(Translation)

Securities Code:June 4, 2014

6839

NOTICE OF THE 62ND ORDINARY GENERAL MEETINGOF SHAREHOLDERS

Dear Shareholders:
We would like to express our appreciation for your continued good offices.
Please take notice that the 62nd Ordinary General Meeting of Shareholders of Funai
Electric Co., Ltd. (the “Company”), will be held as described below, and you are cordiallyinvited to attend the meeting.
Since voting rights can be exercised in writing, even if you are not present at themeeting, please go over the Reference Document for the General Meeting of Shareholders set
forth below and send us by return mail the enclosed voting form indicating your approval ordisapproval of the propositions no later than 5:00 p.m. on June 19 (Thursday) in Japan time,
2014.

Yours very truly,

Yoshikazu Uemura
Representative Director, President, andChief Executive Officer

Funai Electric Co., Ltd.
7-1, Nakagaito 7-chome,
Daito City, OsakaDescription
1.

Date and hour:
June 20 (Friday), 2014, 10:00 a.m.

2.

Place:
5F, Multipurpose Hall, Technology Bldg. of the Company
7-1, Nakagaito 7-chome, Daito City, Osaka

3.

Matters forming the objects of the meeting:
Matters to be reported:
1.

The business report, the consolidated financial statements, and the results ofaudits of the consolidated financial statements by the independent auditors andthe Board of Corporate Auditors for the 62nd fiscal year (from April 1, 2013,
to March 31, 2014)2.

The nonconsolidated financial statements for the 62nd fiscal year (from April
1, 2013, to March 31, 2014)

Matters to be resolved:
Proposition No. 1:

Election of seven (7) Directors

Proposition No. 2:

Election of three (3) Corporate Auditors

Proposition No. 3:

Election of one (1) Alternate Corporate Auditor

Proposition No. 4:

Issuance of stock acquisition rights as stock options- END -In attending the meeting; please present the enclosed voting form to a receptionist at the placeof the meeting.
Of the documents to be provided upon giving notice of this Ordinary General Meeting of
Shareholders, the notes to consolidated financial statements and the notes to nonconsolidated
financial statements, which are posted on our website (http://www.funai.jp/ jp/investors/) in
accordance with and as provided for in the applicable laws and ordinances and Article 14 of
the Articles of Incorporation of the Company, are not included in the attached documents tothe notice of this Ordinary General Meeting of Shareholders. Therefore, the attacheddocuments to the notice of this Ordinary General Meeting of Shareholders are part of theconsolidated financial statements and nonconsolidated financial statements that have been
audited by the accounting auditors in preparing their account audit reports.
In the event of the revision of any matter in the Reference Document for the General Meetingof Shareholders, the business report, the consolidated financial statements, and thenonconsolidated financial statements, it will be posted on our website listed above.

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(Attached documents)
BUSINESS REPORT(April 1, 2013, to March 31, 2014)
1.

Current state of the Funai Group (the “Group”)(1)

Development and results of business activities:

During the fiscal year under review, with respect to the United States, which is theGroup’s mainstay market, while improvements in the job market began to slow, the economy
generally continued to experience slow growth as the housing market showed a continuous
recovery and personal consumption increased favorably. The European economy bottomedout as a result of several countermeasures to the debt crisis, while the Chinese economy
decelerated. In Japan, capital investment and housing investment picked up as a result of
improvements in business and consumer sentiments following the introduction of monetaryeasing measures by the Bank of Japan, and a gradual economic recovery continued, fueled inpart by last-minute demand before the consumption tax increase.
In the consumer electronics industry, demand for smartphones, tablet devices, andcloud computing-related equipment has continued growing sharply. On the other hand,conventional products, such as mobile phones, PCs, digital still cameras, liquid crystal
display (LCD) TVs, and DVD/BD (Blu-ray disc)-related products have declined in demand.
Under these circumstances, the Group posted net sales of ¥234,042 million, a 21.9%
increase over the previous fiscal year.
On the profit front, due principally to profit deterioration of Philips-brand LCD TVs,
audio accessory products, and other items in North America and Mexico, operating loss was¥5,465 million (operating loss for the previous fiscal year was ¥5,273 million), ordinary loss
was ¥2,253 million (ordinary loss for the previous fiscal year was ¥355 million), and net loss
was ¥6,745 million (net loss for the previous fiscal year was ¥8,542 million).
Net sales by product group were as follows:
Audiovisual Equipment
In the audiovisual equipment sector, sales increased substantially in North America,
where strong sales of LCD TVs were recorded in the year-end selling season. Sales ofBD-related products also increased in comparison with the previous fiscal year. As a result,net sales of audiovisual equipment were ¥183,108 million, a 17.6% increase over theprevious fiscal year.
Information Equipment
In the information equipment sector, an increase in printer orders and sales of ink
cartridges resulted in net sales of ¥18,876 million, a 57.8% increase over the previous fiscal
year.

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OtherNet sales were ¥32,058 million, a 31.6% increase over the previous fiscal year, due
principally to contributions of audio accessory products in North America.
<Consolidated net sales by product group>

Division
Audiovisual equipment
Information equipment
Other
Total
(2)

Net sales(millions of yen)
183,108
18,87632,058234,042

Component rate
(%)
78.2
8.1
13.7
100.0

Investment in property, plant, and equipment by the Group:

Investment in property, plant, and equipment by the Group during the fiscal year
under review totaled ¥5,094 million, composed of ¥4,624 million by its manufacturing
companies and ¥469 million by its sales companies. The amount was invested principally to
improve manufacturing facilities.
(3)

Finance:During the fiscal year under review, a syndicated loan of ¥5,146 million wasorganized for the Group’s operations.
(4)Issues to be addressed:

Within the consumer electronics industry, demand for smartphones, tablet devices,and cloud computing-related equipment has continued growing sharply. On the other hand,conventional products, such as mobile phones, PCs, digital still cameras, LCD TVs, and
DVD/BD-related products have declined in demand.
Operating in this environment, the Group, facing such issues as specifically outlined
below, will implement the following policies to address them:(i)

Increasing net sales and returning to profitability

The Group has positioned as its highest priority issue the increase of net sales andreturning to profitability.
(Product strategy)
During the fiscal year under review, net sales increased in comparison with theprevious fiscal year. On the profit front, however, the Group posted an operating loss due tolosses attributable to factors such as disposal of inventories of Philips-brand LCD TVs andaudio accessories in North America and Mexico.

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For this reason, the Group is enhancing its PSI (“purchase, sales, and inventory”)
management and has established a system to supply our products at competitive prices on atimely basis, with a view to augmenting sales and returning to profitability.
In addition, the Group recognizes that product development in new business areas is apressing issue. Accordingly, to explore new possibilities, in April 2013, we reached anagreement with Lexmark International, Inc., to acquire its inkjet-related technology andassets. The acquisition enables the Group to start and grow its own ink-jet business(including manufacture and sale of more profitable ink cartridges), rather than operating as acontract manufacturer of ink-jet printer products. We are also proceeding with preparations
for a smooth start-up of the business for self-developed printers.
(Market strategy)
The Group faces the challenges of reducing the risk of overemphasizing the U.S.
market, as well as further smoothing production and sales throughout the year by mitigating
the effects of seasonality, and increasing sales. To address these issues, we are considering
ways to develop our business in expansionary emerging markets in Thailand and other
ASEAN members and India as well as cultivating our market in Mexico.
Through the steady implementation of the above-mentioned strategies, we are making
improvements to minimize the time lags between product planning, development, material
procurement, production, and sales, enabling us to provide products in a timely manner thatprecisely meet market needs.
(ii)

Reinforcing manufacturing and development systems

The Group’s manufacturing structure is highly dependent on China, and we recognize
this as a risk that must be mitigated. Accordingly, since the previous fiscal year, we havecontinued to augment FUNAI (THAILAND) CO., LTD., a production base that will becomecore to our provision of products in the Indian market. We also have incorporated a
production subsidiary, Funai Electric Philippines Inc., in the Philippines and are building aplant.
With regard to development, we are continuing our efforts to increase group-wide
development efficiency in China and other Asian countries. We are also focusing on new
business fields. One result of this effort was the selection in the fiscal year under review ofthe electric walking assistance cart, which is currently under development, for the Ministry of
Economy, Trade, and Industry’s Project to Promote the Development and Introduction of
Robotic Devices for Nursing Care.
(iii)

Training and appointment of human resources

The Group recognizes that improving each employee’s capabilities and more
effectively leveraging the skill set of our workforce to bolster the strength of the Group willbe critical for ensuring that the Group stays in the lead in the new era of global competition,and implementing the Group’s medium- to long-term business strategy. Therefore, theCompany’s policy is to actively train and assign employees, regardless of their age and career-5-

by strengthening and expanding its internal or external training systems, including language
training, among other things.
(5)

Property and income/loss:
59th(April 1, 2010, to
March 31, 2011)

60th(April 1, 2011, to
March 31, 2012)

61st(April 1, 2012, toMarch 31, 2013)

62nd(April 1, 2013, to
March 31, 2014)

Net sales(millions of yen)

295,923

246,147

192,008

234,042

Ordinary (loss)
income(millions of yen)

1,290

174

(355)

(2,253)Net loss(millions of yen)

(1,169)(4,629)(8,542)(6,745)Net loss per share(yen)(34.31)(135.69)(250.38)(197.70)

Total assets(millions of yen)

193,910

176,607

194,524

181,341

Equity(millions of yen)

131,228

123,843

121,398

117,684

Book value per share(yen)

3,813.57

3,598.03

3,520.11

3,414.77

Fiscal year
Item

(Note) Net loss per share is calculated based on the average of the total number of sharesissued and outstanding during the fiscal year. Book value per share is calculated
based on the total number of shares issued and outstanding as of the end of the fiscal
year. Each such number of shares does not include the shares of treasury stock.
(6)

Major subsidiaries:

Trade name

Capital stock

Ratio of equity
participation of
the Company(%)

Main business

Manufacture and sale ofelectronic equipment
related to receivers
Sale of the Company’s
US $68.5 million
100.0
FUNAI CORPORATION, INC.
products
Manufacture of theFunai Electric (HK) Ltd.
HK $115 million
100.0Company’s products(Note) Each ratio of equity participation of the Company is obtained by calculating down to the third
decimal place and thereafter rounding upward or downward to the nearest second decimal
place, as the case may be.
DX ANTENNA Co., Ltd.

