Internal Controls

Basic Policies on Our Internal Control System and Related Support Systems

The Company's Basic Policies on Internal Control Systems are as Follows.

Systems to Ensure that the Execution of Duties by Directors and Employees Conforms to Laws, Regulations, and the Company's Articles of Incorporation

1. （1）Skylark Group Charter of Corporate Behavior based on the Company's corporate philosophy has been established by resolution of the Board of Directors as a guideline to be observed by all officers and employees, and has been thoroughly disseminated throughout the company as a standard for individual behavior.
2. （2）The Company has established a Board of Auditors. Under the audit policy determined by the Board of Auditors, each auditor audits the execution of duties by directors through such means as attendance at meetings of the Board of Directors, and investigations into the state of the execution of duties.
3. （3）In order to strengthen the Group’s compliance system, the Company has established Skylark Group Internal Reporting System for whistleblowing. In accordance with the Detailed Rules for Skylark Group Internal Reporting System Operation, the Company receives whistleblowing reports from all officers and employees of the Group through a dedicated telephone number and website, and endeavors to ensure early detection, correction and prevention of recurrence of violations of laws, internal regulations and other rules.

Systems to Store and Manage Information Related to the Execution of Duties by Directors

1. （1）Information related to the execution of duties by directors is appropriately stored and managed based on the Board of Directors Regulations and the Group Documentation Management Regulations.
2. （2）Documents necessary for the execution of duties by directors, including the minutes of General Meetings of Shareholders, minutes of meetings of the Board of Directors, and approval/decision-making documents concerning important matters for the operation of business are stored and managed in an easily searchable manner, so that directors and auditors may always access such documents.
3. （3）Confidential information is appropriately managed based on the Group Information Security and System Management Regulations.
4. （4）Personal information is strictly managed based on laws and regulations and the Detailed Rules for Personal Information Management.

Regulations and Other Systems for Managing the Risk of Loss

1. （1）The outline of risks to be addressed is determined pursuant to the Group Risk Management Regulations, and various risks are addressed through a series of processes while comprehensively developing individual rules and manuals.
2. （2）The greatest risk for the restaurant industry is food-related accidents. In order to prevent such accidents from occurring, the Group endeavors to ensure safety by establishing regulations for purchasing management and providing suppliers with guidance on food safety and hygiene management. In addition, the Company has established the Quality Control Group as a division responsible for hygiene management, checking food safety at stores and central kitchens, and providing employees with guidance on hygiene management.
3. （3）With respect to risks of confidential information leaks, pursuant to the Group Information Security and System Management Regulations, the Company has established the Information Security Committee, and takes measures such as managing information-related equipment/devices and documents thoroughly, and providing officers and employees with education on information security.
4. （4）With respect to other risks, each responsible department develops individual regulations, guidelines and manuals, and conducts training, while the Group Risk and Compliance Committee keeps a cross-organizational watch on the state of risks and takes appropriate measures on a company/group-wide scale.
5. （5）The Group Risk and Compliance Committee, which is composed of the Chairman, President & CEO and all executive officers, meets at least once a year to deliberate on important matters related to the Group’s compliance and to determine basic policies.

Systems to Ensure Efficient Execution of Duties by Directors

1. （1）Flexible decision-making and execution of duties is ensured while avoiding administrative overlaps by clearly and appropriately determining decision-making authority of officers and employees, and areas of operations in which each department should be involved, in the Decision-Making Authority Regulations and Job Authority Standards.
2. （2）The Company has a Board of Directors consisting of a small number of members, which makes prompt management judgments through regular meetings of the Board of Directors held every month, and extraordinary meetings of the Board of Directors held as needed.

Systems to Ensure the Reliability of Financial Reporting

1. （1）Internal control over financial reporting is evaluated, maintained and improved based on the Financial Instruments and Exchange Act and other applicable domestic and foreign laws and regulations.
2. （2）Each division and affiliated company of the Company shall endeavor to ensure the appropriateness of financial reports upon the execution of its business operations through checks by segregation of duties and daily monitoring.

Systems to Ensure the Adequacy of Operations within Skylark Group

1. （1）The Company requests for each group company to execute its duties in a sound manner, pursuant to the Skylark Group Charter of Corporate Behavior.
2. （2）The Company manages affiliated companies pursuant to regulations such as the Group Rules for Management of Affiliated Companies, and requires each affiliated company to submit regular reports and materials with regard to its business conditions. In addition, while dispatching directors and auditors to important affiliated companies and supervising their business operations to ensure their appropriateness, the Company makes efforts to gain an understanding of management issues at affiliated companies.
3. （3）In order to control the risk of loss at affiliated companies, the Group Risk and Compliance Committee ascertains and identifies risks throughout the entire Group, requests each affiliated company to report its status of risk control, and gives instructions about how to deal with risks if needed. Additionally, if any event affecting the management of the Group occurs at an affiliated company, the Company requests the affiliated company to report the event immediately to the chairperson of the Company's Risk and Compliance Committee, and provides assistance suitable to each case.
4. （4）In order to execute the duties of the entire Group in a swift and agile manner, the Group Executive Officers’ Meeting, which is comprised of members appointed by the Chairman, President & CEO reports and deliberates on important matters, including matters relating to duties of the entire Group. The Group Executive Officers’ Meeting is held every week, in principle. In addition, the Group Executive Officers’ Meeting establishes Group committees (the Personnel & System Committee and Policy & Investments Committee) as subordinate organizational units as needed, in order to report and consider specific group-wide matters such as those relating to the personnel system for the entire Group, major policies, and important contracts. Members of these committees are determined by the Group Executive Officers’ Meeting, and meet on a monthly basis, in principle. The Company requests each affiliated company to take the most suitable measures based on the resolutions made by the Group Executive Officers’ Meeting and Group committees.
5. （5）The Company has organized the Group Compliance Meeting, which is comprised of the compliance promotion managers appointed by affiliated companies, and holds meetings as needed. At these meetings, the members check and report matters such as the state of promotion of the compliance system including measures for the prevention of violations within affiliated companies, and the status of investigations and corrective measures in relation to specific violating acts.
6. （6）The Audit Group performs audits of affiliated companies periodically.

