Basic Policy on Corporate Governance

Established on October 29, 2015

Dai Nippon Toryo Co., Ltd.

Contents

1. The Company’s Basic Stance on Corporate Governance (1) Basic Stance ………………………………………………………………………………………….. 1

(2) Management Philosophy …………………………………………………………………………….. 1

(3) Rules of Conduct …………………………………………………………………………………….1

(4) Sustainability ………………………………………………………………………………………….1

(5) Empowerment of Women and Other Individuals ……………………………………………………. 2

2. The Company’s Stance on Shareholders, General Meetings of Shareholders, and Capital Policies (1) Ensuring the Rights and Equality of Shareholders …………………………………………………… 2

(2) General Meetings of Shareholders, Voting Rights, etc. ………………………………………………. 2

(3) Management Planning ………………………………………………………………………………. 3

(4) Capital Policies ……………………………………………………………………………………….3

(5) Returns to Shareholders ……………………………………………………………………………… 3

(6) Stance on Cross-Shareholding ……………………………………………………………………… 3

(7) Measures to Guard against Takeover Bids …………………………………………………………… 4

3. The Company’s Governance Structure (1) Structure with Directors, Executive Officers, and Auditors ………………………………………… 4

(2) Governance Structure Diagram …………………. …………………………………………………. 5

(3) Responsibilities of the Board of Directors …………. ……………………………………………… 5

(4) Composition and Balance of the Board of Directors …. …………………………………………… 6

(5) Independence, Roles, and Responsibilities of Outside Directors and Other Executives …………… 6

(6) Effectiveness of the Board of Directors (including Self-Assessment and Revitalization of the Board of

Directors) ……………………………………………………………………………………………..7

(7) Roles and Responsibilities of Auditors and the Board of Auditors ………………………………….. 7

(8) Effectiveness of Audits and Collaboration with Outside Directors, the Internal Audit Division,

and the Accounting Auditor …………………………………………………………………………..8

(9) Evaluation, Appointment, etc. of the Accounting Auditor ………………. ………………………….8

(10) Policy and Procedures for Appointing Directors, Management Executives, and Auditors ………… 8

(11) Successors of Management Executives ……………….. …………………………………………… 9

(12) Policy and Procedures for Determining Remuneration for Directors, etc. ………………. ………… 9

(13) Training of Directors, Executive Officers, and Auditors ……………….. ………………………… 10

4. Compliance (1) Internal Control (Whistleblowing) ……………….. ……………………………………………… 11

(2) Transactions between Related Parties ……………….. ………………………………………………11

5. Communication with Shareholders (1) Information Disclosure ……………………………………………………………………………… 11

(2) Stance on Engagement (Communication with Objectives) ……………………………………….. 11

1

Basic Policy on Corporate Governance Dai Nippon Toryo Co., Ltd. (“the Company”) will establish the Basic Policy on Corporate Governance

for the purposes of achieving its continuous growth and a medium- and long-term increase in its

corporate value.

Chapter 1: The Company’s Basic Stance on Our Corporate Governance

1. Basic Concept

The Company believes that the enhancement of its corporate governance is the top priority

challenge management faces in its quest to gain recognition from shareholders and many other

stakeholders as a company with existential value. To address this challenge, the Company will usher

in a system comprising the Board of Directors and executive officers to properly separate

management from the day-to-day execution of business, to ensure swift and appropriate

decision-making and supervision in response to changes in the business environment, and to

heighten the level of efficiency in the execution of business. The Company will also introduce a

system made up of outside directors and auditors to strengthen and maintain the monitoring of

business administration. In addition, the Company will make efforts to ensure a higher degree of

transparency in corporate management, such as the timely and appropriate disclosure of information

on financial results and managerial measures.

(2) Management Philosophy

The Company aims to be a company that broadly contributes to the prosperity of society and affluent

lifestyles by protecting the global environment and resources through creation of new value.

