Status of corporate governance(as of March 14, 2025)

Yellow Hat’s initiatives with regard to Japan’s Corporate Governance Code

Explanations regarding the changes in Yellow Hat’s initiatives for Japan's Corporate Governance Code are provided below.

[Reasons for non-compliance with Principles of Japan’s Corporate Governance Code]

We comply with all principles of Japan’s Corporate Governance Code.

[Status of Compliance with Principles of Japan’s Corporate Governance Code]

[Principle 1.4 Cross-Shareholdings]

When companies hold shares of other listed companies as cross-shareholdings, they should disclose their policy with respect to doing so, including their policies regarding the reduction of cross-shareholdings. In addition, the board should annually assess whether or not to hold each individual cross-shareholding, specifically examining whether the purposes of holding are appropriate and whether the benefits and risks from each holding cover the company’s cost of capital. The results of this assessment should be disclosed.

Companies should establish and disclose specific standards with respect to the voting rights as to their cross-shareholdings, and vote in accordance with the standards.

Implementation

We hold shares in companies we deem necessary for our sustained growth and enhancement of medium- to long-term corporate value, as part of our management strategies such as business alliances and stable product procurement, as well as to build positive relationships with trade partners and to promote smooth business operations.

Our basic policy regarding cross-shareholdings for which the significance of holding is believed to have diminished is to reduce possession as swiftly as possible(to less than 10% of consolidated net assets). Under this policy, each fiscal year, the Board of Directors assesses the significance of each individual cross-shareholding, taking into consideration factors such as transaction value, future business possibilities, and the balance between the benefits and risks from each holding and the cost of capital. When any shares have been deemed to not contribute to the sustained growth of the Yellow Hat Group or the improvement of its corporate value in the medium- to long-term, those shares are to be sold in a timely and appropriate manner. In addition, when exercising the voting rights of shares of other listed companies held as cross-shareholdings, we comprehensively judge whether to vote for or against proposals based on the view of improving the medium- to long-term corporate value of Yellow Hat and the investee companies, etc.

[Principle 1.7 Related Party Transactions]

When a company engages in transactions with its directors or major shareholders (i.e., related party transactions), in order to ensure that such transactions do not harm the interests of the company or the common interests of its shareholders and prevent any concerns with respect to such harm, the board should establish appropriate procedures beforehand in proportion to the importance and characteristics of the transaction, and disclose the framework of these procedures. The board should also conduct monitoring (including the approval of transactions), based on such procedures.

Implementation

Per our internal rules, related party transactions require a resolution of the Board of Directors in advance. Directors who have a special interest may not participate in the resolution and are excluded from the quorum for the said resolution.

Supplementary Principle 2.4.1

Companies should present their policies and voluntary and measurable goals for ensuring diversity in the promotion to core human resources, such as the promotion of women, foreign nationals and midcareer hires to middle managerial positions, and disclose their status. In addition, in light of the importance of human resource strategies for increasing corporate value over the mid- to long-term, companies should present its policies for human resource development and internal environment development to ensure diversity, as well as the status of their implementation.

Implementation

It is essential for the Yellow Hat Group to serve customers at its retail stores. In addition, car inspections and maintenance service require expertise. Therefore, we are actively developing human resources in the belief that the growth of our human resources is vital for our sustainable growth and the improvement of our corporate value. Specifically, we have set up a department dedicated to education and training and established an in-house qualification system for all employees, including beginner, intermediate, and advanced levels in customer satisfaction, product knowledge, and work techniques, to conduct training and help the employees to acquire knowledge and skills according to the degree of acquisition. We are also promoting initiatives such as providing managerial level positions with education about management and diversity.

The Yellow Hat Group is actively and continuously hiring and promoting diverse human resources with diverse work histories, including women, midcareer hires, foreign nationals, and senior citizens. We are also facilitating the rehiring of retired employees and employment of part-timers and temporary employees as permanent employees in addition to promoting the employment of persons with disabilities.

In order to create a safe workplace and support the success of its employees, the Yellow Hat Group has introduced various support systems and established various consultation services to create a comfortable working environment. We aim to create a workplace environment where each employee can work with satisfaction and vigor. Specifically, the following environments have been created.

Aiming to support acquisition of mechanic certifications, we have a support system in place to subsidize course fees and provide loans to employees who encounter difficulties in acquiring qualifications. To improve the knowledge of employees involved in opening new stores, we have established a system to provide a lump-sum payment for acquisition of specified qualifications related to business operations, such as a "real estate notary" qualification and a "Japan Non-life Insurance Association solicitor" qualification as an automobile insurance agent.

The consultation services we established include a compliance consultation desk to which employees can report violations of laws and regulations or internal rules, another consultation desk to deal with various types of harassment, and a hotline through which an employee can directly consult a lawyer.

In the Yellow Hat Group, as of the end of March 2024, 20.0% of officers were women, and 51.4% of managerial positions at the section manager level or higher were midcareer hires. In addition, female managers and foreign nationals are primarily assigned to the Retail Division with the expectation that they will play an active role there. At Yellow Hat, the number of women appointed to managerial positions is zero, and two foreign nationals are employed. At our subsidiaries, 17 women have been appointed to managerial positions, and 200 foreign nationals are employed. Going forward, we will actively promote and increase diversity in order to become an even more dynamic company.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

Because the management of corporate pension funds impacts stable asset formation for employees and companies’ own financial standing, companies should take and disclose measures to improve human resources and operational practices, such as systematic recruitment or assignment of qualified persons, in order to increase the investment management expertise of corporate pension funds (including stewardship activities such as monitoring the asset managers of corporate pension funds), thus making sure that corporate pension funds perform their roles as asset owners. Companies should ensure that conflicts of interest which could arise between pension fund beneficiaries and companies are appropriately managed.

Implementation

With regard to retirement pension plans, we previously used both a defined benefit (DB) pension plan and a defined contribution (DC) pension plan. However, as of April 1, 2022, we have wholly transitioned to a defined contribution pension plan.

Accordingly, there is no need for monitoring as the asset owner.

Note that with regard to our defined contribution pension plan, we have assigned dedicated staff in the Human Resources Section and strive for our employee’s asset formation as well as their investment education, by providing information every month on matters including pension operation performance and explanations of individual options.

[Principle 3.1 Full Disclosure]

In addition to making information disclosure in compliance with relevant laws and regulations, companies should disclose and proactively provide the information listed below (along with the disclosures specified by the principles of the Code) in order to enhance transparency and fairness in decision-making and ensure effective corporate governance:

1. ⅰ) Company objectives (e.g., business principles), business strategies and business plans;
2. ⅱ) Basic views and guidelines on corporate governance based on each of the principles of the Code;
3. ⅲ) Board policies and procedures in determining the remuneration of the senior management and directors;
4. ⅳ) Board policies and procedures in the appointment/dismissal of the senior management and the nomination of directors and kansayaku candidates; and
5. ⅴ) Explanations with respect to the individual appointments/dismissals and nominations based on ⅳ).

Implementation

1. ⅰ) Our business principles, business strategies, and business plans are disclosed on our website and in financial results briefing materials, materials for general meeting of shareholders, financial results briefings, etc.Please refer to the following for disclosure of English-language translations of our financial results reports, convocation notices, financial results briefing materials, financial highlights and other materials.
   https://www.yellowhat.jp/corp/foreignlanguage/
2. ⅱ) Our basic views and basic policy on corporate governance are disclosed on our website, in corporate governance reports, and in annual securities reports. In addition, our website includes links to annual financial result and performance materials in English provided by an IR support company.
3. ⅲ) Our officers’ remuneration is determined in accordance with the basic policy that is designed to reflect the overall company performance in the previous period, as well as the medium- to long-term performance, and to promote our sustainable growth and improve our corporate value. From the perspective of securing the objectivity and transparency of the determination process as well as the appropriateness of remuneration amounts, the Nominating and Remuneration Committee examines officers’ remuneration at the request of the Board of Directors and reports its conclusions to the Board of Directors, with officers’ remuneration being resolved by the Board of Directors. The Nominating and Remuneration Committee is comprised of independent outside officers selected by resolution of the Board of Directors, and the Representative Director and President, who as a member is thoroughly informed about the current remuneration system as well as the duties of each position. The Nominating and Remuneration Committee is chaired by an outside officer.

