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Management Policy

Situation of Corporate Governance

Basic Explanation of Firm Organization

The Management Council, with core members constituted by directors with the rank of Managing Director or above, full-time Audit & Supervisory Board members and individuals appointed by the President, has been established to act as an advisory body on matters pertaining to the bolstering of strategic management functions and the streamlining of decision-making processes.
To bolster supervisory functions, Board Meetings chaired by the President and CEO are convened at least once a month.
In addition to the above, AEON MALL implements meetings/ sessions attended by executives below the rank of Representative Director (heads of divisions, business departments and administrative functions) to ensure business efficiency and information sharing. The Company employs an Audit and Supervisory Board system comprised mainly of outside directors, and has established a framework allowing members of the Audit and Supervisory Board to fully perform their auditing functions in cooperation with accounting auditors and the Management Audit Department.
All members of the Audit and Supervisory Board attend meetings of the Board of Directors, and full-time Audit & Supervisory Board members attend the Management Council.

Analysis and Evaluations of the Effectiveness of the Board of Directors

The Company evaluates the effectiveness of the board of directors through self-assessments based on questionnaires. A third-party organization conducts analysis of questionnaire answers, while outside directors and others provide further opinions and feedback. The results of this investigation and analysis are examined and discussed at a meeting of the Company's board of directors.
At the board of director meeting in question, sufficient time was set aside for discussing board effectiveness.
After a lively exchange of varied opinions and experiences from directors and members of the Audit & Supervisory Board, the board of directors determined that the board functioned appropriately during fiscal 2017 and had improved in general compared to the prior fiscal year.
In particular, the board recognized improvements in monitoring the Company's medium- and long-term vision and in providing regular opportunities for outside directors and managers to exchange opinions.
On the other hand, the board identified matters for future investigation. These matters included ensuring greater objectivity and transparency in processes related to nominating director candidates and director remuneration, as well as the need to improve risk management in support of taking appropriate risks associated with global expansion.
The Company will continue to implement policies to improve board of director functions, striving for more robust board meeting deliberations and greater board effectiveness.

Basic Views on Internal Control System and the Progress of System Development

a. Information Storage/ Administration Essential for the Performance of Duties by Company Directors
Documents such as statements of resolution, Board of Director meeting minutes, and other documents that are required by executive directors and other employees in performing their duties are produced under rules stipulated by the Company.
Documents produced in this manner are stored in a pertinent and reliable manner, depending on the storage media, such that search and retrieval are readily done and viewing of such documents is possible whenever necessary.
As regards to the task of administering storage, the designated unit responsible under the "Rules on Administering Documents" is tasked with prevention of leakage of information.

b. Structure of Rules Relating to Administering of Risk of Loss at the Company and/or its Subsidiaries (henceforth the Group)
The Company designates the CEO as the chief executive responsible for overall risk management and for each of the business units, the directors heading those business units. The Company makes effort to realize organizational structures and a work environment conducive to securing the Company as an on-going concern and the safety and life of individuals.
In order to prevent crisis situations and/or minimize damage in the event a crisis situation does develop, the Company employs a "Rules for Risk Management." Further, the Company establishes teams to lead risk management by risk category. It is through management of risk at the Group overall that the Company attempts to prevent damage to the corporate brand and enhance overall corporate value.
In the event of an emergency and where the risk threatens to pose substantial loss, the Company will, based on the Rules for Risk Management, undertake appropriate action in the way of communication of information and decision-making so as to minimize potential damage.
To manage risk of the entire Group, the Company has established a "Risk Management Committee" led by the General Manager of administration. The Committee is tasked with identifying issues related to advancing risk management at the Group level and conducting discussions on potential solutions. Regarding the Committee's proceedings, reports are made to the Management Council which operates as the CEO's advisory body and which is constituted by directors equal to or above the rank of Managing Director, the full-time corporate Audit & Supervisory Board Member, and an individual designated by the CEO. Where an issue at the Risk Management Committee is deemed to be of high importance, a report is made to the Board of Directors.
The Internal Audit Department seeks to elevate execution of risk management and based on the "Rules for Internal Auditing," implements internal audit and supervision.

