Internal Control System

1.System to ensure that execution of business activities by directors and employees of the Company and the subsidiaries is in compliance with laws and regulations and Articles of Incorporation

(i) The Board of Directors deliberates on and resolves statutory matters for resolution, as well as managerially important matters, and supervises the execution of business operations by directors and executive officers in accordance with the rules on the Board of Directors.

(ii) The Company establishes Compliance Promotion Committee, and provides compliance training programs and other relevant activities for directors, executive officers and corporate auditors of the Company through the Compliance Promotion Committee to deepen their understanding of compliance and to foster their respect for compliance. The Company also elects independent outside directors in order to enhance the legitimacy, efficiency and propriety of the decision making of the Board of Directors of the Company.

(iii) With the establishment of Whistle Blowing System, the Company provides contacts for whistle-blowing not only inside the Company, but also outside the Company, at a law firm. With this structure, the Company works to enhance compliance by seeking to detect organizational or individual violations of laws and regulations at an early stage and to correct such violations.

(iv) The Audit Department, which is an internal audit department, conducts an audit on the status of compliance with laws and regulations, Articles of Incorporation, internal company rules, etc. The Department reports the status of audit execution to representative directors, as well as corporate auditors as appropriate, for improving the effectiveness of internal auditing further.

2.System for retention and management of information pertaining to execution of business activities by directors

(i) Particulars about the preparation of minutes of meetings of the Board of Directors, committees and other bodies are specified in the relevant rules. The preparation of documents regarding other important decision making is covered by the rules for internal circulars for managerial decisions. Regarding the arrangement, retention and disposal of documents, the Company formulates document retention and management rules in order to manage information properly.

(ii) Directors and corporate auditors may inspect those minutes and important documents at any time.

3.Rules and other systems for management of risk of loss of the Company and the subsidiaries

(i) With regard to risk in particularly important areas, the Company sets up individual committees and establishes relevant rules. Each business division and administration division conducts risk-management activities tailored to their respective needs including the subsidiaries.

(ii) If a new risk factor occurs or is expected to occur, an executive officer is promptly assigned to be in charge of handling the matter. The Board of Directors of the Company receives reports, demands reporting, as needed, from committees and the executive officer in charge or strives to identify the risk including social responsibility, and implements necessary countermeasures.

4.System to ensure that directors’ duties are performed efficiently

(i) The Company has adopted the executive officer system, which enables the clear separation of decision making on important management issues and supervisory function from executive function, thereby reducing the size of the Board of Directors. In line with this system, the Company apportions authority, defines business structures, divisions of duties and the organization of offices, and also clarifies the chain of command to develop a system that facilitates prompt and appropriate decision making.

(ii) The Management Committee consists of executive officers with special titles and executive officers with responsibility specified by the Board of Directors. Those executive officers deliberate on and resolve important matters in the execution of business operations, and they deliberate on proposals to be presented to the Board of Directors.

5.System to ensure appropriateness of business operations within the Group
(System to ensure reporting matters that relate to performance of duties by directors, etc. of subsidiaries; system to ensure that the duties of directors of subsidiaries are performed effectively)

(i) The Company shall specify subsidiary company rules to exercise necessary management based on the situations of subsidiaries.

(ii) In accordance with the subsidiary company rules, the Company shall appoint one officer as the project director in charge of such subsidiary and designate a management section of the Company to be responsible to give directions for and supervise duties carried out by such subsidiary, and each of such management sections shall report to and discuss with the project director on the business conditions of the respective subsidiary as necessary.

(iii) In accordance with the subsidiary company rules, subsidiaries shall gain approval from the Company for decision-making on managerially important matters and report on the details of account settlements and details of businesses at the important meetings of the Company, as required.

6.Matters regarding employees who are requested for allocation by corporate auditors to assist them with their duties

An administrative office has been established in the Board of Corporate Auditors, consisting of corporate auditor staffs, who are employees that assist the corporate auditors in their duties. To this end, the necessary personnel are allocated to the administrative office to serve as corporate auditor staff. The internal audit, finance & accounting, general administration and legal departments also assist the corporate auditors.

7.Matters regarding independence of employees who assist duties of corporate auditors from directors

(i) While taking into consideration ensuring the independence of the corporate auditor staff from the directors and executive officers, the corporate auditors must hold consultations with directors and executive officers when necessary.

(ii) With regard to matters related to transfer or discipline of employees assisting the corporate auditors, the prior agreement of the corporate auditors must be secured.

8.Matters to ensure effective directions to employees who assist corporate auditors’ duties

(i) The Company endeavors to strengthen the system for employees who are to assist corporate auditors’ duties, from the standpoint of ensuring effective audits, while taking into consideration the corporate size, type of business, business risks and other situations specific to the Company.

(ii) As for the assisting employees, when there is a special situation that impairs an effective audit by corporate auditors, the corporate auditors shall request the representatives, etc. or the Board of Directors to conduct the necessary acts.

