アウトソーシング（2427） – Notice of Receipt of the Full English Translation of the Investigation Report from the Investigation Committee

To Whom It May Concern January 24, 2022 Company Name: Representative: OUTSOURCING Inc. Haruhiko Doi Chairman and CEO (First Section of TSE: Securities Code 2427) Contact: Masashi Umehara Managing Executive Officer and Head of Business Management Division +81-3-3286-4888 (main)Phone: Notice of Receipt of the Full English Translation of the Investigation Report from the Investigation Committee The Company has disclosed the full Japanese investigation report and the summary version of the investigation report prepared in English, as described in the “Notice Regarding Receipt of the Investigation Report from the Investigation Committee” announced on December 28, 2021. The Company is pleased to inform you that it has received the full English translation of the investigation report. Same as the Japanese investigation report, from the viewpoint of privacy and protection of confidential information, partial non-disclosure measures are taken for personal names and company names. We sincerely apologize for the great concern and inconvenience caused to our shareholders, investors, and other stakeholders. The Company will do its utmost to restore everyone’s trust, and ask for your continued support. (Translation) To OUTSOURCING Inc. FOR REFERENCE PURPOSES ONLY Investigation Report December 28, 2021 The Outside Investigation Committee for OUTSOURCING Inc. Chairman: Norihiro Sekiguchi Member: Ayumi Uzawa Member: Kayo Henmi THIS IS AN ENGLISH TRANSLATION OF THE JAPANESE ORIGINAL VERSION, PREPARED ONLY FOR THE CONVENIENCE OF SHAREHOLDERS RESIDING OUTSIDE JAPAN. THE ORIGINAL JAPANESE VERSION WILL PREVAIL, SHOULD THERE BE ANY DIFFERENCE IN THE MEANING BETWEEN THE ENGLISH VERSION AND THE JAPANESE VERSION. 1 (Translation) FOR REFERENCE PURPOSES ONLY Table of Contents I. Outline of the Investigation ……………………………………………………………………………………. 10 1. Background on the Establishment of the Outside Investigation Committee ……………………… 10 2. Purposes for Establishing the Committee ……………………………………………………………….. 10 3. Structure of the Investigation ………………………………………………………………………………. 10 4. Background of the Expansion of the Scope of the Investigation (Detection of Suspicion of Inappropriate Accounting at OS and OST) …………………………………………………………………. 11 II. Outline of Investigation Procedures …………………………………………………………………………. 12 1. Investigation Period ………………………………………………………………………………………….. 12 2. Summary of Investigation Procedures …………………………………………………………………… 12 (1) Verification and Scrutiny of the Relevant Materials …………………………………………………. 12 (2) Interview with Relevant Personnel ……………………………………………………………………… 12 (3) Investigation through Digital Forensics ………………………………………………………………… 12 (4) Questionnaire Investigations ……………………………………………………………………………… 12 (5) Information Gathering through Establishment of an Information Supplement Desk …………. 13 3. Assumptions …………………………………………………………………………………………………… 13 III. Summary of the Company …………………………………………………………………………………… 14 1. Summary of the OS Group …………………………………………………………………………………. 14 (1) Summary of OS ……………………………………………………………………………………………… 14 (2) Composition of the OS Group ……………………………………………………………………………. 14 (3) Corporate History of the OS Group …………………………………………………………………….. 16 (4) Summary of the Corporate Governance System at the OS Group ………………………………… 18 (5) System of Budget Planning and Control for Subsidiaries …………………………………………… 20 2. Summary of the OST Group ……………………………………………………………………………….. 21 (1) Summary of OST ……………………………………………………………………………………………. 21 (2) Management Organization of OST (such as shareholders and directors) (as of August 1, 2021) 21 (3) Composition of the OST Group ………………………………………………………………………….. 22 (4) Corporate history of the OST Group ……………………………………………………………………. 23 (5) Summary of the Corporate Governance System at the OST Group ………………………………. 24 (6) Circumstances in Preparation for the Listing of the OST Stock …………………………………… 25 3. Summary of EN ………………………………………………………………………………………………. 28 (1) Summary of EN ……………………………………………………………………………………………… 28 (2) Organizational Structure at EN …………………………………………………………………………… 28 (3) Corporate History of EN …………………………………………………………………………………… 28 4. Summary of RPM ……………………………………………………………………………………………. 29 IV. Transition of Financial Results of the OS Group ………………………………………………………… 30 1. Profit and Loss of the OS Group ………………………………………………………………………….. 30 2 (Translation) FOR REFERENCE PURPOSES ONLY 2. Profit and Loss by Segment ………………………………………………………………………………… 30 (1) Fiscal year ended December 2015 ………………………………………………………………………. 30 (2) Fiscal year ended December 2016 ………………………………………………………………………. 31 (3) Fiscal year ended December 2017 ………………………………………………………………………. 31 (4) Fiscal year ended December 2018 ………………………………………………………………………. 31 (5) Fiscal year ended December 2019 ………………………………………………………………………. 31 (6) Fiscal year ended December 2020 ………………………………………………………………………. 32 3. Profit and Loss of EN ……………………………………………………………………………………….. 32 V. Investigation Results concerning Suspicious Misconducts at OS …………………………………….. 33 1. Overview of the Inappropriate Accounting at OS. …………………………………………………….. 33 (1) Overview of Inappropriate Accounting ………………………………………………………………… 33 (2) Beginning of the Legacy …………………………………………………………………………………… 33 (3) Motives for the Legacy …………………………………………………………………………………….. 34 (4) Planning and Conduct of the Legacy ……………………………………………………………………. 34 (5) Management of the Legacy ……………………………………………………………………………….. 35 2. Outline of Each Practice as Part of Legacy ……………………………………………………………… 36 (1) Inflated Recognition of Sales …………………………………………………………………………….. 36 (2) Deferral of Expenses ……………………………………………………………………………………….. 37 3. “Barter Transactions” with Company b ………………………………………………………………….. 39 (1) Basic Concept ……………………………………………………………………………………………….. 39 (2) History of Transactions ……………………………………………………………………………………. 40 (3) Mr. AD’s Understanding …………………………………………………………………………………… 53 (4) Other Matters ………………………………………………………………………………………………… 54 (5) Economic Substance of OS’s “Barter Transactions” with Company b …………………………… 55 (6) Examination of Accounting Matters …………………………………………………………………….. 56 (7) Summary ……………………………………………………………………………………………………… 58 4. “Barter Transactions” with Recruiting Companies ……………………………………………………. 58 (1) Basic Approach ……………………………………………………………………………………………… 58 (2) Characteristics of the “Barter Transactions” with Recruiting Companies……………………….. 59 (3) Economic Substance of the “Barter Transactions” with Recruiting Companies ……………….. 