¥363 million

-6-

91.40

(7)

Major businesses of the Group:
Division

Principal products

Audiovisual equipment

LCD TVs, DVD players, DVD recorders, BD players, and BD
recordersInformation equipment

Printers

Other

Audio accessories and electronic equipment related to receivers(8)

Major business sites of the Group:
Category

Funai Electric Co., Ltd.
Production and sales
subsidiaryJapan

Overseas

Sales subsidiaries

Production subsidiary

(9)

Name

Location

Head Office

Daito City, Osaka

Tokyo Branch

Chiyoda-ku, Tokyo

DX ANTENNA Co., Ltd.

Hyogo-ku, Kobe City

FUNAI CORPORATION, INC.

U.S.A.

P&F USA, Inc.

U.S.A.

FUNAI ELECTRIC EUROPE
Sp.z o.o.

PolandFunai Electric (HK) Ltd.

Hong Kong

Employees of the Group:
Number of employees(persons)
5,112

As compared with the end of the previous fiscal year(+ or -) (persons)+ 336(Notes) 1. The above number of employees represents those who actually at work.
2. The number of employees increased principally due to the commencement of operationsof Funai Electric Cebu, Inc., acquired during the fiscal year.

(10)

Major lenders:
Nothing to be reported.

(11)

Other important matters concerning the current state of the Group:

The Company resolved to acquire from Koninklijke Philips N.V. (hereinafter,“Philips”) all shares in a company that would succeed the operation of Philips’ LifestyleEntertainment Business and concluded a share purchase agreement on January 29, 2013.
However, Philips filed a petition against the Company as of October 25, 2013, for arbitration
to claim compensation for damages on the grounds of breach of the agreement by theCompany and the petition was served on the Company by the International Chamber ofCommerce on November 8, 2013.

-7-

With regard to this matter, the Company believes that there was no breach of theagreement on its part. Consequently, on December 6, 2013, the Company filed with theInternational Chamber of Commerce a counterclaim for claiming compensation for damages
on the grounds of breach of the agreement and undue action by Philips.
On May 20, 2014, the Company was given notice of compensation for damages Philips
brought forward against the Company in the amount of €171.8 million, as well as statutory
interest thereon and arbitration expenses.
2.

Matters concerning the shares of the Company(1)

Total number of shares authorized:

80,000,000 shares(2)

Total number of shares issued:

36,130,796 shares(including 2,011,615 shares of treasury stock)(3)

Number of shareholders:

10,845 persons(4)

Principal shareholders (top 10):

Name
Tetsuro Funai
Funai Information Science Promotion Foundation
Tetsuo Funai
Royal Bank of Canada Trust Company (Cayman) Limited
MSIP CLIENT SECURITIESJapan Trustee Services Bank, Ltd. (Trust account)
Ftsu Limited Liability Company
FT Development Corporation
T&N Limited Liability Company
Trust & Custody Services Bank, Ltd. (Securities investment
trust account)

Number ofshares held
(thousandshares)12,709
1,540
1,079
1,024
736
649
470
470
470
461

Shareholding
ratio (%)
37.25
4.51
3.16
3.00
2.16
1.90
1.38
1.38
1.38
1.35

(Notes) 1. The Company, which holds 2,011 thousand shares of treasury stock, is not included in theabove-listed principal shareholders.
2. Each shareholding ratio is obtained by deducting shares of treasury stock of the Company
and calculating down to the third decimal place and thereafter rounding upward or
downward to the nearest second decimal place, as the case may be.

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(5)

Other important matters concerning shares:
Nothing to be reported.

3.

Matters concerning stock acquisition rights:(1)

Stock acquisition rights issued and outstanding at the end of the fiscal year under review:(i)

Number of stock acquisition rights:(Note)(ii)

5,060 rights

The number of stock acquisition rights is shown by reducing from the numberof stock acquisition rights granted, the number of stock acquisition rights
exercised, and the number of stock acquisition rights that the persons entitledthereto ceased to have due to retirement or other terms of exercise of the rights.

Class and number of shares to beissued or transferred upon exerciseof the stock acquisition rights:
506,000 shares of common stock(100 shares per stock acquisition right)(iii) Stock acquisition rights held by Directors and Corporate Auditors by category:Category

Numberof rights

HolderExercise price

Exercise period

The first stock acquisition rights
for the year ended March 31, 2006

Director

61

2¥12,369

August 1, 2007,
to July 31, 2014

The first stock acquisition rights
for the year ended March 31, 2009

Director

76

2¥1,609August 1, 2010,
to July 31, 2017

Issue

(2)

Stock acquisition rights delivered during the fiscal year under review:
Nothing to be reported.

(3)

Other important matters concerning stock acquisition rights, etc.:
Nothing to be reported.

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4.

Matters concerning officers of the Company:(1)

Directors and Corporate Auditors (as of March 31, 2014)
Title

Name

Director and Chairman

Tetsuro Funai

Director and Vice
ChairmanTomonori Hayashi

Representative Director;
President and Chief
Executive Officer (CEO)Yoshikazu Uemura

Director and Officer

Joji Okada

Outside Director

Mitsuo Yonemoto

Outside Director

Yoshiaki Bannai

Full-time Corporate
Auditor

Hiromu Ishizaki

Outside Corporate Auditor

Shinichi Komeda

Business in charge and importantconcurrent office
Chairman of Funai Foundation for
Information Technology; andChairman of Funai Scholarship Foundation

General Manager of Development &Technology Headquarters
Vice President and Director of T.P.S.
Laboratory Co., Ltd.;
Outside Director of THE SAILOR PEN
CO., LTD.; andOutside Corporate Auditor of Oriental
Chain Mfg. Co., Ltd.
President and Representative Director ofBe.com corporation

Outside Corporate Auditor Masahide Morimoto(Notes) 1. As of January 1, 2014, Representative Director, President, and CEO werechanged as follows:• Director Tomonori Hayashi retired from the office of Representative Director,
President, and CEO and assumed the office of Director and Vice Chairman.
• Director Yoshikazu Uemura retired from the office of Executive Officer incharge of sales and marketing and assumed the office of Representative
Director, President, and CEO.
2. Full-time Corporate Auditor Hiromu Ishizaki, who is qualified as a certified tax
accountant, has considerable knowledge of financing and accounting.
3. The Company has designated Outside Director Mitsuo Yonemoto and Outside
Corporate Auditor Shinichi Komeda as independent officers in accordance withthe rules of Tokyo Stock Exchange, Inc., and registered them with the exchange.
4. The Company has established a Nomination Committee and a Compensation
Committee (both of which are voluntary committees). The composition of eachof the committees is as follows:• Nomination Committee: Tetsuro Funai (Chairman), Tomonori Hayashi,
Yoshikazu Uemura, and Joji Okada• Compensation Committee: Yoshikazu Uemura (Chairman), Tetsuro Funai
Tomonori Hayashi, Joji Okada, and Mitsuo Yonemoto- 10 -

(2)Directors and Corporate Auditors who retired during the fiscal year under review:
Name

Retirementdate

Toshio Ohtaku

June 21, 2013

Expiration ofterm of officeDirector and Senior Executive Officer;
and General Manager of New Business
Div.

Hideaki
Funakoshi

June 21, 2013

Expiration ofterm of officeDirector and Officer; General Manager
of AV System Headquarters; andGeneral Manager of Display BusinessDiv.

Shigeki Saji

June 21, 2013

Expiration ofterm of officeDirector and Officer; and General
Manager of Digital Media Business Div.

ReasonTitle, business in charge, and importantconcurrent office upon retirement(For reference)
The Company has adopted a system of officers, and the officers as of April 1,
2014, who did not concurrently hold the office of Director were as follows:
Officer
Officer
Officer
Officer
Officer
Officer(3)

Hideaki Funakoshi
Kazuo Uga
Takeshi Ito
Sei Kono
Kiyoshi Chinzei
Tetsuhiro Maeda

Total amount of remuneration, etc., of Directors and Corporate Auditors
Total amount of remuneration, etc., for the fiscal year under review:
Category
Director(Outside Director)
Corporate Auditor(Outside Corporate Auditor)
Total(Outside Director/Corporate Auditor)

Number ofrecipients
9
(2)
3
(2)
12
(4)

Amount of payments¥110,834 thousand(¥10,600 thousand)¥21,450 thousand(¥10,400 thousand)¥132,284 thousand(¥21,000 thousand)(Notes) 1. The above-listed amount of payments includes the following amount as anallowance for officers’ retirement gratuities deducted as expenses for the fiscal
year under review:• ¥13,508 thousand for nine Directors (including ¥1,000 thousand for twooutside Directors)• ¥1,650 thousand for three Corporate Auditors (including ¥800 thousand for
two outside Corporate Auditors)- 11 -

2. The above-listed amount of payments includes the following amount of
remuneration in stock options deducted as expenses for the fiscal year underreview:• ¥331 thousand for four Directors
3. The above-listed amount of payments includes the payments to three Directors
who retired from office at the end of the 61st Ordinary General Meeting of
Shareholders held on June 21, 2013.
4. In addition, the officers’ retirement gratuities paid to the Directors who retired
from office at the end of the 61st Ordinary General Meeting of Shareholders heldon June 21, 2013, are as follows:• ¥17,800 thousand for three Directors(4)

Other important matters concerning officers:
Nothing to be reported.