   Director remuneration is composed of basic fixed remuneration, performance-based remuneration, and restricted stock remuneration, and is determined holistically taking into account factors such as company performance; remuneration standards at other, similarly-sized companies; and past payment history. Fixed remuneration is remuneration for a Director’s primary decision-making and monitoring functions. Performance-based remuneration is remuneration for a Director’s business execution function. The total amount of these is divided by 12 and paid on a monthly basis. Performance-based remuneration is determined by multiplying a standard performance-based remuneration amount for each position by a variable percentage (76%-124%) calculated based on an evaluation of the company’s performance as a whole as well as an evaluation report by the Nominating and Remuneration Committee concerning the commitment between each Director and the Board of Directors. We use the consolidated ordinary profit margin as an indicator concerning performance-based remuneration since this margin is an indicator objectively showing the Yellow Hat Group’s earnings performance.

    

   Restricted stock remuneration consists of restricted stock allotted once a year as non-monetary remuneration so that Yellow Hat’s Directors (excluding Outside Directors) will share the benefits and risks of stock price changes with shareholders and to increase their aspiration to contribute to increasing stock prices and corporate value more than ever.

   At the 66th Annual General Meeting of Shareholders held on June 20, 2024, we received approval to allot up to 50,000 shares per fiscal year for restricted stock remuneration. In addition, the total amount of monetary remuneration claims concerning restricted stock is set at no more than 48.0 million yen.

   Formula for calculating the base amount of restricted stock remuneration

   Basic amount for an eligible Director = Points by position × (No more than 48.0 million yen ÷ The total amount of position points for all eligible Directors)

   As per the above policy, the composition of remuneration for Directors consists of approximately 10% fixed remuneration, approximately 65% performance-based remuneration, and approximately 25% restricted stock remuneration. Since Outside Directors are independent from business execution and importance is placed on their independence, monthly remuneration for Outside Directors consists of fixed remuneration only and no officers’ bonuses have been established for them. In addition, the amount of remuneration for each Audit & Supervisory Board Member is within an upper limit approved at the general meeting of shareholders and is determined by consultation among Audit & Supervisory Board Members. In consideration of their independent position holding the authority to monitor Directors’ execution of their duties, they receive fixed remuneration only and no officers’ bonuses have been established for them.

4. ⅳ) In the nomination of Director candidates (including the Representative Director) for new appointment or reappointment, the Nominating and Remuneration Committee conducts an advance examination into candidates’ adequacy at the request of the Board of Directors and reports its conclusions to the Board of Directors, with determinations being made after deliberation at a meeting of the Board of Directors.
   Director candidates are elected after comprehensive evaluation and judgement of such matters as the high-level knowledge and insight essential to executing and realizing management strategies based on a deep understanding of Yellow Hat’s business principles; fair and impartial judgement; and expertise in areas including sales strategy, product strategy, tax matters, accounting, and law.

   The Representative Director and President strives for the enhancement of examination through the submission of adequate materials to each committee member for consideration (including materials concerning candidates; as well as outlines of new management systems, including the duties of Directors), and through efforts such as establishing opportunities for Director candidates and committee members to come in contact with each other. In addition, similar procedures are to be followed in the event of the occurrence of a situation, etc. which falls under standards for dismissal.

   The nomination of candidates for Audit & Supervisory Board Members is based on comprehensive judgement of potential candidates’ experience and expertise. After a potential candidate has been considered and approved by the Audit & Supervisory Board, the reasons for the nomination are provided to the Board of Directors. The Board of Directors then deliberates before making their determination. In addition, similar procedures are to be followed in the event of the occurrence of a situation, etc. which falls under standards for dismissal.

5. ⅴ) The knowledge of individual Director candidates as well as the reasons for their election are included as reference materials for notices of Annual General Meeting of Shareholders. Note that explanation will be provided in the event of a dismissal.

Supplementary Principle 3.1.3

Companies should appropriately disclose their initiatives on sustainability when disclosing their management strategies. They should also disclose and provide information on investments in human capital and intellectual properties in an understandable and specific manner, while being conscious of the consistency with their own management strategies and issues. In particular, companies listed on the Prime Market should collect and analyze the necessary data on the impact of climate change-related risks and earning opportunities on their business activities and profits, and enhance the quality and quantity of disclosure based on the TCFD recommendations, which are an internationally well-established disclosure framework, or an equivalent framework.

Implementation

Cooperating with a broad range of stakeholders, we strive to make proactive information disclosure and improve transparency. Please refer to the following for information on our approach to sustainability, policies and initiatives therefor, as well as policies for human capital and human resources.

https://www.yellowhat.jp/corp/foreignlanguage/sustainability/

Supplementary Principle 4.1.1

The Board of Directors should clearly define the scope of the matters it will judge and determine, as well as those delegated to the management, and disclose a summary thereof.

Implementation

Yellow Hat clearly establishes the authority of the Board of Directors, Management Committee, Chair, President, supervising officers, general managers, department managers, etc. in its Rules on Management Authority. For our sustainable growth and the improvement of our corporate value, the Board of Directors engages in the appropriate judgement and determination of important matters established in laws, regulations, our Articles of Incorporation, and our Approval Authority Standards, as well as business execution matters reviewed and fully considered by the Management Committee in advance. Furthermore, the Company established a Management Committee comprised of Directors and Audit & Supervisory Board Members, etc., and in order to ensure swift and effective decision making, the Board of Directors meets twice a month in principle to deliberate upon important matters, including items to be discussed at the Board of Directors meetings.

[Principle 4.9 Independence Standards and Qualification for Independent Directors]

Boards should establish and disclose independence standards aimed at securing effective independence of independent directors, taking into consideration the independence criteria set by securities exchanges. The board should endeavor to select candidates for independent directors who are expected to contribute to frank, active and constructive discussions at board meetings.

Implementation

Yellow Hat deems those who do not fall under any of the following items to be independent.

1. A. A person for whom Yellow Hat is an important trade partner, or a person who is an Executive for such
2. B. A person who is an important trade partner of Yellow Hat, or a person who is an Executive for such
3. C. A consultant, accounting professional, or legal specialist who receives cash or other properties of 10 million yen or more annually from Yellow Hat other than officers’ remuneration (in the event the recipient receiving the said properties is a corporation, association, or other organization, persons belonging to the said organization).
4. D. A person who fell under A, B, or C recently (“recently” means the past one year)
5. E. A person who falls under any of the following (A) through (C)
6. 1. (A) A person who is an Executive for Yellow Hat or its consolidated subsidiaries (hereinafter, the “Yellow Hat Group”) or who was so in the past ten years prior to their appointment
   2. (B) A person who is currently a major shareholder of Yellow Hat (having 10% or more of voting rights), or who was so in the past five years
   3. (C) A person who is an Executive for a company for which Yellow Hat is currently a major shareholder.
7. F. A person who is a relative within the second degree of kinship of a person who falls under any of the following (A) through (F) (excluding non-important persons)
8. 1. (A) A person who falls under any of the preceding A through E.
   2. (B) A person who is an Executive of Yellow Hat
   3. (C) A person who is a Director who is not an Executive of Yellow Hat (limited to cases in which an Outside Audit & Supervisory Board Member is to be designated an independent officer)
   4. (D) A person who is an Executive of a subsidiary of Yellow Hat
   5. (E) A person who is a Director who is not an Executive for a subsidiary of Yellow Hat (limited to cases in which an Outside Audit & Supervisory Board Member is to be designated an independent officer)
   6. (F) A person who fell under any of (B) through (D) above recently, or who was an Executive of Yellow Hat recently (in the case of an Outside Audit & Supervisory Board Member to be designated as an independent officer, including a Director who was not an Executive)
9. G. A person whose total number of years in office as an independent officer of Yellow Hat exceeds 10 years (as of the time of election)

Supplementary Principle 4.10.1

If the organizational structure of a company is either Company with Kansayaku Board or Company with Audit and Supervisory Committee and independent directors do not compose a majority of the board, in order to strengthen the independence, objectivity and accountability of board functions on the matters of nomination (including succession plan) and remuneration of the senior management and directors, the company should seek appropriate involvement and advice from an independent nomination committee and remuneration committee mainly consisted of independent directors by establishing these committees under the board , from the perspective of gender and other diversity and skills, in the examination of such important matters as nominations and remuneration, to which such committees make significant contributions. In particular, companies listed on the Prime Market should basically have the majority of the members of each committee be independent directors, and should disclose the mandates and roles of the committees, as well as the policy regarding the independence of the composition.

