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

The Company has adopted the executive officer system to clearly distinguish the supervisory function of the directors from the executive function of the executive officers. Under this system, executive officers report on the execution of business at meetings of the Board of Directors, which are held regularly, thereby preparing and improving a supervision system for the execution of business activities.

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.

Regarding the execution of managerially important operations, the Company has established criteria for submitting matters to the Board of Directors for proper decision making by the Board. The Management Committee deliberates on important issues affecting the execution of business. After deliberation at the Management Committee, some specific issues are also put forward to the Board of Directors for further deliberation. The corporate auditors of the Company attend important meetings such as meetings of the Board of Directors and audit the performance of business activities by the directors, as well as business activities of each department as appropriate. The Board of Corporate Auditors, no less than half of which consists of outside corporate auditors, performs systematic audits, forms appropriate opinions, and improves the effectiveness of auditing.

The Company provides compliance training programs and other relevant activities for directors, executive officers and corporate auditors of the Company through the Compliance Promotion Committee and the like to deepen their understanding of compliance and to foster their respect for compliance.

For employees of the Company as well as the directors and employees of the subsidiaries, the Company strives to prevent illegal activities by establishing various committees. Regarding matters of specific importance, the committees conduct studies and deliberations, and to offer guidance and awareness-promotion activities for the prevention of illegal acts, in order to strengthen compliance within the Company and the subsidiaries. In addition, the Company provides compliance training programs and other relevant activities to deepen their understanding of compliance and to foster their respect for compliance.

In its regulations on the management of insider information and insider trading, the Company establishes basic matters for compliance regarding the management, communication and public announcement of insider information obtained in connection with its business, the sale or purchase of the share certificates and such like of the Company or other listed companies, and acts of trading recommendations, thus working to prevent insider trading.

In its system for internal control over financial reporting, the Company makes sure that its financial reports are appropriate by complying with relevant laws and regulations, as well as accounting standards, in its accounting treatment. In parallel with this, the Company makes sure that its financial reporting is reliable by carrying out evaluation and analysis of the impacts that management decision making and accounting facts have on financial reporting.

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.

The Company establishes an appropriate control system to ensure the strict confidentiality of information concerning the Company and the subsidiaries.

The Company resolutely rejects any relationship with unlawful groups. It tackles unjust claims and other interventions in a well-organized manner through cooperation and collaboration among the departments concerned and in close cooperation with external specialized institutions, including the police. The Company provides absolutely no payoffs to unlawful groups. When entering into contracts, the Company confirms that the other parties to the contracts are not connected with unlawful groups. In cases where contracts are concluded in writing, the Company specifies in written contracts and the like special provisions allowing it to cancel a contract if it is discovered that the other party to such contract is connected to an unlawful group.

With regard to the protection of personal information and specific personal information (Individual Number), the Company is aware of the importance of and its responsibilities regarding the management of personal information, and it sincerely complies with the Act on the Protection of Personal Information, the Act on the Use of Numbers to Identify a Specific Individual in the Administrative Procedure, and the relevant laws and regulations and internal company rules, and it handles personal information appropriately.

The Company works to prevent harassments such as sexual harassment and power harassment and realizes a comfortable work environment.

The Company regulates bribery of national public officials inside and outside Japan, and strives to build and manage an appropriate anti-bribery system.

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

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.

The corporate auditors examine whether documents, company rules, important records and other important information are adequately arranged, retained and managed. When deemed necessary, they must request explanations from, or deliver their opinions to, directors, executive officers or employees.

In its regulations on the management of insider information and insider trading, the Company establishes basic matters for compliance regarding the management, communication and public announcement of insider information obtained in connection with its business, the sale or purchase of the share certificates and such like of the Company or other listed companies and acts of trading recommendations, thus working to prevent insider trading.

For confidential information of the Company and the subsidiaries and affiliates that constitute the Group, an appropriate management system is established to ensure that confidentiality obligations are thoroughly observed.

With regard to the protection of personal information and specific personal information (Individual Number), the Company is aware of the importance of and its responsibilities regarding the management of personal information, and it sincerely complies with the Act on the Protection of Personal Information, the Act on the Use of Numbers to Identify a Specific Individual in the Administrative Procedure, and the relevant laws and regulations and internal company rules, and it handles personal information appropriately.

The Company improves contract document management systems.

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

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

The Company addresses the increased prevalence and use of social media by taking preventative measures to avoid unforeseen losses or involvement in unexpected trouble in this regard.

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

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.

