Basic Corporate Governance Policy

1. Basic Views on Corporate Governance

<Basic Views>

Tokyo Seimitsu’s (the “Company”) corporate brand, ACCRETECH(*), represents its corporate motto, “win-win relationships create the world’s No. 1 products.” Under this brand, the Company strives to achieve sustainable growth and enhance corporate value amid the current rapid technological innovation and economic globalization. Recognizing the need of corporate governance to ensure fair and transparent management activities as a reliable corporate citizen in the international community, the Company has established the following five basic policies:

(*)ACCRETECH is a term coined by the Company, combining ACCRETE, meaning “to grow together,” and technology.

<Basic Policies>

  1. The Board of Directors strives to properly perform its roles and responsibilities to make transparent, fair, quick and committed decisions.
  2. The Company respects the rights of shareholders and ensures the equality of shareholders.
  3. The Company strives to have constructive dialogues with shareholders on investment policy that considers mid- to long-term returns for shareholders.
  4. The Company strives to maintain appropriate collaboration with stakeholders other than shareholders, such as customers, suppliers, employees, creditors, and communities.
  5. The Company strives to ensure proper information disclosure and transparency.

2. Directors and Boards

(1) Roles and Responsibilities of the Board of Directors

In order to execute the mandate of shareholders, the Board of Directors discusses and determines material matters required by laws, regulations and the articles of incorporation and those pertaining to management, including business, development, investment plans, establishment of and investment in subsidiaries, and oversees and monitors the performance of duties by Directors. For any matters which are not on the board agenda, to accelerate decision making, substantial authority shall be delegated to Directors responsible for respective Companies within the scope of duties and authority determined by internal regulations. The Executive Management Meeting discusses and shares information which is relevant across the Companies, and establishes cross-company committees such as the Risk Management, and Compliance Committees to examine and monitor important issues in multiple angles and make proper decision.

(2) Constitution of the Board of Directors

  1. The Board of Directors is constituted by an appropriate number of Directors, but not more than 15, so that the Board can exercise its functions effectively and efficiently.
  2. To ensure the effectiveness of the Board, the appointment of Directors shall consider the balance of members in terms of functions and responsible departments, as well as diversity, knowledge, experience, and capacities so that the Board can make quick but proper decisions, control risk, and oversee the performance of duties.
  3. The Board shall have at least two external Directors to reflect the opinions of external experts in business management or academic research in the management of the Company. The majority of the Outside Directors shall be independent Outside Directors who satisfy the separately established independence criteria.
  4. As set forth in the articles of corporation, the term of Directors expires at the completion of the annual meeting of shareholders for the most recent fiscal year that ends within one year from appointment. Directors may be reappointed.

(3) Advisory Council

The Company has established the Advisory Council to assist the Chairman of the Board and the President & CEO. The Advisory Council consists of Auditors (at least half of them are Outside Auditors) and Outside Directors. This majority constitution of independent Outside Directors ensures that important matters such as the nomination of candidates for Directors and compensation of directors are discussed from an independent perspective.

(4)Nomination Policy of Candidates for Directors

  1. In principle, candidates for Directors shall be first nominated by the President & CEO and brought to the Advisory Council consisting of Auditors and Outside Directors. Based on the opinions of the Advisory Council, they shall be brought to the Board of Directors meeting, which shall discuss and nominate candidates for Directors, considering the mandate of shareholders and capacities and qualifications of the candidates.
  2. Candidates for Directors shall have high dignity and moral standards, deep insights, and abundant experience in business management or the business of the Company, regardless of individual attributes such as gender and nationality.
  3. Candidates for Outside Directors shall be able to oversee the management from an independent viewpoint, and provide guidance on the activities of the Company based on their broad experience and deep insights.
  4. To ensure continuity and stability of the Board of Directors, consideration shall be made to avoid many new Directors serving on the board at one time.
  5. The names and background of the candidates for Directors and reasons for their nomination shall be written in the shareholder meeting reference material.

