(Translation)

Please note that this English version is not an official translation of the original Japanese document. In cases
where any differences occur between the English version and the original Japanese version, the Japanese version
shall prevail. This translation may be used only for reference purposes.

Corporate Governance Report
Last Update: December 12, 2018YUSHIN PRECISION EQUIPMENT CO., LTD.
Mayumi Kotani, President and Representative Director
Contact: Kota Oda, General Manager of General Affairs Dep.
Securities Code: 6482
https://www.ype.co.jp
The corporate governance of Yushin Precision Equipment Co., Ltd. (the “Company”) is described below.

I.

Basic Views on Corporate Governance, Capital Structure, Corporate Profile andOther Basic Information

1. Basic Views
The Company aims at achieving sustainable growth and maximizing the enterprise value for medium- andlong-term under the management philosophy with obtaining credibility from all stakeholders surrounding us
including shareholders. We strive to strengthen corporate governance with the basic policy of following fiveitems.
1.
2.
3.
4.
5.

The Company respects the rights of shareholders and ensures equality, as well as strives to improve theenvironment for executing rights appropriately and protect rights.
The Company strives to sincerely cooperate with stakeholders excluding our shareholders with good
sense.
The Company strives to ensure the transparency by appropriately making disclosure according to laws
and regulations and voluntarily providing information excluding the disclosure.
The Board of Directors strives to execute its roles and duties appropriately for transparent/fair andflexible decision-making.
The Company strives to positively communicate with shareholders after sharing the direction of its stable
growth for long-term.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated
All principles are stated based on the code revised in June 2018.
[Supplementary Principle 4-1-3 Roles and Duties of the Board of Directors]
Under the recognition that successor selection is an important issue, the Company is carefully consideringfrom a medium- to long-term perspective through the Board of Directors.
Regarding the training of successors, the Board of Directors will be involved actively, and the Company will
promote the clarification of necessary requirements and the creation of an environment for training.
[Supplementary Principle 4-2-1 Roles and Duties of the Board of Directors]
Subjects of consideration include introduction of the compensation linked to medium- and long-term
performance and stock compensation, and the ratios of base salary and performance-linked compensation,and cash salary and stock compensation after the introduction.
Regarding this fiscal year, the company held a study group on the stock compensation system for internal
executives, and the Company is working on concrete examination to design a compensation system based on
objective and transparent procedures.
Regarding the level of remuneration, the Company set up an amount that is enough to appoint talented
personnel, motivate them and retain them.
[Supplementary Principle 4-10-1 Utilization of Optional Structure]-1-

(Translation)

In the election of the directors and determination of remuneration, in principle, the Board of Directors
confirms the opinions of independent outside directors and seeks advice. The company will promote concrete
examination aiming for further transparency in the governance system.

[Disclosure Based on the Principles of the Corporate Governance Code] Updated
All principles are stated based on the code revised in June 2018.
[Principle 1-4: Strategic Shareholdings]
The Company may hold the shares of business partners for the purpose of sustainable increases in enterprisevalue, keeping and strengthening business relations, and stable business management. Among holding shares,
the main shares are verified in respect of economic rationality for medium- and long-term based on risk andreturn and future prospect. The results of verification are periodically reported to the Board of Directors. In
FY 2018, as a result of the verification, the Company confirmed that there is validity of possession of all theshares held.
In response to future changes in circumstances, the Company will review such as reducing the number ofshares held if it is not deemed adequacy of possession.
Regarding the exercise of voting rights of strategic shareholdings, the Company makes judgments based on
the following two points.
(1) Will it increase the corporate value of investee companies in the medium to long term and contribute tosustainable growth? (Financial soundness, no illegal acts done)(2) Will the corporate value of the Company improve and lead to shareholder's medium- and long-term
benefits?
[Principle 1-7: Related Party Transactions]
The Company’s “Regulations of the Board of Directors” provides that approval for competitive business andconflict-of-interest transactions by Directors require the resolution of the Board of Directors. The same isapplicable to the case where counterparty is a major shareholder.
[Principle 2-6: Fulfilling Function as the Asset Owner of Corporate Pensions]Regarding management of conflicts of interest that may arise between the beneficiaries of the corporate
pension and the Company, the Basic Policy on Investment is established based on the guidelines of the
Ministry of Health, Labor and Welfare to maximize the benefit of the beneficiaries. In addition, the Company
has in-house responsibilities regarding the operation of corporate pension funds, and a consultation system toexternal specialized agencies.
[Principle 3-1: Enhancement of Disclosure](1) Management philosophy, strategy and medium-term management plan is disclosed on “the Company’s
website,” “Securities Report,” “Investor Presentation Material” and others.
(2) The basic policy for corporate governance is disclosed on “the Company’s website” and “Corporate
governance report.”(3) The Company’s remuneration of executives consists of base salary, which is not linked to performance,and performance-linked remuneration, which depends on degree of achievement of performance goals.
Outside Directors and Corporate Auditors, who are independent of business execution, receive only basic
salary. Regarding the procedures of the determinations for the remuneration, a resolution is adopted on
the gross amount of remuneration of Directors and Corporate Auditors at the General Meeting of
Shareholders, and then an amount of remuneration is determined for each executive by the
Representative Director whose discretion the Board of Director leave the amount to.
(4) The Company has the policy for nominating candidates of Directors and Corporate Auditors andappointing Executive Officers that those qualified to perform the duties and responsibility of Directors
and Corporate Auditors shall be nominated/appointed sufficiently taking account of personality andinsights. The Outside Directors and Corporate Auditors are expected to perform the function and role ofobjective and appropriate oversight or audits based on technical knowledge, and they are appointed basedon the basic view that there are no threats of conflicts of interest with general shareholders. They aredisclosed on the “Notice of Convocation for General Meeting of Shareholders” and “Securities Report”.
The selection of candidates of Directors and Corporate Auditors is subject to the resolution of the Boardof Directors and the appointment of Directors and Corporate Auditors is subject to the resolution of thegeneral meeting of shareholders.
-2-(Translation)

