Corporate Governance Report 2021 - November

(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 versionshall prevail. This translation may be used only for reference purposes.

Corporate Governance Report

Last Update: November 9, 2021

YUSHIN PRECISION EQUIPMENT CO., LTD.

Takayo Kotani, Representative Director and President Contact: Kota Oda, Managing Director, General Manager of General Affairs Dep.

Securities Code: 6482

The corporate governance of YUSHIN PRECISION EQUIPMENT CO., LTD. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other

Basic Information

1. Basic Views

The Company aims at achieving sustainable growth and maximizing the enterprise value for medium- and long-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 five items.

1. The Company respects the rights of shareholders and ensures equality, as well as strives to improve the environment for executing rights appropriately and protect rights.
2. The Company strives to sincerely cooperate with stakeholders excluding our shareholders with good sense.
3. The Company strives to ensure the transparency by appropriately making disclosure according to laws and regulations and voluntarily providing information excluding the disclosure.
4. The Board of Directors strives to execute its roles and duties appropriately for transparent/fair and flexible decision-making.
5. 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 2021.

[Supplementary Principle 4-1-3 Roles and Duties of the Board of Directors]

Regarding the training of successors, the Board of Directors will be involved actively, receiving advice from Nomination and Remuneration Committee, 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.

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.

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(Translation)

[Disclosure Based on the Principles of the Corporate Governance Code] Updated

All principles are stated based on the code revised in June 2021.

[Principle 1-4: Strategic Shareholdings]

The Company may hold the shares of business partners for the purpose of sustainable increases in enterprise value, 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 and return and future prospect. The results of verification are periodically reported to the Board of Directors. In FY 2020, as a result of the verification, the Company confirmed that there is validity of possession of all the shares held.

In response to future changes in circumstances, the Company will review such as reducing the number of shares 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 to sustainable 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 and conflict-of-interest transactions by Directors require the resolution of the Board of Directors. The same is applicable to the case where counterparty is a major shareholder.

[Supplementary Principle 2-4-1: Diversity of core human resources of the company]

The Company is committed to sustainable growth and enhancement of corporate value over the medium to long term by utilizing the perspectives and values of diverse human resources.

In addition to clarifying the image of expected human resources, including core human resources, we are promoting the enhancement of systems to support employees at different stages of their careers and the creation of an environment that enhances job satisfaction and ease of working as part of our human resources development policy.

From the perspective of diversity management, we place importance on respecting diverse attributes and values and making the most of human resources, without being bound by conventional standards in society and within the company. We are also working on "Creating a working environment in which both men and women can be equally active", "Hiring regardless of gender or nationality, and hiring mid-career professionals for key positions", "Creating a personnel evaluation system that draws out the efforts and challenges of diverse members", and "Support for balancing work and family life."

From the perspective of promoting women's activities, in addition to appointing women to management positions, we have established an action plan based on The Act on Promotion of Women's Participation and Advancement in the Workplace and are working to "maintain the ratio of women in new graduates at 30% or more" and "increase the ratio of male employees taking childcare leave to 20% or more."

From the perspective of ensuring diversity on a global level, we have many overseas offices and are promoting localization, and we are actively utilizing mid-career hires and foreign nationals.

In promoting these measures, we will further develop measurable goals and work to create an organization and develop human resources that will enable diverse employees to maximize their abilities.

[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 to external 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."
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(Translation)

1. The Company's remuneration of executives consists of basic salary, which is not linked to performance, and performance-linked remuneration, which depends on degree of achievement of performance goals. External 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 the compensation system, etc. for Directors are discussed by the Nomination and Remuneration Committee, and a report or opinion is given to the Board of Directors, and is determined by the Representative Director whose discretion the Board of Directors leave the amount to.
2. The Company has the policy for nominating candidates of Directors and Corporate Auditors and appointing 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 and insights. The External Directors and Corporate Auditors are expected to perform the function and role of objective and appropriate oversight or audits based on technical knowledge, and they are appointed based on the basic view that there are no threats of conflicts of interest with general shareholders. They are disclosed on the "Notice of Convocation for General Meeting of Shareholders" and "Securities Report". The selection of candidates of Directors and Corporate Auditors is discussed by the Nomination and Remuneration Committee, and a report or opinion is given to the Board of Directors, and is determined by the Board of Directors. The appointment of Directors and Corporate Auditors is subject to the resolution of the General Meeting of Shareholders. The policies and procedures for the appointment / dismissal of Directors and Corporate Auditors are stipulated in the "Regulations of the Board of Directors".
3. 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 3-1-3: Sustainability]

Based on our management philosophy, we aim to achieve sustainable corporate growth and maximize corporate value over the medium and long term while earning the trust of our shareholders and all other stakeholders surrounding us.