60 (4) Examination of Accounting Matters …………………………………………………………………….. 64 (5) Other Matters (OST’s Paybacks for “Barter Transactions” (Margin Adjustments between OS and OST)) …………………………………………………………………………………………………………. 65 5. Examination of Other Suspicious Cases at OS …………………………………………………………. 66 6. The Result of Inappropriate Accounting of Each Fiscal Year ……………………………………….. 67 VI. Investigation Results concerning Suspicious Misconducts at OST ………………………………….. 68 1. Overview of the Inappropriate Accounting at OST ……………………………………………………. 68 (1) Overview of the Inappropriate Accounting ……………………………………………………………. 68 3 (Translation) FOR REFERENCE PURPOSES ONLY (2) Beginning of the Inappropriate Accounting …………………………………………………………… 69 (3) Motives for the Inappropriate Accounting …………………………………………………………….. 69 (4) Planning, Conduct and Management of the Inappropriate Accounting ………………………….. 69 2. Overview of Methods of the Inappropriate Accounting ……………………………………………… 70 (1) Recognition of Fictitious Sales (in the fiscal years ended December 2019 and December 2020) 70 (2) Deferral of Recruitment Expenses ………………………………………………………………………. 71 (3) Inappropriate Adjustment to Work-in-progress Inventory Balance ……………………………….. 72 (4) Deferral of outsourcing expenses ………………………………………………………………………… 72 3. Examination of Other Suspicious Cases at OST ……………………………………………………….. 73 4. The Result of Inappropriate Accounting of Each Fiscal Year ……………………………………….. 73 VII. Investigation Results concerning Suspicious Misconducts at EN ………………………………….. 75 1. Overview of the Inappropriate Accounting at EN ……………………………………………………… 75 (1) Overview of the Inappropriate Accounting ……………………………………………………………. 75 (2) Beginning of the Inappropriate Accounting …………………………………………………………… 75 (3) Motives for the Inappropriate Accounting …………………………………………………………….. 75 (4) Planning and Conduct of the Inappropriate Accounting …………………………………………….. 75 2. Overview of Methods of the Inappropriate Accounting ……………………………………………… 76 (1) Recognition of Fictitious Sales …………………………………………………………………………… 76 (2) Early Recognition of Sales ………………………………………………………………………………… 78 (3) Inappropriate Adjustment to Work-in-progress Inventory Balance ……………………………….. 79 (4) Inappropriate Accounting Relating to Advance Payments ………………………………………….. 80 (5) Avoidance of Recognizing Provision for Loss on Orders Received ………………………………. 80 (6) Avoidance of Recognizing Impairment Loss ………………………………………………………….. 81 (7) Deferral of Expenses ……………………………………………………………………………………….. 81 (8) Inappropriate Recognition of Fixed Assets ……………………………………………………………. 82 (9) Inappropriate Accounting Relating to Advance Payments Received …………………………….. 83 3. Examination of Other Suspicious Cases at EN …………………………………………………………. 83 4. The Result of Inappropriate Accounting of Each Fiscal Year ……………………………………….. 84 VIII. Investigation Results concerning Suspicious Misconducts at RPM ………………………………. 85 1. Overview of the Inappropriate Accounting at RPM …………………………………………………… 85 (1) Overview of the Inappropriate Accounting ……………………………………………………………. 85 (2) Beginning of the Inappropriate Accounting …………………………………………………………… 85 (3) Motives for the Inappropriate Accounting …………………………………………………………….. 85 (4) Planning and Conduct of the Inappropriate Accounting …………………………………………….. 85 2. Overview of Methods of the Inappropriate Accounting ……………………………………………… 86 (1) Inappropriate Adjustment to Work-in-progress Inventory Balance ……………………………….. 86 (2) Avoidance of Recognizing Provision for Loss on Orders Received ………………………………. 87 4 (Translation) FOR REFERENCE PURPOSES ONLY (3) Early Recognition of Sales ………………………………………………………………………………… 88 (4) Deferral of Recruitment Expenses ………………………………………………………………………. 88 (5) Inappropriate Accounting Relating to Software ………………………………………………………. 89 3. Examination of Other Suspicious Cases at RPM ………………………………………………………. 89 4. The Result of Inappropriate Accounting of Each Fiscal Year ……………………………………….. 89 IX. Investigation Results concerning Suspicious Misconducts related to Other Subsidiaries ………. 91 1. Overview ………………………………………………………………………………………………………. 91 2. Subsidiaries Involved in the Inappropriate Accounting (Legacy) at OS ………………………….. 91 (1) Overview ……………………………………………………………………………………………………… 91 (2) Impacts of the Inappropriate Accounting ………………………………………………………………. 91 3. Subsidiaries Involved in the Inappropriate Accounting (Recognition of Fictitious Sales) at OST 94 (1) Overview ……………………………………………………………………………………………………… 94 (2) Impacts of the Inappropriate Accounting ………………………………………………………………. 95 4. OST’s Subsidiaries and Others ……………………………………………………………………………. 96 (1) Overview ……………………………………………………………………………………………………… 96 (2) Impacts of the Inappropriate Accounting ………………………………………………………………. 97 5. ELEMENT …………………………………………………………………………………………………… 100 (1) Overview ……………………………………………………………………………………………………. 100 (2) Impacts of the Inappropriate Accounting …………………………………………………………….. 100 6. Examination of Other Suspicious Cases ……………………………………………………………….. 101 X. Status of Involvement in Inappropriate Accounting……………………………………………………. 102 1. Outline ………………………………………………………………………………………………………… 102 2. Officers and Key Personnel of OS ………………………………………………………………………. 102 (1) Principal Person Involved in the Inappropriate Accounting ……………………………………… 102 (2) Mr. A (Chairman and CEO) …………………………………………………………………………….. 102 (3) Mr. B (Executive Vice President)………………………………………………………………………. 102 (4) Other Directors …………………………………………………………………………………………….. 102 (5) Important Employees …………………………………………………………………………………….. 102 3. OST ……………………………………………………………………………………………………………. 103 (1) Principal Person Involved in the Inappropriate Accounting ……………………………………… 103 (2) Mr. L (President and Representative Director) ……………………………………………………… 103 (3) Mr. M (Director) …………………………………………………………………………………………… 103 (4) Other Directors …………………………………………………………………………………………….. 104 (5) Important Employees …………………………………………………………………………………….. 104 4. EN ……………………………………………………………………………………………………………… 104 (1) Principal Person Involved in the Inappropriate Accounting ……………………………………… 104 (2) Mr. W (current CEO) …………………………………………………………………………………….. 104 5 (Translation) FOR REFERENCE PURPOSES ONLY (3) Other Officers ……………………………………………………………………………………………… 104 (4) Important Employees …………………………………………………………………………………….. 105 5. RPM …………………………………………………………………………………………………………… 105 (1) Principal Person Involved in the Inappropriate Accounting ……………………………………… 105 (2) Other Officers ……………………………………………………………………………………………… 105 (3) Important Employees …………………………………………………………………………………….. 