Implementation

Our Nominating and Remuneration Committee is comprised of the Representative Director and President as well as Independent Outside Directors and Independent Outside Audit & Supervisory Board Members who were selected by resolution of the Board of Directors. The committee conducts examinations at the request of the Board of Directors and reports its conclusions to the Board of Directors, from the perspective of securing the objectivity and transparency of the determination process with regard to the appropriateness of the appointment and reappointment of Directors (including the Representative Director), and with regard to the dismissal of Directors, the Director remuneration system and remuneration levels.

Of the five members of the Nominating and Remuneration Committee, three are Independent Outside Directors.

Supplementary Principle 4.11.1

The board should identify the skills, etc. that it should have in light of its managing strategies, and have a view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size. Consistent with the view, along with policies and procedures for electing directors, the board should disclose information on the combination of skills, etc. that each director possesses in an appropriate form according to the business environment and business characteristics, etc., such as what is known as a “skills matrix” that lists the knowledge, experience and skills of each director. When doing so, independent director(s) with management experience in other companies should be included.

Implementation

Directors who are deeply knowledgeable about areas such as tax matters, accounting, and law are elected to Yellow Hat’s Board of Directors to serve as Directors to supervise each division and as Outside Directors. Currently, nine Directors (of whom three are Independent Outside Directors) are in office. Yellow Hat believes this to be an appropriate size for swift and appropriate decision making as well as for the continuous execution of supervision. In the election of Directors, the Nominating and Remuneration Committee conducts an advance examination into candidates’ adequacy at the request of the Board of Directors and reports its conclusions to the Board of Directors. The Representative Director and President strives for the enhancement of examination through the submission of adequate materials to each committee member for consideration (including materials concerning candidates; as well as outlines of new management systems, including the duties of Directors), and through efforts such as establishing opportunities for Director candidates and committee members to come in contact with each other.

Yellow Hat publicly discloses a skills matrix for its Directors which also includes its Audit & Supervisory Board Members.

Supplementary Principle 4.11.2

Outside directors, outside kansayaku, and other directors and kansayaku should devote sufficient time and effort required to appropriately fulfill their respective roles and responsibilities. Therefore, where directors and kansayaku also serve as directors, kansayaku or the management at other companies, such positions should be limited to a reasonable number and disclosed each year.

Implementation

Currently, none of Yellow Hat’s Directors or Audit & Supervisory Board Members concurrently serve as officers at any other listed companies.

Supplementary Principle 4.11.3

Each year the board should analyze and evaluate its effectiveness as a whole, taking into consideration the relevant matters, including the self-evaluations of each director. A summary of the results should be disclosed.

Implementation

At Yellow Hat, Inside Directors, who are thoroughly familiar with the business fields they are in charge of, and its Outside Directors, who provide objective advice based on their individual areas of expertise, are fulfilling their responsibility to supervise business execution, and we believe that effective management has been practiced. Yellow Hat’s Outside Directors analyze and evaluate the effectiveness of the Board of Directors as a whole taking into consideration factors such as individual Directors’ self-assessments, and Yellow Hat discloses a summary of the results.

Supplementary Principle 4.14.2

Companies should disclose their training policy for directors and kansayaku.

Implementation

In order to encourage our officers to acquire the expertise needed to play their roles and to fulfill their responsibilities, Yellow Hat arranges external courses and covers the costs for all officers. Audit & Supervisory Board Members participate in training organized by the Japan Audit & Supervisory Board Members Association.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]

Companies should, positively and to the extent reasonable, respond to the requests from shareholders to engage in dialogue (management meetings) so as to support sustained growth and increase corporate value over the mid- to long-term. The board should establish, approve and disclose policies concerning the measures and organizational structures aimed at promoting constructive dialogue with shareholders.

Implementation

Yellow Hat’s Human Resources and General Affairs Department is in charge of investor relations. The department holds financial results briefings for shareholders and investors, etc. twice a year, and also provides individual interviews, etc.

[Principle 5.2 Establishing and Disclosing Business Strategies and Business Plans]

When establishing and disclosing business strategies and business plans, companies should articulate their earnings plans and capital policies, and present targets for profitability and capital efficiency after accurately identifying the company’s cost of capital. Also, companies should provide explanations that are clear and logical to shareholders with respect to the allocation of management resources, such as reviewing their business portfolio and investments in fixed assets, R&D, and human capital, and specific measures that will be taken in order to achieve their plans and targets.

Implementation

Yellow Hat aims to become a group that offers reliability and assurance to customers who visit its stores by bolstering its capabilities of offering comprehensive support to all manners of customer automobile and motorcycle needs. We will accomplish this by developing stores that align with customer needs and an abundant product lineup, as well as by providing maintenance services backed by state-of-the-art equipment and reliable technology.

We have formulated a three-year medium-term plan with the fiscal year ending March 31, 2026 as the first year, of the plan. For the fiscal year ending March 31, 2028, the final year of the plan, we are targeting consolidated net sales of 180 billion yen, operating profit of 16.8 billion yen, ordinary profit of 18.1 billion yen, and profit of 11.8 billion yen.

Please refer to the following for information on our business plans, the medium-term plan, and our approach, policies, and initiatives for human capital and human resources.

・January 31, 2025 “Notice Regarding the Formulation of a Medium-term Plan”

https://contents.xj-storage.jp/xcontents/98820/90075288/14da/4d50/8cd7/cb540a07462d/20250227132244186s.pdf

Supplementary Principle 5.2.1

In formulating and announcing business strategies, etc., companies should clearly present the basic policy regarding the business portfolio decided by the board and the status of the review of such portfolio.

Implementation

We are disclosing the basic policy decided by the Board of Directors and our initiatives every half year in financial results briefing materials.

In addition, we are disclosing [Action to Implement Management that is Conscious of Cost of Capital and Stock Price] every year.

Please refer to the following for details.

https://www.yellowhat.jp/corp/foreignlanguage/ir/library.html

[Action to Implement Management that is Conscious of Cost of Capital and Stock Price]

We are working to continuously improve our corporate value.

Going forward, we will continue to consider ways to improve capital efficiency in order to further increase corporate value over the medium to long term.

Please refer to the following disclosure materials for details.

・January 31, 2025 “Notice Regarding the Formulation of a Medium-term Plan”

https://contents.xj-storage.jp/xcontents/98820/90075288/14da/4d50/8cd7/cb540a07462d/20250227132244186s.pdf

*Please refer to the following for status of corporate governance.

https://www.yellowhat.jp/corp/ir/governance.html

(1) Corporate governance system

Yellow Hat positions corporate governance as one of its most important challenges for continuously increasing its corporate value.

Further, we establish an internal organizational system framework for the effective functioning of corporate governance and aim to secure the soundness and transparency of our management as well as to improve organizational efficiency. In addition, from the perspective of securing transparency and fairness in decision making as well as to realize highly effective corporate governance, we have disclosed our business principles, as well as our management targets up to the fiscal year ending March 31, 2027 in conjunction with the disclosure of our financial results for fiscal year ended March 31, 2024. In addition, we are disclosing financial results forecasts as well as numerical values for management targets for each fiscal year in our financial results and financial results briefing materials.