c. Organizational Structures to Secure Efficient Performance of Duties by Directors of the Company and its Subsidiaries, Executive Officers, Employees with Executory Responsibilities, Individuals Performing Duties under Article 598, Section 1 of the Company Act, and Others of Equivalent Standing (henceforth Directors of Subsidiaries)
Besides the hosting of board meetings once a month, the Company conducts extraordinary meetings as deemed necessary. Where those decisions carry substantial risk that threatens to have far-reaching impact on the whole of the Group, the issue is brought before the Management Council where it is discussed and approved by the CEO and/or by resolution of the Board of Directors.
As regards to execution of duties, via "Rules for Organizational Administration," "Rules for Division of Duties," "Rules of Jurisdiction," "Rules for Approval Requests," and "Rules on Management of Affiliates," executive powers are allotted as necessary and management accountability is made clear.
Further, as regards to structures to allow for efficient execution of duties by directors of subsidiaries, the Company approves, via the Board of Directors, a Medium-term Plan, fiscal year performance goals, and funding allocations that include the subsidiaries. On a quarterly basis, the subsidiaries verify their performance relative to those corporate plans and make report, along with other important items, to the Company.

d. Structures Enabling Assurance that Performance of Duty by the Directors of the Company, Its Employees, Directors of Subsidiaries and/or their Employees are Compatible with Regulators and the Articles of Incorporation
The Company places great importance on compliance and respect for the Aeon Group's Standard of Conduct "Aeon Standard of Conduct" so as to allow for a still better relationship with regional communities and to fulfil the Company's social responsibilities.
The Company has established a Compliance Committee headed by the General Manager of Administration.
The Committee is tasked with ensuring the observance of compliance with regard to regulations relevant to the Group as well with regard to the Company's Articles of Incorporation and/or internal rules. It is also tasked with identifying problems and advancing discussions to remedy those problems. The proceedings of the Committee are reported to the Management Council and for particularly important items, presented before the Board of Directors.
The Company has also established a "Help-line EAeon Mall [Personnel 110]" which is an internal anonymous reporting tool for those insiders wishing to report wrong-doing without risk of harm to themselves ([Kumiai 110] installed for the Company's labor union).
The Company's subsidiaries will be installing similar help-line systems. In the event a problem is brought to the attention of the Company through this help-line, an investigation will be implemented. Where wrong-doing is confirmed, necessary actions will be taken in accordance with internal rules. The wrong-doing will be reported to the Compliance Committee and the Company will make measure to help prevent a repeat of any wrong-doing. Such measure will then be implemented across the whole of the Company.

e. Structures to Assure Appropriate Business Administration vis-Evis Given the Existence of a Corporate Group Consisting of the Company, its Parent, and Subsidiaries
For those business transactions where conflicts of interest may occur between the parent and the Company, or those instances where the Company is essentially competing with the parent, it is necessary for the Management Council to get involved for discussion purposes.
It is only after further approval by the Board of Directors can the transaction proceed.
Similarly, for those business transactions occurring between the Company and its subsidiaries or other Group companies, the business unit carrying out the transaction must seek to ensure the Company will not suffer economic loss by basing the terms of transaction to market prices and arms-length transactions.
As regards to price determination, where impartial and objective pricing can be had, it is required that necessary documentation by a third-party entity be secured and be presented to the Board of Directors and the Management Council.
As regards to items relating to directors of subsidiaries and the execution of their duties, the Company requires that the subsidiaries make report to the Management Council of monthly business performance, financial results, and other data the Company deems necessary in accordance with the "Rules on Management of Affiliates."
The Internal Audit Department makes determination of whether or not the Company's and/or its subsidiaries are being managed appropriately.
An audit of the Company and/or its subsidiaries is conducted based on the "Rules for Internal Auditing," and via the "Report on Internal Auditing," makes report to the CEO and the full-time corporate Audit & Supervisory Board Member.

f. Items Relating to Employees (henceforth Employee Assistants) Tasked with Assisting Corporate Audit & Supervisory Board Members in the Execution of their Duties, Items Relating to the Employee Assistants Independence from the Company's Board of Directors, and Items Relating to Ensuring of Effectiveness in Making Instructions
The Company will select and appoint employee assistants for corporate Audit & Supervisory Board Members via the Audit & Supervisory Board. It is agreed that employee assistants will not receive orders nor instructions from other directors and/or other employees.
It is agreed that performance appraisals of employee assistants will be determined at a meeting of corporate Audit & Supervisory Board Members, and that HR driven personnel transfers and/or any reprimands must first gain the approval of the Audit & Supervisory Board.