105 6. Accounting Auditor ………………………………………………………………………………………… 105 XI. Analysis of the Causes of the Inappropriate Accounting …………………………………………….. 106 1. OS ……………………………………………………………………………………………………………… 106 (1) Motives for the Inappropriate Accounting …………………………………………………………… 106 (2) Existence of the Opportunity ……………………………………………………………………………. 107 (3) Justification of the Inappropriate Accounting ……………………………………………………….. 111 2. OST ……………………………………………………………………………………………………………. 113 (1) Motives for the Inappropriate Accounting …………………………………………………………… 113 (2) Existence of the Opportunity ……………………………………………………………………………. 115 (3) Justification of the Inappropriate Accounting ……………………………………………………….. 120 3. EN ……………………………………………………………………………………………………………… 121 (1) Motives for the Inappropriate Accounting …………………………………………………………. 121 (2) Existence of the Opportunity………………………………………………………………………….. 123 (3) Justification of the Inappropriate Accounting ……………………………………………………….. 126 4. RPM …………………………………………………………………………………………………………… 127 (1) Motives for the Inappropriate Accounting …………………………………………………………… 127 (2) Existence of the Opportunity ……………………………………………………………………………. 129 (3) Justification of the Inappropriate Accounting ……………………………………………………….. 130 XII. Recommendations for Preventive Measures ………………………………………………………….. 131 1. Establishing Feasible Business Plans and Budgets ………………………………………………….. 131 2. Clarification of Responsibilities …………………………………………………………………………. 131 3. Restructuring of Corporate Governance and Structure ……………………………………………… 131 (1) Allocate authority appropriately by strengthening the management system ………………….. 131 (2) Strengthening the Oversight Functions of the Board of Directors ………………………………. 132 (3) Strengthening and Securing Highly-qualified Human Resources in the Accounting Department 132 4. Strengthening the Internal Control Division (Subsidiary Management) ………………………… 133 (1) Strengthening Human Resources in the Management Department and Securing Highly-qualified Human Resources ……………………………………………………………………………………………… 133 (2) Reconsideration of the Internal Audit System ………………………………………………………. 133 (3) Strengthening Internal Control System by the Audit and Supervisory Committee ………….. 134 5. Ensuring the Effectiveness of the Whistleblowing System ………………………………………… 134 6 (Translation) FOR REFERENCE PURPOSES ONLY 6. Review of Internal Rules Concerning Accounting and Accounting Systems ………………….. 135 7. Reforming Compliance Awareness and Thoroughly Implementing Measures to Prevent Recurrence ………………………………………………………………………………………………………. 135 7 Section 1 of I. Section 1(2) of III. Section 1 of I. Section 1(2) of III. Section 2(4) of II. Section 2(5) of II. Section 1(2) of III. Section 1(2) of III. Section 1(2) of III. Section 1(3) of III. Section 3(2)c. of V Section 1(3) of III. Section 1(2) of III. Section 1(2) of III. Section 1(3) of III. Section 1(3) of III. Section 2(4) of III. Section 2(3) of III. Section 1 of IX. Section 1(3) of III. (Translation) FOR REFERENCE PURPOSES ONLY Main Terms and Definitions Defined Terms Official Names, Meanings, etc. First Appearance AMERICAN ENGINEERING CORPORATION Section 1(2) of III. enable Inc. ORJ INC. OUTSOURCING Inc. OS VIETNAM OS VIETNAM CO.,LTD. OS Group OST OS and its subsidiaries and equity-method affiliates Section 3 of I. OUTSOURCING TECHNOLOGY Inc. Section 1 of I. OST’s Subsidiaries All of the subsidiaries of OST OST Group OST and OST’s Subsidiaries OS SELNAJAYA PT. OS SELNAJAYA INDONESIA OTS Inc. PEO Co., Ltd. RPM Co., Ltd. TEIKOKU DATABANK, Ltd. Advantec Co., Ltd. AVANCE CORPORATION AVANCE HOLDINGS Co., Ltd. Advantec AVANCE AVANCE HOLDINGS ELEMENT ELEMENT CO., LTD. Kyodo Engineering Kyodo Engineering Corporation GLocal GLocal Co., Ltd. ThinkethBank ThinkethBank Co., Ltd. Three S Japan Three S Japan Co., Ltd. TryAngle TryAngle Corporation Co., Ltd. The Committee The outside investigation committee, the members of Section 1 of I. The Questionnaire The investigations through questionnaires to officers Section 2(4) of II. Investigations and office employees (excluding dispatched which solely consist of neutral and fair external specialists independent of OS, in accordance with the “Guidelines for Third-Party Committees Relating to Corporate Scandals” employees, interns, seconded employees or the like) of OS and OST as well as persons in charge of accounting at the OST’s Subsidiaries inquiring whether or not certain persons questioned were involved in the Suspicious Misconduct, the outline 8 AEC EN ORJ OS OTS PEO RPM TDB (Translation) FOR REFERENCE PURPOSES ONLY Defined Terms Official Names, Meanings, etc. First Appearance and cause thereof, as well as, in addition to the Suspicious Misconduct, whether any inappropriate transactions existed or not, the details thereof, the environment of internal control, and the like. EN Suspicious The suspicion that inappropriate accounting is being Section 1 of I. Misconduct conducted with respect to the allocation of the work-in-progress of EN The Accounting Deloitte Touche Tohmatsu LLC Section 1 of I. Auditor The Internal Investigation The internal investigation on the EN Suspicious Section 1 of I. Misconduct conducted by OS’s internal audit office The Investigation of The investigation conducted by the Committee from Section 2 of II. the Committee September 29, 2021 to December 28, 2021 The Whistleblowing The written internal accusation indicating the EN Section 1 of I. Document Suspicious Misconduct and a suspicion that OST’s internal audit office has been concealing the EN Suspicious Misconduct The Suspicious A collective term for the EN Suspicious Misconduct Section 4 of I. Misconduct and the suspicion of inappropriate accounting at OS, OST and OST’s Subsidiaries other than EN Mobile Mobile Communications Co., Ltd. Section 2(3) of III. Communications 9 (Translation) I. Outline of the Investigation FOR REFERENCE PURPOSES ONLY 1. Background on the Establishment of the Outside Investigation Committee On September 9, 2021, the Audit and Supervisory Committee of OUTSOURCING TECHNOLOGY Inc. (“OST”), a subsidiary of OUTSOURCING Inc. (“OS”), was notified by Deloitte Touche Tohmatsu LLC (the “Accounting Auditor”) to the effect that, on September 8, 2021, it had received a written internal accusation (the “Whistleblowing Document”) indicating that a subsidiary of OST, enable Inc. (“EN”), engaged in inappropriate accounting with respect to allocation of the work-in-progress (the “EN Suspicious Misconduct”), and there is a suspicion that OST’s Internal Audit Office has been concealing the alleged fact