(Overview of corporate governance system and reasons for employing this system)

The Board of Directors is comprised of all nine Directors, including three Outside Directors. The Board of Directors is in charge of making important management decisions (business principles, management policies, and management plans) and supervising business execution based on its decisions.

Yellow Hat clearly establishes the authority of the Board of Directors, Management Committee, Chair, President, supervising officers, general managers, department managers, etc. in its Rules on Management Authority. For our sustainable growth and the improvement of our corporate value, the Board of Directors engages in the appropriate judgement and determination of important matters established in laws, regulations, our Articles of Incorporation, and our Approval Authority Standards, as well as business execution matters reviewed and fully considered by the Management Committee in advance. The Management Committee is comprised of Directors, Audit & Supervisory Board Members, etc. In order to engage in swift and effective decision-making, in principle the committee meets twice a month to deliberate important matters such as matters to be brought to the Board of Directors. As per our internal rules, transactions with related parties require a resolution of the Board of Directors in advance. Directors who have a special interest may not participate in the resolution and are excluded from the quorum for the said resolution.

With regard to the election of Director candidates; matters concerning the dismissal of Directors; matters concerning Director remuneration, etc.; and matters concerning succession plans, including the development of successors, aiming to further increase transparency and fairness by obtaining the opinions and advice of independent outside officers, the Board of Directors consults with the Nominating and Remuneration Committee, which is comprised of the Representative Director and President as well as Independent Outside Directors and Independent Outside Audit & Supervisory Board Members who were selected by resolution of the Board of Directors, in advance of deliberations. The Nominating and Remuneration Committee conducts examinations at the request of the Board of Directors and reports its conclusion to the Board of Directors. The Board of Directors then adopts the resolution.

Directors in charge of business matters command and supervise division managers regarding all business matters for the divisions they are in charge of and strive to achieve expected targets.

There are four Audit & Supervisory Board Members, including three Outside Audit & Supervisory Board Members. In accordance with auditing policies and assignments, etc., Audit & Supervisory Board Members attend Board of Directors’ meetings and other important meetings such as those of the Management Committee. Audit & Supervisory Board Members also interview Directors, etc. on reports on business; inspect important documents, etc.; and investigate the status of business and properties, etc. Through these means, they conduct strict audits and fulfill a management monitoring function.

All Outside Directors and all four Audit & Supervisory Board Members, including the three Outside Audit & Supervisory Board Members, attend the monthly meetings of the Board of Directors, and they grasp and monitor the status of Yellow Hat’s overall management. In particular, we receive opinions as appropriate from the Outside Directors and Outside Audit & Supervisory Board Members from their objective and independent standpoints, and we employ our current system under the recognition that this system provides a sufficient management monitoring function.

Established bodies and member composition

Board of Directors:	Yasuo Horie (Chair, Representative Director and Chairman), Akio Kimura, Kazuyuki Sato, Tadasu Shiraishi, Tasuku Joko, Hiroyuki Motomura Shiro Saito (Independent, Outside), Taeko Kubo (Independent, Outside), Chiemi Kanda (Independent, Outside)
Management Committee:	Yasuo Horie (Chair, Representative Director and Chairman), Akio Kimura (Representative Director and President), Kazuyuki Sato (Director), Tadasu Shiraishi (Director), Tasuku Joko (Director), Hiroyuki Motomura (Director), Shiro Saito (Independent, Outside Director), Taeko Kubo (Independent, Outside Director), Chiemi Kanda (Independent, Outside Director), Yoshimi Kimura (Full-time Audit & Supervisory Board Member), Hisao Hattori (Outside Audit & Supervisory Board Member), Akira Tamura (Independent, Outside Audit & Supervisory Board Member), Jun Ounabara (Independent, Outside Audit & Supervisory Board Member)
Audit & Supervisory Board:	Yoshimi Kimura (Chair, Full-time Audit & Supervisory Board Member), Hisao Hattori (Outside Audit & Supervisory Board Member), Akira Tamura (Independent, Outside Audit & Supervisory Board Member), Jun Ounabara (Independent, Outside Audit & Supervisory Board Member)
Nominating and Remuneration Committee:	Chiemi Kanda (Chair, Independent, Outside Director), Shiro Saito (Independent, Outside Director), Taeko Kubo (Independent, Outside Director), Akira Tamura (Independent, Outside Audit & Supervisory Board Member), Akio Kimura (Representative Director and President)

(Diagram of Yellow Hat’s corporate governance system)

The following is a diagram of Yellow Hat’s corporate governance system.

(Matters concerning corporate governance—Status of the development of the internal control system and status of the development of the risk management system)

• -Status of the development of the internal control system

  Yellow Hat’s Board of Directors resolves the basic policy for the construction of its internal control system and Yellow Hat engages in the establishment and strengthening of this system as one of its most important matters in corporate management. In addition, Yellow Hat is working to comply with the Internal Control Report System based on the Financial Instruments and Exchange Act and further enhance its internal control reports.

 

• -Status of the development of the risk management system

  Yellow Hat designates its General Affairs Division as the division supervising risk management and compliance. The division develops our internal control system based on rules concerning risk management and compliance, etc. Further, the Yellow Hat Charter establishes a code of conduct and standards of behavior so that all officers and employees will act in accordance with laws, regulations, and our corporate philosophy. This charter is distributed to all employees of the Yellow Hat Group to help the permeation of compliance awareness.

In the charter, Yellow Hat establishes its basic policy of taking a resolute stance against antisocial forces and groups, with the basic principles of not paying to, not using, and not fearing such forces and groups. Under this basic policy, information is centrally managed by Yellow Hat’s General Affairs Division and we seek to cooperate with the police and other outside organizations and related groups, while further strengthening our corporate structure in order to eliminate antisocial forces and groups.

In addition, we work to prevent any misconducts by establishing an internal whistleblower hotline aiming to prevent violation of laws and regulations and detect such violations early.

Further, we have concluded advisory contracts with legal and tax accountant offices in order to ensure professional handling of important management issues, and periodically consult with and receive directions from these offices.

(Overview of agreements concluded with Directors and Audit & Supervisory Board Members as stipulated in Article 427, paragraph (1) of the Companies Act)

Based on the amended Companies Act, which went into effect on May 1, 2015, Yellow Hat partially revised its Articles of Incorporation at the Annual General Meeting of Shareholders held on June 24, 2015 and concluded agreements with Directors (excluding Executive Directors, etc.) and Audit & Supervisory Board Members limiting their liability for damages stipulated in Article 423, paragraph (1) of the same act based on the provisions of Article 427, paragraph (1) of the same act. The upper limit of the liability for damages under these agreements is the amount established in laws and regulations. Note that the said limitation of liability is applicable only to cases in which the relevant Director or Audit & Supervisory Board Member acted in good faith and without gross negligence in performing the duties which were the cause for their liability.

(Overview of the directors and officers liability insurance contract concluded where officers etc. are the insureds)

Yellow Hat has concluded a directors and officers liability insurance contract as stipulated in Article 430-3, paragraph (1) of the Companies Act with an insurance company where Directors and Audit & Supervisory Board Members are the insureds, and Yellow Hat bears the full amount of the insurance premiums.
To summarize the content of the said insurance contract, the insurance company covers, under the contract, damage that may arise due to an insured officer assuming liability for the execution of his or her duties or receiving a claim related to the pursuit of such liability. In addition, by setting limits for the amount of coverage to be paid, we take measures to ensure that the appropriateness of the execution of duties by the said officer is not impaired.

（Other matters concerning corporate governance）

• -Number of Directors

  Yellow Hat’s Articles of Incorporation stipulate that the number of Directors shall be 10 or less.

 

• -Resolution requirements for the election of Director

  Yellow Hat’s Articles of Incorporation stipulate that the resolutions must be passed by a majority of the voting rights of the shareholders present at the meeting where the shareholders holding one third or more of the voting rights of the shareholders entitled to exercise voting rights are present. In addition, the Articles of Incorporation stipulate that the resolution to elect Directors shall not be by cumulative vote.