The policies and procedures for the appointment / dismissal of Directors and Corporate Auditors are
stipulated in the "Regulations of the Board of Directors".
(5) For the appointment / dismissal of Directors and Corporate Auditors, and the nomination of Directors /Corporate Auditors’ candidates, explanation of each of appointment / dismissal and nomination will be
disclosed at the “Notice of Convocation for General Meeting of Shareholders.”[Supplementary Principle 4-1-1: Roles/Duties of Board of Directors]
The Company defines the matters determined by a resolution at the Board of Directors in “Regulations of theBoard of Directors provide.” The regulations provide that significant matters on the General Meeting of
Shareholders, the general management, stocks, organization and personnel affairs, Directors and businessexecution, other matters stipulated in laws and regulations including the Companies Act and significant
matters equivalent to these matters shall be decided by a resolution at the Board of Directors. Meanwhile, toaim at clarifying the system of management responsibility and accelerating decision-making through transferof the authority, the Company introduced the executive officer system on April 1, 2003, from a viewpoint of
separating the function of management monitoring from business execution. The Company now has one nondirector executive officer.
[Principle 4-9: Criterion for Independence of and Qualification for Independent Outside Director]
The Independent Outside Directors of the Company are expected to perform the function and role of objective
and appropriate oversight, and give advice based on technical knowledge, and are appointed based on thebasic view that there are no threats of conflicts of interest with general shareholders. The Company has
established its own criterion for the independence, given the independence criterion established by thefinancial instruments exchange.
[Supplementary Principle 4-11-1: Preconditions for Ensuring Effectiveness of Board of Directors and Boardof Corporate Auditors]
Under rapidly changing business environment and advancement of globalization, the Company appoints
candidates of Directors with a focus on balance among knowledge, experience and expertise, diversity andglobal viewpoints. Now eight Directors, including Outside Directors, take office. The Company will keep thenumber of the board members that immediate decision-making is conducted with each member providing his
or her expertise and exchanging opinions each other.
[Supplementary Principle 4-11-2: Preconditions for Ensuring Effectiveness of Boards of Directors and Boardof Corporate Auditors]
Concurrent holding of positions of other companies by Outside Directors and Corporate Auditors is annually
disclosed at “the Notice of Convocation for the General Meeting of Shareholders,” “Securities Report” and“Corporate Governance Report.” No Executive Directors concurrently serve as an officer of other listedcompanies, excluding those of our group, and the system is established that Executive Directors can be
devoted on works of Directors. Full-time Corporate Auditor does not concurrently serve as an officer of othercompanies, and the system is established that they can be devoted to their work at all times.
[Supplementary Principle 4-11-3: Preconditions for Ensuring Effectiveness of Boards of Directors and Boardof Corporate Auditors]
Outside Directors now analyze and evaluate whole of the Board of Directors. To further improve the functionsof the Board of Directors, analysis and evaluation of effectiveness of the whole Board including their methods
are currently examined.
[Supplementary Principle 4-14-2: Training of Directors and Corporate Auditors]
Given the roles and duties expected and qualification and knowledge required of Directors and Corporate
Auditors, the Company holds a training session for all Directors, Corporate Auditors and Executive Officers
once or more a year. The Company also gives explanations about the corporate profile and holds plant tours
for Outside Directors and Corporate Auditors when they take office as well as provides and arranges
opportunities to receive the training necessary for each Director or Corporate Auditor and owes the expenses
for the training.
[Principle 5-1: Policy for Constructive Communication with Shareholders](1) In the Company, the Representative Director governs the general communication with shareholders.