above. The Audit and Supervisory Committee of OST was requested to clarify the basic facts and consider measures to address the issue as necessary. In response to the Whistleblowing Document, on September 10, 2021, the Audit and Supervisory Committee of OST decided to request OS’s Internal Audit Office to investigate the EN Suspicious Misconduct, and OS’s Internal Audit Office accepted the request (the “Internal Investigation”). While OS’s Internal Audit Office conducted interviews with relevant personnel, and preserved and examined accounting data together with other relevant materials, in the course of the investigation, they found that there were specific doubts relating to the EN Suspicious Misconduct. Based on the foregoing, OS resolved at the meeting of its Board of Directors held on September 29, 2021 to establish an outside investigation committee (the “Committee”), the members of which solely consist of neutral and fair external specialists independent of OS, in accordance with the “Guidelines for Third-Party Committees Relating to Corporate Scandals” (published on July 15, 2010; revised on December 17, 2010) of the Japan Federation of Bar Associations. 2. Purposes for Establishing the Committee The purposes for establishing the Committee are as follows: (i) To investigate the EN Suspicious Misconduct detected through the Internal Investigation; (ii) To examine cases analogous to the EN Suspicious Misconduct and other suspicious cases; (iii) To calculate the impact of any inappropriate accounting that may be found; (iv) To investigate the causes and recommend measures to prevent a recurrence of any inappropriate accounting that may be found; and (v) Any other matters deemed necessary by the Committee. A determination regarding the legal responsibility of the persons involved in the inappropriate accounting, in cases where it is determined to have occurred, is not covered within the scope of the purpose for establishing the Committee. 3. Structure of the Investigation The Committee consists of the following three members: Chairman: Norihiro Sekiguchi (Attorney-at-law, Oh-Ebashi LPC & Partners (Tokyo 10 (Translation) FOR REFERENCE PURPOSES ONLY Office)) Member: Ayumi Uzawa (Certified Public Accountant and Certified Fraud Examiner, Uzawa Certified Public Accountant Office) Member: Kayo Henmi (Attorney-at-law, Oh-Ebashi LPC & Partners (Tokyo Office)) OS appointed, at the meeting of its Board of Directors held on September 29, 2021, in accordance with the background described in Section 1 above, Norihiro Sekiguchi (Attorney-at-law), Ayumi Uzawa (Certified Public Accountant and Certified Fraud Examiner), and Kayo Henmi (Attorney-at-law), none of whom have any relationship as an interested party with OS and its subsidiaries and equity-method affiliates (collectively, the “OS Group”), as members of the Committee, and elected Norihiro Sekiguchi (Attorney-at-law) as its chairman. Also, the Committee has designated as its assistants, attorneys-at-law belonging to Oh-Ebashi LPC & Partners (Tokyo Office), Yuki Tsuchiya, Mami Kadono, Yuya Oyagi and Yusuke Koketsu, and certified public accountants belonging to KPMG FAS Co., Ltd., Toshifumi Takaoka, Eiji Suga, Takayuki Yamaguchi, Hiroyuki Tokoi, and sixteen (16) other persons, as well as six (6) additional persons, including certified public accountants, belonging to KPMG AZUSA LLC. While a part of the assistants belonging to KPMG FAS Co., Ltd also took part as assistants in the Internal Investigation, it was decided that they should continuously participate as assistants to the Committee considering that it is preferable to smoothly share the result of the Internal Investigation in order to complete the Investigation under the time constraints. 4. Background of the Expansion of the Scope of the Investigation (Detection of Suspicion of Inappropriate Accounting at OS and OST) Since the beginning of the investigation, the Committee has, in keeping with the background set forth in Section 1 above, focused the investigation on the EN Suspicious Misconduct and the analysis of the causes thereof. Nonetheless, in the course of the aforementioned investigation, upon having recognized a suspicion that inappropriate accounting was also being conducted by OST, the parent company of EN, and subsidiaries of OST other than EN, it was decided that the scope of the investigation should be expanded to include the alleged inappropriate accounting by OST and OST’s subsidiaries other than EN. Furthermore, in the course of the investigation, it was recognized that there was also a suspicion of inappropriate accounting being conducted by OS, the parent company of OST (collectively, the EN Suspicious Misconduct, the suspicion of inappropriate accounting at OS and OST’s subsidiaries other than EN are referred to as the “Suspicious Misconduct”). Therefore, the Committee decided to perform a thorough investigation by including OS within the scope of the investigation. The Committee conducted the investigation in accordance with the aforesaid “Guidelines for Third-Party Committees Relating to Corporate Scandals.” 11 (Translation) II. Outline of Investigation Procedures 1. Investigation Period FOR REFERENCE PURPOSES ONLY From September 29, 2021 to December 28, 2021 The Committee held nineteen (19) meetings in total during the said investigation period. 2. Summary of Investigation Procedures Committee”) are outlined as follows: The investigation procedures implemented by the Committee (the “Investigation of the (1) Verification and Scrutiny of the Relevant Materials The Committee reviewed, to the extent deemed necessary, relevant materials concerning the Suspicious Misconduct disclosed by OS such as internal regulations and written reports, minutes and meeting materials of the respective meeting bodies, accounting data, as well as various vouchers and documentary evidence of the respective companies of the OS Group. (2) Interview with Relevant Personnel The Committee conducted interviews with officers, current and former employees and other relevant personnel comprising forty-seven (47) persons in total. Specific interviewees are as set forth in Appendix 1. In addition to the above, in order to determine the accounting impact of the Suspicious Misconduct, the Committee conducted interviews with employees, and made inquiries to the Accounting Auditor as appropriate. While the Committee requested interviews with former officers and former employees of the OS Group in addition to those specified in Appendix 1, since the Committee