 

• -Decision-making body for dividends of surplus, etc.

  With regard to matters stipulated in the items of Article 459, paragraph (1) of the Companies Act, such as dividends of surplus, etc., it is stipulated in the Articles of Incorporation that those matters shall be resolved by the Board of Directors, without requiring a resolution by a General Meeting of Shareholders, unless otherwise stipulated in laws or regulations. The purpose of this is to enable flexible profit returns to shareholders by giving authority over dividends of surplus to the Board of Directors.

 

• -Decision-making body for the acquisition of treasury shares

  Yellow Hat’s Articles of Incorporation stipulate that treasury shares may be acquired by market transactions, etc. per the resolution of the Board of Directors as stipulated in Article 165, paragraph (2) of the Companies Act. The purpose of this is to enable flexible financial measures by giving authority over the acquisition of treasury shares to the Board of Directors.

 

• -Requirements for special resolutions at General Meetings of Shareholders

  With regard to the requirements for special resolutions at General Meetings of Shareholders as stipulated in Article 309, paragraph (2) of the Companies Act, the Articles of Incorporation stipulate that the resolutions must be passed by two thirds or more of the voting rights of the shareholders present at the meeting where the shareholders holding one third or more of the voting rights of the shareholders entitled to exercise voting rights are present. The purpose of this is to ensure smooth operation of General Meetings of Shareholders by relaxing the quorum for special resolutions at General Meeting of Shareholders.

(Status of the activities of the Board of Directors and the Nominating and Remuneration Committee)

• -Status of the activities of the Board of Directors

  Yellow Hat’s Board of Directors meets every month. Status of attendance by individual members of the Board of Directors in the current fiscal year was as follows.

  Position	Name	No. of meetings held	Times attended (attendance rate)
  Representative Director and President	Yasuo Horie	14	14 (100%)
  Senior Managing Director	Kazuyuki Sato	14	14 (100%)
  Senior Managing Director	Tadasu Shiraishi	14	14 (100%)
  Director and Accounting Manager	Akio Kimura	14	14 (100%)
  Outside Director	Shiro Saito	14	14 (100%)
  Outside Director	Taeko Kubo	14	14 (100%)
  Outside Director	Chiemi Kanda	10	10 (100%)

Notes:

1. Since Chiemi Kanda was elected as Director at the 65th Annual General Meeting of Shareholders held on June 21, 2023 and assumed office on the same day, the status of attendance at the Board of Directors’ meetings held on and after her assumption of office is provided. 2. Positions are listed as of March 31, 2024.

 

In the current fiscal year, the following matters were deliberated.

• -Human resource development and internal environment development

  The Board of Directors checked a progress report on the hiring and promotion of human resources including women, midcareer hires, and foreign nationals, as well as the status of progress of initiatives such as the various support systems for employee success and education for managerial level positions.

 

• -Sustainability (climate change-related risks and ESG)

  The Board of Directors received a report about climate change-related risks and opportunities (disclosure based on the TCFD recommendations) as well as key challenges in ESG (environment, society, and governance) and checked the progress.

 

• -In addition to the above, the Board of Directors engages in decision-making related to business execution and Directors’ reports on execution.

(Status of the activities of the Nominating and Remuneration Committee)

The Nominating and Remuneration Committee is comprised of the Representative Director and President, who is thoroughly informed about the current remuneration system as well as the duties of each position, and Independent Outside Directors and Independent Outside Audit & Supervisory Board Members who were selected by resolution of the Board of Directors, in order to incorporate objective viewpoints. In the nomination of Director candidates (including the Representative Director) for new appointment or reappointment, the committee conducts an advance examination into candidates’ adequacy at the request of the Board of Directors and reports its conclusions to the Board of Directors. From the perspective of securing the objectivity and transparency of the determination process as well as the appropriateness of remuneration amounts taking into account factors such as company performance, remuneration standards at other similarly-sized companies, and past payment history, the committee examines officers’ remuneration at the request of the Board of Directors and reports its conclusions to the Board of Directors. The Representative Director and President strives for the enhancement of examination through the submission of necessary and adequate materials to each committee member for consideration.

The Nominating and Remuneration Committee meets twice a year. Status of attendance by individual committee members in the current fiscal year was as follows.

Position	Name	No. of meetings held	Times attended (attendance rate)
Representative Director and President	Yasuo Horie	2	2 (100%)
Independent Outside Director	Shiro Saito	2	2 (100%)
Independent Outside Director	Taeko Kubo	2	2 (100%)
Independent Outside Director	Chiemi Kanda	1	1 (100%)
Independent Outside Audit & Supervisory Board Member	Akira Tamura	2	2 (100%)

Notes:

1. Since Chiemi Kanda was elected as Director at the 65th Annual General Meeting of Shareholders held on June 21, 2023 and assumed office on the same day, the status of attendance at the Board of Directors held on and after her assumption of office is provided. 2. Positions are listed as of March 31, 2024.

 

In the current fiscal year, the following matters were deliberated.

• -Concerning remuneration for Directors from June 2023, performance-based remuneration was deliberated taking into account factors such as company performance for the fiscal year ended March 31, 2023. The committee also deliberated fixed remuneration for a Director’s primary decision-making and monitoring functions and the remuneration level of restricted stock remuneration for a Director’s business execution function.

 

• -The structure of the Board of Directors from June 2024 was deliberated with reference to the career summaries of candidates, reasons for nomination, etc.

(2) Status of auditing

Status of Audit & Supervisory Board Members audits

(Structure, members and procedures of Audit & Supervisory Board Members audits)

Yellow Hat has adopted an Audit & Supervisory Board Members system. The Audit & Supervisory Board is comprised of four members in total, namely one Inside Full-time Audit & Supervisory Board Member and three Outside Part-time Audit & Supervisory Board Members. Outside Audit & Supervisory Board Members include a certified tax accountant who possesses high-level expertise concerning accounting and tax matters, a member who has an abundance of management experience (in sales, accounting, human resources divisions, etc.) cultivated in automotive-related industries, etc. and possesses an appropriate level of expertise regarding corporate management, and another member who has a high level of insight into finance, accounting, and legal matters based on his many years of experience engaged in finance-related operations, as well as a wealth of management experience and broad insight cultivated in a real estate-related company.
Further, from the perspective of placing importance on consolidated management, we periodically hold Audit & Supervisory Board Members Council meetings in which all of Audit & Supervisory Board Members from Yellow Hat and its consolidated subsidiaries participate in order to monitor the business of the Yellow Hat Group as a whole.

　

(Status of the activities of the Audit & Supervisory Board and its members)

Yellow Hat’s Audit & Supervisory Board has met a total of 18 times in the current fiscal year. Status of attendance by individual Audit & Supervisory Board Members was as follows.

Position	Name	No. of meetings held	Times attended (attendance rate)
Full-time Audit & Supervisory Board Member	Yoshimi Kimura	18	18 (100%)
Full-time Audit & Supervisory Board Member	Yoshikazu Irie	11	11 (100%)
Outside Audit & Supervisory Board Member	Hisao Hattori	18	18 (100%)
Outside Audit & Supervisory Board Member	Akira Tamura	18	18 (100%)

Note:

Since Yoshikazu Irie, a full-time Audit & Supervisory Board Member, passed away on October 5, 2023, and thus retired from the position, the status of attendance at the Audit & Supervisory Board meetings held before his retirement is provided.

The primary matters considered by the Audit & Supervisory Board include the formulation of audit policy and audit plans, selection of Full-time Audit & Supervisory Board Members, development and operational status of our internal control system, election and remuneration of a Financial Auditor, and the appropriateness of the Financial Auditor’s audit methods and results.