(5)

Matters concerning outside officers:(i)Concurrent holding of important offices of executive officers of othercorporations and their relationships with the Company:•

Director Mitsuo Yonemoto is Vice President and Director of T.P.S. LaboratoryCo., Ltd. The Company has no special relationship with T.P.S. LaboratoryCo., Ltd.

•

Director Yoshiaki Bannai is President and Representative Director of Be.com
corporation.
The Company has no special relationship with Be.com
corporation.

(ii)

Concurrent holding of important offices of outside officers of othercorporations and their relationships with the Company:•

Director Mitsuo Yonemoto is Outside Director of The Sailor Pen Co., Ltd., andOutside Director of Oriental Chain Mfg. Co., Ltd. The Company has no
special relationship with The Sailor Pen Co., Ltd., and Oriental Chain Mfg. Co.,
Ltd.

(iii)

Kinship among executive officers of the Company and its specified related
enterprises:
Nothing to be reported.

- 12 -

(iv)•

Major activities during the fiscal year under review:
Attendance at the meetings of the Board of Directors and the Board of
Corporate Auditors:
Board of Directors
Name

Board of Corporate
Auditors
NumberNumberofattendedmeetings-

Director

Mitsuo Yonemoto

Numberofmeetings
13

Director

Yoshiaki Bannai

13

12

-

-

Corporate Auditor

Shinichi Komeda

13

12

13

12

Corporate Auditor

Masahide Morimoto

13

13

13

13

Numberattended
13(Note)In addition to the number of the meetings of the Board of Directors above,
written resolutions, which shall be deemed to have been adopted pursuant
to the provisions of Article 370 of the Companies Act and Article 23 of the
Articles of Incorporation of the Company, were adopted on four occasions.

•

Speeches at meetings of the Board of Directors and the Board of Corporate
Auditors:
Name

Director

Mitsuo Yonemoto

Director

Yoshiaki Bannai

Corporate
Shinichi Komeda
AuditorCorporate
Masahide Morimoto
Auditor(v)

Speeches
He attended meetings of the Board of Directors andexpressed opinions principally from the standpoint of amanagement consultant, as well as the standpoint of an
independent officer.
He attended meetings of the Board of Directors andexpressed opinions principally from the standpoint of aveteran top executive.
He attended meetings of the Board of Directors and theBoard of Corporate Auditors and expressed opinions
principally from the standpoint of a veteran top
executive, as well as the standpoint of an independent
officer.
He attended meetings of the Board of Directors and theBoard of Corporate Auditors and expressed opinions
principally from the standpoint of a veteran top
executive, as well as a technical standpoint of financeand securities.

Outline of liability limitation agreements:
In accordance with Article 427, paragraph 1 of the Companies Act of Japan, theCompany has entered into an agreement with each of the two Outside Directors
and two Outside Corporate Auditors to limit the liability for any damage asprovided for in Article 423, paragraph 1 of said act within the aggregate of theamounts listed in the items of Article 425, paragraph 1 of said act.

- 13 -

5.

Matters concerning independent auditors:(1)

Names of the independent auditors:
Deloitte Touche Tohmatsu LLC(2)Amount of remuneration, etc., of the independent auditors for the fiscal year underreview:(i)(ii)

Remuneration, etc., of the independent auditors for the fiscal
year under review:¥44 million

Total amount of cash and other proprietary benefits payable
to the independent auditors by the Company and its
subsidiaries:¥64 million(Notes) 1. The amount of remuneration, etc., for audits under the Companies Act of Japanand the amount of remuneration, etc., for audits under the Financial Instruments
and Exchange Act of Japan are not separated in the audit agreement between the
Company and the independent auditors and cannot actually be separated.
Hence, the amount in item (i) above includes both amounts.
2. Among the major subsidiaries of the Company, FUNAI CORPORATION, INC.,
and one other company are subject to audits by audit firms (including persons
having qualifications in foreign countries equivalent to those of the independent
auditors of the Company) other than the independent auditors of the Company.

(3)

Content of nonauditing services:
The Company has entrusted Deloitte Touche Tohmatsu LLC with, and paid
remuneration for, advisory and guidance services concerning internal control overfinancial reporting and others, which services are not covered by Article 2,paragraph 1 of the Certified Public Accountant Act of Japan.

(4)

Policy on the determination of dismissal and nonreappointment of the independent
auditors:
In the event that the independent auditors are found to fall under any event of
dismissal under the items of Article 340, paragraph 1 of the Companies Act, theCompany shall, upon unanimous consent of the Corporate Auditors, dismiss theindependent auditors. In addition, in the event that there arises any problem with theperformance by the independent auditors of their duties or otherwise considerednecessary, the Company shall, upon consent of the Board of Corporate Auditors or
upon request from the Board of Corporate Auditors, prepare a proposition for thedismissal or nonreappointment of the independent auditors as an agenda item of aGeneral Meeting of Shareholders.

(5)

Outline of liability limitation agreements:
Nothing to be reported.

- 14 -

6.

Systems and policies of the Company(1)

Systems to secure the propriety of business activities:(i)

Systems to ensure that the Directors perform their duties in compliance withlaws, ordinances, and the Articles of Incorporation
In the “Funai Group Charter of Conduct” and the “Regulations of Officers’
Compliance,” the Company shall specify the acts to be taken by the Directors
to comply with laws and ordinances and ensure that the Directors performtheir duties in compliance with laws, ordinances, and the Articles ofIncorporation.

(ii)

Systems concerning storage and management of information on the execution
by the Directors of their duties
With regard to the storage and management of information on the execution
by the Directors of their duties, minutes of meetings of the Board of Directors,
and other important meetings that the Directors shall attend, circular decision
documents and other documents and information necessary to secure the
propriety of business activities shall be stored and managed pursuant to laws,
ordinances, and the “Document Management Regulations.”(iii)

Regulations concerning management of exposure to the risk of loss and othersystems
The Company shall institute “Risk Management Regulations” with regard to
the management of exposure to the risk of loss. Each division or department
shall manage risks involving its operations and also control such riskssystematically.

(iv)

Systems to secure efficient execution by the Directors of their duties
To ensure swift and efficient managerial decision making, the Company shallintroduce a “System of Officers” and shall have Officers under the auspices of
the Executive Directors to ensure that the operations determined by the
Executive Directors are performed swiftly. In addition, to enhance thetransparency of the Board of Directors and strengthen its supervisory functions,the Company shall have outside Directors.

(v)

Systems to ensure that employees perform their duties in compliance withlaws, ordinances, and the Articles of Incorporation
In the “Funai Group Charter of Conduct” and the “Compliance Regulations,”
the Company shall specify the acts to be taken by the employees and ensurethat employees perform their duties in compliance with laws, ordinances, and
the Articles of Incorporation.
In addition, the Company shall establish a whistle-blowing system- 15 -

independent of its regular reporting channels and strengthen its compliancesystem.
(vi)

Systems to secure the propriety of business activities of the corporate groupcomposed of the Company, its parent company, and its subsidiaries
The “Funai Group Charter of Conduct” shall be the rule of conduct of theofficers and employees of the Group.
In addition, in the “Affiliated Companies Management Regulations,” theCompany shall clearly define authorities and responsibilities of its groupcompanies with regard to their important matters while giving regard to theirautonomy and independence, and secure the propriety of business activities of
the whole Group.

(vii)

Matters concerning the employees assisting the Corporate Auditors in theexecution of their duties when the Corporate Auditors request the assignment
thereof
When the Corporate Auditors request employees to assist them in theexecution of their duties, the Board of Directors of the Company shall, upon
consultation with the Board of Corporate Auditors, establish a secretariat to
the Board of Corporate Auditors and assign its employees to assist the Boardof Corporate Auditors.

(viii)

Matters concerning the independence of the employees set forth in (vii) abovefrom the Directors
When employees hired upon the request of the Corporate Auditors to assist in
their duties as set forth in item (vii) above are transferred to and/or from thesecretariat to the Board of Corporate Auditors, the Company shall respect theopinions of the Board of Corporate Auditors with regard to such transfer andpersonnel evaluations thereof and ensure their independence from the
Directors.

(ix)

System for reports by the Directors and employees to the Corporate Auditorsand other systems for reporting to the Corporate Auditors
The Corporate Auditors shall attend meetings of the Board of Directors andother important meetings, hear from the Directors, etc., concerning the state of
execution of their duties, and inspect related materials.
In addition, the Corporate Auditors shall, in accordance with the “Regulations
Concerning Reporting to the Board of Corporate Auditors,” request the
Directors, officers, and employees to report facts that may inflict material
damage on the Company and other matters considered necessary for them to
execute their duties.

(x)

Other systems to ensure effective audits by the Corporate Auditors- 16 -

To ensure effective audits by the Corporate Auditors, the Corporate Auditors
shall closely cooperate with the independent auditors and regularly meet theRepresentative Director to confirm the management policy and exchange
opinions on the risks and issues involving the Company.
(xi)

System to ensure reliability of financial reporting
The Company shall establish a “Basic Policy for Internal Control overFinancial Reporting” to ensure reliability of financial reporting and makeeffective and appropriate disclosure of “Internal Control Reports.” Inaccordance with the basic policy, the Company shall establish an “Internal
Control Committee” with Representative Director, President, and CEO acting
as chairman thereof, which shall be responsible for continuous improvement,
administration, and evaluation of internal control over financial reporting andimplement a corrective measure when any defect is found.

(xii)

System for the exclusion of antisocial forces
The Company shall have a fundamental policy of having no relation with any
antisocial force and refusing any undue claim.
In the event that a client is found to be an entity, enterprise, individual, etc.,
having any relation with such antisocial force, the Company shall promptly
end its business relationship with such client.
The Company shall designate its Personnel and General Affairs Department asa principal division in charge of dealing with antisocial forces to unify
management of information thereon. To make its officers and employees
comply with its fundamental policy, the Company shall also stipulate it clearly
in its related rules and regulations and establish an education system therefor.
In addition, the Company shall devise countermeasures to prevent damage
from antisocial forces, whenever necessary.
In the event that any undue claim is put forward by an antisocial force, theCompany shall work closely with external specialized agencies, including thepolice and its legal counsel, and establish a cooperative system for emergency
situations.