-3-(Translation)(2) The Corporate Planning Department, which is directly under the Representative Director, is in charge ofIR and cooperates with the relevant departments for reasonable and smooth communication fromshareholders.
(3) The Company holds briefings for analysts and institutional investors on financial results for a full year
and an interim period as well as makes individual visits to institutional investors, holds small-size
meetings and accepts telephone interviews as needed. The Company also participates in securities
companies- and consulting companies-hosting briefings for individuals once a year at least.
(4) Opinions received at communication with shareholders are appropriately fed back at the Board of
Directors meeting.
(5) Insider information is appropriately administrated according to the Disclosure Policy.
(Disclosure Policy: http://ir.ype.co.jp/en/governance/disclosurepolicy.html)

2. Capital Structure
Foreign Shareholding Ratio

From 10% to less than 20%[Status of Major Shareholders] Updated
Name / Company Name
Yushin Industry Co., Ltd.
The Master Trust Bank of Japan, Ltd.
(Trust Account)
The Nomura Trust and Banking Co., Ltd.
(Trust Account 3071019)
The Master Trust Bank of Japan, Ltd.
(Retail Trust Account 620021158)
Japan Trustee Service Bank, Ltd.
(Trust Accounts 9)
The Kyoto Chuo Shinkin Bank, Ltd.
Mayumi Kotani
Japan Trustee Service Bank, Ltd.
(Trust Account)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
The Bank of Kyoto, Ltd.

Number of Shares Owned
11,992,378

Percentage (%)
34.29

2,514,100

7.19

1,549,900

4.43

1,549,800

4.43

1,205,400

3.45

1,088,974
1,053,052

3.11
3.01

900,700

2.58

849,986
704,598

2.43
2.01

Controlling Shareholder (except for Parent Company)-

Parent Company

None

Supplementary Explanation Updated
Foreign Shareholding Ratio and Status of Major Shareholders are stated as of September 30, 2018.

3. Corporate Attributes

Fiscal Year-End

Tokyo Stock ExchangeFirst Section
MarchType of Business

Machinery

Listed Stock Market and Market Section

Number of Employees (consolidated) as of the End of thePrevious Fiscal YearSales (consolidated) as of the End of the Previous Fiscal Year
-4-

From 500 to less than 1000
From ¥10 billion to less than ¥100 billion

(Translation)

Number of Consolidated Subsidiaries as of the End of thePrevious Fiscal Year

From 10 to less than 50

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling
Shareholder
5. Other Special Circumstances which may have Material Impact on Corporate Governance--5-(Translation)

II. Business Management Organization and Other Corporate Governance Systems
regarding Decision-making, Execution of Business, and Oversight in Management
1. Organizational Composition and Operation
Company with Board of Corporate Auditors

Organization Form
[Directors]

Maximum Number of Directors Stipulated in Articles of Incorporation

10

Term of Office Stipulated in Articles of Incorporation

1 yearChairperson of the Board

President

Number of Directors

8

Appointment of Outside Directors

Appointed

Number of Outside Directors

3

Number of Independent Directors Updated

2

Outside Directors’ Relationship with the Company (1) Updated
Name

Attribute

Yasuo Nishiguchi

From another company

Relationship with the Company*
a

b

c

d
○

e

f

g

h

i

j

k

△

Hiroshi Matsuhisa
Academic○
Reiko Nakayama
From another company* Categories for “Relationship with the Company”* “○” when the director presently falls or has recently fallen under the category;“△” when the director fell under the category in the past
* “●” when a close relative of the director presently falls or has recently fallen under the category;“▲” when a close relative of the director fell under the category in the pasta. Executive of the Company or its subsidiaries
b. Non-executive director or executive of a parent company of the Company
c. Executive of a fellow subsidiary company of the Company
d. A party whose major client or supplier is the Company or an executive thereof
e. Major client or supplier of the listed company or an executive thereof
f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or otherproperty from the Company besides compensation as a director/Corporate Auditor
g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is alegal entity)
h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f)(the director himself/herself only)
i. Executive of a company, between which and the Company outside directors/Corporate Auditors aremutually appointed (the director himself/herself only)
j. Executive of a company or organization that receives a donation from the Company (the director
himself/herself only)
k. Others-6-

(Translation)

Outside Directors’ Relationship with the Company (2) Updated

Name

Designation as
Independent
Director

Yasuo Nishiguchi

Hiroshi Matsuhisa

Supplementary Explanation of
the RelationshipYasuo Nishiguchi had served as
the Representative Director of
KYOCERA Corporation which
is our client. The Company has
insignificant transactions withKYOCERA Corporation, andthere are no importanceaffecting on the independence.
Currently, HANDY Co., Ltd.,
that he is the representative
director, and the Company haveentered into advisory
agreements to receive guidance
and advice on future
management policies, etc.