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)

The Company appoints one officer as the project director in charge of each subsidiary and assigns a certain section of the Company to each subsidiary to give directions and supervision on duties to be made by such subsidiary, and each of such management sections shall report to and discuss with the project director on the business conditions of the subsidiary as necessary. The subsidiaries report on the details of account settlements and businesses at the important meetings of the Company, as required. In addition, with regard to the items, among matters determined by representative directors of the relevant subsidiary, that are required to be reported, the contents thereof shall be reported in writing to the relevant management section of the Company.

The subsidiaries shall endeavor to develop their respective businesses with a self-driven spirit, and at the same time strive to promote the growth of the Central Glass Group as a whole in line with the general management policy and consolidated management system of the Company.

The Company has set up a department in charge of managing its subsidiaries and the like. It has also established rules for the management of subsidiaries, and exercises necessary control over subsidiaries in accordance with their circumstances.

For smooth and effective performance of interconnected businesses through constant and continuous close coordination and cooperation between the Company and subsidiaries, criteria for the scope of authority shall be established for each of the president, officers in charge and chief of management sections of the Company and for representatives of subsidiaries.

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

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.

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

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.

The corporate auditors shall request the representatives, etc. or the Board of Directors to conduct the necessary acts, if any of the following cases applies to the assisting employees: (1) when it is acknowledged that the number of assisting employees or professional skills of the assisting employees required to perform the duties for the position are not sufficient, from the viewpoint of the auditing system by the corporate auditors; (2) when it is acknowledged that the acts required for the assisting employees to perform such as attendance at meetings, gathering of information and so on pursuant to instructions by corporate auditors are unreasonably restricted; (3) when it is acknowledged that the right of corporate auditors to give instructions and orders to assisting employees as required is unreasonably restricted; (4) when the right to give agreement to a personnel shuffle (including their destinations), personnel evaluation, disciplinary action, etc. related to the assisting employees is not granted to the corporate auditors; (5) when a situation arises from the Board of Corporate Auditors that restricts or limits the effectiveness of directions to the assisting employees; or (6) it is acknowledged that there is a special situation that impairs an effective audit by corporate auditors. Such request by the corporate auditors shall be made after examination by the Board of Corporate Auditors, as required. If the representative directors, etc. or the Board of Directors fail to take appropriate measures for responding to the request without due reason, the corporate auditors shall point out such fact in the audit report or the like after having examined the matter at the meeting of the Board of Corporate Auditors.

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

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.

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

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.

The corporate auditors must endeavor to enhance the system of reporting by directors, executive officers and employees to the corporate auditors and other systems relevant to reporting to corporate auditors.

With regard to the reporting systems to the corporate auditors, if any of the following items is found, the corporate auditors will issue a request to the representative directors, etc. or the Board of Directors to take the necessary measures: (1) when there are no such measures that are to secure attendance by the corporate auditors at important meetings, etc., other than the meetings of the Board of Directors; (2) when there are no such measures that are to make available in a timely fashion to corporate auditors materials, proceedings, and other references attached to or relevant to meetings, etc. at which corporate auditors do not or did not attend, upon request by corporate auditors therefor; (3) when there are no such measures that are to make available in a timely fashion to corporate auditors material documents including but not limited to requests for managerial decisions, upon request by corporate auditors therefor; (4) when matters or events that should be reported by representative directors, etc., the internal audit department or internal control department to the corporate auditors on a regular basis have not been reported to the corporate auditors; (5) when matters, other than matters or events set forth in the preceding item (4), that should be reported by the representative directors, etc., the internal audit department or internal control department to the corporate auditors in a timely fashion have not been reported to the corporate auditors; or (6) when information that should be provided to corporate auditors through Whistle Blowing System set by the Company has not been reported to the corporate auditors in a timely fashion or (7) when it is not ensured that those who report to corporate auditors or provide information to the Whistle Blowing System will not suffer from any unfavorable treatment due to their submission of reports. Such request by the corporate auditors shall be made after examination by the Board of Corporate Auditors, as required, and if the representative directors, etc. or the Board of Directors fail to take appropriate measures without due reason, then the corporate auditors shall point out such fact in the audit report or the like after having examined the matter at the meeting of the Board of Corporate Auditors.

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; provided, however, that the person who makes such reporting should not make any false report or report for any illicit purpose.

11.Matters concerning policies related to the procedure of advance payment or redemption of expenses relevant to the performance of the duties of corporate auditors, or other accounting of expenses or liabilities accrued in connection with the said performance of the duties

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. In expending audit expenses, the corporate auditors shall be careful with their effectiveness and appropriateness.

