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Basic Policies on Corporate Governance

Section 1 General Rules

(Objective)

Article 1. Cybernet Systems Co., Ltd. (hereinafter referred to as 鍍he Company) is in pursuit of sustainable growth as well as improvement of medium- to long-term corporate value by realizing its corporate philosophy, and thus shall establish its basic policies with the objective of realizing optimal corporate governance as a means to gain the trust of shareholders and other stakeholders.

(Corporate philosophy and Medium-Term Business Plan, etc.)

Article 2. The Company shall endeavor to improve the corporate value that it shares with shareholders and other stakeholders by establishing a corporate vision, corporate message, capital policy, management strategy and a Medium-Term Business Plan based on its corporate philosophy.

Corporate Philosophy
We will contribute to the advancement of our customers
and society by providing solutions that generate high
satisfaction through enhanced value-added and
high-quality services.

Corporate Vision
We aim to become the "First Contact Company" for customers

Corporate Message
Energy for your Innovation

(Policy Guidelines)

Article 3. The Company has developed an environment to support risk-taking and has established the 鼎ybernet Group Compliance Policy Guidelines (hereinafter referred to as 撤olicy Guidelines) that include compliance with laws and ordinances, regulations, Articles of Incorporation as well as societal norms. The Company shall endeavor to engage in upholding social responsibility by instilling these Policy Guidelines into its corporate activities and utilizing them as the standard for day-to-day activities.

(Corporate Governance Initiatives)

Article 4. The Company shall consistently pursue optimal corporate governance and continuously work on its improvement.

  1. The Company believes that the key to corporate governance is to respect the rights of shareholders, secure fairness and transparency in its management, along with reinforcing management vigor and shall realize enhanced corporate governance by adhering to the following basic policies.

(1) Relationship with shareholders

  1. Secure shareholders rights and their equality.
  2. Conduct constructive dialogue with shareholders.
  3. Build a positive relationship with shareholders as well as other stakeholders.
  4. Ensure transparency by disclosing financial and non-financial information in a timely manner.

(2) Basic structure for corporate governance

  1. The Company is being as a Company with Board of Auditors.
  2. The Company clearly states the categories utilized for business execution under the executive officer system and shall further expedite its decision-making and strengthen its supervisory function for business execution.
  3. The Board of Directors shall focus on its supervisory function regarding management and delegate decision-making on business execution to Executive Meeting or executive officers as much as possible within the parameters recognized by laws and ordinances. This delegation of business execution is established in the "Regulations for Administrative Authority."
  4. The Company shall establish the number of Directors in its Articles of Incorporation and shall appoint at least two independent External Directors.
  5. The Board of Directors shall have well-balanced knowledge, experience and capability in order to effectively fulfill its role and responsibility; establish views on diversity and optimal size; and disclose the aforementioned items along with policies as well as processes on the appointment of Directors.
  6. The Company shall formulate and disclose the standards it utilizes to determine the independence of candidates for independent External Directors. These standards used to determine independence shall satisfy standards of independence established by financial instruments exchanges and, in effect, secure independence of candidates for independent External Directors.
  7. The candidate for independent External Director selected by the Company shall be an individual who is expected to contribute to discussions at meetings of the Board of Directors in a direct, spirited and constructive manner.
  8. The Company shall establish a Nomination/Compensation Committee consisting of independent External Directors, External Auditors and the Representative Director & CEO. This Committee shall conduct deliberations regarding the selection of Director candidates, dismissal of Directors, evaluation and compensation, along with discussions on planning the successor to the Representative Director, among others.
  9. The independent External Director shall attend Board of Auditors meetings and ensure coordination of exchanges of views, and similar actions, when deemed necessary. The Company shall set up an opportunity for an exchange of views between an independent External Director and an executive officer, in the event the independent External Director makes a request.
  10. At least one person with appropriate knowledge regarding financial accounting shall be appointed as an Auditor.
  11. The following will be executed by the Board of Directors and the Board of Auditors.
    1. Secure sufficient auditing hours to enable high-quality audits.
    2. Provide Accounting Auditor with access (interviews, etc.) to Directors and executive officers, such as Representative Director & CEO.
    3. Secure sufficient coordination between Accounting Auditor and Auditors (including attending a meeting of the Board of Auditors), an internal auditing department as well as External Directors.
    4. The Company is to establish a response system in the event an Accounting Auditor discovers corruption and requests an appropriate response or points out inadequacies or problems
  12. The Company shall establish the 迭isk Management Committee and the 敵roup Compliance Committee in order to strengthen risk management and compliance structures.
  13. The Company shall appropriately respond to challenges that surround sustainability, including social and environmental problems.