○

The instruction contract
concerning R&D was enteredinto between the Company andHiroshi Matsuhisa.
The Company had insignificant
transactions with him and there
are no importance affecting on
the independence.
Currently, he is conducting abasic lecture for our engineers,which falls under the conflict ofinterest transactions with theCompany, but the transaction
volume is insignificant and there
is no importance affecting on
the independence.

-7-

Reasons of Appointment
Yasuo Nishiguchi has held such
positions as the President andRepresentative Director, and the
Chairman and Representative
Director at KYOCERA
Corporation. Based on his
knowledge and experience ingeneral management cultivatedthrough prominent corporate
positions, we asked him to give
the Company advice andsupervision of operations from an
independent position. Thus,
because we can expect tostrengthen the function of theCompany’s Board of Directors,
the Company appointed Yasuo
Nishiguchi as an Outside Directorof the Company.
The transaction with HANDY
Corporation and the Company
falls under the conflict of interest
transactions, and he is notdesignated as an independent
officer because he does not meetthe independence standards ofoutside officers determined by theCompany, but he meets therequirements of the outside
director, the Company judged that
he is appropriate as an Outside
Director.
Based on the specialized
knowledge by the person withacademic standing in engineeringof Kyoto University, we asked
him to give the Company advice
and supervision of operations
from an independent position.
Thus, because we can expect tostrengthen the function of theCompany’s Board of Directors,
the Company appointed Hiroshi
Matsuhisa as an Outside Directorof the Company.
He is appointed as an Independent
Officer of the Company because
he meets criteria of independence
as an outside officer establishedby the Company and there are no
risks in conflicts of interest withgeneral shareholders.

(Translation)

Reiko Nakayama○

Not applicable.

Based on her experience of
securities company
underwriter, andmanagement executive officer
and outside officers ofoperating companies, we
asked her to give theCompany advice andsupervision of operations
from an independent
position. Because this will
strengthen the function of theCompany’s Board of
Directors, the Company
appointed Reiko Nakayama
as an Outside Director.
She is appointed as an
Independent Officer of theCompany because she meets
criteria of independence asan outside officer establishedby the Company and there
are no risks in conflicts ofinterest with generalshareholders.

Voluntary Establishment of Committee(s) Corresponding to Nomination
Committee or Remuneration Committee

Not Established[Corporate Auditor]
Establishment of Board of Corporate Auditors
Maximum Number of Corporate Auditors Stipulated in Articles ofIncorporation
Number of Corporate Auditors

Established44

Cooperation among Corporate Auditors, Accounting Auditors and Internal Audit Departments
Regarding the cooperation among Corporate Auditors and Accounting Auditors, Corporate Auditors receive
the explanation about the audit plan of Accounting Auditors as well as reports on a review at the end of thequarter and the proceedings of the audit at the year-end audit.
As for results of the audit by the Internal Audit Office, Corporate Auditors also inspect the internal audit
reports and exchange opinions as necessary.
Full-time Corporate Auditor is voluntarily present at internal auditing and attends a briefing to the president
held by Internal Audit Office.
Appointment of Outside Corporate Auditors

Appointed

Number of Outside Corporate Auditors

3

Number of Independent Corporate Auditor

3-8-(Translation)

