Lasertec : Corporate Governance Report （PDF：571KB）

This is a translation of the Japanese text submitted to the Tokyo Stock Exchange and is provided for reference purposes only.

Corporate Governance Report

Last updated on September 27, 2019

Lasertec Corporation

Osamu Okabayashi

Representative Director & President

Contact:

Shu Uchiyama

Managing Director & Chief Administrative Officer

Tel. [phone]

Securities Code 6920

www.lasertec.co.jp/en/

The status of our corporate governance is as follows:

1. Basic views on corporate governance, capital structure, corporate attributes, and other basic information

1. Basic views

Our corporate philosophy since foundation is "Create unique solutions. Create new value." This founding philosophy continues to hold true today even after our success in becoming a publicly-traded company in pursuit of higher customer confidence and more corporate strengths. We are striving to increase our enterprise value by continuously developing products that help us achieve customer satisfaction and contribution to the progress of society. We are also striving to establish a management structure worthy of the trust of shareholders and investors, and maintain and improve such a structure, by attaining higher transparency as a publicly-traded company and actively taking various measures that ensure sound management. We recognize that these efforts are essential to meet the expectations of shareholders and all other stakeholders.

[Reason for not being compliant with any of the principles of Corporate Governance Code]

Our corporate pension plan is a defined-benefit plan, and the management of our pension fund is contracted out to outside asset management companies. We have put in place an asset management policy and entrusted the management of the fund to the outside companies in accordance with this policy, while our own staff are tasked to check the market value of the fund periodically.

We will enhance the skills of our staff by having them attend various training programs and monitor the status of fund management regularly to maintain an appropriate fund management environment. In this manner, we will enable our corporate pension fund to play the role expected of asset owners.

The President engages in the training of his own successor and the successors of other top executives through daily business discussions with Executive Directors. Each Executive Director reports the status of his activities in Management Meeting and the Board of Directors meetings,

answers questions from other Directors, including Outside Directors, and from Audit & Supervisory Board Members, and participates in discussions. We believe this is a type of successor training, and the Board of Directors is fulfilling its supervisory role over successor training in this manner.

long-term performance and proper balance of cash and stock compensations>

The remunerations of Directors are currently comprised of baseline pay and performance- based bonus and stock option. If it is deemed necessary, we will study whether to pay any remuneration determined by the mid- to long-term performance of the Company and what its percentage should be. We will also study the proper balance of cash and stock compensations as necessary.

We have 3 Independent Outside Directors on the Board of Directors. Although Independent Outside Directors do not constitute a majority of the Board members, they constitute a majority of the Compensation Committee, which is established as an advisory body for the President to ensure that the remunerations of Directors are determined in a transparent and objective process. The Committee members consist of 3 Independent Outside Directors, Senior Audit & Supervisory Board Member, and the President.

All the Independent Outside Directors actively participate in the nomination of Director candidates and give appropriate advice. The independence and objectivity of the Board of Directors on this matter are thereby ensured.

[Disclosure pursuant to the principles of Corporate Governance Code]

Cross-shareholdings>

We decide on shareholding in a listed company's stock after weighing its overall merits in light of business strategy, trade relationship and others. We do not engage in a so-called "cross- shareholding" unless it is beneficial for increasing our enterprise value in the mid to long term. The Board of Directors will annually review the purpose and cost effectiveness of each cross- shareholding to judge whether it is appropriate to continue the cross-shareholding.

We also see the exercise of our voting rights to a cross-shareholding stock as an important tool to increase the enterprise value of the subject company. We carefully review all the proposals at the shareholder meeting and exercise our voting rights in a way that leads to an increase in the subject company's enterprise value and shareholder returns in the mid to long term.

We stipulate in our rules concerning the Board of Directors that a Director's engagement in a transaction that competes or conflicts with the Company's interests is a matter requiring approval by the Board of Directors. A Director who has engaged in a transaction that competes with the Company's interests or who has engaged in a transaction with the Company or its group company must report material facts about the transaction to the Board of Directors promptly.

