IDENTITY

Our processed food business is regulated as a food productmanufacturer and distributor, mainly under the Food Safety
Basic Act, Food Sanitation Act and Food Labeling Act.
The Food Safety Basic Act, enacted and effective from2003 with the purpose to ensure food safety and protect
consumers, charges food companies with a responsibility toimplement safeguards necessary to ensure food safety froma scientific standpoint through risk control, assessment andcommunication at each stage of their entire supply chains.
The Food Sanitation Act aims to keep food and beverages
free of hygienic hazards and protect the health of consumers. It requires food companies to acquire knowledge andtechnology, verify ingredient safety, inspect their facilities,and otherwise act diligently to fulfill their responsibilities toensure the safety of their food products, additives, utensils,containers and/or packaging. As part of the revision in 2018,additional requirements such as hygiene management inline with the HACCP (Hazard Analysis and Critical Control
Point) are in place. The Food Labeling Act, aiming to upholdconsumer interests and contribute to making food production support the protection and/or promotion of consumer
health, sets labeling standards for food products offered for
sale, including with respect to allergen content, shelf life, ingredients, and place of origin. Food companies are required
to label their products in compliance with these standards.
In addition to meticulously complying with these and otherapplicable laws and regulations, our processed food business is committed to the highest standards of food safety
management from the four perspectives—food safety, fooddefense, food quality and food communication—in orderto provide consumers with safe, high-quality food productsthat they can enjoy with peace of mind.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Litigation

Regulation and key laws

Processed food business

MATERIALITY andSUSTAINABILITY

Japan Tobacco Inc. Act
JT was established pursuant to the Japan Tobacco Inc.
Act (the “JT Act”) to manufacture, sell and import tobacco
products. Under the JT Act, the Japanese government must
always own at least one-third of our total issued shares(excluding any non-voting share classes*¹). The Minister ofFinance must approve any offerings of newly issued stock or
subscription rights to shares, as well as any issuance of stock,subscription rights to shares or bonds cum subscription
rights to shares in conjunction with a stock swap. In addition
to manufacturing, selling and importing tobacco products
and operating businesses incidental thereto, we are permitted by the JT Act to engage in other businesses as required
to fulfill our purpose and subject to the Minister of Finance’sapproval. Other matters requiring the Minister of Finance’sapproval include appointment/dismissal of Directors,Executive Officers and Audit & Supervisory Board Members,amendments to our Articles of Incorporation, appropriationsof capital surplus (excluding appropriations to rectify anaccumulated deficit), mergers, split-ups and dissolution. We
are also required to submit a statement of financial position,statement of income and business report to the Minister ofFinance within three months of every fiscal year-end.
The Reconstruction Financing Act*², which took effect on
December 2, 2011, directed the government to reassessstate involvement in the tobacco industry under theTobacco Business Act by March 31, 2023, and to explore thepossibility of divesting its JT shareholdings.
*1 Defined as classes of shares with no right to vote on any resolutions atgeneral meetings of shareholders*2 The Act on Special Measures for Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake

Some of JT’s subsidiaries are defendants in lawsuits filed byplaintiffs seeking damages for harm allegedly caused bysmoking or vaping, the marketing of tobacco or E-Vapor
products or exposure to tobacco smoke. There are lawsuits
involving smoking/vaping and health-related cases pendingin which some of JT’s subsidiaries are named as defendants
or for which JT may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco
Inc.’s non-U.S. tobacco business. In addition, JT and/or someof its subsidiaries are also defendants in lawsuits other than
the smoking/vaping and health-related cases.
There are 10 ongoing health care cost recovery cases in
Canada pending against JTI-Macdonald Corp. (hereinafterreferred to as JTI-Mac), our Canadian subsidiary and JT’sindemnitees (RJR Nabisco Inc.’s affiliates), brought by
Canadian provinces. In addition, there are 8 pending classactions in Canada where plaintiffs are seeking damages forharm allegedly caused by smoking of cigarettes. Damages
claimed in some of these cases reach sums in the multi-billion-dollar range. We will continue to take all appropriate
actions to defend such claims vigorously and believe there
are a number of valid defenses.
On March 8, 2019, JTI-Mac filed for protection from its
creditors under Canada’s Companies’ Creditors Arrangement
Act (CCAA). The Ontario Superior Court granted the CCAA
application on the same date and extended the protection infavor of JTI-Mac. All the Canadian matters against JTI-Mac referred to herein have been stayed by the court order. JTI-Mac
carries on business in the ordinary course under the CCAA.
In recent decades, numerous, large-scale smoking andhealth-related cases have been brought against tobacco
product manufacturers in the U.S. and some of the cases initially resulted in verdicts with massive damage awards. We
are not defendants in any of these lawsuits, nor are we subject to any indemnity claims with respect to them. The JT
Group’s U.S. tobacco business does not include the businessthat it acquired from RJR Nabisco Inc. in 1999, as well as theNatural American Spirit’s non-U.S. business that it acquired
from Reynolds American Inc. group in January 2016.

There is ongoing litigation in the U.S. alleging health effects
associated with E-Vapor use and harm caused to consumers
by misleading representations and advertising for whichplaintiffs are seeking damages and/or demanding healthwarnings against E-Vapor manufacturers in the U.S. One
such case has been brought against a number of E-Vapor
manufacturers including JT subsidiaries. This case has been
stayed by a court order. We believe that we have valid
grounds to defend this claim and intend to do so vigorously.
Even now, the scale of the JT Group’s U.S. tobacco businessremains small. Hence, we believe that litigation in the U.S.
will not materially affect its businesses in the near future.
Please see “Contingent Liabilities” in our Consolidated
Financial Statements’ “Contingencies” note for major lawsuits to which some of JT’s subsidiaries or indemnitees arenamed as defendants.
To date, the JT Group has never lost a case or paid any
settlement award in connection with smoking/vaping andhealth-related litigation. However, the Group is unable topredict the outcome of currently pending or future lawsuits.
A decision unfavorable to the JT Group and payment of a
substantial amount of monetary compensation could materially affect its financial performance. Moreover, regardlessof the results of these lawsuits, critical media coverage may
reduce social tolerance of smoking, strengthen public regulations and prompt the filing of a number of similar lawsuits
against the JT Group, forcing it to bear litigation costs andmaterially affecting its business performance. Apart fromsmoking/vaping and health-related ones, the JT Group also
may become the defendant in further litigation. Should any
problems arise on the Group’s product quality, this maylead to claims seeking product liability. Such litigation cases
may negatively affect the Group’s business performance or
the manufacture, sale and import and export of its products,
should the outcome of any such claims prove unfavorable.

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