Toshiba's Governance system

In June 2003, Toshiba made the transition to the "Company with Committees" structure in order to improve speed and flexibility of management, reinforce management supervision and increase transparency. In a further move, Toshiba established the Corporate Governance Committee. The Board consists of 14 directors, 7 of which are nonexecutive officers. Each of the three committees has a majority of outside directors, and the Nomination Committee and Compensation Committee are both chaired by outside directors. Under Corporate Act of Japan, the Nomination Committee is responsible for making proposals on the appointment and dismissal of directors. At Toshiba, the Nomination Committee is also charged with making recommendations on the appointment and dismissal of the president and members of the committees. The Outside Directors receive explanations about the matters to be resolved at the board meetings from the staff in charge, etc. in advance. They also attend the monthly liaison conferences of Executive Officers in an effort to communicate and share information with the Executive Officers. The Outside Directors who are members of the Audit Committee are supported by the full-time staff of the Audit Committee Office. The Outside Directors who are members of the Nomination Committee or the Compensation Committee are supported by the staff in charge, etc.

Measures to Prevent Persons Considered Inappropriate, in Light of the Company's Basic Policies (Takeover Defense Measure)

The Company introduced a plan for countermeasures to any large-scale acquisitions of the Company's shares (the "Plan"), based on the shareholders' approval for the basic concept of the Plan at the Ordinary General Shareholders Meeting held in June 2006, for the purpose of protection and enhancement of the corporate value of the Company and the common interests of shareholders.

The Plan was introduced for the purpose of protecting and enhancing the corporate value of the Company and the common interests of its shareholders by explicitly setting forth the procedures to be followed when a large-scale acquisition of the Company's shares is made, ensuring that shareholders are provided with necessary and adequate information and sufficient time to make appropriate decisions, and securing the opportunity for the Company to negotiate with the acquirer.

Specifically, if an acquirer starts or plans to start an acquisition or a takeover bid that would result in the acquirer holding 20% or more of the Company's total outstanding shares, the Company will require the acquirer to provide the necessary information in advance to its Board of Directors. The Board of Directors will then establish a Special Committee that will, at its discretion, obtain advice from outside experts, evaluate and consider the details of the acquisition, disclose to the Company's shareholders the necessary information regarding the acquisition, as well as the alternative proposal prepared by the Company's Chief Executive Officer, and then negotiate with the acquirer. If the acquirer does not comply with the procedures under the Plan, or the Special Committee decides that the acquisition would damage the corporate value of the Company or the common interests of shareholders, the Special Committee will recommend to the Board of Directors that the Company implement countermeasures (a gratis allotment of stock acquisition rights (shinkabu yoyakuken no mushou wariate), a condition of which will be that they cannot be exercised by acquirers or the like) and protect the corporate value of the Company and the common interests of shareholders.

Internal Control Systems

In response to the Corporate Act of Japan, which came into force in May 2006, Toshiba's board of directors resolved its basic policies on internal control system in April 2006. Accordingly, Toshiba requested all Toshiba Group companies in Japan to adopt basic policies on internal control systems by resolutions of their respective boards of directors, to reinforce internal control systems throughout Toshiba Group. Toshiba is supporting Toshiba Group companies by establishing models of basic policies and rules covering internal control systems.

We are to establish internal control over financial reporting in accordance with the Financial Instruments and Exchange Law of Japan.

Toshiba's Internal Control Systems

Compensation for Directors and Executive Officers

Directors receive fixed amounts of compensation according to their duties and their status as full-time or part-time directors. Executive officers receive basic compensation based on their ranks and service compensation is calculated according to his/her duties as an Executive Officer. 40 to 45% of the service compensation fluctuates from zero to twice according to the year-end performance of division or Toshiba for which the Executive Officer is responsible or of the company.

In April 2006, the Compensation Committee passed a resolution to abolish the system for granting retirement benefits to directors and Executive Officers.

Board of directors Compensation amount (millions of yen) Board of directors Compensation paid to directors (of which outside directors) 14 (4) 282 (55) Executive officers Compensation paid to executive officers 36 1,374