If the Company engages in a significant or extraordinary transaction with a major shareholder, it will be subject to approval by the Board of Directors.

1. Company objectives (e.g., business principles), business strategies and business plans

Information about our corporate philosophy, mission, vision, and business strategies is available on our website at the following links:

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https://www.lasertec.co.jp/en/company/greeting/index.html

https://www.lasertec.co.jp/en/ir/plan/strategy.html

1. Basic views and guidelines on corporate governance based on each of the principles of the Code
   See "1. Basic views" above.
2. Board policies and procedures in determining the remuneration of the senior management and Directors

The remuneration of a Director consists of fixed monthly pay and performance-based bonus and stock option. The monthly pay is determined based on social trends and business environment. The bonus and stock option are determined based on the evaluation of the Director's position, responsibilities, and performance together with the Company's performance in the fiscal year. The President decides the amount of remuneration for each Director, under authority delegated by the Board of Directors, after hearing the opinion of the Compensation Committee, an advisory body for the President. Stock options are granted by the resolution of the Board of Directors.

1. Board policies and procedures in the appointment of senior management and the nomination of Director candidates and Audit & Supervisory Board Member candidates

Our policy on the appointment of Directors and Audit & Supervisory Board Members is that we carefully review candidates' personality, acumen and other traits without regard to their gender, age or nationality, and choose the right people who are capable of fulfilling the duties and responsibilities. Under this policy, the President proposes nominees to the Board of Directors, and the Board resolves on the proposal.

If a Director or Audi & Supervisory Board Member is found incapable of fulfilling the duties and responsibilities, the dismissal of the Director or Audit & Supervisory Board Member will be proposed at the Board of Directors meeting. Once the Board resolves on the dismissal, it will be proposed for approval at the General Meeting of Shareholders.

The appointment and dismissal of General Manager and higher ranks are subject to approval by the Board of Directors.

1. Explanation with respect to the Board's individual appointment or dismissal of senior management and/or the nomination of each Director or Audit & Supervisory Board Member candidate

The reason for the nomination of each Director or Audit & Supervisory Board Member candidate or for the dismissal of a Director or Audit & Supervisory Board Member is explained in "Reference Documents for General Meeting of Shareholders."

Our rules concerning the Board of Directors provide a list of matters that are subject to approval by the Board. These matters must be approved by the Board either because it is required by law or because it is appropriate to do so for their significance, nature or any other reason even though it is not explicitly required by law. We make decisions about these matters at the Board of Directors meetings.

The execution of duties other than the matters mentioned in the preceding paragraph is delegated to individual Directors and others. The Board of Directors supervises the execution of such duties by the Directors and others.

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We judge independence based on the following criteria when nominating a candidate for Outside Director:

1. The candidate is not serving or has no history of serving as a director, auditor, executive officer, operating officer, or employee of Lasertec or its affiliates in the last 10 years;
2. Relationship with major shareholder:

The candidate is not a major shareholder owning 10% or more voting shares (or not a director, auditor, executive officer, operating officer, or employee of a company that is a major shareholder);

1. Relationship with major trading partner:

The candidate is not a director, auditor, executive officer, operating officer, or employee of a major trading partner of Lasertec or any of those listed below and has no history of serving as an executive director, executive officer, or operating officer of a major trading partner of Lasertec or any of those listed below in the last 10 years.

• A major trading partner of Lasertec: a company with whom we recorded a volume of trade worth 5% or more of our consolidated sales in each of the last 3 years.
• A company whose major trading partner is Lasertec: a company whose trading volume with Lasertec is worth 5% or more of its consolidated sales in each of the last 3 years.
• A major creditor of Lasertec: a financial institution whose average annual lending to Lasertec

is more than 2% of our total asset.

1. Relationship with professional service provider (attorney, CPA, consultant, etc.):

The candidate is not an attorney, certified public accountant, consultant or any other professional who earns 10 million yen or more from us annually as monetary or any other compensation, except for the compensation for serving as a member of the Board of Lasertec.

