Corporate Governance

Here, we describe our corporate governance system and initiatives.

Basic Policy on Corporate Governance

Preamble: Positioning of the Basic Policy on Corporate Governance. The ANEST IWATA Group's approach to corporate governance and related policies are stated herein, based on the Group Management Policy and Group Management Vision. Regulations shall be newly established and revised in accordance with this policy. Also, this policy shall be reviewed at least once a year, and deliberated by the Board of Directors.

Article 1. Prerequisite Policies for Corporate Governance
1. Primary Responsibility
The Company shall recognize that maintaining and improving the quality of products and services bearing the ANEST IWATA name is of the utmost importance to the Group as a manufacturer. The Company shall provide safe, high-quality products and services at reasonable prices based on an accurate understanding of customer needs.
2. Appropriate Cooperation with Stakeholders
The Company shall cooperate with various people and companies surrounding the Group as appropriate, in order to achieve sustained growth and to create medium- to long-term corporate value.
3. Contribution to Society
The Company shall recognize that it is a member of society, and aim to be a creative company that benefits society.
4. Securing the Rights of Shareholders
The Company shall emphasize equal treatment of shareholders, and maintain an environment in which shareholders can exercise their rights appropriately. The Company shall also strive to engage in constructive dialogue with shareholders.
Article 2. Basic Policy
Product Development
The Company shall aim to develop high-performance, high-quality, and safe products that meet customer needs. The Company shall prioritize the utilization of the Group's process capabilities and technical expertise, but it shall also cooperate flexibly with various other companies as necessary.
Fair Trade
The Company shall cooperate with various people and companies surrounding the Group as appropriate, in order to achieve sustained growth and to create medium- to long-term corporate value.
Ensuring Diversity
The Company shall work to ensure diversity, in order to create new value and achieve sustainable growth.
Internal Controls
The Company shall continuously maintain and implement internal controls for the purpose of operating the business effectively and efficiently, ensuring the reliability of financial reports, complying with laws and regulations, and preserving assets.
Health and productivity management
The Company shall promote health maintenance and improvement activities to attain our health goal – to ensure that all the people working in our group and their families live happily and healthily. The Company shall create a corporate culture and environment that make it easy for each individual to engage in these activities.
Risk Management
The Company shall analyze and evaluate various risks that may adversely affect the Group, and take appropriate measures.
Information Security
The Company shall recognize the importance of information security, and build up a system to prevent its loss and leakage.
Protection of Personal Information
By emphasizing the importance of the protection of personal information, the Company shall collect and use personal information in an appropriate manner, and prevent its loss and leakage.
The Environment
The Company shall recognize that its activities regarding global environmental issues are a social mission, and it shall strive to reduce the burden on the environment by establishing environmental policies. The Company shall also contribute to society by working to develop products aimed at reducing the environmental impact of its customers.
Financial Reports
The Company shall comply with corporate accounting standards that are generally accepted as fair and valid, and provide financial reports in which its financial statements and information that may affect its financial statements are shown in an appropriate manner.
Information Disclosure
Information that is deemed useful to external stakeholders, including non-financial data, shall be actively disclosed without being limited to disclosure items mandated by laws and regulations. The Company shall also establish a system that prevents insider trading.
Cross Shareholding
The Company shall hold listed shares if it is deemed conducive to the sustained enhancement of the Group's corporate value. Also, the purpose and reasons for the holding shall be reviewed by the Board of Directors every year. Whether to exercise voting rights shall be judged based on whether or not the content is in keeping with the purpose of the holding.
Shareholders' Equity
The Company shall aim for a return on equity (ROE) of 10% or higher as an appropriate level with which to establish a sound financial base that will allow for investment and risk tolerance necessary for the Group's sustained growth.
Using and Paying Dividends of Surplus
The Company shall pay out steady dividends backed by business performance, keeping in mind investments necessary for realizing long-term profit. A dividend payout ratio of 30% (based on consolidated net income) shall be the standard, and the Company shall maintain a minimum annual dividend of JPY 3 per share.