(2)

Policies on the determination of remuneration, etc., of officers, etc.:
Remuneration of Directors and Corporate Auditors shall be determined within thescope of their respective maximum total amounts of remuneration determined byresolution of the General Meeting of Shareholders.
The amount of monthly remuneration of Directors shall, on a specific basis set up by
the Company, be determined by the Compensation Committee upon authorization by
the Board of Directors. The amount of monthly remuneration of Corporate Auditors
shall be determined upon consultation among the Corporate Auditors.

- 17 -

Bonuses of Directors shall, on a specific basis set up by the Company, be determinedby the Compensation Committee upon authorization by the Board of Directors.
Bonuses of Corporate Auditors shall be determined upon consultation among the
Corporate Auditors.
Officers’ retirement gratuities to Directors and Corporate Auditors shall, upon
approval of the granting thereof to Directors and Corporate Auditors by resolution of
the General Meeting of Shareholders and on a specific basis set up by the Company,
be determined by the Compensation Committee with regard to those to Directors, andupon consultation among the Corporate Auditors with regard to those to Corporate
Auditors.
(3)

Policy on the determination of distribution of retained earnings, etc., by the Board of
Directors:
The Company recognizes the paying out of earnings to its shareholders as one of themost important missions of management and attaches basic importance tostrengthening its management base and maintaining a constant payment of dividends.
In concrete terms, the Company will implement its dividend policy proactively, basedon the dividend on an equity ratio 1.0% for net assets on a consolidated basis, while
taking into consideration business conditions and other factors.
In accordance with the basic policy above, the Company will pay a year-end dividendof ¥35 per share for the fiscal year under review.

=========================================================================(Note)In this business report, all figures and the number of shares are shown by
discarding any fractions of the indicated units, and rates are shown by rounding
fractions of a half or more of the indicated unit upward and the rest downward
unless otherwise indicated. Net loss per share and book value per share areshown by rounding off to two decimal places.

- 18 -

CONSOLIDATED BALANCE SHEET(As of March 31, 2014)(millions of yen)
ASSETS:
Current assets:

144,041

Cash and deposits .............................................................................
Notes and accounts receivable-trade .................................................
Merchandise and finished goods .......................................................
Work in process .................................................................................
Raw materials and supplies ...............................................................
Deferred tax assets .............................................................................
Other ..................................................................................................
Allowance for doubtful accounts .......................................................

49,167
37,681
31,665
1,182
16,427
2,504
5,622
(210)
37,300

Fixed assets:
Property, plant, and equipment:
Buildings and structures.....................................................................
Machinery, equipment, and motor vehicles .......................................
Tools, furniture, and fixtures .............................................................
Land ...................................................................................................
Lease assets ........................................................................................
Other ..................................................................................................

21,905
9,026
3,693
2,053
6,178
127
825

Intangible assets
Patents ................................................................................................
Other ..................................................................................................

6,574
4,654
1,920

Investments and other assets:
Investment securities ..........................................................................
Deferred tax assets .............................................................................
Asset for retirement benefits ..............................................................
Other ..................................................................................................
Allowance for doubtful accounts .......................................................

8,819
4,364
400
335
4,015
(296)
181,341

TOTAL ASSETS- 19 -

(millions of yen)
LIABILITIES:Current liabilities:
Notes and accounts payable-trade ........................................................
Short-term bank loans ...........................................................................
Accounts payable-other ........................................................................
Current portion of long-term lease obligations.....................................
Income taxes payable............................................................................
Accrued bonuses ...................................................................................
Reserve for products warranty .............................................................. 2
Other .....................................................................................................

53,692
32,942
4,526
11,571
88
414
258
1,033
2,857

Long-term liabilities:

9,964

Long-term bank loans ...........................................................................
Long-term lease obligations .................................................................
Deferred tax liabilities ..........................................................................
Deferred tax liabilities on revaluation of land ......................................
Liabilities for directors’ and corporate auditors’ retirement benefits ...
Liability for retirement benefits ............................................................
Other .....................................................................................................
TOTAL LIABILITIESEQUITY:

6,121
64
1,153
226
1,088
775
535
63,656

Shareholders’ equity:

133,435

Common stock .......................................................................................

31,307

Capital surplus .......................................................................................

33,272Retained earnings ...................................................................................

93,196

Treasury stock ........................................................................................

(24,341)

Accumulated other comprehensive income (loss):(16,925)

Unrealized gain on available-for-sale securities ....................................

672

Foreign currency translation adjustments ..............................................

(17,495)

Defined retirement benefit plans ............................................................

(103)

Stock acquisition rights:

132

Minority interests:

1,042

TOTAL EQUITY

117,684

TOTAL LIABILITIES AND EQUITY- 20 -

181,341

CONSOLIDATED STATEMENT OF OPERATIONS(from April 1, 2013, to March 31, 2014)(millions of yen)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating loss
Nonoperating income:Interest and dividend income

234,042
201,456
32,58638,052
5,465
268

Foreign exchange gains
Other
Nonoperating expenses:

3,477
622

Interest expense
Compensation expenses
Other
Ordinary loss
Extraordinary income:Gain on sales of fixed assets
Gain on bargain purchase
Other
Extraordinary loss:
Loss on disposal of fixed assets
Loss on revaluation of investment securities
Loss on revaluation of investment innonconsolidated subsidiaries and associatedcompanies
Impairment loss on fixed assets
Business structure improvement expenses
Advisory fees

193
529
434

0
8
1

290
266
1,281
1,165

10

3,397
5,640

518
549

Net loss

1,156
2,253

170
222

Loss before income taxes and minority interests
Income taxes – current
Income taxes – deferred
Net loss before minority interests
Minority interests in net income

4,369

1,068
6,708
37
6,745

- 21 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(from April 1, 2013, to March 31, 2014)(millions of yen)
Shareholders’ equity
Retainedearnings

Common stock

Capital surplus

31,30733,272

Balance as of April 1, 2013

Total
shareholders’equityTreasury stock

101,135(24,341)

141,374

Changes of items during the fiscal
year
Cash dividends(1,194)(6,745)Net loss(1,194)(6,745)

Net changes of items otherthan shareholders' equity
Total changes of items during the
fiscal year
Balance as of March 31, 2014--

31,30733,272(7,939)93,196(24,341)

Accumulated other comprehensive income (loss)
Stock
Total
Unrealized
Foreignaccumulated acquisition
gain onDefinedcurrency
otheravailableretirement comprehenrights
translation benefit
for-saleplans
adjustments
siveincomesecurities(loss)
Balance as of April 1, 2013

451

(21,722)-(21,271)122(7,939)133,435

Minority
interests

Total equity

1,173

121,398

Changes of items during the fiscal
year
Cash dividends(1,194)(6,745)Net loss
Net changes of items otherthan shareholders' equity

221

4,227

(103)

4,345

10

(130)

4,225

Total changes of items during the
fiscal year

221

4,227

(103)

4,345

10

(130)

(3,714)

Balance as of March 31, 2014

672

(17,495)(103)(16,925)

132

1,042

117,684========================================================================(Note)In the consolidated balance sheet, consolidated statement of operations, andconsolidated statement of changes in equity, all figures are shown by discarding any
fractions of the relevant units, respectively.

- 22 -

Copy of Independent Auditor’s Report on Consolidated Financial Statements[TRANSLATION]
INDEPENDENT AUDITOR’S REPORTMay 21, 2014To:

The Board of Directors
Funai Electric Co., Ltd.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:Motoo Nakamura
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akira Nakata
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akihiro Okada

Pursuant to the fourth paragraph of Article 444 of the Companies Act, we have audited theconsolidated financial statements, namely the consolidated balance sheet as of March 31,
2014, of Funai Electric Co., Ltd. (the “Company”), and its consolidated subsidiaries and therelated consolidated statement of operations and changes in equity for the fiscal year from
April 1, 2013, to March 31, 2014, and the related notes.
Management’s Responsibility for Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in Japan,
and for such internal control as management determines is necessary to enable thepreparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements basedon our audit. We conducted our audit in accordance with auditing standards generally- 23 -

accepted in Japan. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements. The procedures selected depend on theauditor’s judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of the Company and its consolidated subsidiaries asof March 31, 2014, and the results of their operations for the year then ended in accordancewith accounting principles generally accepted in Japan.
Emphasis of Matter
As discussed in the “Notes to the Consolidated Balance Sheet: 4. Contingent liability,”
Koninklijke Philips N.V. filed against the Company a petition for arbitration to claim
compensation for damages and the petition was served on the Company by the International
Chamber of Commerce. With regard to this matter, the Company filed with the International
Chamber of Commerce a counterclaim for claiming compensation for damages against
Koninklijke Philips N.V. The petition and counterclaim may have an effect on the operating
results of the Company and its consolidated subsidiaries. However, it is not possible to makea reasonable estimate of the effect of the arbitration proceedings, and the effect thereof, ifany, on the operating results, and financial position of the Company and its consolidated
subsidiaries remains unclear.
Our opinion is not qualified in respect of this matter.
Interest
Our firm and the engagement partners do not have any interest in the Company for which
disclosure is required under the provisions of the Certified Public Accountants Act.
The above represents a translation, for convenience only, of the original report issued in theJapanese language.
- END –