(5) Improvement of the Effectiveness of the Board Meetings

The Board of Directors shall strive to implement the following measures to ensure the effectiveness of the board meetings:

  1. Information provision
    The agenda for the meeting and related information and materials shall be distributed, and when necessary, briefing shall be provided to Outside Directors and Auditors in advance so that they can effectively contribute to discussions at the meeting.
    Prior to the beginning of a fiscal year, the annual schedule of the board meetings shall be determined and notified to the Directors and Auditors.
  2. Training for Directors and Auditors
    Newly appointed internal Directors and Auditors shall be given external training opportunities to learn and understand the roles and responsibilities of managers including legal aspects.
    Outside Directors and Auditors, when assuming the posts, shall receive briefings on the business and functions of the Company so that they can play their expected roles. When necessary, they shall be given opportunities to visit the plants, offices, and subsidiaries of the Company.
    Sharing mutually appointed directors refers to receiving an Outside Director from a company for which a person from the Accretech serves as an Outside Director.Incumbent Directors and Auditors shall receive information on external training programs and be able to attend programs they wish to do so.
    The expenses of any training programs described above shall be borne by the Company.
  3. Information exchange among Outside Directors
    Any Outside Director or Auditor, when necessary, may convene a meeting with other Outside Directors and/or Auditors. In this case, related departments shall provide necessary support to convene the meeting.
  4. Concurrent directorship at other organizations
    When concurrently assuming directorship at any other listed company, based on the fiduciary responsibility, a Director or Auditor shall limit its responsibility for that company to a reasonable scope to secure necessary time to perform duties as a Director or Auditor of the Company. Significant concurrent positions held by Directors and/or Auditors shall be disclosed in the annual business report and shareholder meeting reference material.
  5. Self-evaluation
    The Board of Directors shall conduct annual survey to all the Directors, and based on the results of the survey, analyze and evaluate the effectiveness of the Board of Directors as a whole for further improvement.

(6) Conflict of Interest Transactions

  1. Directors shall not be engaged in any transactions which involve a conflict of interest with the Company for themselves or any third party.
  2. When a Director is intended to enter into a transaction with the Company for him/herself or any third party, the Director shall obtain prior approval of the Board of Directors according to the rules of the Board of Directors, and report important facts in that transaction at the board meeting. Terms and conditions for the transaction may be determined in the same manner as a transaction with a third party.
  3. To identify any transactions involving a conflict of interest by Directors, whether or not there is any such transaction (excluding executive compensation) between Directors/their family members within the second degree of kinship and any group company of the Company shall be checked every year.

3. Auditors and the Board of Auditors

(1) Constitution of the Board of Auditors

The Board of Auditors is constituted by an appropriate number of Auditors, but not more than 5, and at least half of them shall be Outside Auditors. The majority of the Outside Auditors shall satisfy the separately established the criteria for independence. At least one Auditor shall have sufficient insights and knowledge about finance and accounting.

(2) Nomination Policy of Candidates for Auditors

  1. In principle, candidates for Auditors shall be first nominated by the President & CEO and brought to the Board of Directors meeting after consent of the Board of Auditors is obtained. The Board of Directors shall discuss and nominate candidates for Auditors, considering the mandate of shareholders and auditing capacities of the candidates.
  2. Candidates for Auditors shall have high dignity and moral standards, deep insights, and abundant experience in business management or the business of the Company, regardless of individual attributes such as gender and nationality.
  3. The names and background of the candidates for Auditors and reasons for their nomination shall be written in the shareholder meeting reference material.

(3) Regular Meetings with the Representative Directors

The Board of Auditors shall have regular meetings with the Representative Directors to exchange opinions on issues the Company is facing, auditing environment, and other important issues related to auditing, and make necessary recommendations to them, thereby deepening mutual understanding.

(4) Accounting Auditors

  1. The Company shall provide an appropriate auditing environment for Accounting Auditors to conduct proper audit, including providing sufficient time for auditing, and communication opportunities with the top management such as the CEO, COO, and CFO, as well as Auditors, Audit Dept. and Outside Directors. If Accounting Auditors find any failure or problem, or incorrect conduct, and request corrective action, the Company shall respond properly depending on the level of significance.
  2. The Board of Auditors shall monitor and verify that Accounting Auditors maintain their independence and properly perform audit, and confirm that the auditing methods and results are valid.
  3. When appointing and evaluating Accounting Auditors, the Company shall make decisions in a comprehensive manner, after considering whether or not they have a certain scale and worldwide network to efficiently conduct audit over a broad range of business both in Japan and abroad, whether or not they have a proper auditing structure with qualified auditors having sufficient knowledge and capacities, and whether or not their period, procedures, and expenses of audit are reasonable and adequate, and their audit history.