De Facto Shareholders
The voting rights exercisable at the Shareholders' Meeting shall be held by the shareholders registered in the list of shareholders. However, a de facto shareholder may attend the Shareholders' Meeting if they make a request in advance through the nominal shareholder on the list of shareholders.
Takeover Defense Measures
The Company shall establish so-called takeover defense measures. However, these measures shall serve the common interests of the shareholders and must not be intended to protect Directors, etc.
Article 3. Management Structure of the Company
Institutional Structure
Since the Company believes that appointing an Audit & Supervisory Committee member as a Director with voting rights to the Board of Directors will lead to more effective oversight of the Board of Directors as well as improvements in management efficiency, the Company shall take the form of a company with an Audit & Supervisory Committee.
Board of Directors
Of the ten Directors, five or more shall be from outside the company, in order to ensure effective oversight of the Directors.
Audit & Supervisory Committee
The Company shall build a system that allows for wide-ranging internal oversight of the company while staying independent and objective by placing Outside Directors, who are in fully independent positions, at the center, and placing insiders with thorough knowledge of the internal workings of the company alongside them.
External Accounting Auditor
The Company shall recognize that external accounting auditors are answerable to society, and shall ensure a system in which external accounting auditors can perform audits in an appropriate manner.
Non-Statutory Committees
As an advisory body to the Board of Directors, a Nominating/Compensation Committee consisting of the Representative Director and all Outside Directors, with an Outside Director acting as Chairman, shall be established to restrain the arbitrary actions of the Representative Director and the Board of Directors, and strengthen governance. In addition, an Internal Controls Committee and a Sustainability/CSR committee Committee shall be established to complement the workings of the Board of Directors.
Internal Audit Department
An Internal Audit Department shall be set up independent of the parts of the organization engaged in business execution, in order internally audit the business conducted by the Company and affiliated companies.
Article 4. Responsibilities of the Company's Board of Directors and Directors
Analyze and Evaluate Effectiveness
The Directors shall regularly analyze and evaluate the effectiveness of the entire Board of Directors.
Utilize Experts
All Directors, when carrying out their duties as Directors, shall actively utilize and consider the opinions of outside experts, such as consultants and lawyers, in deliberating matters that are judged to require the opinions and perspectives of third parties. The Company shall bear the full cost incurred in connection with such activities.
Nurture Successors
The Company shall nurture successors who will lead the business in the future. The situation shall be checked regularly, and reviewed in a timely manner.
Educate Directors
The Company shall educate its Directors continuously regarding their roles, responsibilities, and the knowledge necessary. The Company shall also provide Outside Directors with sufficient information about the Group's business.
Transactions Between Interested Parties
When conducting a competitive transaction or a transaction involving a conflict of interest with a Director or a corporate entity substantially controlled by a Director, the Board of Directors must approve of it in advance.
Directors Holding Concurrent Positions
No Director shall hold a notable concurrent position for which they cannot fulfill the responsibilities in full.
Compensation for Directors
Compensation for Directors shall be determined by the Board of Directors after reviews and recommendations by the Nominating/Compensation Committee, within the limit determined at the Shareholders' Meeting.
Independence of Outside Directors
The Company shall establish criteria for independence, based on the requirements of outside directors stipulated in the Companies Act and the independence standards stipulated by the financial instruments exchange.
Article 5. Business Execution System of the Group
President and Chief Executive Officer
The President and Chief Executive Officer shall be appointed by the Board of Directors of the Company to supervise the business execution of the Group.
Executive Board
In order to shape in detail the management policy of the Group formulated by the Board of Directors, an Executive Board shall be established, with the President and CEO as the chairman, and filled with Corporate Officers appointed by the Board of Directors of the Company.
Business Divisions
The Group shall consist of two business divisions, the Air Energy Division and the Coating Division. Each affiliated company shall be supervised by the relevant business division.
Functional Divisions
Each functional division of the Company that does not belong to a business division shall carry out its respective duties and assist in the supervision of affiliated companies by the business division.