9.System for reporting by directors and employees to corporate auditors; and system for reporting by directors, corporate auditors, employees of the subsidiaries, or those who received reports from those persons to corporate auditors

(i) The corporate auditors attend meetings of the Board of Directors in which directors, executive officers and others give reports on the execution of their business activities, and listen to such reports. They also attend important meetings or meetings of committees in order to monitor the processes by which important decisions are made, as well as the execution of the relevant business activities. For those meetings they do not attend, the corporate auditors receive explanations on the matters discussed in such meetings and inspect the relevant materials.

(ii) When a director or an executive officer finds a fact that may give material damage to the Company, the person shall report it immediately.

(iii) The directors, executive officers and employees, and the directors, corporate auditors and employees of the subsidiaries as well as those who received reports from those persons, etc. have to report to the corporate auditors promptly, when requested by the corporate auditors for investigation, report or explanation thereof.

10.System to ensure that the director, the employee, and the director, the corporate auditor, and the employee of the subsidiaries as well as those who received reports from those persons, etc. who reported to corporate auditors shall be prevented from being treated unfavorably because of the reporting

The director, the executive officer and the employee, and the director, the corporate auditor and the employee of the subsidiaries and those who received reports from those persons, etc. who reported to corporate auditors should not be treated unfavorably because of the reporting.

11.Other systems to ensure that audits by corporate auditors are performed effectively

(i) The corporate auditors exchange opinions, when necessary, with the representative directors, the internal audit department, and the accounting auditor by holding periodical meetings, etc.

(ii) Corporate auditors may demand the procedure for advance payment or redemption of expenses incurred in connection with performance of their duties, or other accounting of expenses or liabilities accrued in connection with the said performance of the duties.

12.Management status of system for ensuring appropriateness of business operations

(i) System for ensuring appropriateness of business operations of the Group
The Group has a “corporate philosophy,” and under it the Group has established the “Central Glass Group’s Code of Conduct” as a code of conduct to ensure the integrity of business activities for stakeholders of the Company, promoting the practice of the code on a Group-wide basis, including at the Company and subsidiaries.
The Board of Directors consists of 10 directors (including 2 outside directors), and meetings of the Board of Directors are held on a monthly basis in principle, and as appropriate when needed. At the meetings, the participants deliberate on and resolve statutory matters for resolution, as well as managerially important matters, and supervise the execution of business operations by directors and executive officers, including the president, in accordance with the rules on the Board of Directors.
The management sections of the Company give directions on and supervise duties to be executed by the relevant subsidiaries, and report to and discuss with the project director on the business conditions of the subsidiaries as necessary. The subsidiaries gain approval from the Company for decision-making on managerially important matters and report on the details of account settlements and businesses at the important meetings of the Company.
A meeting which the presidents of the subsidiaries and affiliates attend is held on an annual basis, and it is a place for exchanging opinions and sharing information on business issues of the Group.
The Audit Department, which is an internal audit department, conducts an audit on the status of compliance with laws and regulations, Articles of Incorporation, internal company rules, etc. The Department reports the status of audit execution to representative directors, as well as corporate auditors as appropriate.

(ii) System for ensuring compliance
The Company has held a meeting of the Compliance Promotion Committee two times this fiscal year to report on the activities to the Board of Directors, and it provides compliance training programs and other relevant activities through the Committee, deepening the members’ understanding of compliance and promoting compliance.
Specifically, the Company provides compliance education to its employees, eliminates any relationship with unlawful groups, prepares rules and regulations on insider trading, develops the taxation policy of the Group, etc. as needed.
In regard to the misconduct by a former employee of Central Glass Sales Co., Ltd., which is a subsidiary of the Company, discovered in February 2017, the Company formulated recurrence prevention measures such as enhancing the internal control system, which includes providing compliance education and reviewing business processes, and has been working to implement said measures.

(iii) System related to risk management
Meetings of various committees have been held as appropriate this fiscal year to conduct deliberations and studies, give guidance and carry out awareness-promotion activities about subjects that each of those committees specializes in, as well as reporting the status of activities to the Board of Directors. Each business division and administration division conducts risk management activities tailored to its respective needs including the needs of subsidiaries.
In addition, the Company has prepared “trade secrets management rules,” “standards for trade secrets management,” “document retention and management rules,” etc. to ensure proper protection and management of information assets, including trade secrets and important documents.

(iv) System related to the execution of duties of directors
The Company shall adopt the executive officer system with the aim to clearly distinguish the supervisory function of directors from the business execution function of executive officers, and receive reports on the execution of business from executive officers, etc. at regular meetings of the Board of Directors. These measures will allow the Company to streamline and enhance our supervision system of business execution.
A meeting of the Board of Directors has been held 12 times this fiscal year for deliberating on and resolving statutory matters for resolution, as well as managerially important matters, and for supervising the execution of business operations by directors and executive officers, including the president.

(v) System related to the execution of duties of corporate auditors
A meeting of the Board of Corporate Auditors has been held 14 times this fiscal year for deliberating on and resolving important matters regarding audits.
The corporate auditors of the Company attend important meetings, including meetings of the Board of Directors, and audit the performance of duties by directors and executive officers, as well as business execution status of each department, subsidiary, etc.
The corporate auditors hold periodic meetings with the representative directors to exchange opinions on important managerial and auditing problems.
They periodically exchange opinions with the Audit Department and the accounting auditor, offering cooperation.

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