We recognize that addressing issues surrounding sustainability is one of the most important management challenges, and we are working to develop products that have a low environmental impact and that are compatible with environmental conservation through human- and environment-friendly technologies.

With regard to investment in human capital and intellectual property, in order to accelerate our global business development, we are hiring and training the human resources we need and working to improve compensation so that we can maintain employment.

In addition, we are promoting measures to strengthen our management and organizational foundations, such as improving efficiency through the use of IT tools and other means, and supporting the activities of women. As part of our corporate identity (CI) activities, we have adopted the slogan, "Above all, reach people's hearts." in order to set a corporate philosophy and direction to focus on in the future, and to achieve further growth and leaps forward, and we are working to improve productivity that our customers expect, and create a safe work environment.

We believe that these ideas and approaches are closely related to the United Nations Sustainable Development Goals (SDGs), and we will continue to strive to strengthen sustainability through our business activities.

[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 the Board 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 business execution, 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, to aim at clarifying the system of management responsibility and accelerating decision-making through transfer of 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 2 non- Director Executive Officer.

[Principle 4-9: Criterion for Independence of and Qualification for Independent External Director]

The Independent External 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 the basic view that there are no threats of conflicts of interest with general shareholders. The Company has

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(Translation)

established its own criterion for the independence, given the independence criterion established by the financial instruments exchange.

[Supplementary Principle 4-10-1: Nominating and Compensation Committee]

Of the Company's eight directors, three are independent outside directors, which does not constitute a majority of the board of directors. However, from the perspective of ensuring the transparency and objectivity of deliberations, the Company has established the Nomination and Compensation Committee chaired by an independent outside director, which deliberates on the selection and dismissal of officers, the compensation system, and other matters requested by the board of directors.

The Nomination and Compensation Committee is composed of a majority of independent outside directors, including the chairperson who is an independent outside director, and they provide fair and appropriate involvement and advice from an objective standpoint, including from the perspective of the diversity and skills of the board of directors.

[Supplementary Principle 4-11-1: Preconditions for Ensuring Effectiveness of Board of Directors and Board of 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 and global viewpoints. Now 8 Directors, including External Directors, take office. The Company will keep the number of the board members that immediate decision-making is conducted with each member providing his or her expertise and exchanging opinions each other. The independent External Directors includes those with management experience at other companies.

In the current fiscal year, we formulated a skills matrix that lists the knowledge, experience, and abilities of each director and corporate auditor. The skills matrix will be published on the Company's website and in the convocation notice.

[Supplementary Principle 4-11-2: Preconditions for Ensuring Effectiveness of Board of Directors and Board of Corporate Auditors]

Concurrent holding of positions of other companies by External 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 listed companies, 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 other companies, 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 Board of Directors and Board of Corporate Auditors]

External Directors now analyze and evaluate whole of the Board of Directors. To further improve the functions of 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 External 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.
2. The Corporate Planning Department, which is directly under the Representative Director, is in charge of IR and cooperates with the relevant departments for reasonable and smooth communication from shareholders.
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.
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(Translation)

1. Opinions received at communication with shareholders are appropriately fed back at the Board of Directors meeting.
2. Insider information is appropriately administrated according to the Disclosure Policy.

(Disclosure Policy: https://ir.ype.co.jp/en/governance/disclosurepolicy.html)

2. Capital Structure

		Foreign Shareholding Ratio	More than 10% but less than 20%
[Status of Major Shareholders]	Updated
		Name / Company Name	Number of Shares Owned		Percentage (%)
		Yushin Industry Co., Ltd.	11,992,378		35.23
		The Master Trust Bank of Japan, Ltd.	2,238,600		6.58
		(Trust Account)
		Takayo Kotani	1,968,532		5.78
		Miki Murata	1,847,032		5.43
		Custody Bank of Japan, Ltd. (Trust Accounts)	1,725,200		5.07
		The Kyoto Chuo Shinkin Bank, Ltd.	1,088,974		3.20
		Mayumi Kotani	1,040,202		3.06
		Custody Bank of Japan, Ltd. (Trust Accounts9)	955,700		2.81
		RBC IST 15 PCT NON LENDING	860,320		2.53
		ACCOUNT - CLIENT ACCOUNT
		MUFG Bank, Ltd.	849,986		2.50
		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, 2021.

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