(The Positioning of the Company's Basic Policies)

Article 5. These basic policies are high-priority regulations that follow the Companies Act, related laws and ordinances as well as the Articles of Incorporation and shall be applied to take priority over other regulations.

Section 2 Relationship with Shareholders

(Respect for Voting Rights)

Article 6. The Company recognizes that the General Meeting of Shareholders is a place of dialogue with shareholders and shall endeavor to ensure that rights are exercised appropriately from the shareholders' perspective.

  1. The Company, in response to a request for dialogue with shareholders, shall respond within reasonable parameters as a way to bring about its sustainable growth and improve its medium- to long-term corporate value. In addition, the Board of Directors shall establish a structure that would help promote constructive dialogue with shareholders as well as formulate and disclose policies regarding initiatives related to the matter.
  2. As for actual dialogue with shareholders, in principle, a Director shall conduct an interview and hold an explanatory meeting, within reasonable parameters, after understanding the shareholders wishes and their main items of interest.
  3. The following shall be stated in the policies in paragraph 2 of this Article.
    1. Regarding dialogue with shareholders, a Director shall be designated to conduct such discussions, including those included in items 2 through 5 of this Article, with the aim to realizing constructive dialogue.
    2. The officer in charge of the IR department shall coordinate administrative departments including the IR department in an organic manner.
    3. The Company shall implement initiatives to enhance processes to set up dialogue in means other than individual interviews.
    4. The Company shall appoint a Director who provides appropriate and effective feedback for the Board of Directors regarding views and concerns of shareholders that were detected in such dialogue.
    5. The Company shall establish policies regarding the management of insider information regarding such dialogue.
  4. The Company shall endeavor to send notice of convocation of the General Meeting of Shareholders, reference materials and other items as early as possible so that shareholders are able to exercise their voting rights in an appropriate manner. In addition, electronic information shall be made public via TDnet or the Company's official website between the time a resolution associated with the convocation is passed by the Board of Directors and the notice of the convocation is sent out.
  5. The Company shall create an environment (usage of an electronic voting platform to exercise rights, etc.) that enables an electronic exercising of voting rights as well as provide an English translation of the notice of convocation, among other items.
  6. In the event an institutional investor or another entity, which holds shares in the name of a trust bank or others, requests its desire to exercise its voting right instead of the relevant trust bank, the Company shall respond by holding discussions with the relevant trust bank or others.
  7. The Company, as needed, shall endeavor to understand its shareholder structure by utilizing items such as a shareholder identification survey, while keeping in mind the cost-effectiveness of such action.

(General Meeting of Shareholders)

Article 7. The Company shall establish the date and the venue for the General Meeting of Shareholders so that as many shareholders as possible can attend the meeting and so that it can better reflect the views of shareholders.

  1. In the event a company proposal is recognized as having been approved at the General Meeting of Shareholders, but garners a considerable number of votes against it, the Board of Directors shall analyze the reason for the opposition or the cause that prompted the negative votes, and consider whether it is necessary to respond to it such as by holding a dialogue with shareholders.
  2. The Board of Directors shall provide sufficient information to shareholders at the General Meeting of Shareholders in an effort to create a trusting relationship with shareholders.
  3. When the Company is to entrust a portion of the items on the agenda for the General Meeting of Shareholders to the Board of Directors, it is to consider whether the Board of Directors has been set up as a structure that sufficiently fulfills the role and responsibilities with respect to corporate governance, along with examining whether entrusting the Board of Directors would be desirable from the perspective of securing responsiveness and expertise in the management's decision-making.
  4. The Company shall provide due attention to ensure the exercising of voting rights, including those of minority shareholders, by considering the importance of the rights of shareholders.