The activities of Audit & Supervisory Board Members involve attendance at Board of Directors’ meetings and other important meetings such as those of the Management Committee; inspection of important documents, etc.; investigation of the status of business and properties at key places of business; exchange of opinions with the Representative Director and Outside Directors; and exchange of information and opinions with the Financial Auditor. In addition, Full-time Audit & Supervisory Board Members visit our 49 sites in Japan for auditing based on their annual audit plan; exchange information and opinions with the Directors and Audit & Supervisory Board Members of our subsidiaries; and share information with the Internal Audit Division, Internal Control Division, and the Financial Auditor.

Status of internal audits

Yellow Hat has established the Audit Office which is in charge of internal audits under the direction of Directors.

(Internal audit personnel and procedures)

Five members in total are assigned to the Audit Office including the Head of the office and persons who have experiences in various departments including systems, store operation, car inspection, and accounting.

The Audit Office, in accordance with audit rules and audit plans, conducts business audits and evaluations of internal control regarding financial reporting at Yellow Hat and its subsidiaries. Specifically, the Audit Office investigates and supervises the status of our conformance to laws, regulations, and internal rules, the status of business execution, and the status of compliance. The Audit Office, when necessary as a result of auditing, provides recommendation on making improvements and checks the status of improvements made after the recommendation to increase the effectiveness of internal audits. The Audit Office is structured so that it is able to directly report results of internal audits to the Representative Director and is also designed to report the same information to the Board of Directors as well as the Audit & Supervisory Board and its members.

(Mutual cooperation in internal audits, Audit & Supervisory Board Member audits, and financial audits, and the relationship between audits and the Internal Audit Division)

Each party understands the purpose of three-way audits, and aims to make these audits to be efficient and highly effective through cooperation based on the results of each other’s audits.

The Financial Auditor and the Audit & Supervisory Board periodically meet to have opportunities to share information on financial audit and business audit results.

The Audit Office and the Audit & Supervisory Board meet as appropriate to have opportunities to exchange information, such as hearing for reports on the results of internal audits, etc., with a focus on management audits.

The Audit Office and the Financial Auditor meet as necessary, to have opportunities primarily to exchange information and report on the results of internal audits concerning internal control audits involving financial reporting.

(3) Status of outside officers

Yellow Hat has three Outside Directors and three Outside Audit & Supervisory Board Members.

(Standards or policy concerning independence for the election of Outside Directors and Outside Audit & Supervisory Board Members)

Yellow Hat deems those who do not fall under any of the following items to be independent.

1. A. A person for whom Yellow Hat is an important trade partner, or a person who is an Executive for such
2. B. A person who is an important trade partner of Yellow Hat, or a person who is an Executive for such
3. C. A consultant, accounting professional, or legal specialist who receives cash or other properties of 10 million yen or more annually from Yellow Hat other than officers’ remuneration (in the event the recipient receiving the said properties is a corporation, association, or other organization, persons belonging to the said organization).
4. D. A person who fell under A, B, or C recently (“recently” means the past one year)
5. E. A person who falls under any of the following (A) through (C)
6. 1. (A) A person who is an Executive for Yellow Hat or its consolidated subsidiaries (hereinafter, the “Yellow Hat Group”) or who was so in the past ten years prior to their appointment
   2. (B) A person who is currently a major shareholder of Yellow Hat (having 10% or more of voting rights), or who was so in the past five years
   3. (C) A person who is an Executive for a company for which Yellow Hat is currently a major shareholder.
7. F. A person who is a relative within the second degree of kinship of a person who falls under any of the following (A) through (F) (excluding non-important persons)
8. 1. (A) A person who falls under any of the preceding A through E.
   2. (B) A person who is an Executive of Yellow Hat
   3. (C) A person who is a Director who is not an Executive of Yellow Hat (limited to cases in which an Outside Audit & Supervisory Board Member is to be designated an independent officer)
   4. (D) A person who is an Executive of a subsidiary of Yellow Hat
   5. (E) A person who is a Director who is not an Executive for a subsidiary of Yellow Hat (limited to cases in which an Outside Audit & Supervisory Board Member is to be designated an independent officer)
   6. (F) A person who fell under any of (B) through (D) above recently, or who was an Executive of Yellow Hat recently (in the case of an Outside Audit & Supervisory Board Member to be designated as an independent officer, including a Director who was not an Executive)
9. G. A person whose total number of years in office as an independent officer of Yellow Hat exceeds 10 years (as of the time of election)

(Personal relationships, capital relationships, trade relationships, and other interests between Outside Directors as well as Outside Audit & Supervisory Board Members and the filing company)

There is no personal relationship, capital relationship, trade relationship, or other interest between Yellow Hat and the three Outside Directors as well as the three Outside Audit & Supervisory Board Members.

(Functions and roles of Outside Directors and Outside Audit & Supervisory Board Members in the corporate governance of the filing company)

The three Outside Directors and three Outside Audit & Supervisory Board Members use their extensive knowledge and experience to monitor the execution of the duties of Yellow Hat’s Directors and provide Yellow Hat with useful advice concerning the securing of the appropriateness of matters such as business execution. In addition, the three Outside Directors and three Outside Audit & Supervisory Board Members attend Board of Directors’ meetings and other important meetings, providing their opinions from objective and independent standpoints.

Yellow Hat receives advice from Outside Director Shiro Saito as an Outside Director in order to reflect his abundant experience and knowledge about the operations of tax administration in the overall management of Yellow Hat.

He is not involved in Yellow Hat’s business execution, etc. He also has no personal, capital, or trade relationship with Yellow Hat. As there are no interests between him and Yellow Hat, Yellow Hat has judged that there will be no conflict of interest with general shareholders, and thus selected him as an independent officer and registered him as such with the Tokyo Stock Exchange.

As a university professor whose primary areas of research are living environment planning and interior design, Outside Director Taeko Kubo has broad expertise centering on the said areas. In addition, as a first-class architect and first-class interior architect, she has been engaged in architectural designing and has abundant experience and knowledge. Yellow Hat receives advice from her as an Outside Director in order to reflect these in its overall management.

She is not involved in Yellow Hat’s business execution, etc. She also has no personal, capital, or trade relationship with Yellow Hat. As there are no interests between her and Yellow Hat, Yellow Hat has judged that there will be no conflict of interest with general shareholders, and thus selected her as an independent officer and registered her as such with the Tokyo Stock Exchange.

Yellow Hat has determined that it receives advice from Outside Director Chiemi Kanda as an Outside Director in order to reflect her abundant experience and broad knowledge about law, economy and society as a lawyer in the overall management of Yellow Hat.

She is not involved in Yellow Hat’s business execution, etc. She also has no personal, capital, or trade relationship with Yellow Hat. As there are no interests between her and Yellow Hat, Yellow Hat has judged that there will be no conflict of interest with general shareholders, and thus selected her as an independent officer and registered her as such with the Tokyo Stock Exchange.

Yellow Hat receives appropriate advice from Outside Audit & Supervisory Board Member Akira Tamura based on his abundant experience and broad knowledge about management nurtured in the automotive industry.

He is not involved in Yellow Hat’s business execution, etc. He also has no personal, capital, or trade relationship with Yellow Hat. As there are no interests between him and Yellow Hat, Yellow Hat has judged that there will be no conflict of interest with general shareholders, and thus selected him as an independent officer and registered him as such with the Tokyo Stock Exchange.

Outside Audit & Supervisory Board Member Jun Ounabara possesses a high level of insight into finance, accounting, and legal matters based on his many years of experience engaged in finance-related operations, as well as a wealth of management experience and broad insight cultivated in a real estate-related company. Therefore, Yellow Hat has determined that he will fulfill his role of auditing the execution of duties by Directors.

He is not involved in Yellow Hat’s business execution, etc. He also has no personal, capital, or trade relationship with Yellow Hat. As there are no interests between him and Yellow Hat, Yellow Hat has judged that there will be no conflict of interest with general shareholders, and thus selected him as an independent officer and registered him as such with the Tokyo Stock Exchange.

Yellow Hat receives appropriate advice from Outside Audit & Supervisory Board Member Hisao Hattori based on his abundant experience and knowledge from many years of his practice as a tax accountant.