4. Compensation for Directors

(1) Policy for Determining Compensation for Directors

  1. The Board of Directors establishes the Compensation Committee consisting of the Representative Directors and some other Directors and delegates the task to determine the amount of compensation for Directors by position.
  2. To ensure transparency and objectivity, the compensation proposal submitted by the Compensation Committee shall be deliberated by the Advisory Council, which consists of Auditors and Outside Directors. The compensation shall be determined, taking into consideration the opinions by the Advisory Council.
  3. The Company has compensation standards commensurate with the roles and responsibilities of Directors as a healthy incentive to achieve sustainable growth in corporate performance and value. Directors' compensation packages consist of the basic monthly compensation, a bonus based on the Company's performance, and incentive compensation. Outside Directors' compensation packages consist solely of the basic monthly compensation.
    The basic compensation is paid in a fixed amount on a monthly basis. The amount of performance-based bonus is determined by a resolution of the Board of Directors by reflecting Company's business results in each fiscal year, dividends to shareholders, and bonus levels for employees. The incentive compensation is provided in the form of stock options as an incentive for sustained medium- to long-term growth.
  4. Compensation for Auditors is decided by discussion among the Auditors, and comprises basic compensation only.

5. Relationships with Shareholders

(1) General Shareholders’ Meetings

The Company shall establish and improve an environment for proper execution of rights to ensure the rights and equality of shareholders.

(2) Ensuring the Rights of Shareholders

  1. To provide shareholders with sufficient time to examine proposals for the shareholders’ meeting, the Company shall make an effort to send notice of the meeting early, and at the same time electronically announce it, such as posting the notice on the Company’s website prior to the sending of invitation.
  2. The Company shall properly set the date and time of the shareholders’ meeting to allow as many shareholders as possible to attend and have constructive dialogues with them.
  3. The Company shall ensure the equality among shareholders and pay due consideration to the execution of rights granted to minority shareholders.
  4. If any proposal made by the Company at a general shareholders’ meeting has been passed, but with a substantial number of negative votes, the Board of Directors shall analyze the reasons for such opposition and the causes of the high number of negative votes, and take appropriate actions.

(3) Policy Regarding Cross-Shareholdings of Other Listed Companies and the Exercise of Voting Rights Associated with Cross–shareholdings

  1. The Company holds shares of other listed companies when it determines that such holding will contribute to the improvement of its mid- to long-term corporate value.
  2. The Board of Directors shall comprehensively examine whether major shares held as cross-holdings are meaningful based on mid- to long-term economic rationality and qualitative aspects, including risk and return.
  3. The Company shall exercise voting rights associated with cross-shareholdings after sufficient consideration of each specific proposal.

(4) Policy for Dialogues with Shareholders

The Company shall establish a framework and take measures to promote constructive dialogues with investors including shareholders, which are considered beneficial to the sustainable growth and mid- to long-term improvement of its corporate value, based on following policies:
  1. Dialogues with shareholders in general shall be overseen by the Executive Officer in charge of IR, who shall pursue constructive dialogues with shareholders by such means as holding financial results briefings and IR meetings.
  2. When engaging in dialogues with shareholders, the Management Support Team supports the Executive Officer in charge of IR in collaboration with related divisions, and shares IR information to determine IR directions and create documents to be disclosed.
  3. The Company shall hold financial results briefings for analysts and investors, and individual meetings, briefings organized by securities firms, and factory tours on the request of investors.
  4. Any information or opinions obtained through dialogues with shareholders shall be reported as necessary at meetings such as the Executive Management Meetings, and distributed to Directors and related divisions through written reports to share and utilize such information.
  5. The Company shall appropriately control insider information in accordance with the internal rules. Additionally, the Company provides a “silent period” during which the Company must withhold dispatching information with respect to financial results to investors.