- 24 -

NONCONSOLIDATED BALANCE SHEET(As of March 31, 2014)(millions of yen)
ASSETS:
Current assets:
Cash and deposits .............................................................................
Notes receivable-trade .......................................................................
Accounts receivable-trade ...................................................................
Merchandise and finished goods .........................................................
Raw materials and supplies .................................................................
Prepaid expenses .................................................................................
Deferred tax assets ..............................................................................
Short-term loans receivable.................................................................
Other ....................................................................................................
Allowance for doubtful accounts ........................................................
Fixed assets:
Property, plant, and equipment:
Buildings .............................................................................................
Structures.............................................................................................
Machinery and equipment...................................................................
Motor vehicles .....................................................................................
Tools, furniture, and fixtures...............................................................
Land.....................................................................................................
Lease assets .........................................................................................
Intangible assets:
Patents .................................................................................................
Software ..............................................................................................
Lease assets .........................................................................................
Other ....................................................................................................
Investments and other assets:
Investment securities ...........................................................................
Investment in subsidiaries and associated companies.........................
Long-term loans receivable.................................................................
Long-term prepaid expenses ...............................................................
Asset for retirement benefits ...............................................................
Other ....................................................................................................
Allowance for doubtful accounts ........................................................
TOTAL ASSETS- 25 -

71,363
17,62623
43,838
69
1,820
1,598
1,649
5,454
380
(1,100)51,997
7,345
2,901
47
37
0
232
4,034
91
5,550
4,654
260
2
633
39,101
1,863
31,097
17,216
1,453
916
346
(13,792)
123,361(millions of yen)
LIABILITIES:Current liabilities:
Accounts payable-trade ........................................................................
Current portion of long-term lease obligations.....................................
Accounts payable-other ........................................................................
Accrued expenses .................................................................................
Income taxes payable............................................................................
Deposit received ...................................................................................
Reserve for products warranty..............................................................
Other .....................................................................................................
Long-term liabilities:
Long-term bank loans ...........................................................................
Long-term lease obligations .................................................................
Deferred tax liabilities ..........................................................................
Liabilities for directors’ and corporate auditors’ retirement benefits ...
Other .....................................................................................................
TOTAL LIABILITIES

32,507
19,162
60
6,460
5,833
99
708
84
98
7,686
5,146
46
955
1,069
469
40,193

EQUITY
Shareholders’ equity
Common stock
Capital surplus:
Capital reserve ......................................................................................
Other capital surplus .............................................................................
Retained earnings:
Legal reserve .........................................................................................
Other retained earnings .........................................................................
Reserve for advanced depreciation of fixed assets.......................
General reserve .............................................................................
Retained earnings brought forward ..............................................
Treasury stock
Valuation and translation adjustments:
Unrealized gain on available-for-sale securities
Stock acquisition rights
TOTAL EQUITYTOTAL LIABILITIES AND EQUITY

82,44931,30733,272
32,833438
42,211
209
42,001
501
23,40018,099(24,341)
585
585
132
83,167
123,361- 26 -

NONCONSOLIDATED STATEMENT OF OPERATIONS(from April 1, 2013, to March 31, 2014)(millions of yen)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating loss
Nonoperating income:Interest and dividend gains
Foreign exchange gains
Other
Nonoperating expenses:
Interest expenses
Allowance for doubtful accounts of subsidiaries
and associated companies
Other
Ordinary loss
Extraordinary income:Gain on sales of fixed assets
Gain on bargain purchase
Other
Extraordinary loss:
Loss on disposition of fixed assets
Loss on revaluation of investment securities
Loss on revaluation of investment in subsidiaries
and associated companies
Business structure improvement expenses
Advisory fees

177,848
157,573
20,27523,099
2,823
315
4,350
541

5,208

0
3,249
125

0
160
1

3,376
991

162

70
222
1,712
1,083
1,165

Loss before income taxes

4,253
5,082

35
114

Income taxes - current
Income taxes - deferred
Net loss

150
5,232

- 27 -

NONCONSOLIDATED STATEMENT OF CHANGES IN EQUITY(from April 1, 2013, to March 31, 2014)(millions of yen)
Shareholders’ equity
Retained earnings

Capital surplus
Commonstock

Balance as of April 1, 2013

Other
capitalsurplusCapitalreserve

31,307

32,833438

Other retained earnings
Reserve for
Retained
advanced
Generalearnings
depreciation
reservebrought
of fixed
forwardassetsTotal capitalsurplusLegalreserve

33,272209

510

23,400Total
shareholders’equityTreasury
stock

Total
retainedearnings

24,51848,638(24,341)

88,877

8--

Cash dividends(1,194)(1,194)(1,194)

Net loss(5,232)(5,232)(5,232)

Changes of items during the
fiscal year
Reversal of reserve fordeferred income tax on
fixed assets(8)

Net changes of items otherthan shareholders’ equity
Total changes of items during
the fiscal year

-

-

-

-

-

(8)

-

(6,418)(6,427)-(6,427)

Balance as of March 31, 2014

31,307

32,833438

33,272209

501

23,40018,09942,211(24,341)

82,449- 28 -

(millions of yen)

Balance as of April 1, 2013

Valuation and translation adjustments
Unrealized gain
Total valuationonand translation
available-for-saleadjustments
securities
386
386

Stock acquisitionrights122

Total equity

89,385

Changes of items during the
fiscal year
Reversal of reserve for deferredincome tax on fixed assets-

Cash dividends(1,194)

Net loss(5,232)

Net changes of items other thanshareholders’ equity

199

199

10

209

Total changes of items during the
fiscal year

199

199

10

(6,217)

Balance as of March 31, 2014

585

585

132

83,167=========================================================================(Note)In the nonconsolidated balance sheet, nonconsolidated statement of income, and nonconsolidated statement of changes in equity, allfigures are shown by discarding any fractions of the relevant units, respectively.

- 29 -

Copy of Independent Auditor’s Report on Nonconsolidated Financial Statements(TRANSLATION)

INDEPENDENT AUDITOR’S REPORTMay 21, 2014
To: The Board of Directors
Funai Electric Co., Ltd.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:Motoo Nakamura
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akira Nakata
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akihiro Okada
Pursuant to the first item, second paragraph of Article 436 of the Companies Act, we haveaudited the financial statements, namely the balance sheet as of March 31, 2014, of Funai
Electric Co., Ltd. (the “Company”), and the related statement of operations and changes inequity for the 62nd fiscal year from April 1, 2013, to March 31, 2014, and the related notes
and the accompanying supplemental schedules.
Management’s Responsibility for Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements and the accompanying supplemental schedules in accordance with accounting
principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of financial statements and theaccompanying supplemental schedules that are free from material misstatement, whether due
to fraud or error.

- 30 -

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements and theaccompanying supplemental schedules based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial
statements and the accompanying supplemental schedules are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements and the accompanying supplemental schedules. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks
of material misstatement of the financial statements and the accompanying supplemental
schedules, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of thefinancial statements and the accompanying supplemental schedules in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements and the accompanying supplemental schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
Audit Opinion
In our opinion, the financial statements and the accompanying supplemental schedules
referred to above present fairly, in all material respects, the financial position of the Company
as of March 31, 2014, and the results of its operations for the year then ended in accordancewith accounting principles generally accepted in Japan.
Emphasis of Matter
As discussed in the “Notes to the Nonconsolidated Balance Sheet: 3. Contingent liabilities,(arbitration),” Koninklijke Philips N.V. filed against the Company a petition for arbitration toclaim compensation for damages, and the petition was served on the Company by theInternational Chamber of Commerce. With regard to this matter, the Company filed with theInternational Chamber of Commerce a counterclaim for claiming compensation for damages
against Koninklijke Philips N.V. The petition and counterclaim may have an effect on theoperating results of the Company. However, it is not possible to make a reasonable estimateof the effect of the arbitration proceedings, and the effect thereof, if any, on the operating
results, and financial position of the Company remains unclear.
Our opinion is not qualified in respect of this matter.
Interest
Our firm and the engagement partners do not have any interest in the Company for which- 31 -

disclosure is required under the provisions of the Certified Public Accountants Act.

The above represents a translation, for convenience only, of the original report issued in theJapanese language, and “the accompanying supplemental schedules” referred to in this report
are not included in the attached financial documents.
- END -

- 32 -

Copy of Audit Report of the Board of Corporate Auditors

AUDIT REPORT
We, the Board of Corporate Auditors of Funai Electric Co., Ltd. (the “Company”),
after deliberation based upon the audit report prepared by each Corporate Auditor on theexecution by Directors of their duties during the 62nd fiscal year from April 1, 2013, throughMarch 31, 2014, have performed our audits and hereby report as follows.
1.
Method of audits by the Corporate Auditors and the Board of Corporate Auditors andthe particulars thereof:
The Board of Corporate Auditors determined the audit policy, audit plans, etc.,
received from each Corporate Auditor reports on the state of his performance of audits andthe results thereof, and also received from the Directors, etc., and the independent auditors
reports on the state of execution of their duties and demanded their explanations whenevernecessary.
Each Corporate Auditor, in accordance with the auditing standards for the Corporate
Auditors determined by the Board of Corporate Auditors and pursuant to the audit policy,
audit plans, etc., maintained constant communication with the Directors, the internal audit
division and other employees, etc., in an effort to collect information and improve theenvironment for auditing, attended meetings of the Board of Directors and other important
meetings, received from the Directors and employees, etc., reports on the state of executionof their duties, demanded their explanations whenever necessary, inspected important
decision documents, etc., and made investigations into the state of activities and property at
the head office and principal business offices of the Company. With regard to the details of
the resolutions of the Board of Directors for establishing systems to ensure that the execution
by the Directors of their duties will comply with laws or ordinances and the Articles ofIncorporation and such other systems provided for in Article 100, paragraphs 1 and 3 of theRegulations to Enforce the Companies Act of Japan as necessary to ensure the adequacy ofbusiness of joint stock corporations, as well as the status of the systems (internal control
systems) established pursuant to such resolutions, which are described in the business report,
we periodically received from the Directors and employees, etc., reports, demanded their
explanations, and expressed our opinions whenever necessary, on the state of formulation andoperation thereof. With regard to its subsidiaries, we maintained constant communicationand exchanged information with the Directors, Corporate Auditors, etc., thereof and required
the subsidiaries to render reports on their business operations whenever necessary. In
accordance with such methods, we investigated the business report and its accompanying
detailed statements for the fiscal year under review.
We also monitored and verified whether the independent auditors had maintained an
independent position and conducted adequate audits, and received from the independent
auditors reports on the state of execution of their duties and demanded their explanations
whenever necessary. In addition, we received from the independent auditors a notice thatthe “systems to secure adequate execution of duties” (as listed in the items of Article 131 of
the Regulations on Corporate Accounts) had been established in accordance with the- 33 -

“Standard for Quality Control Concerning Audits” (the Accounting Standards Board of Japan,
October 28, 2005) and demanded their explanations whenever necessary.
In accordance with such methods, we investigated the nonconsolidated financial
statements (the nonconsolidated balance sheet, the nonconsolidated statement of operations,the nonconsolidated statement of changes in equity, and the notes to nonconsolidated
financial statements) and their accompanying supplemental schedules, as well as theconsolidated financial statements (the consolidated balance sheet, the consolidated statementof operations, the consolidated statement of changes in equity, and the related notes), for the
fiscal year under review.
2.