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

The corporate auditors and the Board of Corporate Auditors exchange opinions with the representative directors and deepen mutual understanding at periodical meetings. They exchange opinions on matters such as enhancing the environment for their audits and important auditing problems in addition to issues faced by the Company and risks surrounding the Company. As part of their work to deepen mutual understanding, the corporate auditors and the Board of Corporate Auditors also make requests to the representative directors on matters they deem necessary. The corporate auditors conduct efficient auditing of the Company’s business, asset conditions, as well as other auditing duties, in close coordination with the internal audit department and other sections. They are authorized to demand for the internal audit department and other sections to conduct investigations when necessary.

The corporate auditors and the Board of Corporate Auditors maintain close coordination with the accounting auditor through regular meetings. They also receive outlines of the accounting auditor’s audit plans and explanations on the understanding of the accounting auditor regarding such matters as the condition of the internal control system, risk assessment, and high-priority auditing issues, and exchange opinions accordingly. In addition to this, where necessary, the corporate auditors attend audit visits made by the accounting auditor and observe feedback sessions on audits held by them, and request reports from the accounting auditor on the audit process as appropriate.

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

The Company put a new “corporate philosophy,” which constitutes the basic philosophy and basic policy in the statutory form in March, 2015, and to facilitate the continual realization of that corporate philosophy, the Company revised “Central Glass Group’s Code of Conduct” in June, 2015.

In regards to promoting compliance and management of risks that are recognized to be especially important, the Company strives to prevent illegal acts by establishing rules and having several committees or each business division and administration division engage in studies and discussions, and to offer guidance and awareness-promotion activities. Specifically, the Company provides compliance education to its employees in efforts to further raise their awareness of compliance. It also provides clauses in a new or renewed contract that allows cancelation of a contract without prior notice, if it is discovered that the party to such contract is connected to an unlawful group, in an effort to tackle anti-social forces.

In regards to trade secrets, the Company ensures thorough protection and control of confidential information under “trade secrets management rules,” “standards for trade secrets management,” and “document retention and management rules,” as well as “the written oath” taken when an employee enters the Company or is appointed an officer. In regards to regulations on insider trading, the Company thoroughly manages insider information by revising its “rules of regulations on the insider information and insider trading” in accordance with revisions to the Financial Instruments and Exchange Act; at the same time, it prohibits trades based on insider information and solicitation of trading based on insider information, and in case of sale or purchase of share and the like of the Company, application must be made and approval must be obtained beforehand.

The Company established “rules for using social media” and calls employees’ attention to avoid unexpected losses and trouble arising from the spread and use of social media.

With regard to personal information and specific personal information (Individual Number), the Company keeps employees informed about its “policy on the protection of personal information,” “rules on the management of external personal information,” and “rules on the management of personal information,” and builds a security control system based on the “basic policy on the proper handling of specific personal information” and “rules on the handling of specific personal information.”

The Company built a management system for contract document to make backups of contract document for retain and improve schedule management.

The Company newly established the “rules on the prevention of harassment” by combining the pre-existing “rules on the prevention of sexual harassment” and “rules on the prevention of power harassment.” By clearly describing definition and prohibited conduct concerning not only sexual harassment and power harassment, but also maternity harassment and harassment of employees who take childcare leave or family care leave, the new rules are intended to make it a responsibility of all employees to create a harassment-free workplace environment.

To regulate acts of bribery of national public officials inside and outside Japan and to build an appropriate anti-bribery system, the Company has established “anti-bribery rules” and has determined that the Company will provide no payoffs in principle and that prior approval procedures will be required in case payoffs are necessary.

The Board of Corporate Auditors is constituted of two Full-time Corporate Auditors and persons, who not only possess an independent status that ensures no conflicts of interest with general shareholders, but also possess experience and insights as experts in specialized fields that can contribute to the Company’s management, and it is institutionally designed so that the audit function is conducted effectively. Specifically, to communicate with representative directors, the corporate auditors not only hold periodic meetings to exchange opinions on issues faced by the Company, risks surrounding the Company, and status of auditing, but also have meetings with directors to confirm the status of their duty of due care of prudent manager, duty to build and manage the internal control system, and status of legal compliance, such as duty to refrain from competition, and to exchange opinions on the status of the execution of duties. The Board of Corporate Auditors holds monthly meetings with the Audit Department, which is an internal audit department, with officers in charge of the Audit Department also attending to report the status of audit execution, progress of audits of internal controls, and to exchange opinions. The Board of Corporate Auditors receives explanations and reports from the accounting auditor on annual audit plans, quarterly reviews, year-end audit, and audits of internal controls over financial reporting as necessary, and exchanges opinions and offers cooperation. In addition, the Board of Corporate Auditors not only determines the policy for the dismissal or refusal of reappointment of the accounting auditor, but also confirms and evaluates various items in regards to appointment and reappointment and agreements on the remuneration of accounting auditor, and judges whether it maintains appropriate standards in accordance with the Company’s audit.

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