Basic Approach to Corporate Governance

We aim to achieve sustained growth and to maximize corporate value. To this end, we consider it imperative to improve the agility and transparency of management and to strengthen oversight of it, and to improve the effectiveness of corporate governance, taking into account the perspectives of shareholders, employees, customers, business partners, and regional communities, among others.

Corporate Governance System
Corporate Governance System
Board of Directors
The Board of Directors consists of nine Directors (including five Outside Directors), of whom four are Audit & Supervisory Committee members (including three Outside Directors). The Board of Directors meets at least once a month to make management decisions regarding the company and to receive reports on business execution status, and to monitor and supervise business execution by the Representative Director and Corporate Officers. The Board of Directors consists of up to ten members, who may be dismissed by a special resolution of the Shareholders' Meeting.
Audit & Supervisory Committee
The Audit & Supervisory Committee consists of four Audit & Supervisory Committee members (including three Outside Directors). In principle, the Audit & Supervisory Committee meets once a month and attends important meetings such as the Management Conference and meetings of the Executive Board, reviews data and meeting minutes, and exchanges opinions with Directors and employees on a regular basis, based on the audit policy and audit plan formulated by the Audit & Supervisory Committee. It also works to improve the quality of audits through regular auditing consultations between Accounting Auditors, the Internal Audit Department, and the Audit & Supervisory Committee. Employees who exclusively assist Audit & Supervisory Committee members are assigned to the Internal Audit Department, and belong to the management body of the organization. Expenses necessary for audits by Audit & Supervisory Committee members, including temporary advance payments, are subject to the discretionary approval of the Audit & Supervisory Committee.
Management Conference
The Management Conference consists of nine Corporate Officers with voting rights appointed by the Board of Directors (including the Representative Director and two Directors who also serve as Corporate Officers), non-executive Directors, and general managers, and meets at least once a month, chaired by the President and CEO. Aiming to facilitate effective business execution, the Corporate Officers and Outside Directors review and share information, while discussing and deliberating matters centered on business operations.
Executive Board
The Executive Board consists of nine members appointed by the Board of Directors (including the Representative Director and two Directors who also serve as Corporate Officers). The Executive Board meets at least once a month, and promptly implements business decisions that are derived from the management policy articulated by the Board of Directors and the Management Conference, based on the effectiveness and efficiency of operations, the reliability of financial reports, and compliance with applicable laws, regulations, and internal rules.
Non-Statutory Committees Within the Management Body of the Organization
1. Nominating/Compensation Committee
A non-statutory advisory committee under the Board of Directors, it consists of six members, the Representative Director and five Outside Directors, and is chaired by an Outside Director. The Nominating/Compensation Committee makes recommendations to the Board of Directors regarding nominations for the post of Representative Director and Director, the revision and abolition of compensation rules for the Representative Director and Directors, and the evaluations regarding the Representative Director and Directors who are not members of the Audit & Supervisory Committee.
2. Internal Controls Committee
A non-statutory committee established under the Board of Directors, it consists of five members: the Representative Director, three Directors, and the manager responsible for corporate planning. It is chaired by the Representative Director, and the manager responsible for internal audits assumes the role of the secretariat. It reports to the Board of Directors on the development of policies such as the basic internal control policy, the maintenance policy for the internal control system, and the corporate governance policy, and their quarterly implementation status.
3. CSR Committee
A non-statutory committee established under the Board of Directors, it consists of five members: the Representative Director, three Directors, and the manager responsible for corporate planning. It is chaired by the manager responsible for corporate planning, and the Corporate Planning Department assumes the role of the secretariat. It makes recommendations and reports to the Board of Directors on risk management, compliance, management of company information disclosure, and handling of whistleblowers and disciplinary actions.
4. Accounting Auditor
The Seinan Audit Corporation is the accounting auditor of the Company.
Executives

We have appointed five Outside Directors (including three Audit & Supervisory Committee members) in order to strengthen the monitoring and oversight of management. Outside Directors are appointed from experts and managers who do not have a material relationship with the company, and through their decisions regarding management from an objective standpoint that is a step removed from the execution of the company's business, we aim to strengthen oversight of the Board of Directors. We believe that Outside Directors, who are members of the Audit & Supervisory Committee, greatly contribute to the effectiveness of our corporate governance by enhancing the independence of the audit system and expressing audit opinions from an objective standpoint.

Representative Director

President and Chief Executive Officer

Shinichi Fukase

An engineer thoroughly familiar with our core technologies, Mr. Fukase has served as the head of our subsidiary for domestic sales, the procurement department, and the Fukushima Factory. He possesses high expertise and knowledge across a wide range of areas, from sales and logistics to procurement and production. Also, his ability to focus on points leading to business growth and his capacity to nurture promising human resources have been highly appreciated by those around him, and he is considered the right person capable of sustainably enhancing the value of our company.
He wasappointed Representative Director, President and Chief Executive Officer, effective April 1, 2022.

Directors

Executive Chairman

Takahiro Tsubota

As Representative Director, President and Chief Executive Officer, Mr. Tsubota directs global strategy and strives to expand the company's business. He has outlined a corporate vision befitting a company with a 100-year history on the occasion of the 90th anniversary of our founding, and demonstrates strong leadership, working tirelessly to enhance the sustained creation of corporate value. He is considered the right person to lead the company in realizing our medium- to long-term vision.
He was appointed Executive Chairman,effective April 1, 2022.

Senior Managing Executive Officer

Kenichi Osawa, Chief Operating Officer of the Air Energy Division

In addition to possessing a thorough knowledge of the development of coating equipment and coating systems, Mr. Osawa has led company-wide reforms in recent years aimed at radically overhauling the development and production systems in order to buttress the foundations for the growth of the coating business as a whole. His having led the company's overseas subsidiaries for an extensive period has also given him the insight and high level of expertise necessary for managing a business from a global perspective. Due to such qualities, he is considered the right person capable of sustainably enhancing the value of our company.

