Compliance and Risk Management

Compliance

Tokuyama understands "compliance" to have a broad meaning, including not only compliance with laws and internal rules but also behaving sensibly in a manner that conforms with corporate ethics and meets social expectations. To communicate and spread awareness of compliance throughout the Group, the Company has put together a handbook presenting the Tokuyama Group Code of Conduct, the responsibilities of Senior Management under the Tokuyama Group Code of Conduct, and the Tokuyama Group's Five Conscience Clauses. It is distributed to all Group employees.

Compliance

Tokuyama Group Code of Conduct and Action Guidelines

To achieve sustainable growth while earning public trust and being the consistent choice of customers, the Tokuyama Group ensures that all employees and officers understand and adhere to the Group Code of Conduct and Five Conscience Clauses. Group companies also formulate their own action guidelines to guide their relations with various stakeholders.

Tokuyama Group Code of Conduct (Established: May 12, 2009)

All Tokuyama Group members commit to the following essential principles to ensure the Group operates in a way that meets social expectations and delivers sustained growth by earning the continued support of customers and the trust of society.

1. Compliance We act with good corporate ethics and common sense, based on the understanding that compliance with laws and corporate rules is the most important requirement in all business activities.

2. Fair Business Activities We aim to be moderate and reasonable in our business and practice fair, free, and transparent competition. We maintain fair and reasonable relationships with political and governmental organizations.

3. Responsible Care We develop, manufacture and supply products and services that have value to society, with a constant focus on safety requirements, to ensure that we can satisfy our customers and consumers and earn their trust. We voluntarily and proactively address environmental issues based on an understanding of their significance to all people and their importance to the continuation of business activities.

4. Respect for Human Rights and Individuality We respect the basic rights of people in our business and do not discriminate on the basis of race, sexuality, creed, nationality or religion We value diversity in the workplace and provide a safe and comfortable work environment to ensure satisfaction and opportunity for each employee.

5. Communications We make fair and positive public disclosure of information about our Group including its business activities and financial reports to maintain good communication with society.

6. Social Contributions We actively seek to contribute to society as a good corporate citizen. We contribute to the development of local regions in our international business activities, respecting not only international rules, local laws, and regulations, but also local cultures and customs.

7. Exclusion of Antisocial Forces We do not enter into any business arrangement with antisocial forces that threaten public order and safety.

Tokuyama Group Guidelines for Business Activities (Established: March 28, 2012)

(Preface)
These Guidelines set out the essential principles that govern the ongoing business activities of the Tokuyama Group (hereinafter referred to as the "Group"), which aims to realize a sustainable future in tandem with society and to gain the trust and appreciation of individual stakeholders.

I. Basic Principle The Group will not only comply with laws, regulations and its corporate rules, but also adhere to strict corporate ethics and conduct its business activities with decency.

II. Relationship with Society 1. Contribution to Society
2. Environmental Conservation and Protection
3. Establishment of Systems for Ensuring Safety In the course of the research, development and manufacture of its products as well as in the storage and transportation of its products and goods, including those manufactured by other companies, and in the provision of its services, the Group will comply with safety-related laws and regulations. At the same time, the Group will continually strive to increase the sophistication of its systems for ensuring safety. 4. Security and Export Control To fulfill its responsibility to help maintain international peace and safety, the Group will comply with laws and regulations that control the export of cargo and technologies. 5. Nurturing Sound Relationships with Political and Governmental Organizations The Group will nurture highly transparent relationships with political and governmental organizations, avoid behavior that can be alleged to constitute misconduct, and cultivate fair and sound relationships with such organizations. 6. Severing Ties with Antisocial Forces The Group will take a firm stand against antisocial forces that pose a threat to public order and safety, and will thoroughly separate itself from any relationship with such forces.

III. Relationships with Customers and Trading Partners 1. Reliability of Products and Services With a constant focus on safety requirements, the Group will develop and manufacture products and services that have value to society. In doing so, the Group will strive to implement a higher level of quality assurance in order to meet the quality requirements of its customers and consumers and earn their trust. 2. Fair, Free and Transparent Competition and Reasonable Trade 3. Entertainment and Gift Giving 4. Other Companies' Trade Secrets

IV. Relationship with Shareholders and Investors 1. Timely, Appropriate and Easy-to-Understand Information Disclosure The Group will endeavor to disclose not only information on its business management and financial status, but non-financial information, including data on the products and services that it provides to society as well as on the environmental and social aspects of its business operations. In addition to its shareholders and investors, the Group will publicly disclose such information for the benefit of society and strive to make such disclosure timely, appropriate and easy-to-understand. 2. Prevention of Insider Trading The Group will strive to prevent any person in its employ from exploiting non-public information pertaining to matters inside or outside the Group that he/she has come to know of in the course of his/her duties for the purpose of selling or buying securities, including stocks, for his/her own gain and, further, to prevent such persons from exploiting non-public information to provide benefits or favors to a third party.