Outside Corporate Auditors’ Relationship with the Company (1)NameAttribute

Relationship with the Company*
a

b

c

d

e

f

g

h

i

j

k

l

m

△
Yasuhiro Orita
LawyerHiroho Kamakura
CPA△
Michitoshi
From another company○
Morimoto* Categories for “Relationship with the Company”* “○” when the director presently falls or has recently fallen under the category;“△” when the director fell under the category in the past
* “●” when a close relative of the director presently falls or has recently fallen under the category;“▲” when a close relative of the director fell under the category in the pasta. Executive of the Company or its subsidiaryb. Non-executive director or accounting advisor of the Company or its subsidiaries
c. Non-executive director or executive of a parent company of the Company
d. Corporate Auditor of a parent company of the Company
e. Executive of a fellow subsidiary company of the Company
f. A party whose major client or supplier is the Company or an executive thereof
g. Major client or supplier of the Company or an executive thereofh. Consultant, accountant or legal professional who receives a large amount of monetary consideration orother property from the Company besides compensation as a Corporate Auditor
i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is alegal entity)
j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h)(the Corporate Auditor himself/herself only)
k. Executive of a company, between which and the Company outside directors/Corporate Auditors aremutually appointed (the Corporate Auditor himself/herself only)
l. Executive of a company or organization that receives a donation from the Company (the Corporate Auditor
himself/herself only)
m. Others
Outside Corporate Auditors’ Relationship with the Company (2)Name

Designation as
Independent
Corporate
AuditorYasuhiro Orita○

Supplementary Explanation of
the Relationship
Yasuhiro Orita is an attorney
and the head of Keyaki Law
Office. The Company hadentered into a contract on legal
advisor with Keyaki Law
Office in the past.
The Company had
insignificant transactions with
Keyaki Law Office, and there
are no importance affecting on
the independence.

-9-

Reasons of Appointment
Yasuhiro Orita was appointed as an
Outside Corporate Auditor of theCompany because based on thespecialized legal knowledge as an
attorney is expected to be put toeffective use for the auditing
operation. The Company believes
that this must strengthen the
Company’s audit competence.
He is appointed as an Independent
Officer of the Company because hemeets criteria of independence as an
outside officer established by theCompany and there are no risks inconflicts of interest with generalshareholders.

(Translation)

HirohoKamakura○

Hiroho Kamakura is a certified
public accountant and had
worked for the Company’s
Accounting Auditor Deloitte
Touche Tohmatsu LLC in thepast.
The Company has
insignificant transactions with
Deloitte Touche Tohmatsu
LLC, and there are noimportance affecting on the
independence.

Michitoshi
Morimoto○

The consulting contract
concerning ERP system wasentered into between
Michitoshi Morimoto and theCompany in the past.
The Company had
insignificant transactions withhim, and there are noimportance affecting on the
independence.

Hiroho Kamakura was appointed as
an Outside Corporate Auditor of theCompany because the specialized
knowledge as a Certified Public
Accountant in finance and accounting
is expected to be put to effective use
for the auditing operation. The
Company believes that this must help
strengthen the Company’s audit
competence.
He is appointed as an Independent
Officer of the Company because hemeets criteria of independence as an
outside officer established by theCompany and there are no risks ofconflicts of interest with generalshareholders.
Michitoshi Morimoto was appointed
as an Outside Corporate Auditor of
the Company because the specialized
knowledge of corporate information
technology/system strategy is
expected to be put to effective use for
the Company. Our belief is that thismust help strengthen the Company’s
audit competence.
He is appointed as an Independent
Officer of the Company because hemeets criteria of independence as an
outside officer established by theCompany and there are no risks ofconflicts of interest with generalshareholders.

[Independent Directors/Corporate Auditors]
Number of Independent Directors/Corporate
Auditors

5

Matters relating to Independent Directors/Corporate Auditors[Incentives]
Incentive Policies for Directors

None

Supplementary Explanation
Directors’ bonuses are determined and Directors’ remuneration is revised in light of the performance of each
Director and business results of the Company.
Subjects of consideration include introduction of the compensation linked to medium- and long-term
performance and stock compensation, and the ratios of base salary and performance-linked compensation,and cash salary and stock compensation after the introduction.
Recipients of Stock Options- 10 -

(Translation)

Supplementary Explanation[Director Remuneration]
Disclosure of Individual Directors’ Remuneration

No Individual Disclosure

Supplementary Explanation
The Company paid 183,755 thousand yen as remuneration to seven Directors for the fiscal year ended March2018.
Policy on Determining Remuneration Amounts andCalculation Methods

Not Established

Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods[Supporting System for Outside Directors and/or Corporate Auditors]
Regarding the information transfer to Outside Directors and Corporate Auditors, the system is established that
Outside Directors and Corporate Auditors can obtain information through reports filed with the monthly-held
Board of Directors meeting (monthly account settlement report, business reports from Directors and reports
from senior staff) as necessary.
Full-time Corporate Auditor also informs Outside Corporate Auditors details of significant internal meetings.
Outside Directors and Corporate Auditors have no persons devoted to assist them, but the Company appoints
the assistant personnel immediately if required.
[Status of persons retired from Representative Director and President, etc.]
Names, etc., of advisors (“sodanyaku,” “komon,” etc.) who have formerly served as Representative
Director and President, etc.
Name―

Title/Position―――

Activity
Description

Working Arrangement /Conditions（Full-time / Part-time,
Compensation）

Date of Retirement
From President, etc.