Outside Directors

Kozo Yoneda

He has been engagedin many corporate management projects over many years and has a high degree of insight regarding management. As an outside director, he has actively spoken outto enhance the transparency and fairness of ourcompany's management at Board of Directors meetings and advisory committee meetings, as well as appropriately supervisingourcompany's management. Forthese reasons, we continue to appoint him as a director to supervisethemanagement for the sustainable enhancement of ourcompany's corporate value.
At the conclusion of the General Meeting of Shareholders in June 2021, his term of office as Director will be six years.

Yoshitsugu Asai

He has abundant experience and broad insight in business administration, having held key positions in human resources and legal and general affairs divisions at an electronics manufacturer. As an outside director, he has actively spoken outto enhance the transparency and fairness of our company's management at Board of Directors meetings and advisory committee meetings, as well as appropriately supervising our company's management.For these reasons, we continue to appoint him as a director to supervise the management for the sustainable enhancement of our company's corporate value.
At the conclusion of the General Meeting of Shareholders in June 2021, his term of office as Director will be one year.

Reiko Ohashi

As a certified public accountant, Ms. Ohashi has abundant experience and wide-ranging insight regarding finance and accounting, and is considered the right person capable of sustainably enhancing the value of our company. Based on the above, she has been appointed as an Independent Director.

Yuko Shirai

As a lawyer, Ms. Shirai has abundant experience and wide-ranging insight regarding corporate legal matters, and is considered the right person capable of sustainably enhancing the value of our company. Based on the above, she has been appointed as an Independent Director.

Audit & Supervisory Executives

Full-Time Audit & Supervisory Committee Members

Masato Suzuki (Director)

Mr. Suzuki has been involved in the development of coating equipment for many years, and has headed a number of overseas offices and production bases in his effort to promote the global expansion of our core businesses and the development of markets for them. He is deeply knowledgeable about business management. For the above reasons, he is considered the right person to oversee our management and audit our Directors in the execution of their duties, in order to sustainably enhance the value of our company.

Audit & Supervisory Committee Members

Masashige Takayama (Outside Director)

He possesses a wealth of experience and extensive insight as a certified accountant and tax accountant, and as the chairman of the Nominating/Compensation Committee, an advisory committee underthe Board of irectors, he helps to enhance the transparency and fairness of our company's management.For these reasons, we have determined that he is an appropriate person to supervise the management and audit the execution of duties by the directors toward the sustainable enhancement of our company's corporate value, and we continue to appoint him as a Director and Audit & Supervisory Committee member.
At the conclusion of the General Meeting of Shareholders in June 2021, his term of office as a corporate auditor will be four years, and his term of office as a Director and Audit & Supervisory Committee memberwill be five years.

Kyosuke Oshima (Outside Director)

He has been involved in corporate management in the manufacturing industry as a director and full-time auditor for many years and possesses a high degree of management insight.As a member of the Nomination/Compensation Committee, an advisory committee underthe Board of Directors, he has actively spoken out to enhance the transparency and fairness of ourcompany's management. For thesereasons, we have determined that he is an appropriate person to supervise management and audit the execution of duties by directors for the sustainable enhancement of ourcompany's corporate value, and we continue to appoint him as a Director and Audit & Supervisory Committee member.
At the conclusion of the General Meeting of Shareholders in June 2021, his term of office as a director will be six years, five of which will be as a member of the Audit & Supervisory Committee.

Kazumichi Matsuki (Outside Director)

He has a wealth of experience working for various companies in the manufacturing and other industries, possessingin-depth knowledge in the field of legal affairs and compliance, and hasactively spokenat meetings of the Board of Directors, Advisory Committees, and other committees to enhance the transparency and fairness of the company's management.For these reasons, we have determined that he is an appropriate person to supervise management and auditthe execution of duties by directors for the sustainable enhancement of our company's corporate value, and we continue to appoint him as a Director and Audit & Supervisory Committee member.
At the conclusion of the General Meeting of Shareholders in June 2021, his term of office as a director will be threeyears, one year of whichwill be as a member of the Audit & Supervisory Committee.

Limitation of Liability Contract

Based on the provisions of Article 427, Paragraph 1 of the Companies Act, our company has signed a contract with non-executive Directors to limit their liability for damages under Article 423, Paragraph 1 of the same Act. The content of the contract limits the extent of liability for damages to the minimum liability amount stipulated in Article 425, Paragraph 1 of the Companies Act, if a Director has acted in good faith and has not been grossly negligent in performing their duties.

