Corporate Governance Framework - Otsuka

1 Corporate GOVERNANCEO tsuka-people creating new products for better health worldwideSubsidiaries(General Meeting of Shareholders, Board of Directors, Audit and Supervisory Board, etc.)General Meeting of ShareholdersMeetings of the Group s Audit and Supervisory BoardPrior consultation Ex post facto reportsApproval of material mattersManagement guidanceElects/dismissesElects/dismisses Operational auditsAccounting auditsAccounting audits(Cooperates with)(Cooperates with)(Cooperates with)Elects/dismissesAppoints/dismissesR eportsInstructsAudit firmBoard of DirectorsPresident and Representative Director, CEOI nternal Audit Department(As of June 30, 2014)Audit and Supervisory Board4 members including 2 outside members()10 directors including 3 outside directors()Basic ApproachThe Otsuka Group engages in the challenge of conducting research and development to deliver innovative, creative pharmaceutical and nutritional products with the objective of contributing to medical care and the health of people worldwide.

2 The Group strives to live together harmoniously with local communities and the natural environment while aiming to live up to the trust of Governance FrameworkBelow is a diagram of Otsuka Holdings Corporate Governance Framework . The current Framework was adopted to ensure the continuous progression of Corporate value and preservation of a highly transparent Governance structure. This was achieved through the close cooperation of the Board of Directors, which includes several outside directors, with the Audit and Supervisory Board, also including several outside members, which enables effective utilization of the function of the Audit and Supervisory Board and strengthens the management oversight function. Corporate OrganizationAs a company with a board of Corporate auditors, Otsuka Holdings has established a Board of Directors and an Audit and Supervisory Board, and engages an audit firm.

3 The Company pursues sound business management by filling more than half the seats on its Audit and Supervisory Board with outside appointees and by increasing the Audit and Supervisory Board monitoring articles of incorporation specify that the number of directors shall not exceed 18 in order to enable substantive discussion during Board meetings. The articles of incorporation also specify that the number of audit and supervisory members shall not exceed five. Directors & the Board of DirectorsIn accordance with the Board regulations, the Board of Directors convenes once a month and holds extraordinary meetings as necessary to make important business decisions and supervise the execution of operations. As of June 30, 2014, there are ten directors. Information related to directors performance of duties is stored and managed appropriately and reliably and maintained in a format accessible when needed, in accordance with the Company Documents Management Audit and Supervisory Board Members and the Audit and Supervisory BoardOtsuka Holdings has adopted a statutory auditor system.

4 Each audit and supervisory board member attends and expresses opinions at meetings of the Board of Directors and monitors the legality and soundness of management as represented by the directors performance of their duties, with audits by the Audit and Supervisory Board at the core of this have been put in place for audit and supervisory members to interview directors and employees about the status of business execution, to review internal consultation documents and other important documents pertaining to business execution, and to promptly make reports on the execution of operations when asked to do so in order to ensure that audits by audit and supervisory board members are conducted effectively. An Audit and Supervisory Board Members Office has been established to assist the duties of audit and supervisory board members.

5 It conducts the work of convening meetings of the audit and supervisory board members and assisting in the duties of audit and supervisory board members independent of the chain of command of board , audit and supervisory board members share information and exchange opinions as appropriate with relevant departments such as the Internal Audit Department, Internal Control Department, Administration Department, and Corporate Finance and Accounting Department, as well as the audit firm, in an effort to improve the effectiveness of their Holdings does not establish committees. An audit and supervisory member, Hiroshi Sugawara, holds qualifications as a certified public accountant and has considerable expertise in financial affairs and accounting. Outside Directors and Outside Audit and Supervisory Board MembersThe role of the outside directors is to enhance the Governance function of the Board of Directors.

6 This involves overseeing business execution and ensuring appropriate decision making through the provision of effective advice from a neutral and objective viewpoint, based on broad insight and a wealth of experience. When necessary, the outside directors also ascertain conditions in the Internal Control Department, while strengthening and enhancing the management oversight function through the various activities of the Board of outside audit and supervisory board members conduct audit work from a neutral and objective viewpoint, based on a wealth of experience relating to Corporate management and deep insight into finance, accounting and management. Their role is to strengthen the oversight function while improving management transparency through appropriate advice to the Board of Directors.

7 Outside audit and supervisory board members share information and exchange opinions as appropriate with relevant departments such as the Internal Audit Department, Internal Control Department, Administration Department, and Corporate Finance and Accounting Department, as well as the audit firm, in an effort to improve the effectiveness of their addition to maintaining their independence, Otsuka s outside directors and outside audit and supervisory board members have deep insight and a wealth of experience in Corporate the end of March 2013, outside director Yasuyuki Hirotomi was Vice President and Representative Director of Resona Bank, Ltd. He currently serves as President of The Resona Foundation for Asia and Oceania, Outside Director of elecom co ., Ltd., and Vice President, Director, and Executive Officer of Kyosei Steel Ltd.

8 Resona Bank is one of Otsuka s principal lenders. The Otsuka Group has no transactions with The Resona Foundation for Asia and Oceania, Elecom, or Kyosei Steel. Outside director Juichi Kawaguchi has no prior relationship with Otsuka Holdings, and has no personal or capital interests in the Company, nor any business relationships with it. Until the end of April 2011, outside director Tadaaki Kounose was President and Representative Director of Megmilk Snow Brand Co., Ltd., and a member of the Administrative Council of the University of Miyazaki. Otsuka Holdings and Megmilk Snow Brand have transactions through each other s subsidiaries, but the monetary amount is insignificant. The Company has no transactions with University of of June 30, 2014, outside audit and supervisory board members Norikazu Yahagi and Hiroshi Sugawara held 15,000 and 4,000 shares, respectively, of common stock in Otsuka Holdings.

9 Norikazu Yahagi is also an outside audit and supervisory board member of Co., Ltd. Otsuka Holdings has no business relationship with this company. Hiroshi Sugawara is also an outside audit and supervisory board member for Otsuka Pharmaceutical Co., Ltd., a vice president of Will Capital Management Co., Ltd., and an outside director of Nippon Parking Development Co., Ltd. Otsuka Pharmaceutical is a subsidiary of Otsuka Holdings. The Company has no business relationship with Will Capital Management or Nippon Parking Development. Otsuka Holdings has designated outside directors Juichi Kawaguchi and Tadaaki Kounose as well as outside audit and supervisory board members Norikazu Yahagi and Hiroshi Sugawara as independent officers, as regulated by the Tokyo Stock Exchange, and notified the Tokyo Stock Exchange following criteria are used for appointing outside directors and outside audit and supervisory board directors and outside audit and supervisory board members must be capable persons with abundant knowledge and experience in various fields.

10 They must be able to demonstrate adequate oversight of the directors by performing fair and objective management supervision and monitoring, or auditing, from a neutral and objective viewpoint. One criterion for ensuring neutrality and objectivity is independence from the management team, and the Company demands that there be no risk of a conflict of interest with general shareholders developing between the Company and a candidate. The Company has not established formal criteria for independence pertaining to past duties and career history, other than having not engaged in the administration of business matters in a Group company. However, bearing in mind the Criteria for Judgment of Independence specified by the Tokyo Stock Exchange,* the Company does stress that candidates must be able to make judgments substantially independent from managers, which it uses as an appointment criterion for outside directors and outside audit and supervisory board * Criteria for Judgment of Independence specified by the Tokyo Stock ExchangeIf a person designated as an independent officer falls under any of the following items a.