(3) Rules of Conduct

The Company will formulate the Code of Corporate Ethics, Charter of Corporate Conduct of Dai

Nippon Toryo Co., Ltd., the Guidelines for Corporate Behavior as a Corporate Group, and the Code of

Conduct for Officers and Employees of Dai Nippon Toryo Co., Ltd. in order to ensure that its

directors, executive officers, and employees (“Personnel”) always behave with a high degree of

ethical and social sensibility, to which compliance by the Personal will be affirmed by the Board of

Directors.

(4) Sustainability

Aware that sustainability issues such as social and environmental issues form key elements of the

medium- and long-term growth of corporate value, the Company will take such positive and proactive

2

actions under the Environmental Policy and the Quality Policy, as the yearly publication of the Social

and Environmental Report that profiles specific actions to be taken.

(5) Empowerment of Woman and Other Personnel

The Company will work not only to encourage woman to play active roles, but to provide and

improve the opportunities and environment that allow its Personnel with various values—irrespective

of gender, nationality, and other attributes—to display their respective capabilities.

2. The Company’s Stance on Shareholders, General Meetings of Shareholders, and Capital Policies

(1) Ensuring the Rights and Equality of Shareholders

The Company will treat all shareholders equally in accordance with their respective equity shares, and

endeavor to create an environment that will enable all shareholders to appropriately exercise their

voting rights.

(2) General Meetings of Shareholders, Voting Rights, etc.

(i) In order to hold General Meetings of Shareholders open for all shareholders where they have

sufficient time to deliberate the meeting agenda and exercise their voting rights appropriately, the

Company will endeavor to ensure the accuracy of the information contained in the notice of

convocation and to dispatch the notice early. The Company will also release relevant information in

the form of an electronic publication on TDnet at its own website.

(ii) The Company will build an electronic system for the exercise of voting rights and prepare an

English translation of the notice of convocation to improve the environment for exercising voting

rights thereby enabling all shareholders to properly exercise their voting rights.

(iii) The Company reckons the General Meeting of Shareholders as the ultimate decision-making

body composed of shareholders with voting rights. The Company will analyze the results of voting

on the agenda items and who voted for and against them. When it recognizes that a considerable

number of votes were cast against any of the items proposed by the Company, it will properly

impart the intent of shareholders to the Board of Directors which will then study whether further

dialogue or other response with shareholders are needed.

(iv) When proposing to delegate to the Board of Directors some of the matters which otherwise ought

to be dealt with by the resolution of the General Meeting of Shareholders, the Company will ensure

that the judgment passed and decisions made by the Board of Directors are in accordance with laws

and ordinances, taking into consideration the swiftness of managerial decision making and

3

technical nature of the matters in question.

(v) Prior to implementing a capital policy that results in a transfer or major dilution of control, the

Board of Directors and the Auditors Meeting will study the necessity and reasonableness, and while

ensuring that the appropriate procedures are followed, provide sufficient explanations to

shareholders with a view to fulfill its delegated responsibility towards shareholders.

(vi) The Company will analyze the register of shareholders twice a year to ascertain the shareholders

‘makeup.

(vii) If an institutional investor holding shares under the name of a trust bank or the equivalent has a

prior desire to exercise its voting or other rights us a shareholder at the General Meeting of

Shareholders, the Company will hold talks with the relevant trust bank or the equivalent therefor.

(3) Management Planning

The Board of Directors will develop a medium-term management plan to set the overall direction,

disclose, and explain the outline and the progress of the plan in a necessary and reasonable manner.

(4) Capital Policies

The Company recognizes its priority challenges in achieving a medium- and long-term increase in its

share value in three columns: improving financial health; effective utilization of the investors’ equity

to boost its earnings power; and amplified returns to shareholders. The Company makes it a basic

principle that underlies its capital policies, based on which it takes into overall consideration the

optimal balance between these three challenges to attain continued growth.

(5) Returns to Shareholders

The Company has adopted a basic principle of continuously and stably paying dividends consistent

with its financial results, as it considers determining the amount of dividends to shareholders to be a

key management element.