Notable Concurrent Positions Held by Outside Directors
  • Director Yoshitsugu Asai holds a notable concurrent position in another corporation as stated below. There are no material transactions or any other relationship between our company and the company mentioned below.
    • Outside director, Fujimi Incorporated
  • Director Kozo Yoneda holds notable concurrent positions in other corporations as stated below. There are no material transactions or any other relationship between our company and the companies mentioned below.
    • Representative employee, Three Fields Corporation
    • Outside director, FORLIFE Co., Ltd.
    • Outside director, amifa Co., Ltd.
    • Outside director, Hokuetsu Metal Co., Ltd.
  • Director and Audit & Supervisory Committee member Kyosuke Oshima does not hold any notable concurrent positions in other corporations.
  • Director and Audit & Supervisory Committee member Masashige Takayama holds notable concurrent positions in other corporations as stated below. There are no material transactions or any other relationship between our company and the companies mentioned below.
    • Representative employee, Kyowa Audit Corporation
    • Representative employee, Kyowa Tax Corporation
  • Director and Audit & Supervisory Committee member Kazumichi Matsuki holds notable concurrent positions in other corporations as stated below. There are no material transactions or any other relationship between our company and the companies mentioned below.
    • Auditor, Sanden Holdings Corporation
    • Outside director, NISSHA Co., Ltd.
Nomination of Candidates for Directorship and the Appointment and Dismissal of Corporate Officers
The nomination of candidates for Directorship and the appointment of Corporate Officers are carried out in a highly fair and transparent manner by having the Nominating/Compensation Committee, a non-statutory advisory body, make a recommendation to the Board of Directors based on a consideration of the overall balance of the candidates' knowledge, experience, and capabilities. In addition, if a Corporate Officer is suspected of fraudulence, injustice, or betrayal, or if they are deemed unsuitable as a Corporate Officer for other reasons, the Officer will be relieved of their position by a resolution of the Board of Directors.
Criteria for Judging the Independence of Independent Directors
  1. Independent Directors must not fall under any of the following.
    1. Persons involved in the execution of our company's business or that of its subsidiaries (executive Directors and employees), and persons who have been involved in the execution of our company's business in the past.
    2. Persons whose main business partner is our company or any of its subsidiaries (any of our business partners for which payments received from our company amount to 2% or more of its consolidated net sales for the most recent fiscal year or averaged over the past three years), persons who execute their business, and persons who have executed their business in the past.
    3. Major business partners of our company or any of its subsidiaries (any of our business partners which account for 2% or more of our company's consolidated net sales for the most recent fiscal year or averaged over the past three years), persons who execute their business, and persons who have executed their business in the past.
    4. Consultants, accounting professionals, or legal professionals (in case of corporate entities and other organizations, persons who belong to or have belonged to the organization in the past) who receive considerable compensation in money or other assets (JPY 10 million or more per year, or 2% or more of their consolidated net sales, for the most recent fiscal year or averaged over the past three years) from our company or its subsidiaries, apart from executive compensation.
    5. Major shareholders of our company (shareholders with voting shares of 10% or more) (in case of corporate entities, persons who have executed the business of the corporate entity or have executed the business of the corporate entity in the past).
    6. Relatives of persons described in a. to e. (relatives up to the second degree, or cohabiting relatives).
    7. Persons from a company, or its parent company or subsidiary, that has accepted directors from our company or our subsidiaries.

    Additionally, “in the past” in a. to d. shall refer to the past described in the standards for independence prescribed by the Exchange.