g. Structure Regarding Reporting to the Audit & Supervisory Board Members
Reporting to the corporate Audit & Supervisory Board Members at the Company by the Company's directors, employees, directors of subsidiaries, and employees of subsidiaries is structured as follows.
Reporting on business performance, business status, financial status, status of internal auditing, risk management and/or compliance status is made to the Board of Directors where the corporate Audit & Supervisory Board Members are participants and/or the Management Council.
Where an issue involves an item that risks affecting the business performance of the Company and/or its subsidiaries, or the discovery of an item which may run afoul of regulations and/or compliance rules and may threaten to cause the Company and/or its subsidiaries material harm, reporting is done in a timely manner to the Audit & Supervisory Board.
The Company and its subsidiaries strenuously prohibit unfavorable treatment of individuals making reports. This is made well known to the Company's directors, its employees, directors of subsidiaries, Audit & Supervisory Board Members, and employees.

h. Items Regarding Expense Prepayment, Redemption Filing and Other Expenses Resulting from Execution of Duty by the Company's Auditors (members of the Audit & Supervisory Board) and/or Policies Regarding Disposal of Debt
In the event the Company is requested by the Audit & Supervisory Board Members to make prepayment of expenses as per the Corporate Act - Article 388, the Company will, based on internal rules, make timely payment of said expenses.
Further, the relevant business unit at the Company will present every year a budget to account for this expense.

i. Other Structures to Ensure that Internal Auditing by the Company's Auditors (members of the Audit & Supervisory Board) are being Implemented Effectively
The Internal Audit Department will, on a timely basis, make discussion with the Audit & Supervisory Board regarding the content of internal audits so as to create a tightly coordinated effort that will help lead to an efficient audit by the Audit & Supervisory Board Members.

Basic Views on Eliminating Anti-Social Forces

1. Basic Thinking

Rigorous application of compliance management, in the name of defending the Company, to not interact with anti-social entities. In the event of unreasonable demands, to respond in a resolute manner.
Recognition that expulsion of anti-social entities is a social responsibility of the Company.

2. Status of Efforts toward Expulsion of Anti-social Forces

a. In the event of unreasonable demand by anti-social forces, any response is implemented not on a singular individual basis, but on a corporate basis. Close coordination with third-party specialists/ research entities is exacted to launch civil and/or criminal law proceedings as an organization.
b. The Company is a member of the Foundation for Chiba Prefecture's Assembly for Expulsion of Anti-social Forces and maintains close coordination with the police and anti-crime associations. The Company as a whole is involved in efforts to collect information on anti-social forces utilizing the reach of its various business units. Information gathered is used for educational purposes internally.
c. As per the "Rules on Administering Transactions," the Company conducts counterparty checks to confirm no relationship with anti-social forces exist. In this way, the Company acts vigorously for the expulsion of anti-social forces.

Status of Accounting Auditors

The Company employs the services of Deloitte Touche Tohmatsu LLC for accounting auditing purposes. The names of those certified public accountants executing accounting audit work and the composition of those playing supportive roles are as follows:

Names of Individual Executing Accounting Auditing

Designated Limited Liability Partners
Executing Partners Masahiko Tezuka, Tsuyoshi Nakamura, Shinji Hatano

Accounting Auditing Support Staff

8 Certified Public Accountants, 12 Others

Status of Appointment of Outside Directors

Outside directors have a role of ensuring transparency of the Board of Directors by supervising inside directors and providing advice to management.
Audit & supervisory board members participate in meetings of the Board of Directors whilst maintaining arms-length distance from management.
As needed, they request detailed explanations regarding business operations so as to improve the efficacy of managerial supervision.

Relative to Company management, the independent outside directors are also requested to provide appraisals and advice based on the following vantage points:
1. the vantage point of customers and shareholders,
2. the medium to long-term vantage point not bound to near-term results,
3. the vantage point of rationality and appropriateness regarding Board decision-making
4. the third-party vantage point able to compare Company organizational practices versus others,
5. for female directors, the vantage point of women.