With regard to the acquisition of treasury shares, the Company will do it at an appropriate time if it is

deemed necessary upon considering the market conditions, capital efficiency, and other factors.

(6) Policy on Cross-Shareholding

The Company will disclose its Policy on Cross-Shareholding and verify the economic rationality and

the future outlook of principal shares under cross-shareholding each year at the Board of Directors. It

will offer detailed explanations on the objective and reasonableness of ownership that reflect the

results of verification.

4

[Cross-Shareholding Policy]

The Company will either own or not own shares in cross-shareholding, based on a case-by-case

decision of whether it will help build closer trade relationships and implement more orderly

business operations.

In addition, the Company’s Board of Directors will pay attention to the soundness of the cross-held

shares on a yearly basis, and will decide to whether or not continue these shares upon verifying the

economic rationality, based on the corresponding risks, and seeking an appropriate level of gains

accordingly.

The Company will formulate and disclose the standards for ensuring appropriate actions regarding

the exercise of voting rights concerning the cross-held shares.

[Standards for Exercising Voting Rights]

In respect of exercising voting rights of the shares owned in cross-shareholding, the Company will

closely examine the agenda items in accordance with the Cross-Shareholding Policy and properly

exercise the voting rights upon judging whether or not the exercise will be helpful for the

Company’s continuous growth and medium- and long-term corporate evaluation.

(7) Measures to Guard against Takeover Bids

(i) Prior to introducing and implementing measures to guard against takeover bids, the Company will

study the necessity and rationale of these measures to ensure the appropriate procedures, and will

give sufficient explanations to shareholders.

(ii) If the Company’s shares are in fact made subject to a takeover bid, the Company will properly

disclose to the shareholders the Board of Directors’ opinion about the bid. The Company will not

unfairly inhibit the shareholders’ rights from agreeing to the takeover bid and selling off the

Company shares.

3. The Company’s System of Governance

(1) Structure with Directors, Executive Officers, and Auditors

(i) The Company’s directors, executive officers, and auditors will be aware of their delegated

responsibility to shareholders and take actions for the benefit of the Company and for the common

benefit of shareholders, while at the same time securing the appropriate level of collaboration with

stakeholders.

(ii) The Company will adopt the scheme set forth by the Companies Act for Companies with Boards

5

of Company Auditors thereby making good use of the auditing functions of the Board of Auditors;

appointing highly independent outside officers with an outside perspective to ensure the

supervisory function ; and increasing the effectiveness of corporate governance.

(iii) In order to strengthen the decision-making, management and supervision functions of the Board

of Directors, the Company will adopt the scheme of executive officers that assigns the duties of

managerial decision-making, management, and supervision to the Board of Directors and those of

executing business to the executive officers thereby carrying out quick and appropriate

decision-making and clarifying its authority and responsibility.

(2) Governance Structure Diagram

The Ordinary General Meeting of Shareholders

Election and dismissal

Board of Auditors / AuditorsAuditing

Board of Directors / Directors

PresidentInternal Audit Div. Collaboration Accounting Auditor

AuditingManagement Council /

Executive Officers Compliance CommitteeControl and Monitor

Advice Consultation Report Instruction

Helpline HelplineAdvice Outside (Corporate Lawyer) Internal (Compliance Inquiry Desk)

Inquiry and NotificationOperational divisions

Response

Business execution and supervision

Supervision

Report

Auditing

Report

Report

(3) Responsibilities of the Board of Directors

(i) Aware of its trustee responsibility and accountability to shareholders, the Board of Directors will

properly fulfill the roles and responsibilities specified below to facilitate the continuous growth of

the Company, ensure the medium- and long-term increase of its corporate value, and to improve its

earning power, capital efficiency, and other capacities:

- Decision-making on important corporate strategies such as the medium-term management plans;

- Building an environment inductive to establishing an internal control system and a risk

management system that helps directors and executive officers venture risks; and

- Implementing highly effective supervision of directors and executive officers from an

6

independent and objective standpoint.