(The filing company’s approach concerning the status of the election of Outside Directors and Outside Audit & Supervisory Board Members)

With regard to the election of Outside Directors and Outside Audit & Supervisory Board Members, Yellow Hat primarily elects candidates from among persons who have no personal, capital, or trade relationship with Yellow Hat.

(Mutual cooperation between the supervision or audits by Outside Directors or Outside Audit & Supervisory Board Members, and internal audits, Audit & Supervisory Board Member audits, financial audits, and the relationship with the Internal Control Division)

Outside Directors receive reports on internal audits, etc., grasping Yellow Hat’s current condition and issues and, as necessary, expressing their opinions at the Board of Directors’ meetings. In addition, Outside Directors and the Audit & Supervisory Board meet once a month to share information.

Audit & Supervisory Board Members receive reports on internal audits, regardless of whether they are classified as Inside or Outside Audit & Supervisory Board Members. In addition, Audit & Supervisory Board Members conduct audits from their individual, independent standpoints in accordance with audit plans and assignments. Further, the Internal Audit Division, Financial Auditor, and Audit & Supervisory Board Members strive to cooperate with each other by mutually exchanging information and opinions whenever necessary with the aim of improving the effectiveness and efficiency of audits. Audit & Supervisory Board Members hold meetings of the Audit & Supervisory Board monthly to deliberate on the matters subject to reports, resolutions, and consultations.

(4) Officers’ remuneration, etc.

(Total amount of remuneration, etc. for each officer classification, total amount for each type of remuneration, etc., and number of applicable officers of the filing company)

Officer classification	Total amount of remuneration, etc. (Million yen)	Total amount for each type of remuneration, etc. (Million yen)			Number of applicable officers
		Monthly remuneration		Restricted stock remuneration
		Fixed remuneration	Performance-based remuneration
Directors (Excluding Outside Directors)	145	16	103	24	4
Audit & Supervisory Board Members (Excluding Outside Audit & Supervisory Board Members)	18	18	―	―	2
Outside officers	15	15	―	―	5

Notes:

1. The amount paid to Directors does not include the portion of the employee’s salary for Directors who concurrently serve as employees. 2. The upper limit of remuneration for Directors was resolved to be 400 million yen annually (this includes restricted stock remuneration, but does not include the portion of the employee’s salary) at the 66th Annual General Meeting of Shareholders held on June 20, 2024. As of the conclusion of the said General Meeting of Shareholders, the number of Directors was seven. 3. The upper limit of remuneration for Audit & Supervisory Board Members was resolved to be three million yen monthly at the 36th Annual General Meeting of Shareholders held on June 29, 1994. As of the conclusion of the said General Meeting of Shareholders, the number of Audit & Supervisory Board Members was three. 4. As of the end of the current fiscal year, there are seven Directors and three Audit & Supervisory Board Members. 5. At the 50th Annual General Meeting of Shareholders held on June 26, 2008, it was resolved to provide final payments of officer retirement benefits. Note that the payment timing was the time of retirement of each officer. Directors: 2 persons, 9.8 million yen 6. At the 66th Annual General Meeting of Shareholders held on June 20, 2024, it was resolved to set upper limits for restricted stock remuneration at 48.0 million yen and 50,000 shares annually. As of the conclusion of the said General Meeting of Shareholders, the number of Directors was four (excluding Outside Directors). 7. The Board of Directors, with regard to remuneration and related matters for individual directors for the current fiscal year, has confirmed that the method for determining the content of remuneration and related matters and the content of the determined remuneration and related matters are in line with the policy for remuneration determination and careful consideration has been given to the conclusions reported by the Nominating and Remuneration Committee, and judged that the policy for remuneration determination is observed.

(Total amount, etc. of consolidated remuneration, etc. for each officer of the filing company)

As there is no officer whose total amount of consolidated remuneration, etc. is 100 million yen or more, we have omitted this information.

(Policy concerning the determination of the amount of remuneration, etc. for officers)

Our officers’ remuneration is determined in accordance with the basic policy that is designed to reflect the overall company performance in the previous period, as well as the medium- to long-term performance, and to promote our sustainable growth and improve our corporate value.From the perspective of securing the objectivity and transparency of the determination process as well as the appropriateness of remuneration amounts, the Nominating and Remuneration Committee examines officers’ remuneration at the request of the Board of Directors and reports its conclusions to the Board of Directors, with officers’ remuneration being resolved by the Board of Directors.

The Nominating and Remuneration Committee is comprised of the Representative Director and President, who is thoroughly informed about the current remuneration system as well as the duties of each position, and Independent Outside Directors and Independent Outside Audit & Supervisory Board Members who were selected by resolution of the Board of Directors, in order to incorporate objective viewpoints..

Director remuneration is composed of basic fixed remuneration, performance-based remuneration, and restricted stock remuneration, and is determined holistically taking into account factors such as company performance; remuneration standards at other, similarly-sized companies; and past payment history.

Fixed remuneration is remuneration for a Director’s primary decision-making and monitoring functions. Performance-based remuneration is remuneration for a Director’s business execution function. The total amount of these is divided by 12 and paid on a monthly basis.We use the consolidated ordinary profit margin as an indicator concerning performance-based remuneration since this margin is an indicator objectively showing the Yellow Hat Group’s earnings performance.

Performance-based remuneration is determined by multiplying a standard performance-based remuneration amount for each position by a variable percentage (76%-124%) calculated based on an evaluation of the company’s performance as a whole (linked to the consolidated ordinary profit margin for the previous year) as well as an evaluation report by the Nominating and Remuneration Committee concerning the commitment between each Director and the Board of Directors.

At the 66th Annual General Meeting of Shareholders held on June 20, 2024, we received approval to allot up to 50,000 shares per fiscal year for restricted stock remuneration. In addition, the total amount of monetary remuneration claims concerning restricted stock is set at no more than 48.0 million yen.

Formula for calculating the base amount of restricted stock remuneration
Basic amount for an eligible Director = Points by position × (No more than 48.0 million yen ÷ The total amount of position points for all eligible Directors)

As per the above policy, the composition of remuneration for Directors consists of approximately 10% fixed remuneration, approximately 65% performance-based remuneration, and approximately 25% restricted stock remuneration.

Since Outside Directors are independent from business execution and importance is placed on their independence, monthly remuneration for Outside Directors consists of fixed remuneration only and no officers’ bonuses have been established for them. In addition, the amount of remuneration for each Audit & Supervisory Board Member is within an upper limit approved at the general meeting of shareholders and is determined by consultation among Audit & Supervisory Board Members. In consideration of their independent position holding the authority to monitor Directors’ execution of their duties, they receive fixed remuneration only and no officers’ bonuses have been established for them.

(5) Status of shareholdings

(Standards for and approach to classification of investment shares)

Yellow Hat classifies shares held for pure investment purposes solely to gain profit from fluctuations in share price or from dividends from shares as investment shares. Yellow Hat classifies other shares as investment shares held for purposes other than pure investment (cross-shareholdings)

(Investment shares held for purposes other than pure investment)

a. Shareholding policy, method for examining the rationality of shareholding, and details of examinations by the Board of Directors, etc. concerning whether to hold individual issues

We hold shares in companies we deem necessary for our sustained growth and enhancement of medium- to long-term corporate value, as part of our management strategies such as business alliances and stable product procurement, as well as to build positive relationships with trade partners and to promote smooth business operations.