(Shareholder Returns)

Article 8. The Company shall fully respect the rights of shareholders who receive dividends of a surplus and thus shall establish and explain its basic policies regarding shareholder returns given in the form of dividends of surplus funds, among other items.

  1. Dividend payments of surplus shall be made in accordance with the Articles of Incorporation, passed as a resolution by the Board of Directors and conducted in a responsive manner.

(Securing rights and fairness of shareholders)

Article 9. Regarding capital policy that causes major dilution of shares or volatility in the composition of the structure that controls the firm, the Company shall consider the necessity and rationality from the perspective of having full fiduciary responsibility for shareholders and secure appropriate procedures and fully explain the matter to shareholders in order to prevent any harm to existing shareholders.

  1. The Company shall in principle not hold any listed shares as policy shareholdings. However, if they are to be held because of a rational reason such as from the perspective of a business alliance associated with the Company痴 businesses, it must verify that the holdings are in line with their purpose and regularly confirm their rationality.
  2. The Company shall not employ policies that aim to an anti-takeover measure.
  3. The Company shall not offer special profits, such as sharing profits gained from asset holdings, among other items, with specific shareholders.

(Prevention of Transactions that Run Counter to Shareholders' Profits)

Article 10. The Company, in order to protect shareholders' profits, shall endeavor to prevent Directors, Executive Officers and its employees from abusing their position within the Company and conducting transactions that run counter to shareholders' profits.

  1. Directors may not be involved in transactions that represent a conflict of interest or with rival companies without approval from the Board of Directors based on the Companies Act.
  2. The Company shall disclose important facts about transactions in the previous paragraph in an appropriate manner.
  3. The Company shall establish 迭egulations on Preventing Insider Trading and strictly adhere to them as a way to prevent insider trading.
  4. In the event the Company is to conduct a transaction with an officer or a major shareholder (transaction between related parties), the Board of Directors shall establish appropriate procedures that correspond to the importance and characteristic of the transaction ahead of time, disclose this framework and monitor such procedures so that the transaction does not harm the profits shared by both the Company and the shareholder or that such concerns do not arise.

Section 3 Appropriate Cooperation with Stakeholders other than Shareholders

(Appropriate Cooperation with Stakeholders other than Shareholders)

Article 11. The Company fully recognizes that its sustainable growth and enhancement of its medium- to long-term corporate value is the result of resources and contributions from various stakeholders including its employees, customers, business partners, creditors and regional communities, and shall endeavor to cooperate with these stakeholders.
The Board of Directors, Directors and Executive Officers shall exert their leadership in order to bring about a corporate culture and customs that respect the rights and position of these stakeholders as well as sound ethical views on corporate activities.

  1. Regarding challenges that surround sustainability, such as social and environmental problems, the Company shall establish 摘nvironmental and Quality Policies and shall instill such policies into its business activities both at home and abroad and respond in a faithful and fair manner, so that it can garner empathy from stakeholders.
  2. The Company recognizes that the existence of various points of view and sense of value that reflect varying experience, skills and attributes within the Company is a necessary strength for securing sustainable growth, and shall promote achieve diversity, including active roles by female and foreign employees, among others, within the Company.
  3. The Company shall establish an appropriate structure for whistle-blowing so that employees, among others, may convey information regarding illegal and inappropriate conduct, information on disclosure and sincere suspicions without being fearful of being placed in harm痴 way and to enable objective verification of such conveyed information or suspicions. The Board of Directors shall be accountable for realizing such a structure and shall establish 迭egulations in Regards to the Protection of Whistle-Blower in order to monitor adherence to these regulations.

Section 4 Securing Appropriate Information Disclosure and Transparency

(Securing Appropriate Information Disclosure and Transparency)

Article 12. The Company shall disclose important information regarding management to shareholders in a proactive and timely manner.

  1. The Company shall determine standards for information disclosure, such as important management information including non-financial information, and establish a structure to this end.
  2. The Company shall disclose policies and procedures used by the Board of Directors to determine Directors compensation.
  3. Regarding Directors compensation, the Company shall appropriately set items such as the balance between fixed compensation and compensation that is linked to medium- to long-term performance as well as cash-based compensation and treasury stock as compensation so that the system functions as one of the healthy incentives toward sustainable growth.
  4. The Company shall disclose policies and procedures employed by the Board of Directors to nominate candidates for Directors and Auditors and shall provide an explanation for each nomination.
  5. The Company shall disclose and offer information in English within reasonable parameters.

