Internal Control System Basic Policy

The Company shall establish a corporate philosophy and action guidelines for the Company and its group companies (hereinafter referred to as the “Company Group”) as a foundation for proper business execution, and shall develop an internal control system that is its own responsibility.
The directors, executive officers and other employees of the Group shall work to realize this policy in order to develop a system to ensure the appropriateness of business operations.

System to ensure that the execution of duties by directors and employees complies with laws and regulations and the Articles of Incorporation

In order to ensure that the execution of duties by directors, executive officers and other employees is in compliance with laws, regulations and the Articles of Incorporation, the Company shall address the following matters

1. As a foundation for ensuring the importance of compliance throughout the company, the Company shall have its directors, executive officers, and other employees practice the Code of Conduct, which includes matters related to compliance.

2. The Company shall observe the ethics set forth in the corporate philosophy and code of conduct common to the Group, and shall have its directors, executive officers, and other employees conduct compliance training to ensure thorough implementation of such ethics.

3. In order to detect and correct violations of laws, regulations, the Articles of Incorporation, etc., at an early stage, the internal rules stipulate that information on such violations must be provided to the Company when such violations are detected. In addition, as a means of providing information directly to the Company, the Company shall establish and operate a “Hotline,” an internal reporting system based on the Whistleblower Protection Regulations.

4. As a member of society, we shall not have any relationship with antisocial forces or groups that threaten the order and safety of civil society.

5. The department in charge of legal matters shall verify important management matters in advance in order to prevent any violation of laws, regulations, the Articles of Incorporation, etc.

6. The Internal Audit Department shall conduct audits and report on the status of the development and operation of the internal control system based on the basic policy established by the Board of Directors.

System for the storage and management of information related to the execution of duties by directors

The Company shall appoint a director who shall be responsible for the storage and management of information related to the execution of duties by directors. Under the direction of that person in charge, the Company shall manage information in accordance with the Document Management Rules and other internal rules.
Directors shall record their decision-making and related processes in the documents specified below.

1. Minutes of the General Meeting of Shareholders and related materials

2. Minutes of Board of Directors meetings and related documents

3. Minutes of other important meetings and related documents

4. Documents and related materials approved by directors

5. Other documents related to the execution of duties by directors

Regulations and other systems for managing risk of loss

The Company shall establish a basic policy regarding risk management common to the Company group and appoint a director responsible for risk management. Under the direction of the director in charge, the Company shall conduct risk assessments and develop a risk management system, including preventive measures and business continuity plans, for risks that are important to management.

System to ensure the efficient execution of duties by directors

The Company shall address the following matters to ensure the efficient execution of duties by the Directors.

1. The Company shall formulate mid-term and annual management plans, monitor their implementation on a regular basis, and report the results of such monitoring to the Board of Directors.

2. (2) In order to facilitate flexible business execution by directors and executive officers, a system of authority and decision-making rules shall be established.

3. Clarify the matters under the jurisdiction of the corporate organization and the authority and responsible persons of each organization, to establish an internal check-and-balance function and to realize the strengthening of corporate governance.

4. Use IT to streamline and expedite operations and ensure the reliability of financial reporting.

5. To ensure that the execution of duties complies with laws and regulations and the Articles of Incorporation and is performed effectively, internal systems such as a performance management system and a personnel management system shall be established.

6. Meetings attended by directors and executive officers shall be held on a regular basis for the purpose of multifaceted discussion of important management matters.

System to ensure the appropriateness of operations of the corporate group consisting of the said stock company and its parent company and subsidiaries

The Company shall exercise shareholder rights appropriately from the perspective of maximizing the corporate value of the corporate group.
In addition, the Company shall establish rules for the management of the corporate group, including the establishment of the following systems, to ensure the proper management of the corporate group.

(1) System for reporting matters relating to the performance of duties by directors, etc. of subsidiaries to the relevant stock company

In accordance with internal rules, subsidiaries shall report regularly to the Company on the execution of their business operations and hold prior discussions with the Company when making decisions on important management matters.

(2) Regulations and other systems for managing risk of loss of subsidiaries

Subsidiaries shall comply with the basic policy on risk management common to the Group and appoint a director responsible for risk management. Under the direction of the director in charge, the subsidiary shall take necessary measures to deal with risks of managerial importance.

(3) Systems to Ensure Efficient Execution of Duties by Directors, etc. of Subsidiaries

Subsidiaries shall address the following matters to ensure the efficient execution of duties by directors.

1. The Company shall formulate mid-term and annual management plans, monitor their implementation on a regular basis, and report the results of such monitoring to the Board of Directors.

2. (2) In order to facilitate flexible business execution by directors and executive officers, a system of authority and decision-making rules shall be established.