  2. Independent Directors must not have possible conflicts of interest even for reasons other than those considered above in Paragraph 1.
  3. Even if a person falls under Paragraphs 1 and 2 above, if the person is deemed suitable as an Independent Director of our company in light of such aspects as their character and insight, the company may appoint the person as an Independent Director, on the condition that the company provide an explanation to outside parties on the reasons it considers the person suitable as an Independent Director.
  4. In consideration of their independence, Outside Directors, and Outside Directors who are members of the Audit & Supervisory Committee, shall not be reappointed past ten years of service. However, if the Nominating/Compensation Committee makes a special recommendation in exception of the above, depending on the situation, the Board of Directors may deliberate and make a resolution.
Compensation for Executives, etc.
Executive Compensation Details
Position Number of Persons Compensated Amount Disbursed:(Million Yen)
Directors 7 139
Outside Director 2 17
Audit & Supervisory Committee Members (Directors) 4 54
Audit & Supervisory Committee Members (Outside Directors) 3 27
(Note)
  1. This does not include the employee salary paid to Directors who are also employees, of an amount equivalent to JPY 12 million for four employees.
  2. The above includes two Directors (excluding Audit & Supervisory Committee members) who retired at the conclusion of the 73rd Annual Shareholders' Meeting held on June 25, 2019, and one Director (excluding Audit & Supervisory Committee members) who resigned on December 31, 2019.
  3. At the 70th Annual Shareholders' Meeting held on June 28, 2016, it was resolved that the total compensation for Directors who are not Audit & Supervisory Committee members would not exceed JPY 200 million per year, and the total compensation for Directors who are Audit & Supervisory Committee members would not exceed JPY 60 million per year.
  4. Regarding the performance-linked stock compensation plan, it was resolved at the 73rd Annual Shareholders' Meeting held on June 25, 2019, that the funds the company contributes to the trust for the acquisition of shares to be provided in the future to Directors (excluding those Directors who are Audit & Supervisory Committee members, and Outside Directors among the other Directors) shall not exceed JPY 130 million over three fiscal years, and the number of shares of the company eligible for provision shall not exceed 44,000 shares per three fiscal years. Also, as a general rule, the Directors receive the company shares as well as the amount equivalent to the amount the company's shares are converted to at market value upon their retirement. Also, the above does not include one Director (excluding Audit & Supervisory Committee members) who resigned on December 31, 2019.
  5. In addition to the amount disbursed as noted above, following the resolution to abolish the executive retirement benefits system at the 59th Annual Shareholders' Meeting held on June 28, 2005, the balance of retirement benefits payable due to the discontinuation of the system stands at JPY 9 million as of the end of the current fiscal year.
Policy for Determining Executive Compensation, etc.

The company's compensation system for Directors (excluding Outside Directors) comprises a regular, monthly salary in a fixed amount (fixed compensation), a yearly performance-linked salary (performance-linked bonus), and performance-linked stock compensation (not applied to Directors who are Audit & Supervisory Committee members). The Nominating/Compensation Committee, which is chaired by an Outside Director who is a member of the Audit & Supervisory Committee, makes a recommendation based on overall considerations of the company's performance and the responsibilities and achievements of each Director within the limits approved by the resolution of the Shareholders' Meeting, and the Board of Directors deliberate and make a resolution based on such recommendation.
Regarding compensation for Outside Directors, it has been decided that performance-linked compensation will be abolished from the fiscal year ending March 2021, leaving only fixed compensation, in consideration of their roles and independence, and for their oversight of management to function effectively.
Compensation, etc. for Directors who are members of the Audit & Supervisory Committee will be determined through discussions among the Directors who are members of the Audit & Supervisory Committee.

Calculation Method for Directors' Bonuses Based on Business Performance for the Fiscal Year Ending March 2021

Regarding the calculation method for profit-linked salaries, it was resolved at the meeting of the Board of Directors held on June 10, 2020, that payment shall be made based on the following calculation method. We have received a document stating that all Audit & Supervisory Committee members have found the calculation method to be appropriate.

Calculation Method

Performance-Linked Salary = Consolidated Ordinary Income × 1.10% × Points of Each Director / Total Points of Directors

Points According to Position and Number of Directors

  • Representative Director Points: 1.00 Number of Persons: 1
  • Director and Senior Managing Executive Officer Points: 0.35 Number of Persons: 2
  • Directors who are Audit & Supervisory Committee members Points: 0.30 Number of Persons: 1

*Calculated according to the positions based on the resolution of the Board of Directors, made on June 25, 2020.

Points of Note

  • Directors who are also employees are executive corporate officers as stipulated in Article 34, Paragraph 1, Item 3 of the Corporation Tax Act.
  • The “indicators on profits of the business year” stipulated in Article 34, Paragraph 1, Item 3 (a) of the Corporation Tax Act is consolidated ordinary income.
  • The “defined amount” stipulated in Article 34, Paragraph 1, Item 3 (a) (1) of the Corporation Tax Act is limited to JPY 100 million. If the amount obtained by multiplying consolidated ordinary income by 1.10% exceeds JPY 100 million, the amount proportionally allocated to each from JPY 100 million based on each Director's points will be the performance-linked salary.
  • If a Director retires during their term of office due to unavoidable circumstances, they will be compensated based on the number of months the Director has been in office (rounded up to the nearest month) from the start of the term of office to the end. If a Director retires after their term ends, compensation will not be based on the number of months.

Matters Related to the Calculation Method of Performance-Linked Stock Compensation

Persons Eligible for Points

Directors of the company (excluding Directors who are members of the Audit & Supervisory Committee, and Outside Directors among the other Directors) and Corporate Officers who do not concurrently serve as Directors (hereinafter referred to as “Directors, etc.”).