Section 5 Responsibilities of the Board of Directors, etc.

(Roles and responsibilities of the Board of Directors)

Article 13. The Board of Directors shall establish matters deemed as goals of the Company, such as corporate philosophy, and shall understand that one of its major roles and responsibilities is to steer the Company in a strategic manner and hold constructive discussions on specific management strategies and medium- to long-term business plan, among other items. When the Company executes an important business policy, it shall do so based on the strategy outlined in the aforementioned plan, etc. Also, if the targets in the medium- to long-term management plan are not achieved, it shall analyze the reason, provide an explanation to shareholders and reflect the analysis in the plan for the following fiscal term and thereafter.

  1. The Board of Directors shall consider that one of its major roles and responsibilities is to provide effective supervision over Directors and Executive Officers from an independent and objective standpoint, and evaluate Company performance in an appropriate manner as well as reflect this evaluation in personnel decisions regarding Directors and Executive Officers.

In addition, the Board of Directors shall supervise to ensure that information disclosure is done in a timely and accurate manner, along with setting up an appropriate internal control system and risk management structure.

  1. The Board of Directors shall share information and conduct appropriate supervision for planning the successor to the Representative Director & CEO, among others, in order to select a successor.
  2. The Board of Directors shall create an environment that is conducive to constructive discussions and exchange of ideas of items, including questions posed by External Directors.
  3. The Board of Directors shall ensure that the execution of each item below is secured and bring about lively deliberations.
    1. Materials for a meeting of the Board of Directors shall be distributed sufficiently ahead of time.
    2. Sufficient information aside from materials for a Board of Directors meeting shall be provided, if needed.
    3. Decisions are to be made ahead of time regarding matters including an annual schedule of meetings of the Board of Directors and expected items on the agenda for deliberation.
    4. Appropriately establish matters including items for deliberation and the frequency of meetings.
    5. Secure ample time for deliberations.
  4. The Board of Directors shall analyze and evaluate the effectiveness of the overall Board of Directors by referring to self-evaluations by each Director and other items and shall disclose the overview of these results.

(Roles and Responsibilities of Directors)

Article 14. The term of office for Directors shall be one year and Directors shall be selected every year at the General Meeting of Shareholders.

  1. Directors are accountable for having the duty of good-natured faithful care and duty of loyality.
  2. Directors shall gather sufficient information in executing their job responsibilities, pursue proactive exchanges of opinion at meetings of the Board of Directors, verify that the decision-making process is rational and consequently exercise their voting rights.
  3. Directors shall exercise their rights to propose an agenda and convene a meeting of the Board of Directors in a timely and appropriate manner in order to resolve management challanges which the Directors enable to access.

(Common roles and responsibilities of officers)

Article 15. Officers must focus on placing necessary time and effort on tasks given to them as an officer in order to fulfill their role and responsibilities in an appropriate manner. In the event officers are to also serve as an officer of another listed company, the number of such officers is to be limited to a reasonable number and the status of these concurrent positions shall be disclosed every year.

  1. Officers may request additional information from the Company in order to effectively fulfill its roles and responsibilities.
  2. The Company shall set up a support system for officers including from the perspective of personnel, if officers deem it to be necessary.
  3. Officers, if needed, may obtain advice from external experts at the expense of the Company.
  4. The Company shall secure cooperation between officers and the internal audit department.
  5. The Company shall provide training opportunities that are appropriate for officers at the time of their appointment as well as after their appointment and provide mediation as well as expenses incurred for the support. The Board of Directors shall verify that such initiatives are being implemented in an appropriate manner and shall disclose its policies on training.

(Roles and Responsibilities of Independent External Directors)

Article 16. The Company specifically expects independent External Directors to fulfill the following roles and responsibilities.