1. Relationship with financial auditor:

The candidate is not a representative partner or partner of our financial auditor.

1. Relationship with organization receiving donation or assistance from us:

The candidate is not an officer or employee of an organization that receives more than 10 million yen from us annually in donation or assistance.

1. Kinship

The candidate is not a spouse or a relative within the second degree of kinship of a director, auditor, operating officer, or any other important employee of Lasertec or its affiliates.

We maintain well-balanced composition and diversity in the Board of Directors by having Directors with different professional knowledge and experience on the Board. The Articles of Incorporation limit the maximum number of Directors to 10 to ensure swift decision making.

We have conducted analysis and evaluation concerning the effectiveness of the Board of Directors to examine whether the Board is functioning properly.

1. Method of evaluation

We conducted a survey by asking all of our Directors and Audit & Supervisory Board Members to answer a questionnaire in June 2019 to analyze and evaluate the effectiveness of the Board of Directors during the fiscal year ended June 2019. After reviewing the result of this survey, the Board of Directors discussed the current status concerning the effectiveness of the Board, actions to be taken, and others at its meeting held in July 2019.

1. Size, composition and diversity of the Board of Directors
2. Operation of the Board of Directors meetings (frequency, duration, proposed agenda, reference material, etc.)

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1. Participation of Directors at the meetings (depth of understanding, active participation in discussion, etc.)
2. Monitoring and supervision by the Board of Directors
3. Auditing by the Audit & Supervisory Board Members
4. Relationship with shareholders and investors

2. Outline of evaluation result

Through the analysis of the questionnaire and subsequent deliberations by the Board of Directors, we have concluded that our Board of Directors is playing its roles properly and that the effectiveness of the Board is ensured based on the following reasons:

• The Board of Directors has an adequate size, composition and diversity to play its roles and fulfill its responsibilities.
• The frequency of the Board meetings, the number of proposals at the Board, the contents of those proposals, and the duration of the Board meetings are all adequate.
• The Board of Directors conducts thorough discussion with all members in attendance, including Outside Directors and Outside Audit & Supervisory Board Members, actively contributing opinions.
• The Board of Directors effectively monitors the status of business execution and fulfill its responsibility of supervision over individual Directors and the Company's management.
• The Board of Directors is properly involved in the drafting and revising of the Company's business strategies and business plans based on clear understanding.
• The contents and results of audits conducted by Audit & Supervisory Board Members are properly reported and discussed at the Board of Directors meetings.
• The opinions of investors and shareholders about the Company are reported and analyzed properly at the Board of Directors meetings.

Newly-elected Directors and Audit & Supervisory Board Members are properly briefed on the legal responsibilities and other obligations of Board Members. They also participate in training conducted by outside institutions as necessary. Outside Directors and Outside Audit & Supervisory Board Members are individually briefed on management strategies, business operation, financial conditions, and others.

We communicate our management policy and the status of business clearly to facilitate the understanding of shareholders. We actively engage in constructive dialogue with shareholders to achieve sustainable growth and to increase our enterprise value in the mid to long term.

We actively promote dialogue with institutional investors, especially with those who engage in dialogue to help us pursue a long-term growth of enterprise value. Such dialogue will be conducted mainly by the President and the Director in charge of investor relations.

Corporate Planning Office is tasked to communicate with shareholders and investors on a daily basis and schedule financial results briefing meetings and interviews with investors and analysts. General Affairs Department is the point of contact for matters concerning the general meeting of shareholders, working in coordination and cooperation with Treasury & Accounting Department.

We keep in mind to make our disclosure materials informative and give accurate and unbiased information to shareholders and investors. We also keep the management informed of feedback from shareholders and investors.

When conducting dialogue, we adhere to our internal rules and manage insider information properly. To prevent insider information leaks, we regularly educate our employees through lectures, via the Intranet, and using other available tools.

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