V. Relationship with Executives and Employees 1. Respect for Human Rights and Prohibition of Discrimination 2. Respect for Privacy The Group will respect the privacy of the persons in its employ and properly manage their personal information. 3. Compliance with Labor-Related Laws and Regulations The Group will comply with labor-related laws and regulations and strive to maintain a comfortable working atmosphere 4. Workplace Safety and the Promotion of Health

VI . Our Handling of Group Assets and Financial Reporting 1. Appropriate Use of Group Assets The Group will efficiently utilize its tangible and intangible assets, protect such assets against impairment and theft, prohibit any personal use of such assets and ensure that such assets are appropriately administered. 2. Reliable Financial Reporting 3. Management of Confidential Information 4. Appropriate Use of Information Systems The Group will appropriately use and administer its in-house information systems in accordance with its corporate rules. 5. Protection and Use of Intellectual Property Rights

Compliance Education & Training

Training on legal obligations is held for new directors and auditors to reduce compliance risk. In fiscal 2017, a variety of compliance training programs were also held for employees, on 45 occasions. Tokuyama also implements e-learning programs on: compliance; prevention of abuse of power, sexual harassment, and maternity harassment; protection of personal information; the Social Security and Tax Number System; copyrights; management of tradesecrets; and insider trading regulations.

Whistle-Blowing System

An internal helpline has been established to enable safe, anonymous reporting and consultation regarding compliance violations involving the Tokuyama Group (including potential violations) without fear of unfavorable treatment. There is also an established external contact point (attorney) to whom an employee can make an anonymous report without the Company being notified of the employee's name and position, for his or her protection

Whistle-Blowing System

Risk Management

Tokuyama manages risk through the Risk Management and Compliance Committee, which operates under the CSR Promotion Council. It also has expert committees focused on risk management and compliance in seven critical and specialized areas to ensure management through the deliberation of key issued. The Company has designated a unit responsible for regulations concerning management of the risk of loss and conducts activities based on the management regulations. It also works to mitigate compliance risk by establishing management systems for understanding important laws and regulations that are relevant to business execution and keeping track of trends in amendments to these laws and regulations. The Company also has established a business continuity plan (BCP) and other measures in order to ensure an appropriate response for the type and severity of any crisis.

Risk Management

Promoting Information Security

Tokuyama implements the following security measures in order to reinforce security of information assets, such as client information. In fiscal 2017, no major incidents concerning information security occurred.

Security Measures with New ICT Technology

1. We prepare systems and rules that enable flexible installation, confirmation and central control of security for individual ICT technologies

2. We clarify what requires protection as well as risks, and carry out appropriate measures.

3. We have a computer security incident response team (CSIRT*) which works to prevent incidents, and also to minimize damage in the event an incident does occur.

* The CSIRT prevents the occurrence of security incidents, and in the event that one occurs, contributes to the achievement of safety and security with an immediate response. The establishment of a CSIRT is encouraged in the Cybersecurity Management Guidelines published by Japan's Ministry of Economy, Trade and Industry (METI)

Initiatives in Fiscal 2018
1. Promoting management of trade secrets Prepared regulations in accordance with the fiscal 2015 revision of Japan's Unfair Competition Prevention Act, and verified tools for implementing advanced document management.
2. Strengthening personal information management In accordance with the Revised Act on the Protection of Personal Information, explained the revisions to the five major divisions, received reports on their management of personal information, and made recommendations.
3. Responding to new rules on protecting personal information in the EU General Data Protection Regulation (GDPR) Confirmed status of the three relevant group companies and presented measures.
4. Implementing educational training Held three group training sessions on information security and protection of personal information for new employees and implemented training on targeted email attacks at two group companies.
5. Other Two employees participated in cybersecurity seminars for control systems organized by METI.

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