Number of Points Granted

<Time When Points Are Granted>

To the extent permitted by the resolution of the 73rd Annual Shareholders' Meeting held on June 25, 2019, those who are due to receive shares (hereinafter referred to as “Prospective Recipients,” including those who retire on the relevant date) as of the date of the Annual Shareholders' Meeting in June (hereinafter referred to as the “Point Grant Date”) will be awarded points according to their positions on that day as consideration for the execution of duties during the performance period described below. However, this is limited to those who were in office as executives on the last day of the fiscal year prior to the Point Grant Date.

  1. Directors
    (excluding Directors who are members of the Audit & Supervisory Committee, and Outside Directors among the other Directors)
    From the date of the Annual Shareholders' Meeting of the previous year to the date of the Annual Shareholders' Meeting of the current year
  2. Corporate Officers
    From April 1st of the previous year to March 31st of the current year
<Performance Evaluation Index Linked to Compensation>

We have already chosen ordinary profits as an index for performance-linked compensation, but from the perspective of achieving sustained profit growth by aiming for balance in management and considering business growth in broad terms, we have chosen the consolidated operating income at the end of the final fiscal year of the Medium-Term Business Plan and net income attributable to shareholders of the parent company as indices.

<Number of Points Granted>

Points according to their position as of the last day of the performance period will be awarded on the Point Grant Date. Also, 1 point = 1 share.

(Note)
  1. As of April 1, 2020, we implemented a change in the corporate officer system with the aim of strengthening the system of executive corporate officers and to encourage the transfer of authority to existing businesses, in order to expedite decision-making regarding business execution, in response to the rapidly changing market environment. We have abolished senior corporate officer positions, and have newly created Senior Managing Executive Officer and Managing Executive Officer positions, establishing the points for their respective positions in the Stock Delivery Regulations.
  2. The points according to their position to be awarded on the first Point Grant Date that arrives after taking office as an executive shall be calculated by the following formula. Points for the position during the performance period (*1) × number of months following the month in which the executive was appointed during the performance period ÷ 12 Also, in the event of a change in position during the performance period, the points according to their position to be given on the Point Grant Date immediately following will be the sum total of the points calculated by Formula “a” and the points calculated by Formula “b” below.
    1. Points for the period before the change in position
      Points for the position before the change (*1) × (the number of months of the performance period during which the executive was in the position before the change ÷ 12)
    2. Points for the period after the change in position
      Points for the position after the change (*1) × (the number of months of the performance period during which the executive was in the position after the change ÷ 12)
  3. Following the first year of the Medium-Term Business Plan, points will be accumulated in the same manner for the second and final years as well.
  4. The cumulative points granted to those who were executives on the last day of the final year of the Medium-Term Business Plan (including those who retire on that day) will be adjusted on the day of the Annual Shareholders' Meeting in the fiscal year following the year in which the Medium-Term Business Plan ends, and the points calculated by the following formula will be the fixed points.
    Number of points according to position accumulated during the period of the Medium-Term Business Plan immediately before × performance coefficient determined according to the level of achievement of the goals of the Medium-Term Business Plan
<Performance Coefficient>
  1. If the achievement rate of operating income is 100% against the goal of the Medium-Term Business Plan, the performance coefficient relative to the achievement rate of net income will be: 100%: 1.0; 95% or more but less than 100%: 0.75; less than 95%: 0.
  2. If the achievement rate of operating income is 95% or more but less than 100% against the goal of the Medium-Term Business Plan, the performance coefficient relative to the achievement rate of net income will be: 100%: 0.75; 95% or more but less than 100%: 0.5; less than 95%: 0.
  3. If the achievement rate of operating income is less than 95% against the goal of the Medium-Term Business Plan, the performance coefficient relative to the achievement rate of net income will be: 100%: 0; 95% or more but less than 100%: 0; less than 95%: 0.
(Note)

For Corporate Officers who do not serve concurrently as Directors retiring on the last day of the fiscal year in which the Medium-Term Business Plan ends, the points according to their position will be granted and fixed by calculation on the day of the Annual Shareholders' Meeting in the fiscal year following the fiscal year in which the Medium-Term Business Plan ends.