received a reply from OS that OS could not obtain cooperation from the persons in question, the Committee could not conduct the said additional interviews. (3) Investigation through Digital Forensics The Committee preserved e-mails and chat data sent and received on and after January 1, 2016 by thirty-two (32) officers and employees of the OS Group from the archive system which had exhaustively stored them. The Committee imported any and all electronic data preserved as aforementioned into a dedicated environment for the review, and analyzed those deemed necessary by the Committee. Details of the persons subject to the preservation of data are as stated in Appendix 2. (4) Questionnaire Investigations The Committee implemented investigations through questionnaires (the “Questionnaire Investigations”) to officers and office employees (excluding dispatched employees, interns, 12 (Translation) FOR REFERENCE PURPOSES ONLY seconded employees or the like) as well as persons in charge of accounting at all of the subsidiaries of OST (the “OST Subsidiaries”) inquiring whether or not certain persons questioned were involved in the Suspicious Misconduct, the outline and cause thereof, as well as, in addition to the Suspicious Misconduct, whether any inappropriate transactions existed or not, and the details thereof, the environment of internal control, and the like. The Committee obtained responses as follows: Subject of the Questionnaire OS Accounting divisions of OST and its subsidiaries Number of the people who responded (Collection rate for either of items 1 or 2 above was 100%; although the number of people who have been absent from work for a long period of time or the like was excluded from the number of people questioned.) Number of People Questioned (unit: persons) 836 990 1826 With regard to responses obtained through the Questionnaire Investigations, the Committee implemented interviews with the responding parties who provided information for which verification was deemed necessary. (5) Information Gathering through Establishment of an Information Supplement Desk The Committee established a desk for the supply of information in relation to whether inappropriate accounting existed or not, the details thereof, and other issues on internal control, and caused OST and the OST Subsidiaries (collectively, the “OST Group”) to extensively supplement the information. Since the Committee obtained four (4) instances of information as a result thereof, it implemented interviews with the informants, who provided information for which verification was deemed necessary. 3. Assumptions restrictions and limitations: The investigation conducted by the Committee and its results are subject to the following general – Although the investigation by the Committee was conducted in cooperation with the OS Group in good faith, the Committee does not have the power of compulsory investigation. Accordingly, there were limitations on the Committee’s investigation of the facts. The fact-finding exercise conducted by the Committee is not exhaustive of all past facts since the Committee had to rely on the voluntary statements of the OS Group’s officials and staffs, together with materials voluntarily submitted by the OS Group, and additionally, the investigation period is not unlimited. – The purpose for establishing the Committee is as set forth in the Section 2 above, and this report is not intended to be used for any other purpose. 1 2 13 (Translation) III. Summary of the Company 1. Summary of the OS Group (1) Summary of OS FOR REFERENCE PURPOSES ONLY January 6, 1997 First Section of the Tokyo Stock Exchange, Inc. December Incorporation: Market listed: Fiscal year-end: Shareholding structure: Mr. A (12.52%); The Master Trust Bank of Japan, Ltd. (Trust Account) (6.63%); JP MORGAN CHASE BANK 385632 (standing proxy: Settlement and Clearing Services Department, Mizuho Bank, Ltd.) (6.55%); Custody Bank of Japan, Ltd. (Trust Account) (6.24%); THE BANK OF NEW YORK MELLON 140051 (standing proxy: Settlement and Clearing Services Department, Mizuho Bank, Ltd.) (4.71%) (as of December 31, 2020) Mr. A JPY 25,229,567,643 (as of May 14, 2021) 1-8-3 Marunouchi, Chiyoda-ku, Tokyo 93,028 persons (consolidated as of December 31, 2020) Representative: Issued capital: Head office: Number of employees: Description of business: Domestic Engineering Outsourcing Business; Domestic Manufacturing Outsourcing Business; Domestic Service Operations Outsourcing Business; Overseas Engineering Outsourcing Business; and Overseas Manufacturing and Service Operations Outsourcing Business. Deloitte Touche Tohmatsu LLC The organization structure of OS is set forth in Appendix 3. Accounting auditor: Organization: (2) Composition of the OS Group The OS Group consists of OS, two hundred and six (206) consolidated subsidiaries and three (3) equity-method affiliates as of the end of December 2020. The status of the major related companies (excluding entities comprising the OST Group) is as follows (based on the Annual Securities Report of OS for its fiscal year ended December 2020): Name Location Issued capital Description of main business (Consolidated subsidiaries) PEO Co., Ltd. (“PEO”) AVANCE HOLDINGS Co., Ltd. (“AVANCE HOLDINGS”) AVANCE CORPORATION Nakamura-ku, Nagoya-shi JPY 50 million Ichinomiya-shi, Aichi JPY 50 million Ichinomiya-shi, Aichi JPY 50 million Domestic Manufacturing Outsourcing Business Domestic Manufacturing Outsourcing Business Domestic Manufacturing Outsourcing Business 14 Ratio of voting rights holding (held) (%) 100.0 53.9 100.0 (Translation) FOR REFERENCE PURPOSES ONLY Name Location Issued capital Description of main business AMERICAN ENGINEERING CORPORATION (OKINAWA) (“AEC”) OTS Inc. (“OTS”) ORJ Inc. (“ORJ”) Delaware, U.S.A. USD 200,000 Chiyoda-ku, Tokyo JPY 275 million Kita-ku, Osaka JPY 50 million OS (THAILAND) CO., LTD. Bangkok, Thailand THB 5 million PT. OS SELNAJAYA INDONESIA (“OS SELNAJAYA”) Jakarta, Indonesia IDR 6,599 million OS VIETNAM CO., LTD. (“OS VIETNAM”) Hanoi, Vietnam USD 400,000 (Equity-method affiliate) PEO Construction Machinery Operators Training Center Co., Ltd. Chiyoda-ku, Tokyo JPY 20 million Domestic Service Operations Outsourcing Business Domestic Service Operations Outsourcing Business Domestic Manufacturing Outsourcing Business Overseas Manufacturing and Service Operations Outsourcing Business Overseas Manufacturing and Service Operations Outsourcing Business Overseas Manufacturing and Service Operations Outsourcing Business Business of providing various trainings, including