Activities of outside directors and outside auditors (FY 2017)

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Holding of Concurrent Position of Outside Directors and Audit & Supervisory Board Members, Reasons for Election, etc. (as of end-May, 2018)

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Remuneration for Directors and Audit & Supervisory Board Members (FY2017)

a. Aggregate Remuneration by Director Category, by Remuneration Type, and Number of Applicable Directors

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Note:
1. The above does not include one (1) director and two (2) corporate Audit & Supervisory Board Members (of which one retired at the conclusion of the regular general meeting of shareholders held on 17 May 2017) who were not paid compensation.
2. Resolved at the general meeting of shareholders:
Directors:
Monetary Compensation Ceiling JPY 600mn (17 May 2007)
Stock Option Compensation Ceiling JPY 100mn (17 May 2007)
Audit & Supervisory Board Members:
Compensation Ceiling JPY 50mn (8 May 2002)
3. The following is included in the above aggregate compensation numbers.
-Director bonuses of JPY 57mn (for the existing 9 directors as of 28 February 2018 and does not include 2 directors and 2 outside directors not receiving compensation).
-Compensation made via stock options were JPY 34mn (for the existing 9 directors as of 10 May 2017 and does not include 1 director and 2 outside directors not receiving compensation).

b. Aggregate consolidated remuneration by director for submitting companies Omitted owing to lack of individuals with aggregate remuneration equal to or in excess of JPY 100 million.

c. Important items relating to remuneration of employees also serving as directors No relevant items.

d. Policy regarding director compensation decision-making
Director compensation is composed of a base and a performance component.
The ceiling amounts are determined at the general meeting of shareholders.
Actual payments to the directors are made within the ceilings based on such factors as responsibilities and business performance.
Compensation to the members of the Audit & Supervisory Board are made within ceiling levels as determined by the general meeting of shareholders.
Payment amounts are determined following discussions with the corporate Audit & Supervisory Board Members.

Number of Board of Directors, Selection Process of Board of Directors

The number of the Company's Board of Directors is stipulated within the Articles of Incorporation at 20 or below.
Resolution relating to the selection of the Board of Directors at the Company is conducted at the general meeting of shareholders.
It is stipulated within the Articles of Incorporation that of those shareholders able to exercise voting rights, those in possession of at least one-third of the voting rights attend the meeting, and that resolution be attained via a majority of those voting rights in attendance.
Noted that resolution relating to the selection of the Board of Directors is conducted on a non-cumulative basis.

Resolution Items of the General Meeting of Shareholders that can be Resolved by the Board of Directors

a. Decision Making Body Regarding Dividends of Surplus Cash
The Company's Articles of Incorporation stipulates that resolution for such items as the payment of dividends from surplus cash, as dictated in Section 1 of Article 459 of the Company Law and unless stated otherwise, can be implemented via resolution of the Board of Directors and not be dependent on resolution by the general meeting of shareholders.
By placing the likes of payment of dividends from surplus cash under the jurisdiction of the Board of Directors, the aim is to allow for expeditious payout of shareholder returns.

b. Share Repurchase (Buybacks) Based on Section 2 of Article 165 of the Company Law, the Company's Articles of Incorporation stipulates that share buybacks through such means as market transactions can be implemented via resolution of the Board of Directors. The aim here is to allow for expeditious implementation of capital policy.

Status of Equity Holdings

a. Investment Securities Held for Reasons Other than Pure Investment Purposes
Number of Companies
15 Companies
Aggregate Balance Sheet Value
JPY 2,186 million

b. Investment Securities Held for Reasons Other than Pure Investment Purposes: Company name, No. of Shares, Balance Sheet Value, Purpose of Holding (excludes non-publicly traded securities)

FY2016
Specific Investment Securities

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FY2017
Specific Investment Securities

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c. Investment securities held for pure investment purposes
No relevant items.

Auditor Remuneration Detail

1, Detail of Remuneration of Audit Certified Public Accountants

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2, Other Important Remuneration Items

(FY2016 and FY2017)
A number of the Company's consolidated subsidiaries makes payment of audit remuneration to member firms of Deloitte Touche Tohmatsu Limited which belongs to the same network of the Company's Audit Certified Public Accountant.

(FY2016 and FY2017)
Payments by the Company to Audit Certified Public Accountants for non-audit services relate to preparation of conform letters.

3, Detail of non-audit services provided by Audit Certified Public Accountants to submitting companies

(FY2016 and FY2017)
Payments by the Company to Audit Certified Public Accountants for non-audit services relate to preparation of comfort letters.

4, Policy on Determination of Auditor Remuneration

(FY2016 and FY2017)
Remuneration is determined by considering such factors as number of auditing days.