Right to Receive Remuneration, the Number of Shares Granted and the Monetary Amount

  • If the prospective recipient retires after having satisfied the conditions stipulated in the Stock Delivery Regulations by the date of retirement as an executive (excluding the case where the prospective recipient becomes a full-time employee, or where the retirement is due to death), they acquire the right to receive remuneration on the relevant retirement date. However, if the prospective recipient becomes a full-time employee, they will acquire the right to receive remuneration on the day they lose full-time employee status.
  • On the other hand, if the prospective recipient has been dismissed due to a resolution of the Shareholders' Meeting or the Board of Directors or they retire due to certain acts of misconduct during their tenure or between the date of retirement and the date of remuneration, or if there has been any inappropriate behavior, etc. that caused damage to the company during their tenure or between the date of retirement and the date of remuneration, their right to receive remuneration will be forfeited.

Formula for calculating the number of shares and the amount of money to be delivered to Directors, etc. who have retired due to the expiration of their term of office or company circumstances

<1. Stock>

Number of shares calculated as “1 point = 1 share” by the following formula
Number of shares = Number of fixed points accumulated up to the date of retirement (hereinafter referred to as “Number of Points Held”) × 70% (rounded off to the nearest unit)

  • In the event that the prospective recipient retires of their own volition at a time different from the expiration of their term in office
    The Number of Points Held will be delivered as stock based on “1 point = 1 share.”
  • In the event of the death of the prospective recipient
    If the bereaved family of the prospective recipient meets the conditions stipulated by the company in the Stock Delivery Regulations by the date separately designated by the company for the bereaved family, the bereaved family acquires the right to receive monetary remuneration as survivor benefits on the day they indicate their intention to receive survivor benefits to the company. Also, the amount in that case is calculated by the following formula.
    Amount of survivor benefits = (number of fixed points accumulated up to the date of death + number of points according to position accumulated during the period of the Medium-Term Business Plan in which the date of death occurred) × market value of shares as of the date of death
(Note)

The market value of the shares shall be the closing price on the main listed financial instruments exchange on the day when the market value of the shares needs to be calculated, and if the closing price is not announced on that day, it will be calculated by going back to the latest date for which the closing price can be obtained.
1. The maximum number of shares (points) for each position per fiscal year is as follows.

(Note)

The above-mentioned maximum number of shares includes the number of shares to be converted into and delivered in cash at the time of retirement.

Basic Policy on Persons Controlling Decisions on Financial and Business Policies (Outline)

As a listed company, insofar as we acknowledge the freedom in buying and selling our shares, it is up to the shareholders to decide whether or not to accept a large-scale acquisition by a specific entity. However, we are introducing the Rules for Large-Scale Acquisitions, in order to protect corporate value and the common interests of our shareholders, and to secure some time for shareholders to appropriately determine whether or not to condone such an acquisition. In addition, an Independent Committee independent of the management that executes the business of the company will be formed to ensure that this policy will not be used by the Directors to protect themselves, and to deter acquisitions that do not aid the securing and enhancement of corporate value and the common interests of shareholders. This policy shall be deliberated at the Annual Shareholders' Meeting at every term.

1.Large-scale acquisitions that are the subject of the policy
  1. Acquisitions of the company's shares that result in a shareholding ratio of 20% or more for the holder
  2. Acquisitions of the company's shares in which the sum total of the shareholding ratio related to tender offers and the shareholding ratio of specially related parties comes to 20% or more
2.Furnishing of information related to large-scale acquisitions

Large-scale acquirers are required to submit a Statement of Intent to the Board of Directors in advance, stating their intention to comply with the Rules for Large-Scale Acquisitions that clearly outline the process of large-scale acquisitions. Within ten business days of receiving the Statement of Intent, the Board of Directors shall provide the large-scale acquirer with a list of the information necessary and sufficient for shareholders to judge and for the Board of Directors to form an opinion, and ask the acquirer to furnish the information. The company will disclose all or part of the information thus obtained at a time the Board of Directors deems appropriate.

3. Period of evaluation by the Board of Directors

After the information is obtained, 60 days (in the case of all-cash [JPY] tender offers for the acquisition of all shares) or 90 days (in cases other than the preceding) will be needed for the Board of Directors to evaluate, examine, negotiate, form opinions, and establish alternative plans, and that fact will be promptly announced, along with the date when the period expires.

4. Resolution of the Board of Directors and the holding of the Shareholders' Meeting

The Board of Directors will make resolutions regarding the invocation or non-invocation of defensive measures. In addition, in the event that the Board requests a resolution to be made at the Shareholders' Meeting to invoke defensive measures, a Shareholders' Meeting will be held within 60 days at the latest. The Board of Directors shall comply with the resolution of the relevant Shareholders' Meeting.

Report on Corporate Governance

For more information on our corporate governance, please refer to the Corporate Governance Report submitted to the Tokyo Stock Exchange.

Corporate Governance Report