Results of audit:(1)

Results of audit of the business report, etc.:
We are of the opinion:(i)That the business report and its accompanying detailed statements present fairly thestate of the Company in accordance with laws and ordinances and the Articles ofIncorporation;(ii) That in connection with the execution by the Directors of their duties, no dishonest
act or material fact of violation of laws or ordinances or the Articles of Incorporation
exists; and(iii) That the details of the resolutions of the Board of Directors on internal control
systems are proper and that the descriptions in the business report and the execution
by the Directors of their duties concerning such internal control systems containnothing to be pointed out.
(2)

Results of audit of the nonconsolidated financial statements and their accompanying
supplemental schedules:
We are of the opinion that the method and results of the audit made by the independent
auditors, Deloitte Touche Tohmatsu LLC, are proper.

(3)

Results of audit of the consolidated financial statements:- 34 -

We are of the opinion that the method and results of the audit made by the independent
auditors, Deloitte Touche Tohmatsu LLC, are proper.
May 21, 2014
Funai Electric Co., Ltd.
The Board of Corporate Auditors
Hiromu Ishizaki
Full-time Corporate Auditor(seal)

Shinichi Komeda
Outside Corporate Auditor(seal)

Masahide Morimoto
Outside Corporate Auditor(seal)- END -

- 35 -

Reference Document for the General Meeting of Shareholders
Propositions and reference information
Proposition No. 1:

Election of seven (7) Directors

The term of office of all the six (6) Directors currently in office will expire at theclose of this Ordinary General Meeting of Shareholders. Hence, it is hereby proposed that
their number be increased by one (1) and seven (7) Directors, including two (2) outside
Directors, be elected to enhance the transparency of the Board of Directors and reinforce andimprove the management base.
The candidates for Directors are as follows:

Candidate
No.

1.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)

Tetsuro Funai(January 24, 1927)

April 1951

Established Funai Sewing MachineCompany

December
1952

Representative Director of Funai
Sewing Machine Co., Ltd.

August 1961

Founding President andRepresentative Director of Funai
Electric Co., Ltd. (the “Company”)

June 2005

Director of the Company;
President and CEO of the Company

June 2008

Director of the Company (to date);
Chairman and Officer of theCompany

June 2010

Chairman and Officer of theCompany

June 2012
Chairman of the Company (to date)(Chairman of Funai Foundation for Information
Technology)(Chairman of Funai Scholarship Foundation)- 36 -

Number ofshares of theCompany heldby candidate

12,709,288
sharesCandidate
No.

2.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)
April 1969

Joined the Company

October 2002

Officer of the Company

June 2005

Executive Officer of theCompany

March 2006

CEO of FUNAI CORPORATION
INC.

June 2007

Senior Executive Officer of theCompany

March 2008

General Manager of AV
Headquarters of the Company

June 2008

Director of the Company;
President and CEO of theCompany

June 2010

Representative Director of theCompany;

Tomonori Hayashi(March 13, 1947)

Number ofshares of theCompany heldby candidate

15,400 shares

President and CEO of theCompany
January 2014

Director of the Company (todate);
Vice Chairman of the Company(to date)

Candidate for
Outside Director

3.

Mitsuo Yonemoto(March 18, 1939)

July 1995

Vice President and Director of
T.P.S. Laboratory Co., Ltd. (todate)

September
1998

Outside Director of the Company(to date)

March 2009

Outside Director of The Sailor
Pen Co., Ltd. (to date)June 2012

Outside Corporate Auditor of
Oriental Chain Mfg. Co., Ltd. (todate)(Vice President and Director of T.P.S. LaboratoryCo., Ltd.)(Outside Director of The Sailor Pen Co., Ltd.)(Outside Corporate Auditor of Oriental Chain Mfg.
Co., Ltd.)- 37 -

100 shares

Candidate
No.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)January 1992
July 2004
April 2007
October 2009
June 2010
September
2010
October 2010

December
2010
April 20114.

Yoshikazu Uemura

July 2011(June 27, 1958)
May 2012

November
2012

April 2013

January 2014

Joined the Company
General Manager of DVD
Marketing Dept. of the Company
COO of FUNAICORPORATION, INC.
Officer of the Company
Director of the Company (to date)
Chairman and Representative
Director of FUNAICORPORATION, INC.
Officer and General Manager of
TV Business Div. of theCompany
President and Representative
Director of P&F USA, Inc.
Officer and General Manager of
AV Headquarters of the Company
Officer and General Manager of
AV Business Div. of theCompany
Officer and General Manager of
AV System Business Div.; andGeneral Manager of Display
Business Div. of the Company
Executive Officer and General
Manager of AV System BusinessDiv. and General Manager ofDisplay Business Div. of theCompany
Executive Officer of theCompany, in charge of sales andmarketing
Representative Director of theCompany (to date);
President and CEO of theCompany (to date)- 38 -

Number ofshares of theCompany heldby candidate

700 shares

Candidate
No.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)
April 1977
April 1990
April 1999

April 2003

February 2004

5.

Joji Okada(August 27, 1954)

December
2005
April 2007

October 2009

June 2010
June 2011

Candidate for
Outside Director

April 1979
June 2000

June 2005
6.

Yoshiaki Bannai(August 3, 1954)

January 2012

Number ofshares of theCompany heldby candidate

Joined Hitachi, Ltd.
Chief Engineer, Hitachi, Ltd.
General Manager of Development
Office, System LSI Business
Dept., and Semiconductor Groupof Hitachi, Ltd.
General Manager of Global
Marketing Dept. of Renesas
Technology Corp.
Representative Director of
Applause Technologies Co., Ltd.
Joined the Company
500 shares
Executive Manager ofDevelopment & Technology
Headquarters of the Company
Officer and Deputy General
Manager of Development &Technology Headquarters of theCompany
Director of the Company (to date)
Officer and General Manager ofDevelopment & Technology
Headquarters of the Company (todate)
Joined TDK Corporation
President and Representative
Director of Terra Logic Japan Inc.
(renamed Zoran Japan
Corporation in August 2003)
Country General Manager; andVice President in charge of Japan
area Sales and Marketing ofZoran Corporation (U.S.A.)
Advisor of the Company

Outside Director of the Company(to date)
July 2012
President and Representative
Director of Be.com corporation(to date)(President and Representative Director of Be.com
corporation)
June 2012- 39 -- shareCandidate
No.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)(New)

April 1980

Joined Sanyo Electric Co., Ltd.

October 1998

General Manager of TechnicalEngineering Dept., Personnel
Communication Business Div. of
Sanyo Electric Co., Ltd.
Managing Director of Sanyo
Telecommunications Co., Ltd.
Vice President, Telecom
Company of Sanyo Electric Co.,
Ltd.
Executive Officer of Sanyo
Electric Co., Ltd.
Executive Officer and General
Manager of Solar Business Div.
of Sanyo Electric Co., Ltd.
Managing Executive Officer of
Sanyo Electric Co., Ltd.
Joined the Company
Executive Manager of Strategic
Technology Department,
Development Technology
Headquarters of the Company
Officer and General Manager ofBusiness Department, New
Business Div. of the Company
Officer and General Manager ofCorporate Planning Div. andGeneral Manager of Business
Department, New Business Div.
of the Company (to date)

April 2002
April 2005

April 2006
7.

Tetsuhiro Maeda

April 2008

(July 4, 1954)
April 2011
August 2012
January 2013

April 2013

April 2014

Number ofshares of theCompany heldby candidate- share(Notes) 1. None of the candidates for Directors have any special interests with the Company.
2. Candidates for Directors Messrs. Mitsuo Yonemoto and Yoshiaki Bannai are candidates
for outside Directors.
3. Reasons for the selection of the candidates for outside Directors:
Management has judged that Mr. Mitsuo Yonemoto will be able to offer advice based on
his broad experience as a management consultant.
Management has judged that Mr. Yoshiaki Bannai will be able to use his broad
knowledge and experience in corporate management and the creation of new businesses.
4. Years of service of outside Directors of the Company:
Mr. Mitsuo Yonemoto will have served as outside Director for 16 years at the close ofthis Ordinary General Meeting of Shareholders.
Mr. Yoshiaki Bannai will have served as outside Director for two years at the close of this- 40 -

Ordinary General Meeting of Shareholders.
5. Designation of independent officer:
The Company has designated Mr. Mitsuo Yonemoto as an independent officer inaccordance with the rules of Tokyo Stock Exchange, Inc., and registered him with suchexchange.
6. Conclusion of liability limitation agreements:
The Company has entered into an agreement with each of outside Directors Mr. Mitsuo
Yonemoto and Mr. Yoshiaki Bannai to limit their liability for any damage as provided forin Article 423, paragraph 1 of the Companies Act of Japan within the aggregate amountas provided for in the items of Article 425, paragraph 1 of the said law, pursuant to
Article 427, paragraph 1 of the said law. If they are reelected, such agreements will berenewed.

