Resolutions on "Basic Guidelines on the Development of Internal Control Systems"

Internal control for the Nabtesco Group shall be based on making the Corporate Philosophy, Code of Corporate Ethics, and Group Code of Conduct the cornerstones of proper and fair business activities, and ensuring compliance with these by Directors, Corporate Auditors and all Group employees.

Nabtesco's operations shall be conducted through a corporate officer system and a company system, and a Board of Directors, (a Board of) Corporate Auditors, and Accounting Auditors shall be established as corporate governance bodies to oversee these operations. A Management Committee shall be organized to deliberate on important matters involving the execution of operations.

The Chief Executive Officer (CEO) shall be the top executive responsible for the promotion of internal control, and a Compliance Division shall be responsible for assisting the CEO in this regard. The CEO shall also collaborate as necessary with the Corporate Auditors in maintaining internal control systems.

The Board of Directors shall examine the maintenance of internal control systems on a continual basis in line with changes in the business environment and social needs, revisions to laws and regulations, risk diversification and other factors, and shall conduct a review yearly and whenever else necessary.

1.The System ensuring that Directors execute their duties in compliance with laws and the Articles of Incorporation

(1) Directors shall comply with the Corporate Philosophy, Code of Corporate Ethics, and the Group Code of Conduct as a member of corporation, shall behave in accordance with social norms/ethics as members of society, and shall endeavor to establish and maintain a sound corporate culture.
(2) (The Board of) Directors shall make proper decisions on important management matters stipulated in laws and regulations, the Articles of Incorporation, the Board of Directors' rules, and Group regulations for responsibility and authority.
(3) Directors shall perform their respectively assigned duties in accordance with proper decisions by the Board of Directors, and shall report on the performance of their duties to the Board of Directors. Should a Director have any doubts on whether the execution of operations by himself/herself or other Directors are in compliance with laws and the Articles of Incorporation, the Director shall report these doubts to the Board of Directors and (the Board of) Corporate Auditors.
(4) Directors shall ensure the rationality and legality of their decisions by actively hearing the expert opinions of Expert Staff Members of the Head Office and/or outside the company during decision-making.
(5) The Board of Directors shall make use of the multifaceted and impartial advice provided by External Directors and External Corporate Auditors.

2.The System storing and managing information on the execution of duties by Directors

(1) Directors shall properly prepare and store/manage the following information (in written form or on electromagnetic record; the same applies hereinafter) on the performance of their duties in keeping with their respective duties and in accordance with laws and company regulations.
1) Minutes of general shareholders' meetings and related documentation
2) Minutes of Board of Directors' meetings and related documentation
3) Records of the proceedings at other important meetings of Directors (e.g., Management Committee meetings) and related documentation
4) Notices of decisions made by Directors and appended documentation
5) Other important documentation related to Directors' performance of their duties
(2) The parties responsible for the preparation and storage/management of the information set forth in (1) above shall be the chairmen of the respective meetings or a separately assigned Director, decision-maker, or the Director responsible for performing the duties in question.
(3) Efforts shall be made to establish and continually strengthen/improve adequate security for electromagnetic records to combat the risks of unauthorized disclosure posed by the increasing sophistication of information technology.

3.The System of regulations on managing the risk of loss, etc.

(1) The system shall be developed so that a scheme shall be put in place to ensure that profits and losses, asset efficiency, quality issues, accidents, and other matters concerning the execution of operations are reported to the Board of Directors in a suitable and timely fashion, and efforts shall be made to discover risks early so as to minimize losses.
(2) Cross-Group organizations shall be formed and company regulations shall be developed to manage risks and prevent losses with regard to the following.
1) Opportunity loss risk arising from changes in the business environment or industry structure, or from delays in pursuing new technologies or new market entry, etc.
2) Business management risk arising from improper decisions or operational measures, gross negligence or misconduct by Directors or employees
3) Country risk and risk of unrecoverable charges/procurement difficulties arising from credit extended to sales agents and suppliers
4) Financial risk arising from changes in financial assets held, fluctuations in interest/exchange rates, etc.
5) IT risk arising from shutdown/malfunction of mission-critical system, information leakage, etc.
6) Litigation risk arising from flaws in agreements, infringements of intellectual property rights, etc.
7) ESH (Environment, Safety & Health) risk
8) PL (Product Liability) and other quality-based risk
9) Other risks deemed extremely serious by the Board of Directors
(3) The suitability and legality of decision-making shall be ensured and risks managed through compliance with, and thoroughgoing implementation of, Group regulations for responsibility and authority.
(4) Reporting requirements in the event of accidents, disasters or critical quality problems shall be set forth within company regulations, and steps taken to ensure that information is promptly and suitably conveyed and contingency measures implemented during emergencies in accordance with these regulations.
(5) Directors and employees aware of matters that could have a seriously adverse impact on the Nabtesco Group shall report these promptly and precisely to (the Board of) Directors, and (the Board of) Directors shall endeavor to hold the losses therefrom to a minimum.
(6) Expert Members of the Head Office, particularly in the Business Auditing Department, shall conduct cross-organizational audits of operational risk management, and shall offer necessary and appropriate advice with regard to operational improvements.