technical courses on operation of construction machinery Ratio of voting rights holding (held) (%) 100.0 100.0 100.0 49.0 49.0 100.0 51.0 15 (Translation) FOR REFERENCE PURPOSES ONLY (3) Corporate History of the OS Group OS was incorporated in Suruga-ku, Shizuoka-shi, Shizuoka, with the objective of operating contract services on production lines through a succession of the businesses of Chubu Sougou Inc. (the company name was changed to Work System Inc. in April 1988) founded by Mr. A, the current Representative Director, and its five (5) spin-off companies, with the intent to solidify the management policy, converge their management resources and promote administrative efficiency. The corporate history of the OS Group after the incorporation of OS is as follows (based on the Annual Securities Report of OS for its fiscal year ended December 2020; see Sections 2 and 3 below for the OST Group and EN respectively): January 1997 May 2001 February 2004 Founded OS in Inagawa, Suruga-ku, Shizuoka-shi with the objective of operating contract services on production lines, which succeeded the buiness of Work System Inc. and five (5) other companies. Relocated the head office to Minami-cho, Suruga-ku, Shizuoka-shi. Obtained the license to operate as a service provider of general worker dispatching undertakings. December 2004 Listed on the Jasdaq Securities Exchange, Inc. (currently the Tokyo Stock January 2005 March 2009 June 2009 August 2009 March 2010 April 2010 July 2010 July 2010 July 2011 March 2012 Exchange JASDAQ (Standard)). Obtained the license to operate as a provider of fee-charging employment placements. Absorbed FREE WORK CO., LTD. and relocated the head office to Chayamachi, Kita-ku, Osaka-shi. In association with the merger, acquired DAISEI ENGINEERING CO., Ltd. (currently ORJ), converting the same into a subsidiary. Acquired FULLCAST CENTRAL CO., LTD (currently EN) as a subsidiary. Acuired all shares of RPM Co., Ltd. (“RPM”) and TryAngle Co., Ltd. (“TryAngle”), companies in pharmaceuticals, medical equipment and chemical products, converting them into wholly owned subsidiaries. specializing outsourcing and engineer dispatching services, into a subsidiary. Relocated the head office to Minami-cho, Suruga-ku, Shizuoka-shi. Listed on the Osaka Securities Exchange JASDAQ (currently the Tokyo Stock Exchange JASDAQ (Standard)) in line with the merger of Jasdaq Securities Exchange, Inc. and Osaka Securities Exchange, Co. EN, a subsidiary, absorbed subsidiaries Out Sourcing Central Inc. and Yasutomo Ltd., and changed its trade name to Out Sourcing Central Inc. Relocated the head office to Koya-machi, Aoi-ku, Shizuoka-shi. Established PT. OS ENGINEERING & CONSULTANT INDONESIA, a subsidiary, and started operations in Indonesia. Listed on the Second Section of the Tokyo Stock Exchange. November 2009 Converted Seishow Co., Ltd. (currently OST), specializing in R&D 16 (Translation) FOR REFERENCE PURPOSES ONLY May 2012 June 2012 July 2012 March 2013 January 2015 April 2017 August 2018 January 2019 April 2019 August 2019 Out Sourcing Central Inc., a subsidiary, made an absorbtion-type company split whereby the business pertaining to the manufacturing division was succeeded by OS and the business pertaining to the technical division was succeeded by OST respectively, and changed its trade name to “Enable Inc.” Delisted from the Osaka Securities Exchange JASDAQ (currently the Tokyo Stock Exchange JASDAQ (Standard)). Relocated the head office to Chiyoda-ku, Tokyo. Listed on the First Section of the Tokyo Stock Exchange. Acquired all shares of KDE Holding Corporation (absorbed by Kyodo in January 2019), Engineering Corporation (“Kyodo Engineering”) converting it into a wholly owned subsidiary, thereby Kyodo Engineering, a subsidiary of KDE Holding, became a subsidiary. Acquired all shares of AEC, converting it into a subsidiary. Acquired all shares of Advantec Co., Ltd. (“ADVANTEC”), converting it into a subsidiary. As a result of this, Advantec Kensyu Center Co., Ltd, the aquiree’s subsidary, also became a subsidiary. Conducted a share for share exchange, converting OST into the wholly owning parent company, and converting Kyodo Engineerng, ADVANTEC and TryAngle into wholly owned subsidiaries. AEC acquired all shares of ORION CONSTRUCTION CORPORATION (GUAM), converting it to a subsidiary, and started operations in Guam. PEO acquired the shares of Hitachi Construction Machinery Operators Training Center Co., Ltd., converting it into an equity-method affiliate, and changed the trade name of the said affiliate to PEO Construction Machinery Operators Training Center Co., Ltd. wholly owned subsidiary. As a result of this, AVANCE CORPORATION, ELEMENT CO., LTD. (“ELEMENT”) and JUSTEC Co., Ltd., subsidiaries of AVANCE HOLDINGS Co., Ltd., became subsidiaries, and Avance Lifesupport, a releted company of AVANCE HOLDINGS Co., Ltd. became an equity-method affiliate. AVANCE CORPORATION absorbed ELEMENT. November 2020 Acquired all shares of AVANCE HOLDINGS Co., Ltd., converting it into a August 2021 17 (Translation) FOR REFERENCE PURPOSES ONLY (4) Summary of the Corporate Governance System at the OS Group a. Corporate Governance System at OS The summary of the corporate governance system at OS is as described below: At OS, the Board of Directors, which holds its meetings once a month, determines material managerial matters and monitors the execution of business, and, as a company with an audit and supervisory committee, the Audit and Supervisory Committee audits the status of the execution of business and other related matters. As of the date of the preparation of this report, seven (7) of eleven (11) Directors are External Directors (including six (6) independent External Directors), four (4) of which are Audit and Supervisory Committee Members (including a Full-time Audit and Supervisory Committee The Audit and Supervisory Committee, which convenes its meetings once a month, audits the execution of duties by Directors, prepares audit reports, and determines its audit policy, annual audit plan and other related matters. In addition, it carries out hearings with Directors through questionnaires or face-to-face interviews from time to time whereby exchanging opinions can take Furthermore, the Audit and Supervisory Committee holds meetings with the Accounting Auditor once a month (until 2019: quarterly) whereby exchanging opinions concerning financial audits can The Accounting Auditor has been appointed to the position of accounting auditor since 2000 to the date of the preparation of this report. 