Proposition No. 2:

Election of three (3) Corporate Auditors

The term of office of all the three (3) Corporate Auditors currently in office will
expire at the close of this Ordinary General Meeting of Shareholders. Hence, it is hereby
proposed that three (3) Corporate Auditors be elected.
The Board of Corporate Auditors has consented to this proposition.
The candidates for Corporate Auditors are as follows:

Candidate
No.

Name(Date of birth)

Brief history and post in the Company(and important concurrent office)September 1968
June 1993

October 2000

1.

Hiromu Ishizaki(March 23, 1946)

October 2005
June 2007
October 2007
February 2011
May 2012
June 2012

Joined the Company
General Manager of Business
Administration Dept., Accounting
Div. of the Company
General Manager of
Administration Dept.,
Administration Div. of theCompany
General Manager of Corporate
Planning Dept. of the Company
Director of New DAT Japan Inc.
General Manager of Strategy
Planning Dept. of the Company
Outside Corporate Auditor of DX
ANTENNA Co., Ltd.
Advisor of the Company
Full-time Corporate Auditor of
the Company (to date)- 41 -

Number ofshares of theCompany heldby candidate

1,000 shares

Candidate
No.

Name

Brief history and post in the Company(and important concurrent office)(Date of birth)
Candidate for
OutsideCorporate
Auditor

April 1962
July 1987

September 1990

May 1991
2.

Shinichi Komeda(May 15, 1937)

March 1995

March 2001

February 2006
May 2010
June 2010

Joined Nichimen Corporation(now Sojitz Corporation)
General Manager of Dept. I of
Electronic Information
Headquarters, Osaka Head Officeof Nichimen Corporation
Vice President and General
Manager of Chicago Branch of
Nichimen U.S.A.
Outside Director of Navigation
Technologies Corp. (now
NAVTEQ Corp.)
President and Representative
Director of Nichimen ElectricParts Co., Ltd.
President and Representative
Director of TOKYO DEN-ON
Co., Ltd.
Representative Director of
NAVTEQ Corp.
Director of NAVTEQ Corp.
Outside Corporate Auditor of theCompany (to date)- 42 -

Number ofshares of theCompany heldby candidate- shareCandidate
No.

Name
(Date of birth)
Candidate for
OutsideCorporate
AuditorBrief history and post in the Company(and important concurrent office)April 1967
June 1991

September 1995

April 1999
3.

Masahide
Morimoto(August 27, 1944)
June 2001

June 2002

April 2007
June 2010

Number ofshares of theCompany heldby candidate

Joined Daiwa Securities Co. Ltd.
Director, General Manager ofHigashi-Tokyo Headquarters andGeneral Manager of Tokyo
Metropolitan-West Sales
Headquarters of Daiwa Securities
Co. Ltd.
Managing Director and General
Manager of Osaka-Kinki-Shikoku
Sales Headquarters of Daiwa
Securities Co. Ltd.
Senior Managing Director,
Representative Director andGeneral Manager of Osaka
Branch of Daiwa Securities
SMBC Co. Ltd. (now Daiwa
Securities Co. Ltd.)
President and Representative
Director of Daiwa Tochi
Tatemono Co., Ltd. (now Daiwa
Property Co., Ltd.)
President and Representative
Director, Daiwa Sanko Co., Ltd.
(now Daiwa Office Service Co.,Ltd.)
Special Advisor of Daiwa
Property Co., Ltd.
Outside Corporate Auditor of theCompany (to date)

2,000 shares(Notes) 1. None of the candidates for Corporate Auditors have any special interests in the Company.
2. Candidates for Corporate Auditors Messrs. Shinichi Komeda and Masahide Morimoto are
candidates for outside Corporate Auditors.
3. Reasons for the selection of the candidates for outside Corporate Auditors:
Management has judged that Messrs. Shinichi Komeda and Masahide Morimoto, whohave been long engaged in corporate management, will be able to use their capabilities
and knowledge for the audit systems of the Company.
4. Years of service of Corporate Auditors:
Messrs. Shinichi Komeda and Masahide Morimoto, who are currently outside Corporate
Auditors of the Company, will have served as Corporate Auditors for four years at theclose of this Ordinary General Meeting of Shareholders, respectively.
5. Designation of independent officer:
The Company has designated Mr. Shinichi Komeda as an independent officer inaccordance with the rules of Tokyo Stock Exchange, Inc., and registered him with such

- 43 -

exchange.
6. Conclusion of liability limitation agreements:
The Company has entered into an agreement with each of outside Corporate Auditors
Mr. Shinichi Komeda and Mr. Masahide Morimoto to limit their liability for any damageas provided for in Article 423, paragraph 1 of the Companies Act of Japan within theaggregate amount as provided for in the items of Article 425, paragraph 1 of the said law,pursuant to Article 427, paragraph 1 of the said law. If they are reelected, suchagreements will be renewed.

Proposition No. 3:

Election of one (1) Alternate Corporate Auditor

To prepare in advance in case the number of Corporate Auditors falls below thenumber stipulated by law, it is hereby proposed that one (1) Alternate Corporate Auditor beelected in accordance with the provision of Article 329, paragraph 2 of the Companies Act ofJapan.
With regard to the effectiveness of the election, it may be repealed by resolution of
the Board of Directors upon consent thereto by the Board of Corporate Auditors only before
he assumes office.
The Board of Corporate Auditors has consented to this proposition.
The candidate for Alternate Corporate Auditor is as follows:
Name

Brief history (and important concurrent office)(Date of birth)
April 1961
March 1989

March 1992
Naganori Tanaka(November 13, 1938)

November 1993

October 2000

March 2002

Joined Nichimen Corporation (nowSojitz Corporation)
General Manager of Osaka ElectricAppliance Dept. II of Nichimen
Corporation
General Manager of Tokyo
Telecommunications Dept. I of
Nichimen Corporation
President and Representative
Director of Nichimen Telecom
Service, Inc.
President and Representative
Director of IT Telecom, Inc. (nowITX Corporation)
Chairman and Director of ITX
Corporation

Number of sharesof the Company
held by candidate- share(Notes) 1. Candidate for Alternate Corporate Auditor has no special interests with the Company.
2. Candidate for Alternate Corporate Auditor Mr. Naganori Tanaka is a candidate for
Alternate Outside Corporate Auditor.

- 44 -

3. Reasons for the selection of the candidate for Alternate Outside Corporate Auditor:
Management has judged that Mr. Naganori Tanaka, who has been long engaged incorporate management, will be able to use his capabilities and knowledge for the audit
systems of the Company.
4. Conclusion of liability limitation agreements:
When Mr. Naganori Tanaka assumes the office of Corporate Auditor, the Company willenter into an agreement with him to limit his liability for any damage as provided for in
Article 423, paragraph 1 of the Companies Act of Japan within the aggregate amount asprovided for in the items of Article 425, paragraph 1 of the said law, pursuant to Article
427, paragraph 1 of the said law.

Proposition No. 4:

Issuance of stock acquisition rights as stock options

It is hereby proposed to the shareholders to approve, pursuant to the provisions ofArticle 236, Article 238 and Article 239 of the Companies Act of Japan, the determination of
the terms and conditions of the offering for subscription for stock acquisition rights to beissued as stock options to the Directors (not including outside Directors), Officers, andemployees of the Company and its subsidiaries be left to the Board of Directors of theCompany.
The issuance of stock acquisition rights to the Directors of the Company falls under
nonpecuniary remuneration, etc. Hence, pursuant to Article 361 of the Companies Act ofJapan, it is also proposed to the shareholders to approve the method of calculating the stockacquisition rights to be allotted to the Directors.
In the event that Proposition No. 1 (Election of seven (7) Directors) is approved, thenumber of Directors to be allotted stock acquisition rights will be five (5) (not including
outside Directors) and when the stock acquisition rights are issued to the Directors, themaximum number of stock acquisition rights to be allotted to them shall be 200 (themaximum number of stock acquisition rights to be allotted to the persons other than the
Directors shall be the number obtained by deducting from the number listed in Section 2. (2)below which describes the number of stock acquisition rights allotted to the Directors of theCompany). The amount of compensation expense in connection with the stock acquisitionrights will be an amount obtained by multiplying the fair value of each stock acquisition rightcalculated by using the Black-Scholes model based on the various conditions on the
Allotment Date, by the total number of stock acquisition rights to be allotted to the Directors.
It is also proposed that when the stock acquisition rights are to be issued to the Directors of
the Company, the determination of the dates of issuance, distribution, etc., thereof to each
Director be left to the Board of Directors.
1.
Reason for the necessity to make an offering for subscription for stock acquisitionrights to subscribers on specifically favorable conditions:
To afford incentives and raise the morale from achieving much improved results of theCompany on a consolidated basis, secure good human resources, and enhance corporate value,
management intends to issue stock acquisition rights as stock options.
- 45 -

2.
Content of the stock acquisition rights with respect to which the terms and conditionsof the offering may be determined as authorized by resolution of this Ordinary General
Meeting of Shareholders, and the maximum number thereof:(1)

Class and number of shares to be issued or transferred upon exercise of stockacquisition rights:
Not exceeding 120,000 shares of common stock of the Company.
In the event that the Company makes a stock division (which shall include scrip
issues; the same applies hereinafter) or stock consolidation that shall become effective
after the close of this Ordinary General Meeting of Shareholders, the said number ofshares to be issued or transferred upon exercise of the stock acquisition rights shall be
adjusted in accordance with the following formula. Such adjustment shall be madeonly to the number of shares with respect to which the said stock acquisition rights
have not been exercised then, with any fraction of one share occurring upon suchadjustment discarded.
Number of shares asadjusted=

Number of shares
before adjustment

×

Division (or consolidation) ratio

In addition, in the event that the Company makes a merger, consolidation, corporate
division to transfer business or incorporate a corporation, share exchange, or sharetransfer which shall become effective after the close of this Ordinary General Meetingof Shareholders or otherwise for any inevitable reason, the said number of shares tobe issued or transferred upon exercise of the stock acquisition rights shall be adjusted
to a reasonable extent.
(2)

Number of stock acquisition rights:
Not exceeding 1,200 rights.
The number of shares to be issued or transferred upon exercise of each stockacquisition right shall be 100 shares; provided, however, that in the event of an
adjustment to the number of shares as set forth in paragraph (1) above, the total
number of shares to be issued or transferred upon exercise of stock acquisition rights
shall also be adjusted similarly.