4.The System ensuring that Directors perform their duties efficiently

(1) The necessary organizations shall be formed to ensure that Directors execute operations efficiently, and the respective responsibilities of these organizations shall be stipulated. Responsibility for operations shall be divided among Directors in accordance with Board of Directors' resolutions, and Directors shall execute operations in keeping with these divisions of responsibility.
(2) A corporate officer system and a company system shall be adopted in view of the nature and characteristics of the Nabtesco's business. The reserved powers of the Board of Directors and the authority granted to the CEO and Corporate Officers (including Directors in charge of operations; the same applies hereinafter) shall be clearly defined in accordance with Group regulations for responsibility and authority.
(3) The CEO and Corporate Officers shall follow the decision-making procedures required by Group regulations on responsibility and authority, execute operations and report on the same.
(4) Efforts shall be made to ensure the suitability and efficiency of decision-making by the Board of Directors with regard to the execution of operations to be submitted for consideration to the Board of Directors by having the Management Committee conduct preliminary examinations to clarify the points of issue before passing the matter on to the Board of Directors.

5.The system ensuring that employees execute their duties in compliance with laws and the Articles of Incorporation

(1) The CEO and individual Corporate Officers shall endeavor to inculcate the Corporate Philosophy, Code of Corporate Ethics and Group Code of Conduct into all employees and ensure the practical application of these principles.
(2) Organizations specializing in compliance shall be set up to review compliance systems in accordance with social conditions, revisions to laws, etc., and to provide cross-Group compliance education.
(3) Employees shall be obliged to report any misconduct within the Group, and a corporate ethics hotline shall be created as one means for doing so. Violations of laws shall be controlled by collecting information not reported via ordinary organizational channels through use of the corporate ethics hotline and by implementing appropriate measures.
(4) Thoroughgoing efforts shall be made to hear expert opinions from Expert Staff Members of the Head Office (e.g., Legal Department and other organizations) and/or expert outside the company to ensure that employees execute operations legally and properly.
(5) Internal Audits of subsidiaries shall be executed by our Business Auditing Department. Advice regarding improvements shall be provided as necessary and appropriate as part of these audits. The corporate ethics hotline operated by our company provides an additional check on subsidiaries.

6.The System ensuring the suitability of operations by the Company and the Group

(1) All principles and guidelines for internal control shall be applied to the whole Nabtesco Group, and efforts made to disseminate and standardize these throughout the Group as a whole.
(2) Management regulations of Nabtesco's group companies shall be established to stipulate, management classifications and management items for subsidiaries, and a Group-wide structure for responsibility and authority set up, taking into account the scale and importance (impact onto the Group) of subsidiaries as well as their autonomy.
(3) Efforts shall be made to improve the suitability and efficiency of business operations at subsidiaries as well as to make qualitative improvements to financial reports by adopting a fully-consolidated basis and appropriately reflecting the performance of all subsidiaries into the consolidated performance of the Company and by conducting performance assessment of the management of companies on a consolidated basis.
(4) Efforts shall be made to dispatch its personnel as External Directors and External Auditors to subsidiaries from the Company to ensure more suitable decision-making and execution of operations and to homogenize and improve audits of subsidiaries through the Board of Group Auditors.

7.Items on employees to assist Corporate Auditors ("support personnel"), when Corporate Auditors requested to assign employees to assist Corporate Auditors

(1) Should the (Board of) Corporate Auditors request that support personnel be assigned, the appropriate personnel shall be promptly secured after preliminary discussions with the (Board of) Corporate Auditors.

8.Items on independence of support personnel from Directors

(1) To ensure the independence of support personnel assigned in accordance with 7. above from Directors, reassignments and evaluations of these support personnel shall be made only after prior consultation with the (Board of) Corporate Auditors.

9.The System reporting by Directors and employees to Corporate Auditors; other reporting to Corporate Auditors

(1) Corporate Auditors shall be permitted to attend Management Committee meetings and all other important meetings.
(2) Corporate Auditors shall be permitted to view all management information.
(3) Directors aware of matters that could have a seriously adverse impact on the Company shall immediately report these to the (Board of) Corporate Auditors.
(4) Directors and employees shall respond promptly and appropriately to requests by the Corporate Auditors for reports on the Company's business or for cooperation in investigating the status of the Company's operations and assets.

10.The Systems to ensure that audits by Corporate Auditors are carried out effectively

(1) Corporate Auditors shall be permitted to attend important meetings and view management information, as well as to implement audits based on information available to Directors.
(2) The CEO and the Senior Managing Director shall hold regular meetings to exchange views with the (Board of) Corporate Auditors.
(3) Corporate Auditors shall be permitted to attend Management Committee meetings and to check the decision-making process in the execution of operations.
(4) Corporate Auditors shall be permitted to exchange views with Accounting Auditors and the Accounting & Finance Department regularly and to confirm the suitability of financial reports.
(5) Corporate Auditors shall be permitted to exchange views with the Compliance Department and the Business Auditing Department regularly with regard to audits and reports on audits, and to endeavor to improve audit operations.