Term of
Office

―――

――――

――――

――

Total number of advisors (“sodanyaku,” “komon,” etc.) who haveformerly served as Representative Director and President, etc.

0

Other Information
2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration

Decisions (Overview of Current Corporate Governance System) Updated(1) The Company’s Board of Directors, which consists of eight Directors (including threee Outside
Directors), determines the policy for business execution of the Company and oversees business execution
by Directors. The board monthly holds a meeting where all significant matters are submitted for
discussion and proceeding of business results is discussed to examine measures, etc.
- 11 -

(Translation)

Outside Directors offer opinions from an outside and independent viewpoint and give useful advice froma broad perspective at the meetings of the Board of Directors to manage and oversee general management
while exchanging opinions with Corporate Auditors and Directors controlling the Internal Control
Department.
(2) In addition to the regular Board of Directors meeting, an executive meeting is weekly held. As a result,the information is shared by all executives about all significant matters on the Company and the systemis established to sufficiently discuss and immediately make decisions on significant management matters.
(3) The Company’s Board of Corporate Auditors consists of four members (including three Outside
Corporate Auditors). Each Corporate Auditor audits the business execution by Directors by attending
significant meetings, including the Board of Directors meetings and surveying the work and property
according to the audit policy and plan made by Board of Corporate Auditors. All Corporate Auditors
attend the regular Board of Directors meeting and full-time Corporate Auditor attends significant internal
meetings, including executive meetings and management meetings. The information is shared aboutsignificant matters on the Company, and the system is established that Board of Corporate Auditors canaccurately audit business execution by Directors.
(4) From a viewpoint of the separation of management oversight function from business execution, theexecutive officer system was introduced on April 1, 2003. The Company has one non-director executive
officer.
(5) Internal Audit Office, which is directly under the president, is in charge of internal audits. According to
the internal audit plan made at the beginning of the year, the department visits headquarters and all
domestic sales offices of the Company twice a year and overseas representative offices and subsidiariesof the Company once a year to audit the general business activities and directly provides the president
with the internal audit report. To warrant effectiveness of internal audit, the department instructs audited
departments to improve business activities based on the audit results and requires them to report
proceedings of improvement without delay.
(6) As for Corporate Auditors’ audit, all Corporate Auditors attend the regular meetings of the Board of
Directors and the full-time Corporate Auditor attends significant internal meetings, including executive
meetings, to mainly audit violation of laws and regulations and the Articles of Association and facts that
could potentially hurt the interests of shareholders and the Company. And, in order to ensure theeffectiveness of the audit, Corporate Auditors attend the Board of Directors Meetings and required
significant meetings including management conference as well as read major approval documents andother significant documents concerning business execution and receives explanation from Directors andemployees of the Company and Directors of subsidiaries as necessary.
(7) As for accounting audits, the Company have concluded an audit contract with Deloitte Touche Tohmatsu
LLC so they conduct audits. The CPA Yoshiki Yamada, Mitsuhiro Takasaki and Hideki Yasuda executed
accounting audit activities. Ten CPAs and nine others were engaged in audit activities as an assistant.

3. Reasons for Adoption of Current Corporate Governance System
The system is established where determination of the policy for business execution by the Board of Directors,
which consists of members with a high degree of expertise and abundant experience, makes it possible toexecute all businesses appropriately and smoothly. Given a single business of the Company and current
business scale, the Company thinks the current system reasonable where a small number of Directors canconduct immediate decision-making and flexible business execution. In addition to this, strict audit of theBoard of Corporate Auditors including Outside Corporate Auditors with abundant expertise builds the system
to completely oversee management. The Company thinks that our corporate governance system sufficiently
works due to the above current systems.

III. Implementation of Measures for Shareholders and Other Stakeholders
1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights- 12 -

(Translation)

Scheduling AGMs Avoiding thePeak Day
Providing Convocation Notice inEnglishOther

Supplementary Explanations
AGMs are held avoiding the Peak Day.
The convocation notice in English is available at the Company’s website inEnglish.
The convocation notice is delivered to shareholders and is posted on the
Company’s website. At the general meeting of shareholders, a presentation
using a video projector is given along with an explanation of the documents
attached to the convocation notice.