  1. Regarding matters such as management policies and improving management, they are to offer advice based on their own knowledge on ways to bring about sustainable growth for the company and enhance medium- to long-term corporate value.
  2. Through the Nomination/Compensation Committee, they are to hold deliberations on selecting Director candidates, as well as on the dismissal, evaluation and compensation of Directors, and on planning a successor to the Representative Director, among others.
  3. They are to supervise conflicts of interest between the Company and Directors, Executive Officers and controlling shareholders, among others.
  4. Reflect their views that are independent from Directors, Executive Officers and controlling shareholders in Board of Directors meetings.
  1. Independent External Directors are to ensure coordination with Auditors, such as exchanging views with External Auditors, regarding the Company痴 corporate governance and management status.
  2. Independent External Directors shall exchange views with the Representative Director & CEO through the Nomination/Compensation Committee and other entities and coordinate with other Directors.

(Roles and responsibilities of the Representative Director & CEO)

Article 17. The Representative Director & CEO shall make decisions on optimal business execution toward realizing the Company's corporate philosophy, sustainable growth and enhanced corporate value over the medium to long term, and must implement management strategies.

  1. The Representative Director & CEO shall provide sufficient explanation to the Board of Directors regarding business execution.
  2. The Representative Director & CEO is to instill a sense of social responsibility within the entire organization, along with building a structure for legal compliance, Policy Guidelines, a risk management structure and an internal control system and evaluate their effectiveness as well as consistently make improvements.

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

Article 18. Auditors and the Board of Auditors shall make appropriate decisions from an independent and objective standpoint based on their fiduciary responsibility for shareholders in fulfilling their roles and responsibilities, such as auditing business execution by Directors, selection and dismissal of Accounting Auditor and exercising rights associated with audit-related compensation.
Auditors and the Board of Auditors shall not limit their range of activity in an excessive manner, shall flexibly and proactively exercise their rights and offer appropriate comments at a meeting of the Board of Directors and to Directors as well as Executive Officers.

  1. Auditors or the Board of Auditors shall secure coordination with independent External Directors, such as exchanging views so that independent External Directors are able to gather information without having their independence affected.
  2. Auditors shall endeavor to improve the quality of audits and conduct effective audits by receiving timely and appropriate reports from the Directors of the Company and its group companies, Executive Officers, employees and Accounting Auditor regarding necessary items for auditing the execution of business by Directors and Executive Officers, and by sharing necessary information with Accounting Auditor as well as the internal audit department.
  3. The Board of Auditors shall establish necessary basic policies, regulations and standards, among other items, that are necessary for the execution of duties.
  4. As a means to ensure the objectivity of audits, independence from Directors is guaranteed regarding instructions and orders for work and personnel evaluations, and at other times, for employees who execute duties based on resolutions passed by the Board of Auditors and instructions given by Auditors.
  5. The Board of Auditors shall respond as follows in order to secure appropriate audits.
    1. Select appropriate Accounting Auditor candidates and formulate standards and other measures to appropriately evaluate appointed Accounting Auditor.
    2. Verify that independence and expertise that is expected of an Accounting Auditor exists.

(Establishing an Internal Control System)

Article 19. The Board of Directors recognizes that an internal control system within the Company's overall Group as well as enhancing its Policy Guidelines are important elements aimed at securing the trust of stakeholders, including shareholders, and to this end shall establish the "Basic Policy on Internal Control System" based on the Companies Act, Order for Enforcement of the Companies Act, the Financial Instruments and Exchange Act, among other items.

  1. The Board of Directors shall establish a structure needed to comply with laws and ordinances, as well as the Policy Guidelines, along with securing business effectiveness and efficiency and reliability of financial reporting based on resolutions on the internal control system passed by the Board of Directors, and shall ensure that the structure functions effectively in business activities both at home and abroad.
  2. The Board of Auditors shall establish 鉄tandards for Conducting Audits Associated with the Internal Control System based on the 鄭uditors Audit Standards, among others.

Section 6 Other

(Exceptions)

Article 20. In the event the Board of Directors need to make an exception to these basic policies, it shall clarify the reason for the action, along with publicizing that appropriate measures have been taken in view of the intent of these basic policies.

(Revisions)

Article 21. Revisions to these basic policies shall be made through a resolution by the Board of Directors.

Supplementary Provisions

  1. Established on October 1, 2015.
  2. Revised and in effecton April 1, 2016.
  3. Revised and in effecton November 1, 2016.