
Supervisory Board (PGCGP clause 5.3). However, the website contains all interim
and annual reports setting forth the strategies of Starman. 
 
Hence, the disclosure of information by Starman in 2006 complied with the
PGCGP, except with clauses 5.3 and 5.6, which were observed partly. 

FINANCIAL REPORTING AND AUDITING 

Starman prepares financial statements in accordance with the international
reporting standards applicable in the European Union. Starman discloses the
financial reports in accordance with the applicable laws and the Rules of the
Tallinn Stock Exchange. 

According to the Articles of Association of Starman the auditor is elected by
the General Meeting.  In 2006, the auditor of Starman was Ernst & Young Baltic
AS. Ernst & Young Baltic AS audited the consolidated financial statements of
Starman and its subsidiaries and presented the report of an independent auditor
to the General Meeting of Shareholders. Payments to the auditor are effected in
accordance with the agreement concluded between Starman and the auditor. The
agreement concluded with the auditor complies with the requirements of PGCGP. 

Although the audit in 2006 was conducted by the same auditor as in 2005, the
Supervisory Board of Starman did not render an evaluation of the auditor's
activity in the notice calling the General Meeting (PGCGP clause 6.2.1). The
Supervisory Board did not consider it necessary to render a separate opinion on
the auditor's activities upon re-appointment of an internationally recognised
auditor. 

Hence, as regards financial reporting and auditing in 2006, Starman complied
with the PGCGP, except with clause 6.2.1, which was partly complied with. 

In Tallinn, on this 31st day of October of the year 2007.

Peeter Kern
Chairman of Management Board