3. Clarify the matters under the jurisdiction of the corporate organization and the authority and responsible persons of each organization, to establish an internal check-and-balance function and to realize the strengthening of corporate governance.

4. Use IT to streamline and expedite operations and ensure the reliability of financial reporting.

5. To ensure that the execution of duties complies with laws and regulations and the Articles of Incorporation and is performed effectively, internal systems such as a performance management system and a personnel management system shall be established.

6. Meetings attended by directors and executive officers shall be held on a regular basis for the purpose of multifaceted discussion of important management matters.

(4) System to ensure that the execution of duties by directors and employees of subsidiaries complies with laws and regulations and the Articles of Incorporation

In order to ensure that the execution of duties by directors, executive officers and other employees complies with laws, regulations and the Articles of Incorporation, subsidiaries shall address the following matters

1. As a basis for ensuring the importance of compliance throughout the Company, the Company shall have its directors, executive officers, and other employees put into practice the common code of conduct for the Group, which includes matters related to compliance.

2. To ensure that directors, executive officers, and other employees receive compliance training in order to uphold the ethics set forth in our Group’s common corporate philosophy and code of conduct.

3. In order to detect and correct violations of laws, regulations, the Articles of Incorporation, etc., at an early stage, the internal rules stipulate that information shall be provided to the parent company when such violations are detected. In addition, as a means of providing information directly to the parent company, the Company shall establish and operate a “hotline” whistleblower system based on the Whistleblower Protection Regulations.

4. As a member of society, we shall not have any relationship with antisocial forces or groups that threaten the order and safety of civil society.

5. The department in charge of legal matters shall verify important management matters in advance in order to prevent any violation of laws, regulations, the Articles of Incorporation, etc.

Matters concerning employees who are requested by corporate auditors to assist them in the performance of their duties

The Internal Audit Department shall be a department that assists the statutory auditor in his/her duties, and employees belonging to the department shall be assigned to assist the statutory auditor in his/her duties. In addition, the corporate auditors may designate employees belonging to other departments to assist them as necessary.
The Internal Audit Department and the designated assistant employees shall work under the direction and orders of the Corporate Auditors in assisting them in their duties.

Matters concerning the independence of the employee in the preceding item from directors

The Board of Directors shall obtain the consent of the Board of Corporate Auditors with respect to appointments, transfers, and other personnel matters concerning assistant employees.

Matters Concerning Ensuring the Effectiveness of Instructions of Corporate Auditors to Employees under the preceding two items

With respect to the direction and orders of employees assisting the duties of Corporate Auditors, the Company shall stipulate in its internal rules and regulations that such employees, including Directors, shall not be subject to the direction and orders of their superiors or other persons.

In addition to the following reports, Corporate Auditors shall attend meetings of the Board of Directors, the Management Committee, the Corporate Planning Committee, and other important management meetings to receive reports on statutory matters and matters that have a significant impact on the entire Company.

(1) System for reporting by directors and employees to the corporate auditors of the company with corporate auditors

Directors, executive officers and other employees shall promptly report the following matters to the Corporate Auditors

• Matters in violation of laws and regulations and the Articles of Incorporation

• Reporting through the internal reporting system

• Matters that may cause significant damage to the Company

In addition, directors, executive officers and other employees in charge of information management, risk management, compliance, internal audits and other matters related to internal control shall report regularly to the corporate auditors on the details of their execution of duties.

(2) System for reporting to the auditors of the company with corporate auditors by directors and employees of subsidiaries or persons who receive reports from them

Directors, executive officers, and other employees of subsidiaries, or persons who receive reports from them, shall promptly report the following matters to the Company’s auditors.

1. Matters in violation of laws and regulations and the Articles of Incorporation

2. Reporting through the internal reporting system

3. Matters that may cause significant damage to the Company

System to ensure that a person who makes a report under the preceding item is not subject to any disadvantageous treatment on the basis of such report

Under the Whistleblower Protection Regulations, the Company shall ensure that whistleblowers shall not be dismissed or otherwise treated disadvantageously in any way because of their reporting, and that the Company may impose disciplinary measures on those who treat whistleblowers disadvantageously.

Matters concerning procedures for prepayment or reimbursement of expenses incurred in the execution of duties by Corporate Auditors and other policies concerning the treatment of expenses or liabilities incurred in the execution of such duties

Corporate auditors may consult with attorneys, accounting auditors, etc. when necessary in the performance of their duties, and the Company shall bear the costs of such consultation.

Other systems to ensure that audits by corporate auditors are conducted effectively

Corporate auditors shall regularly exchange opinions with the President and Representative Director and the accounting auditor.

Revised December 1, 2015
TDC SOFT Inc.
President and Representative Director Hiroyoshi Kobayashi