A System Regarding Employees Required by Auditors to Assist Them in the Performance of Their Duties When an Auditor Requests the Assignment of Such Employees

In cases where auditors request the assignment of employees to support the execution of their duties, the Company assigns such employees and the specific details for the assignment are discussed with auditors.

Matters Regarding the Independence of Employees Assigned to Assist with the Duties of Auditors from Directors, and Matters Concerning Measures to Ensure the Effectiveness of the Directions Given to such Employees

The consent of auditors is required for the appointment and transfer of employees who support the execution of auditors’ duties. Such employees execute their duties under the directions and orders of auditors without concurrently assuming any post related to the execution of the Company’s business.

Systems which Enable Directors and Employees to Make Reports to Auditors and Other Systems Regarding Reports to the Auditors

1. （1）In cases where any officer or employee of the Group discovers any fact which may cause significant damage to the management of the Company or its affiliated companies, and any act of dishonesty or violation of laws, regulations or articles of incorporation by an officer or employee, and also in cases where he or she is requested by an auditor to report a matter necessary for the Group's audits, he or she shall report such matters to the auditor immediately.
2. （2）Officers and employees of the Group shall report to auditors regularly about the operation status of the Skylark Group Internal Reporting System for whistleblowing.
3. （3）If any officer or employee of the Group makes a report to auditors pursuant to the items above or any other report, it is prohibited to treat him or her disadvantageously on the basis of the report, and this prohibition of disadvantageous treatment is thoroughly implemented at affiliated companies.

Systems to Ensure that Audits by Auditors are Performed Effectively

1. （1）Based on the audit policy, audit plan and audit standards determined by the Board of Auditors, auditors shall attend important meetings such as the Board of Directors meetings, verify and monitor the execution of duties by directors by such means as reporting and hearing from accounting auditors, directors, and the Audit Group.
2. （2）Auditors ensure a system that enables efficient and effective audits by exchanging opinions and information with the Company’s accounting auditors and external law firms as needed.
3. （3）Directors cooperate with the audits performed by auditors, and procure the budget for various expenses required for audits in order to ensure their effectiveness. Auditors may demand that the Company pay any expenses paid in an urgent situation or on a temporary basis, or any other expenses which are not included in the budget, after such expenses have actually been paid after the fact. In such cases, the Company shall swiftly pay such expenses, except in cases where the Company recognizes that there was no need to incur such expenses in light of the duties executed by auditors.

Basic Stance and State of Implementation for Eliminating Antisocial Forces

1. （1）For the purpose of eliminating antisocial forces, the Company has established a basic policy of never engaging in any relationship with antisocial forces, stating in the Skylark Group Charter of Corporate Behavior, which specifies behavior standards for all officers and employees that "the Company will take a tough stance against antisocial individuals and groups which negatively impact social order and sound corporate activities.”
2. （2）The General Affairs Division shall act as the department with overall responsibility for countermeasures against antisocial forces, and develop a system for emergency internal reporting (whistleblowing) while building up a daily close connection with advisory attorneys and other specialized external agencies. The division shall also take the central role in developing relevant regulations and running awareness-raising activities through calls to attention and training sessions.

Basic Stance and State of Implementation for Eliminating Antisocial Forces

The Group's basic views toward the elimination of antisocial forces are stipulated in the Skylark Group Charter of Corporate Behavior (the behavior standard for all officers and employees). The Group has defined a basic policy of not having any relationship with antisocial forces whatsoever, stating that it "shall absolutely eliminate relations with antisocial forces and groups that pose a threat to the order and safety of civil society."
With regard to internal structure, the Company has established the Group Risk and Compliance Committee as a meeting body for compliance and risk management. Under this committee, the General Affairs Group is responsible for operations relating to antisocial forces. The General Affairs Group has established the Detailed Group Rules for Handling of Antisocial Forces as internal regulations, and thorough responses to antisocial forces such as preliminary research on business partners and addition of provisions regarding the elimination of antisocial forces to agreements have been implemented pursuant to these rules. Moreover, the Company requires affiliated companies to respond in the same way, and conducts checks via the Group Compliance Committee as needed.
With regard to cooperation with external organizations, the Company is a member of TOKUBOUREN (a public interest incorporated foundation in the Tokyo Metropolitan Police Department to prevent special organized crimes) and the Tokyo Center for Removal of Criminal Organizations [Public Interest Incorporated Foundation], and endeavors to gather information regarding antisocial forces. The Company also elects persons responsible for preventing illegitimate claims and notifies the local police stations, and has developed systems for liaising with police departments.