2. IR Activities
Preparation and Publication ofDisclosure Policy
Regular Investor Briefings for
Individual Investors
Regular Investor Briefings forAnalystsandInstitutional
Investors
Regular Investor Briefings forOverseas Investors
Posting of IR Materials on
WebsiteEstablishment of Department
and/or Manager in Charge of IR

Supplementary Explanations
The Company establishes and states the basic policy for information
disclosure, manner of timely disclosure, silent period, third-party disclosureand financial forecast and positioning of information disclosure at IR
information site on the website.
The Company participates in securities companies- and consulting
companies-hosting briefings for individuals once a year at least
The Company holds briefings on financial results of a full year and aninterim period as well as makes individual visits to institutional investors,
holds small-size meetings in Japan and accepts telephone interviews asneeded.
The Company individually visits overseas investors mainly in the UnitedStates, the United Kingdom and other areas.
Materials on briefings of financial results of a full year and an interim
period, Notice of Convocation for the General Meeting of Shareholders andAnnual Reports are posted in Japanese and English on the website.
Corporate Planning Department, which department is directly under the
Representative Director, is in charge of IR.

3. Measures to Ensure Due Respect for Stakeholders
Stipulation of Internal Rules for
Respecting the Position of Stakeholders
ImplementationofEnvironmental
Activities, CSR Activities etc.

Supplementary Explanations
It is included in the management philosophy.
These activities are implemented as activities of ISO14001.

IV. Matters Related to the Internal Control System
1. Basic Views on Internal Control System and the Progress of System Development
The Company has established the basic policy of Internal Control System for the development ofa system to ensure that the execution of duties by Directors conforms to laws and regulations,and the Articles of Association as well as other systems that ensure the properness of operationsof the Company, as follows. (Board of Directors Resolution on June 12, 2015) The main points ofthe basic policy are as follows.
1.

System to ensure that business execution of Directors and employees complies with laws and regulations
and the Articles of Association.
The Company raises the awareness for and holds training on legal compliance to increase awareness ofcompliance as well as establishes “Whistle-Blowing Regulations” providing the procedure for reporting
violations.

2.

System for keeping and managing the information on business execution of the Company’s Directors.
- 13 -

(Translation)

Information is kept and managed according to laws and regulations, and internal regulations (including“Document Regulations,” “Internal Information Management Regulations” and “Information System
Management Regulations”)
3.

Regulations on and other systems for risk management of losses of the Company and its subsidiaries.
Risk of currently estimated losses is managed by setting a committee and making discussion according
to degree of its significance. Events delivering losses to the Company would be reported to Directors
and Corporate Auditors by the Executive in charge and discussed and managed by all executives.

4.

System to ensure effective business execution by Directors of the Company and its subsidiaries.
Effective business execution by Directors is ensured by followings:(1) The Board of Directors determines significant matters and oversees business execution by
Directors.
(2) Information is shared among Directors, Executives, and Corporate Auditors at executive meetings.
(3) Notice of significant matters on management, understanding of status and business instructions are
conducted at management meetings and YSM management conference.
(4) At the subsidiaries conference, the information is shared on the Company and our subsidiaries andsignificant matters are discussed and determined.

5.

The systems to ensure appropriate works of the corporate group consisting of the Company and its
subsidiaries, and to make reports to the Company on matters concerning business execution by Directorsof subsidiaries.
The Internal Control System is developed as we as “Subsidiaries Management Regulations” obligate
subsidiaries to make periodic reports relating to business results, fiscal conditions and other significant
information of subsidiaries.
Significant matters are discussed to solve issues at the Board of Directors

6.

System to ensure effective Corporate Auditors’ audit.
Corporate Auditors attend the Board of Directors Meetings and required significant meetings including
management conference as well as read major approval documents and other significant documents
concerning business execution and receives explanation from Directors and employees of the Company
and Directors of subsidiaries as necessary.

7.

System on employees assisting works of the Company’s Corporate Auditors when Corporate Auditors
require allocation of the assisting employees.
Employees assisting the work of the Company’s Corporate Auditors can be allocated as staff asnecessary. Corporate Auditor has the authority to give instructions and orders to the staff.

8.

System to ensure that those reporting to Board of Corporate Auditors and Corporate Auditors, etc. are
not unfavorably treated for the reason of the report.
The Company ensures that executives and employees reporting to Board of Corporate Auditors andCorporate Auditors are not treated unfavorably because of the report and thoroughly inform the whole
company of this. In the “Whistle-Blowing Regulations,” it is prescribed to prohibit dismissal and giveother unfavorable treatment for the reason of the report.

9.

Matters on the policy for dealing with expenses or debts resulting from business execution of theCompany’s Corporate Auditors.
The Company, when Corporate Auditors require the Company to make advance payment in respect ofbusiness execution according to Article 388 of the Companies Act, immediately deals with the relevant
expenses and debts unless it is considered unnecessary to make advance payments.