18 Member). place. take place. FOR REFERENCE PURPOSES ONLY (Translation) b. Structure of Officers of OS (as of August 1, 2021) Directors: Mr. A Mr. B Mr. C (Representative Director, Chairman and CEO; Head of the CEO Office and the Internal Audit Office) (Executive Vice President; Head of the Business Management Division) (Senior Executive Director; Head of the Manufacturing & Service Business Division; and Head of the Technology Business Division) Ms. D (External Director) Mr. E Ms. F (External Director) Ms. G (External Director) Mr. H Mr. I Mr. J Mr. K (External Director; Full-time Audit and Supervisory Committee Member) (External Director; Audit and Supervisory Committee Member) (External Director; Audit and Supervisory Committee Member) (External Director; Audit and Supervisory Committee Member) c. Internal Audit Office The Internal Audit Office was created as an audit division directly controlled by the President and independent from the divisions responsible for the execution of business, to which eight (8) members, including its Head, are allocated. It is prescribed that the subject organs of the audit are relevant internal divisions and related companies of the OS Group, and that it shall conduct financial audits concerning the handling of accounting records, administration and preservation of various assets, as well as operational audits concerning the status of compliance with laws and regulations, efficacy and efficiency as to the business activities (Article 4 of the Internal Audit Rules). The internal audits are classified into regular audits pursuant to the audit schedule and temporary audits to be performed under the instructions of the President (Article 5 of the Internal Audit Rules). In cases where any matter to be improved is found in the audit, a written instruction for improvement shall be sent to the responsible person(s) of the subject divisions and Audit and Supervisory Committee Members. In response thereto, the responsible person(s) of the subject divisions shall improve the matters pointed out therein and submit a written report by the due date designated for improvement, containing measures taken to improve and other relevant matters (Articles 18 and 20 of the Internal Audit Rules). As for the results of the audits, it was found that written reports on internal audits are prepared and reported to Mr. A approximately four (4) times a year. As to the status of carrying out the audits, the on-site audits of the respective domestic business premises and divisions have been performed. In addition thereto, the on-site audits of the related companies in Japan once every few years have been performed. The on-site audits have covered approximately three (3) overseas related companies every year (as for the period before the spread of COVID-19, covering five (5) to six (6) companies every year) have been performed. While, in or before the period fiscal year ended December 2018, audits by OS’s Internal Audit Office were also performed on OST and the OST’s Subsidiaries, it was found that, after OST started the preparation for listing, audits of OST and the OST’s Subsidiaries have not been performed from the viewpoint of ensuring the independency of OST. 19 (Translation) FOR REFERENCE PURPOSES ONLY As to the coordination with other organs, summaries of the results of the internal audits which contain the annual progress in line with the audit plan and material issues found have been prepared quarterly and reported to the Audit and Supervisory Committee. Furthermore, information has been exchanged with the Accounting Auditor, and findings have been addressed as necessary. d. The Whistleblowing System A whistleblowing system has been established, under which Roudou Newspaper Company has been designated as the outside contact desk in relation to OS and its group companies in Japan, and, in relation to overseas group companies, foreign local attorneys in their respective regions have been designated as the same (Internal Whistleblowing Rules have not been stipulated). As to the notification of the outside contact desk for whistleblowing, a card for the purpose of the notification thereof has been distributed to each employee upon joining the company, containing information stating that whistleblowing shall be accepted by way of telephone, facsimile, postal mail or through a web form. (5) System of Budget Planning and Control for Subsidiaries Pursuant to the Rules on Administration of Related Companies of OS, the formulation of business plans for subsidiaries are matters to be approved by the Board of Directors of OS, and variations from the budget are matters to be reported to the Board of Directors of OS, the Management Conference, Head of Business Management Division and officers in charge thereof (Article 4 of the Administration Rules of Related Companies, List of Official Duties and Authorities at Related Companies, as well as List of Official Duties and Authorities at Companies with a Special Relationship). Business. At the Board of Directors of OS, in relation to the financial results of the entire OS Group, operating performance and the status of variations from the budget have been explained by Mr. C, Senior Executive Director and Head of the Manufacturing & Service Business Division, and Mr. L, Representative Director and CEO of OST governing the Domestic Engineering Outsourcing As to budget planning and control regarding the achievement of the budget at the OS Group, trilateral meetings are held approximately quarterly among Mr. B, Executive Vice President and Head of Business Management Division of OS, Mr. C and Mr. L. It is said that planning of a consolidated budget for the entire OS Group and creation of KPI reports on respective manufacturing and engineering divisions took place thereat. As to ordinary control with respect to achievement of the budget, the budget control team established directly under the Business Management Division of OS is responsible therefor. In addition, the respective subsidiaries of OS report the status of the achievement of the budget by way of a weekly report and through other means. In the event that they experience a decline in performance, relevant information has been shared through inquiries by OS with respect to the 20 (Translation) FOR REFERENCE PURPOSES ONLY reason therefor or on other matters. Representatives for administration of respective subsidiaries are allocated to a part of the divisions of OS. It is prescribed that reports or requests for any approval from the Board of Directors of OS or other relevant bodies shall be made through such administrative divisions of OS (Articles 8 and 9 of the Administration Rules of Related Companies). Under the current specific allocation, supervision through respective divisions of OS has been performed. For instance, overseas engineering subsidiaries have been controlled by the Overseas Technology Business Division, which is directly supervised by Mr. C (however, OST administers related companies handling the Domestic Engineering Outsourcing Business, since they are consolidated as OST’s Subsidiaries). 