(ii) The Company has formulated the Regulations on the Board of Directors and the Regulations on

the Management Council to provide for matters to be discussed by and reported at the Board of

Directors, such as the mandate to the Management Council with the authority and responsibility

over the matters concerning the execution of business.

(iii) The Board of Directors will carry out supervision to ensure the timely disclosure of accurate

information, and properly construct systems for internal control and risk management to oversee

whether they are effectively operated.

(4) Composition and Balance of the Board of Directors

(i) The Board of Directors will be composed of such number as well as diversity of members as

appropriate based on the balance of knowledge, experience, capabilities, and roles. Prospective

directors will be chosen from outside candidates by taking into account their attributes, knowledge,

and skills, and if from inside candidates, will be chosen by taking into account their performance,

activities, and other factors, in either case to be elected at the General Meeting of Shareholders.

(ii) In the event a director or auditor also serves as a director or auditor of another listed company, the

number of such duplicated posts will be confined to a reasonable limit. The situation concerning the

duplication will be disclosed in the business report every year.

(5) Independence, Roles, and Responsibilities of Outside Directors and Other Executives

(i) Those outside directors elected in accordance with the Judgment Criteria on Independence, and

directors who do not engage in the execution of day-to-day business will still offer opinions and

advice from their independent and objective standpoints with regard to important decisions on

remuneration, nomination, and other matters in order to secure a high level of effectiveness in the

system of management supervision.

[Criteria for Judgment on Independence]

When choosing directors from outside candidates, the Company will place emphasis on their high

level of technical skills and abundance of experience that allow them to give honest and

constructive advice and to supervise the Company’s management in addition to the independence

requirements under the Companies Act and the regulations of the Tokyo Stock Exchange.

(ii) Outside directors will be aware that they are expected to fulfill the roles and responsibilities

specified below, and will appropriately carry out their duties:

7

- To give appropriate advice in order to help realize the Company’s continuous growth and

medium- to long-term corporate value elevation on the basis of their knowledge of management

policies and improvements.

- To supervise the management by electing and dismissing directors and executive officers and

making other significant decisions at the Board of Directors.

- To supervise conflicts of interest between the Company and directors, executive officers, majority

shareholders, or other similar parties.

- To properly incorporate the opinions of minority shareholders and other stakeholders into the

Board of Directors from a perspective separate and independent of directors, executive officers,

and majority shareholders.

(iii) In the event an outside director communicates or coordinates with a director or an executive

officer, or collaborates with an auditor or the Board of Auditors, the General Affairs Department

will act as a liaison with them for communication and coordination.

(6) Effectuation of the Board of Directors (such as Self-Assessment and Revitalization)

(i) The Board of Directors will annually analyze and evaluate its overall effectiveness by referring to

self-assessment of individual directors, and disclose the outline of the results.

(ii) The Board of Directors will strive to engender a culture respectful of free, lively, and constructive

discussions and exchanges of views. It will describe in the Regulations on how it operates the

Board of Directors, and more particularly, provide sufficient information, so as to enhance the

effectiveness of outside directors and auditors by giving prior explanations on the materials for the

Board of Directors meetings.

(iii) The Company will build a system for providing directors with personnel and other support to help

obtain information.

(iv) Directors, including outside directors, will make active efforts to collect information and seek

additional information from the Company as needed in order to effectively fulfill their functions

and responsibilities. Depending on the circumstances, they will consider seeking advice from

outside experts at the cost of the Company.

(7) Roles and Responsibilities of Auditors and the Board of Auditors

Well aware of their fiduciary responsibility towards shareholders, the auditors and the Board of

Auditors will not only conduct audits on business and accounting based on the Standards Audits for

8

Auditors, but will in collaboration with outside directors take action from an independent and

objective standpoint and proactively make comments to directors and executive officers.

(8) Effectiveness of Audits and Collaboration with Outside Directors, the Internal Audit Department,

and the Accounting Auditor

(i) In order to ensure effectiveness of audits, the auditors and the Board of Auditors will make active

efforts to collect information and seek additional information from the Company as needed.

