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Basic philosophy on the internal control system

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Basic philosophy on the internal control system

At the board meeting held on June, 24, 2016, we approved the resolution related to the required establishment of a system designed to ensure that the execution of duties by directors conforms to the laws and the articles of incorporation, and the appropriateness of duties executed by the corporate group (hereunder referred to as "Our Company's Group"), consisting of our company and subsidiaries, based on the Companies Act Article 362 and the Companies Act Enforcement Regulations Article 100, as follows.

1. The system of making the execution of duties by directors conforms
    to the laws and the articles of incorporation
  1. We adopted the "Compliance Declaration" and the "Behavioral Charter" as the basic policy on compliance and established the "Compliance Regulations" etc. as the codes that must be complied with in the performance of operations and their execution is to be led by directors.
  2. The board of directors establishes "Board of Directors Regulations" and supervises the execution of director duties and the Audit and supervisory comittee member establish "Audit and supervisory comittee Regulations" by which the execution of duties by the directors is audited.
  3. A system has been established to ensure thorough director compliance with the laws and the articles of incorporation implemented through the creation of a system for the promotion of compliance, internal notification systems, internal audits, etc.
2. The system concerning the preservation and management of information related to
     the execution of duties by directors
  1. In accordance with the laws and in-house office regulations, minutes for general meetings of stockholders, board of directors meetings, and Audit and supervisory comittee meetings, and other important documents should be preserved and managed and those that need to be submitted for inspection under law should be disclosed.
  2. With regard to confidential business information, "Corporate Confidentiality Regulations" are established with a chief administrator appointed, and leak of, or internal or external access to such information shall be prevented completely.
  3. "Personal Information Control Regulations" should be established to protect personal information in the same manner.
3. The regulations and other systems concerning the management of risk of loss
  1. An "Internal Control Promotion Headquarters" is to be established under the board of directors, which sets up a system to always forecast and to respond appropriately and swiftly to such risk of loss. The senior general manager of the Corporate Headquarters should be appointed as general manager of the Promotion Headquarters.
  2. The "Risk Management Basic Regulations" should be established to manage the risk of loss. In addition, a Standard Operating Procedures (SOP) manual should be created with consideration for every individual risk that might lead to the occurrence of data or information loss, as well as best practice to deal appropriately with such loss that may have occurred, and to facilitate immediate recovery.
  3. The board of directors supervises, monitors and inspects the development and operation of the internal control system, and that each director handles risk of loss appropriately.
4. The system of securing the efficient execution of duties by directors
  1. The management policy and other important issues should be discussed at the "Management Strategy Conference" with the participation of full-time directors and Audit and supervisory comittee chairman, and the tentative decisions in the conference should be used as a draft that is ultimately decided by the board of directors.
  2. In our company, director responsibility for his or her execution of duties should be clarified by the "Regulations for Officersf Execution of Duties" "Regulations on Official Authority" and "Regulations on the segregation of duties". Each director shall honorably, honestly and faithfully perform his or her respective functions.
  3. In our company, the full-time corporate directors attend "board of directors" "management strategy conference" and "management council" meetings, while part-time directors attend the "board of directors" and "expanded management council" meetings. Directors should mutually monitor the execution of their duties, and Audit and supervisory comittee member should audit duties performed by the directors.
5. The system of ensuring that the execution of duties by executive officers and employees conforms
     to the laws and the articles of incorporation
  1. A system has been established to replace "directors" in the stipulation of above-mentioned 1, "the system that ensures the execution of duties by directors conforms to the laws and the articles of incorporation" with "executive officers and employees".
  2. The following operational regulations are established.
    ① Internal Audit Regulations
    ② Accounting Regulations
    ③ Budget Management Regulations
    ④ Cost Accounting Regulations
    ⑤ Credit Control Regulations
    ⑥ Internal Memo Regulations
    ⑦ Regulation Management Regulations
    ⑧ Securities Management Regulations
    ⑨ Document Management Regulations
    ⑩ Seal Management Regulations
    ⑪ Business-use Vehicle Management Regulations
    ⑫ Invention, Design, etc. Handling Regulations
    ⑬ Safe and Secure Export Management Regulations
    ⑭ Basic Quality Management Regulations
    ⑮ Basic Environment Management Regulations
  3. "Office Regulations" etc. are established, with which executive officers and employees conform to the discipline stipulated in the office regulations.
6. The system for securing business optimization in the corporate group consisting of our company
    and subsidiaries
  1. "Related Company Management Regulations" "Managerial Position System Regulations" and "Basic Regulations related to Dealings between Subsidiaries, etc" should be established to supervise directors, auditors and employees of subsidiaries, and these regulations establish a system that allows NIPPO LTD. to give instructions and commands directly to the directors of subsidiaries.
  2. A system should be established for Audit and supervisory comittee member and the Internal Audit Division of NIPPO LTD. to regularly perform audits of subsidiaries.
7. Employees who assist the Audit and supervisory comittee member in their duties
  1. Although employees who assist the Audit and supervisory comittee member will not be appointed for the time being, such employees will be appointed when the Audit and supervisory comittee member require an assistant employee. The said employeesf independence from the directors must be guaranteed.
8. The system for directors, executive officers and employees to report to the Audit and supervisory comittee member
    and other systems for reporting to Audit and supervisory comittee member
  1. All Audit and supervisory comittee member attend the board of directors meetings and Audit and supervisory comittee chairman attend the company's important meetings including, the management strategy conference and the management council. Directors should report to Audit and supervisory comittee on the status of execution of duties in these important meetings.
  2. All information obtained through the internal notification system should be immediately reported to the Audit and supervisory comittee member.
9. Other systems for securing effective audits by official Audit and supervisory comittee member
  1. The Internal Audit Division reports the eaudit plan and resultsf to the Audit and supervisory comittee member to contribute to efficient results by the Audit and supervisory comittee member.
  2. To secure the effectiveness of audits by the responsible parties, "Audit and supervisory comittee Regulations" are established to ensure that reports are submitted to NIPPO LTD.'s Audit and supervisory comittee member by directors, executive officers and employees, as well as directors, auditors and employees of subsidiaries.
  3. Directors and employees of subsidiaries should swiftly submit appropriate reports when auditors of the relevant subsidiaries request reports related to the execution of operations.
  4. Without limitation to internal reports, directors, auditors and employees of Our Companyfs Group submitting reports to Audit and supervisory comittee member shall not be placed at a disadvantage for the reason of the said report.
  5. When Audit and supervisory comittee member request advance payment for the execution of their duties, we shall pay it without delay. However, the necessity and required amount of payment may be checked by the Corporate Planning Division at a later date.