(3)

Cash to be paid in for stock acquisition rights:
No cash shall be required to be paid in for stock acquisition rights.

- 46 -

(4)Amount of property to be contributed upon exercise of a stock acquisition right or the
method of determination thereof:
The amount of property to be contributed upon exercise of a stock acquisition rightshall be an amount obtained by multiplying the paid-in amount per share to be
determined below (the “Exercise Price”), multiplied by the number of shares to beissued or transferred for each stock acquisition right as set forth in paragraph (2)above.
The Exercise Price shall be the higher of (i) an amount obtained by multiplying by
1.05 the average of the daily closing prices (the “Closing Price”) (regular way) of theshares of common stock of the Company on Tokyo Stock Exchange, Inc. for the days
(exclusive of any day on which transactions are not validly made) of the month
immediately preceding the month under which the date on which the stock acquisitionrights shall be allotted (the “Allotment Date”) falls (with any fraction of one yenrounded upward to the nearest one yen) and (ii) the Closing Price on the Allotment
Date (if the Closing Price is not available on that day, the Closing Price on any
trading day immediately preceding that day).
In the event that after the Allotment Date for the stock acquisition rights, theCompany makes a stock division or stock consolidation, the said Exercise Price shallbe adjusted in accordance with the following formula, with any fraction of one yen
occurring upon such adjustment rounded upward to the nearest one yen:
Exercise Price as adjusted=

Exercise Price
beforeadjustment

×1
Division (or consolidation) ratio

In the event that after the Allotment Date for the stock acquisition rights, theCompany issues new shares or disposes of its shares of treasury stock at a price lower
than the current market price, the said Exercise Price shall be adjusted in accordancewith the following formula, with any fraction of one yen occurring upon suchadjustment rounded upward to the nearest one yen:

Exercise Price asadjusted=

Number of
newly issued
× Paid-in pricesharesper share
Number of+
Exercisealready issued
Current market price before thePricesharesissuance of new shares×
beforeNumber of+ Number of newly issued sharesadjustment
already issued
sharesIn the above calculation formula, “Number of already issued shares” represents thenumber of shares obtained by deducting the number of shares of treasury stock of theCompany with respect to the shares of common stock of the Company from the total
number of shares of common stock of the Company issued and outstanding, and in theevent that the shares of treasury stock are disposed of with respect to the shares of- 47 -

common stock of the Company, “Number of newly issued shares” shall be read
“Number of shares of treasury stock disposed” and “Paid-in price per share” shall beread “Disposal price per share.”
In addition, in the event that the Company makes a merger, consolidation, corporate
division to transfer business or incorporate a corporation, share exchange or sharetransfer, or otherwise for any inevitable reason, the said Exercise Price shall be adjusted
to a reasonable extent.
(5)

Exercise period of the stock acquisition rights:
From September 1, 2016, to August 31, 2023, provided, however, that if the final dayof such period falls on a holiday of the Company, the immediately preceding business
day shall be the final day.

(6)

Terms and conditions of the exercise of stock acquisition rights:(i)

The number of stock acquisition rights exercisable by any person entitled toexercise stock acquisition rights in any given year (from September 1 throughAugust 31 of the following year) during the period for exercising stockacquisition rights shall be governed by the rule to be established by the Board of
Directors.
If any person entitled to exercise his/her stock acquisition rights does not
exercise all or any part of his/her rights exercisable in any given year during theperiod for exercising stock acquisition rights, the rights remaining unexercised insuch any given year may be carried over to any subsequent year until the period
for exercising stock acquisition rights expires.

(ii) Any person entitled to exercise stock acquisition rights cannot exercise his/herrights in any given year (from September 1 through August 31 of the followingyear) during the period for exercising stock acquisition rights unless he/she
obtains approval of the Company therefor in such any given year.
(iii) Any person entitled to exercise stock acquisition rights shall be a Director,
Officer or employee of the Company or its subsidiaries when he/she exercise
his/her stock acquisition rights.
(iv) Any stock acquisition right shall not be transferred, offered as a pledger or any
other collateral, or inherited.
(7)

Matters concerning capital and capital reserve to be increased in the event that theCompany issues shares upon exercise of the stock acquisition rights:(i) In the event that the Company issues shares upon exercise of the stockacquisition rights, the amount of capital to be increased shall be a half of the
maximum increase amount of capital calculated pursuant to Article 17,
paragraph 1 of the Regulations on Corporate Accounts, with any fraction of
one yen rounded upward to the nearest one yen.
- 48 -

(ii) In the event that the Company issues shares upon exercise of the stockacquisition rights, the amount of capital reserve to be increased shall be an
amount obtained by deducting the amount of capital to be increased as set forthin item (i) above from the maximum increase amount of capital set forth initem (i) above.
(8)

Restriction on acquisition of the stock acquisition rights by transfer:Any acquisition of the stock acquisition rights by transfer shall be subject to theapproval of the Board of Directors of the Company.

(9)

Events of acquisition of stock acquisition rights:(i) In the event that before any person entitled to exercise stock acquisition rights
exercises his/her rights, a proposition for the approval of a merger agreement
under which the Company shall be merged, or a proposition for the approval ofa share exchange agreement or a share transfer plan under which the Company
shall become a wholly owned subsidiary is approved at a General Meeting of
Shareholders (or a resolution therefor is adopted by the Board of Directors of
the Company when such resolution of the General Meeting of Shareholders is
not required), the Company may acquire the stock acquisition rights without
consideration on a day separately specified by its Board of Directors.
(ii) In the event that before any person entitled to exercise stock acquisition rights
exercises his/her rights, he/she ceases to be entitled to do so due to any of theterms and conditions set forth in paragraph (6) above, the Company may
acquire the stock acquisition rights without consideration on a day separately
specified by its Board of Directors.
(iii) In the event that any person entitled to exercise stock acquisition rights waives
all or any part of his/her rights, the Company may acquire the stock acquisitionrights without consideration on a day separately specified by its Board of
Directors.

(10)

Treatment of stock acquisition rights upon reorganization by the Company:
In the event that the Company is merged or consolidated (as a result of which, theCompany shall be dissolved), is divided to transfer business or incorporate a
corporation, makes a share exchange or makes a share transfer (collectively,“reorganization”), the Company shall deliver to any person entitled to exercise thestock acquisition rights outstanding (the “Outstanding Rights”) on the day on which
the reorganization becomes effective, stock acquisition rights of relevant corporations(“reorganizing companies”) listed in Article 236, paragraph 1, item 8 (a) through (e)of the Companies Act, in accordance with the following terms and conditions. In
such case, the Outstanding Rights shall become null and void and the reorganizing
companies shall issue new stock acquisition rights, only if and when the delivery of- 49 -

stock acquisition rights of the reorganizing companies in accordance with thefollowing terms and conditions is stipulated in the relevant merger agreement,
consolidation agreement, agreement of corporate division to transfer business, planfor corporate division to incorporate a company, share exchange agreement, or sharetransfer plan:(i) Number of stock acquisition rights of reorganizing company to be delivered:
The same number as that of the stock acquisition rights held by each person
entitled to exercise the Outstanding Rights.
(ii) Class of shares of reorganizing company to be issued or transferred upon
exercise of stock acquisition rights:
Shares of common stock of the reorganizing company.
(iii) Number of shares of reorganizing company to be issued or transferred upon
exercise of stock acquisition rights:
The number of shares shall be determined in accordance with paragraph (1)above, taking into account the terms and conditions of the reorganization.
(iv) Amount of property to be contributed upon exercise of a stock acquisitionright:
The amount of property to be contributed upon exercise of each stockacquisition right to be delivered shall be an amount obtained by multiplying
by the number of shares of the reorganizing company to be issued ortransferred upon exercise of each such stock acquisition right determined as
set forth in item (iii) above, the paid-in amount after the reorganization
obtained by adjustment to the Exercise Price set forth in paragraph (4) aboveby taking into account the terms and conditions of the reorganization.
(v) Exercise period of stock acquisition rights:
From later of the first day of the exercise period of stock acquisition rights set
forth in paragraph (5) above and the day on which the reorganization becomes
effective, to the last day of the exercise period of stock acquisition rights set
forth in paragraph (5) above.
(vi) Terms and conditions of the exercise of stock acquisition rights:
To be determined in accordance with paragraph (6) above.
(vii) Matters concerning capital and capital reserve to be increased in the event thatshares are issued upon exercise of the stock acquisition rights:
To be determined in accordance with paragraph (7) above.
- 50 -

(viii) Restriction on acquisition of stock acquisition rights by transfer:Any acquisition of stock acquisition rights by transfer shall be subject to theapproval of the reorganizing company.
(ix) Events of acquisition of stock acquisition rights:
To be determined in accordance with paragraph (9) above.
(11)

Treatment of fractions of a share upon exercise of the stock acquisition rights:
For the purpose of delivery of shares to any person entitled to exercise stockacquisition rights who exercises his/her rights, any fraction of one share shall bediscarded.

(12)

Other matters:
Other matters concerning the stock acquisition rights shall be determined byresolution of the Board of Directors.

- END -

- 51 -