6. Appropriate Collaboration with Stakeholders

(1) Relationships with Stakeholders

With the aim of achieving sustained growth and mid- to long-term improvement of corporate value, the Company shall seek to develop good relationships and appropriate collaboration with all of its stakeholders, including customers, shareholders, communities, and employees.

(2) Corporate Vision and Action Guidelines

To realize its corporate vision and maintain appropriate collaboration with its stakeholders, the Company has established and shall observe the ACCRETECH Group Code of Conduct.

(3) Response to Social and Environmental Issues

To address social and environmental issues, as a corporate social responsibility, the Company shall examine these issues from a global viewpoint, communicate with stakeholders, and make efforts to solve them through various activities including those of the CSR Promotion Committee, and share information at the Board of Directors.

(4) Diversity of Human Resources

The Company shall seek to maintain human resources with diverse background based on the recognition of the need to have diversified viewpoints and values at a workplace where all the employee are recognized and valued, maximizing the full potential of each individual employee for sustainable growth.

(5) Whistle Blower System

To discover violation of law or inappropriate action as early as possible, the Company has established an internal whistleblower system independent from the normal reporting lines. The Company shall establish and implement rules to prohibit the unfair treatment of whistleblowers, protect their anonymity and privacy, strictly control information, and conduct investigation by the Compliance Committee. Relevant information shall be regularly reported at the Board of Directors Meetings, which shall oversee the management of the system.

(6) Appropriate Information Disclosure and Transparency

To further enhance reliability of the shareholders, investors, and society, by complying with the disclosure requirements under applicable laws and regulations, the Company shall seek to enhance disclosure of financial information such as financial status, business results, equity policy, etc. , and non-financial information such as management policy and business plan as well as risk governance, thereby increasing transparency.

Established on November 9, 2015
Revised on June 26, 2017

【Criteria for Independence of Outside Directors and Auditors】

The Company shall determine that the Company’s Outside Directors or Auditors possess a high degree of independence when all of the following criteria are satisfied:
  1. The individual has not served as business personnel(*1) of the Tokyo Seimitsu Group (hereinafter, “Accretech Group”) for the past 10 years.
  2. The individual is not a major shareholder(*2) or does not serve as business personnel thereof.
  3. The individual does not serve as business personnel of an entity which meets any of the following conditions for the past two years.
    (1)The Accretech Group is a major client(*3) for that entity.
    (2)The entity is a major client(*3) for the Accretech Group.
    (3)The entity is a major lender(*4) for the Accretech Group.
  4. The individual is not a certified public accountant who belongs to an auditing firm which is an Accounting Auditor for the Accretech Group.
  5. The individual is not an expert such as a consultant, accounting expert, tax accountant, attorney, legal expert and patent attorney who receives compensation in the form of a large amount of money or other assets(*5) from the Accretech Group.
  6. Other matters
    (1)The individual is not from a listed company that currently shares mutually appointed directors with the Accretech Group.
    (2)The spouse of, a relative within the second degree of kinship or living together with, or any person with whom a livelihood is shared with the individual satisfies all the conditions described in 1 to 5 above.
    (3)There is no major interest relationship with the Accretech Group.
(*1) Business personnel refers to the executive directors, executive officers, directors, and other employees in an equivalent position.
(*2) A major shareholder refers to a person who directly or indirectly holds a voting interest of 10% or more of the Accretech Group.
(*3) A major client refers to an entity to whom the Accretech Group supplies products and services, where the trading amount equals to 2% of the Group's consolidated net sales or higher in the most recent fiscal year.
(*4) A major lender refers to an entity from which the Accretech Group has borrowed funds, where the total amount of the Accretech Group's borrowings from the entity equals to 2% of the Group's consolidated total assets or higher in the most recent fiscal year.
(*5) A large amount of money refers to a monetary compensation value the average of which over the past three fiscal years is equal to ¥10 million or higher (excluding compensation as a Director of the Company).
(*6) Sharing mutually appointed directors refers to receiving an Outside Director from a company for which a person from the Accretech serves as an Outside Director.