Depending on the circumstances, they will consider seeking advice from outside experts at the

expense of the Company. The Company will build a system for providing support for these actions

in accordance with its basic policy on the internal control system.

(ii) The Board of Auditors will hold regular meetings with the Accounting Auditor and the Internal

Audit Department, and exchange information with outside directors to share views.

(iii) The Accounting Auditor and the Company will take appropriate measures aimed at ensuring fair

and sound audits.

(iv) The Board of Directors and the Board of Auditors will keep in mind to allow for the Accounting

Auditor a sufficient length of time to carry out a sound audit and take appropriate measures to

ensure contacts with the management executives such as the president, the senior managing director,

and managing executive officers. The Company will also make itself prepared to respond to any

remarks made by the Accounting Auditor concerning any unfairness or injustice.

(9) Evaluation, Appointment, etc. of the Accounting Auditor

The Board of Auditors will properly assess the Accounting Auditor on the basis of the Regulations on

the Board of Auditors and the Assessment Criteria Concerning Appointment and Other Matters of the

Accounting Auditor, and make decisions on whether or not to appoint, dismiss, or reappoint

Accounting Auditor.

(10) Policy and Procedures for Nominating or Appointing Directors, Management Executives, and

Auditors

(i) The Board of Directors will, with respect to appointing management executives and nominating

prospective directors, upon a proper level of involvement and advice from outside directors,

consider the entire matter by taking into account appropriate and swift decision-making, proper risk

management, monitoring the execution of business, and weighing different functions and individual

operating segments. Further, the appointment and dismissal of a management executive will be

9

such as to reflect the Company’s financial results and other factors.

(ii) With a view to appointing the right person at the right position the Board of Directors will

comprehensively consider the nomination of prospective auditors while ensuring the balance

between knowledge on financial and accounting affairs, knowledge on the Company’s business

sector, and a diverse range of views on corporate management. The prospective auditors’ candidacy

will require the approval of the Board of Auditors.

(iii) With respect to the selection and nomination of individual prospective directors and auditors,

their personal history and other information will be stated in the reference document for the

General Meeting of Shareholders to be elected upon its resolution therefor. The prospective

auditors will further be subject to the approval of the Board of Auditors.

(11) Successors of Management Executives

In order to secure human resources who will contribute to its continuous corporate growth and

development, the Company will give level-specific systematic training based on job rank, to

personnel who exhibit the potential to become management executives in the future, while

transferring them so that they acquire working experience in different segments, and enabling them

to attend meetings of the Management Council and experience the management and other matters in

order to systematically foster future management executives. The Board of Directors will monitor the

progress of training.

(12) Policy and Procedures for Determining Remuneration for Directors, etc.

The remuneration for directors and other officers of the Company is composed of the monthly base

remuneration, a bonus linked with performance, paid in cash, and a stock option as stock-based

remuneration in treasury shares aimed at medium- and long-term improvement in financial results.

The Company will specify the ratio of remuneration linked with medium- and long-term financial

results and the ratio of remuneration in cash to that in treasury shares at proper levels in order to

provide sound incentives that help to further continuous growth.

[Policy and Procedures for Determining Remuneration for Directors, etc.]

(i) Policy on Determining Remuneration for Directors, etc.

The Company will define the following as a basic policy on determining remuneration for directors

and other personnel.

- A structure of remuneration suited to the roles, responsibilities, and results of individual directors

10

and other personnel.

- A structure of remuneration that reflects the Company’s financial conditions and medium- and

long-term financial results.

- A structure of remuneration that gives incentives to improve the Company’s financial results and

its corporate value.

- A structure of remuneration that enables them to share the same value standard with shareholders

and other stakeholders.

(ii) Details of Remuneration and Procedures of Determining Remuneration

- The remuneration for directors is composed of monthly remuneration, a bonus, and a stock-based

compensation stock option, and the amount of remuneration for each director will be determined

by the Board of Directors within the limit approved by the General Meeting of Shareholders. The

remuneration for each outside director consists of monthly remuneration and a bonus.