10. This fiscal year, in order to improve the effectiveness and efficiency of operations, to ensure reliabilityof financial reports, and to expansively develop the operations of the internal control system aimed atsecuring assets and compliance to laws and regulations pertaining to business activities according to the
Basic Policy for Internal Control System, the enactment of the Internal Control Regulations and theCommittee of Internal Control Operations Regulations were resolved at the Board of Directors’ meetingon February 7, 2018.
The scope of responsibility of the Board of Directors and Corporate Auditors concerning theestablishment and operations of internal control, as well as the system for implementation and details of- 14 -

(Translation)

activities for executives and employees, and the procedures for evaluation and reporting were clarified
in the Internal Control Regulations. The structure of the committee aimed at facilitating internal control
as well as how to promote its mission and activities were clarified in the Committee of Internal
Control Operations Regulations.

2. Basic Views on Eliminating Anti-Social Forces
The Company assumes a resolute attitude to anti-social forces threatening order and security of civil society
as well as closely exchanges information and cooperates with the relevant specialized agencies including
police against anti-social forces and thoroughly informs employees of the above policy.

V. Other
1. Adoption of Anti-Takeover Measures
Adoption of Anti-Takeover Measures

Not Adopted

Supplementary Explanation-

2. Other Matters Concerning to Corporate Governance System<Timely Disclosure System>
1. Basic Policy on Information Disclosure
The Company strives to maintain its established system of proactive and fair disclosure of information toshareholders, investors, and other stakeholders.
2. Information Disclosure Policy and Internal System
The Company adopts the following policies and internal system as the basis for information disclosure.
(1) Company information to be discloseda) Information required to be disclosed in accordance with the Financial Instruments and Exchange Act
and the Timely Disclosure Regulations set by the Tokyo Stock Exchange (decisions, incidents andfinancial information)b) Information other than a) above considered to have a significant influence on investment decisions(2) Disclosure procedurea) Procedure concerning decisions and incidents
For decisions and incidents, the Accounting Department, General Affairs Department, or otherdepartment in charge prepares the materials necessary for disclosure. Upon completion of internal
procedures, including approval by the Board of Directors, the disclosure of information will be carriedout by the Information Manager or the Disclosure Manager.
b) Procedure concerning financial information
For financial information, the Accounting Department prepares the materials necessary for disclosure.
Upon completion of internal procedures, including approval by the Board of Directors, the disclosure of
information will be carried out by the manager of corporate management department.
(3) Methods of disclosure
Information will be disclosed through registration with the TDnet Company Announcements Distribution
Service of the Tokyo Stock Exchange as well as through the Company’s website and via other applicablemeans.
(4) Inquiries following disclosure- 15 -

(Translation)

Disclosure-related inquiries will be handled by the Information Manager or the Disclosure Manager.
3. Improvements on Monitoring of the Timely Disclosure System
Through periodically implemented audits by corporate auditors, internal audits, and external audits, theCompany aims to ensure the appropriateness of information disclosure contents, information disclosure
procedures, and other related aspects.

- 16 -

(Translation)

Corporate Governance Structure

General Meeting of Shareholders
Appointment/ Dismissal

Appointment/ Dismissal

Appointment/Dismissal
Board of Directors (Directors/ Outside Directors)

Representative
Director

Supervision/
Instruction

Internal Audit Office

Accounting Auditor

ReportAudit/
Supervision

Supervision/
Instruction

Audit
Management
Meeting

Committee ofInternal Control

Cooperation

Management
Supervision

Training/
Supervision

Sales HQ
R&D HQ
Production HQ
Purchase HQ
Administrative Dept.
Quality Assurance Dept.
Corporate Planning
Product Planning andMarketing Dept.

Subsidiaries

Cooperation- 17 -

Audit

Board of Corporate Auditors(Corporate Auditor/ Outside Corporate Auditors)

Appointment/Dismissal

(Translation)

System for Timely Disclosure of Information<Decisions, Incidents and Financial Information>

Board of Directors

ReportAudit

approval

President

ReportInformation Manager（Executive Managing Director）,
Report関
連
各部
署- 18 -

Subsidiaries

総務部

ReportRelated Departments

経
理部

ReportAdministration Department

内
部
監
査
室

ReportAccounting Department

Internal Audit OfficeDirectors, Corporate Auditors

Ｄ
ｉ
ｒ
ｅ
ｃ
ｔ
ｏ
ｒ
ｓ

ReportDiclosure Manager

子会社

Timely Disclosure