2. Summary of the OST Group (1) Summary of OST December 7, 2004 December Mr. L JPY 483,654,000 (as of December 31, 2020) 1-8-3 Marunouchi, Chiyoda-ku, Tokyo 21,874 persons (consolidated as of April 30, 2021) Incorporation: Fiscal year-end: Representative: Issued capital: Head office: Number of employees: Description of business: Engineers staffing as well as contracting development in the field of IT, mechanical, electronic, electrical and software fields, job placement services (job placement for professionals), corporate networking, import/export, sale, design/formulation, maintenance, and other technical services for hardware/software services related to computers, as well as information and telecommunications systems for enterprises. The organization structure of OST is as set forth in Appendix 4. Organization: (2) Management Organization of OST (such as shareholders and directors) (as of August 1, 2021) Shareholder: OS (100%) Directors: Mr. L (President and Representative Director in charge of the Office of the President, the Internal Audit Office, and the PR & Mr. M (Director and Division Director of Business Management) Branding Office) Mr. N (External Director) Mr. O (External Director) Member) Mr. P (External Director; Full-time Audit and Supervisory Committee Mr. Q (External Director; Audit and Supervisory Committee Member) Mr. H (Audit and Supervisory Committee Member) Corporate Officers: Mr. R (Head of representative office; Division Director of R&D 21 (Translation) FOR REFERENCE PURPOSES ONLY Mr. S (Head of representative office; Division Director of Solution Department) Service Department) Mr. T (Head of representative office; Division Director of Human Resources Strategy Department) Mr. U (Representative of Kyodo Engineering Corporation) Mr. V (In charge of group company management) (3) Composition of the OST Group The status of the OST Subsidiaries and an equity-method affiliate of OST is as follows: Ratio of capital contribution (%) 99.5 Company Name Description of business (Consolidated subsidiaries) EN RPM ADVANTEC Thinketh Bank Co., Ltd. (“Thinketh Bank”) Domestic Engineering Outsourcing Business and other business (electricity, electronics, transportation equipment) Domestic Engineering Outsourcing Business (pharmaceutical and medical-related) Domestic Engineering Outsourcing Business (pharmaceutical and medical-related) Computer engineer training school business, IT system & program development business (operation contracting), and corporate education and training services KEN Technology Co., Ltd. Domestic Engineering Outsourcing Business (IT and robotics) Kyodo Engineering Mobile Communications Co., Ltd. (“Mobile Communications”) Advantec Kensyu Center Co., Ltd. Domestic Engineering Outsourcing Business (Construction and plant-related) Domestic Engineering Outsourcing Business (IT and robotics) Domestic Engineering Outsourcing Business (pharmaceutical and medical-related) Gray (Dalian) Information Technology Co., Ltd. Domestic Engineering Outsourcing Business (Other business) OUTSOURCING Communications Co., Ltd. Domestic Engineering Outsourcing Business (IT and robotics) SANGATECH Co., Ltd. Smart Robotics Co., Ltd. Domestic Engineering Outsourcing Business (Electricity, electronics, transportation equipment) Domestic Engineering Outsourcing Business (IT and robotics) 100 100 100 1001 100 100 1002 100 100 100 93.6 1 It is said that all shares represented by this holding ratio of voting rights in the company are owned indirectly. 2 It is said that all shares represented by this holding ratio of voting rights in the company are owned indirectly. 22 (Translation) FOR REFERENCE PURPOSES ONLY Company Name Description of business Domestic Engineering Outsourcing Business (Construction and plant-related) Domestic Engineering Outsourcing Business (IT and robotics) Equity investment in corporations and other entities Domestic Engineering Outsourcing Business Ratio of capital contribution (%) 100 100 91.7 40.0 Multi Tec Co., Ltd. Itec Co., Ltd. OS Investment Fund (Equity-method affiliate) FUJITSU GENERAL OS TECHNOLOGY LIMITED (4) Corporate history of the OST Group Corporate history of the OST Group is as follows: October 2004 December 2004 February 2005 April 2005 (Former) SEISHOW CO., Ltd. was incorporated through a company split of Sinyo Sanwatechnos Co., Ltd. (currently Sinyo [Co., Ltd.]). Sinyo Sanwatechnos Co., Ltd. (currently Sinyo [Co., Ltd.]) established SEISHOW Management Co., Ltd. SEISHOW Management Co., Ltd. acquired (former) SEISHOW Co., Ltd. converting it into a subsidiary. SEISHOW Management Co., Ltd. absorbed (former) SEISHOW Co., Ltd. through an absorption-type merger and changed its trade name to “SEISHOW Co., Ltd.” November 2009 OS acquired 81.04% of the shares of SEISHOW Co., Ltd., converting it into October 2010 April 2011 April 2014 April 2016 January 2017 January 2018 January 2018 a subsidiary. OS acquired 18.96% of the shares of SEISHOW Co., Ltd., converting it into a wholly owned subsidiary. SEISHOW Co., Ltd., changed its trade name to “OUTSOURCING TECHNOLOGY Inc.” (currently OST). OST acquired Out-Sourcing! System Consulting Inc. through an absorption-type merger, and in association therewith, OST acquired INS Solution Co., Ltd., Thinketh Bank and Gray (Dalian) Information Technology Co., Ltd. converting them into subsidiaries. OST acquired all shares of Mobile Communications, converting it into a subsidiary. As a part of an organizational restructuring of OS, OST acquired shares in EN from OS, thereby converting it into a subsidiary. Thinketh Bank established KEN Technology Co., Ltd. through a company split. OST acquired shares in GLocal Co., Ltd. (“GLocal”), thereby converting it into a subsidiary. As a result, Innocence Co., Ltd., a subsidiary of GLocal (absorbed by GLocal, an OST’s subsidiary, in May 2018) also became a subsidiary. 23 (Translation) FOR REFERENCE PURPOSES ONLY January 2019 Conducted a share for share exchan