- The remuneration of each executive officer will consist of monthly remuneration, a bonus, and a

stock-based compensation stock option, subject to a decision by the Board of Directors.

(13) Training of Directors, Executive Officers, and Auditors

The directors and the auditors will deepen their understanding of their roles and responsibilities in

order to properly fulfill them as personnel who play a part in the important governance body of the

Company, while at the same time endeavoring to acquire the necessary knowledge keeping

themselves updated with information in accordance with the Policy on the Training of Directors,

Executive Officers, and Auditors listed below. Further, the afore-said policy will also apply to

executive officers.

[Policy on the Training of Directors, Executive Officers, and Auditors]

- The Company will on occasions give such appropriate training and information to directors,

auditors, and executive officers, including outside directors and outside auditors, as necessary for

them to properly fulfill their respective roles and responsibilities.

- Prior to a new director, auditor, or executive officer taking office, the Company will provide him

or her with an opportunity to receive training on the Companies Act and related laws and

ordinances, and will continually provide him or her with training on law revisions, management

issues, and other matters after he or she assumes takes office.

- Upon a new director, auditor, or executive officer taking office, the Company will explain the

details of its business and organize an inspection tour of the principal facilities. The Company will

also offer necessary information on business issues and other matters well after he or she takes

11

office.

- The Board of Directors will check whether the aforementioned measures are properly

implemented.

4. Compliance

(1) Internal Control (Whistleblowing)

The Company will keep in place a group-wide whistleblowing program that enables all employees of

the Company and its subsidiaries to directly report on any illegal or inappropriate conduct by an

organization or an individual without suffering any disadvantage, and prepare the rule that ensures the

whistleblower’s anonymity, and forbids any disadvantageous treatment. The Board of Directors will

oversee the operations of these steps concerning whistleblowing.

(2) Transactions between Related Parties

Before the Company makes a transaction with a director, executive officer, principal shareholder, or

other related party, the Board of Directors will examine the risk of a conflict of interest and the

reasonableness of each individual transaction to decide on whether to grant approval so that any such

transaction may not damage the Company’s interest or the common interest of shareholders.

5. Dialogue with Shareholders

(1) Information Disclosure

The Company will disclose not only such information as is required by the laws and ordinances, but

information other than the statutorily required disclosure at the right time properly so as to give the

descriptions a significant extra value for users. In view of the ratio of overseas investors, the

Company will disclose and offer information in the English language to a reasonable extent.

(2) Stance on Engagement (Dialogue with Specific Focus)

The Company will endeavor to improve its system for constructive communication with shareholders

pursuant to the Basic Policy on the Investor Relations System.

[Basic Policy on the Investor Relations System]

- The officer in charge of the Administration Division will control all communication with

shareholders and equivalent parties in an effort to achieve constructive communication. The

officer in charge of the Administration Division or any other personnel named by him or her will

engage in actual communication or interviews with shareholders and equivalent parties in

consideration of the principal subjects and wishes of the shareholders or equivalent parties.

12

- Other relevant departments assisting the fore-going communication will work in close

collaboration in putting together the relevant disclosure materials and sharing information in a bid

for a constructive dialogue.

- As a means of communication other than individual interviews, the Company will organize the

financial results briefings targeted at analysts, institutional investors, and other similar individuals.

In addition, the Company’s website will have a webpage dedicated to investor relations

information for publishing financial results and other information in plain form.

- Personnel engaging in the above-mentioned communications will report the opinions and

concerns heard from shareholders to the management team and others in a timely and appropriate

manner.

- If any insider information emerges at the time of communications, the Company will manage the

same in accordance with the Regulations on the Management of Insider Information and Insider

Transactions which will be formulated.

Supplementary Provision

This Basic Policy on Corporate Governance shall go into effect on October 29, 2015.

Established on October 29, 2015