Our basic policy regarding cross-shareholdings for which the significance of holding is believed to have diminished is to reduce possession as swiftly as possible. (to less than 10% of consolidated net assets). Under this policy, each fiscal year, the Board of Directors assesses the significance of each individual cross-shareholding, taking into consideration factors such as transaction value, future business possibilities, and the balance between the benefits and risks from each holding and the cost of capital. When any shares have been deemed to not contribute to the sustained growth of the Yellow Hat Group or the improvement of its corporate value in the medium- to long-term, those shares are to be sold in a timely and appropriate manner. In addition, when exercising the voting rights of shares of other listed companies held as cross-shareholdings, we comprehensively judge whether to vote for or against proposals based on the view of improving the medium- to long-term corporate value of Yellow Hat and the investee companies, etc. In the event a company that holds Yellow Hat shares as cross shareholdings offers to sell such shares, Yellow Hat will not take any action to prevent the sale, such as reducing business transactions or otherwise suggesting restrictions on business transactions with the said company.

b. Number of issues and total balance sheet amounts

	No. of issues	Total balance sheet amount (Million yen)
Unlisted shares	5	76
Shares other than unlisted shares	19	9,576

(Issues for which the number of shares increased in the current fiscal year)

	No. of issues	Total amount of acquisition price concerning the increase in the number of shares (Million yen)	Reason for the increase in the number of shares
Unlisted shares	-	-	-
Shares other than unlisted shares	1	6	Due to joining shareholding associations.

c. Information concerning the number of specified investment shares and deemed holdings of shares by issue, the total balance sheet amounts, etc.

Specified investment shares

Issue	Current fiscal year	Previous fiscal year	Purposes of holding, quantitative effects of holding, and reason for increase in number of shares	Shares of Yellow Hat held (Notes 2.)
	Number of shares	Number of shares
	Balance sheet amount (Million yen)	Balance sheet amount (Million yen)
Mitsubishi UFJ Financial Group, Inc.	1,769,860	1,769,860	We continuously hold these shares for stable financial transactions, gathering business information, and maintaining a good relationship.	Yes
	2,755	1,500
Sumitomo Rubber Industries, Ltd.	699,777	699,777	This is a major supplier of tires, and to strengthen tire sales as stated in our management strategies, we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	1,314	836
Sumitomo Mitsui Financial Group, Inc.	111,800	111,800	We continuously hold these shares for stable financial transactions, gathering business information, and maintaining a good relationship.	Yes
	996	592
The Yokohama Rubber Co., Ltd.	226,212	226,212	This is a major supplier of tires, and to strengthen tire sales as stated in our management strategies, we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	910	632
Mizuho Financial Group, Inc.	276,642	276,642	We continuously hold these shares for stable financial transactions, gathering business information, and maintaining a good relationship.	Yes
	842	519
Bridgestone Corporation	85,700	85,700	This is a major supplier of tires, and to strengthen tire sales as stated in our management strategies, we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	570	459
Katakura Industries Co., Ltd.	261,536	258,058	We continuously hold these shares for the smooth promotion of real estate leasing, etc. and periodically acquire shares through the shareholding association.	No
	507	478
Toyo Tire Corporation	168,700	168,700	This is a major supplier of tires, and to strengthen tire sales as stated in our management strategies, we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	477	260
JVCKENWOOD Corporation	455,200	455,200	This is a major supplier of car navigation systems, etc., and we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	No
	429	173
SOFT99 Corporation	234,600	234,600	This is a major supplier of repair supplies, etc., and we continuously hold these shares for stable product procurement and for maintaining a good business relationship with them.	Yes
	354	300
Sompo Holdings, Inc.	50,400	16,800	We continuously hold these shares to smoothly promote insurance product sales at subsidiaries and to maintain good business relationships .The increase in the number of shares is due to a stock split (from 1 share to 3 shares).	No
	160	88
KANSEKI CO., LTD.	76,500	76,500	We continuously hold these shares for facilitating the product sales, etc. by our subsidiaries, and for maintaining a good business relationship.	Yes
	76	107
CAR MATE MFG. CO., LTD.	56,100	56,100	This is a major supplier of automotive interior products, etc., and we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	52	49
Dai-ichi Life Holdings, Inc.	13,000	13,000	We continuously hold these shares for maintaining stable financial transactions and a good relationship.	Yes
	50	31
JUNTENDO CO., LTD.	56,594	56,594	We continuously hold these shares for facilitating the product sales, etc. by our subsidiaries, and for maintaining a good business relationship.	Yes
	32	32
ICHINEN HOLDINGS CO., LTD.	8,820	8,820	This is a major supplier of chemical products, etc., and we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	15	11
Valor Holdings Co., Ltd.	5,336	5,336	We continuously hold these shares for facilitating the product sales, etc. by our subsidiaries, and for maintaining a good business relationship.	No
	13	10
GS Yuasa Corporation	4,000	4,000	This is a major supplier of batteries, and to boost sales of consumable goods as stated in our management strategies, we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	12	9
S.T. CORPORATION	3,210	3,210	This is a major supplier of deodorants, etc., and we continuously hold these shares for stable product procurement and maintaining a good business relationship with them.	Yes
	4	5

Notes:

It is difficult to provide information about the quantitative effects of shareholding. The rationality of shareholding is periodically examined by the Board of Directors. Information on shares of Yellow Hat held by each company takes into account shares held by its major subsidiaries when the issue is a holding company (the number of shares actually held).

(Deemed holdings of shares)

Not applicable.

(Investment shares held for pure investment purposes)

Not applicable.

(Investment shares for which the purposes of holding were changed from pure investment purposes to purposes other than pure investment in the current fiscal year)

Not applicable.

(Investment shares for which the purposes of holding were changed from purposes other than pure investment to pure investment purposes in the current fiscal year)

Not applicable.

(6) Status of financial audits

Yellow Hat has concluded an audit agreement concerning audits required under the Companies Act and the Financial Instruments and Exchange Act with PricewaterhouseCoopers Japan LLC, which is Yellow Hat’s Financial Auditor.

The certified public accountants who executed financial audit services for Yellow Hat are Akio Kobayashi and Toshihiro Taniguchi. Note that as the number of continuous audit years is not more than seven, this information is omitted. In addition, there are five additional certified public accountants and 37 additional staff who assist in the financial audit business.

Yellow Hat’s Audit & Supervisory Board selected PricewaterhouseCoopers Japan LLC as its certified public accountants, etc. because it deemed the firm suitable after holistically taking into account factors such as the firm’s quality control system, independence, expertise, and audit remuneration.

In the event the Financial Auditor is deemed to fall under any of the items of Article 340, paragraph (1) of the Companies Act, the Audit & Supervisory Board will dismiss the Financial Auditor with the agreement of all Audit & Supervisory Board Members. In addition to the above, in the event the execution of appropriate audits is deemed difficult due to the occurrence of events which damage the eligibility or independence of the Financial Auditor, the Audit & Supervisory Board will determine the content of a proposal concerning the dismissal or non-reappointment of the Financial Auditor to be submitted to the General Meeting of Shareholders.

Yellow Hat’s Audit & Supervisory Board evaluates audit corporations based on the Financial Auditor Evaluation Standards established by the Audit & Supervisory Board. The Audit & Supervisory Board monitors and examines whether the Financial Auditor is maintaining its independent position and whether it is implementing appropriate audits. In addition, the Audit & Supervisory Board receives reports from the Financial Auditor concerning the status of the execution of its services and seeks further explanation as necessary. Further, the Audit & Supervisory Board receives notices from the Financial Auditor that it is maintaining “systems for ensuring that the performance of the duties of financial auditor is being carried out correctly” (the matters listed in the items of Article 131 of the Regulations on Corporate Accounting) in accordance with the Quality Control Standard for Auditing (Business Accounting Council, October 28, 2005), etc. and seeks further explanation as necessary.

(7) Other

(Number of Directors)

Yellow Hat’s Articles of Incorporation stipulate that the number of Directors shall be 10 or less.

(Resolution requirements for the election of Director)

Yellow Hat’s Articles of Incorporation stipulate that the resolutions must be passed by a majority of the voting rights of the shareholders present at the meeting where the shareholders holding one third or more of the voting rights of the shareholders entitled to exercise voting rights are present. In addition, the Articles of Incorporation stipulate that the resolution to elect Directors shall not be by cumulative vote.

(Decision-making body for dividends of surplus, etc.)

With regard to matters stipulated in the items of Article 459, paragraph (1) of the Companies Act, such as dividends of surplus, etc., it is stipulated in the Articles of Incorporation that those matters shall be resolved by the Board of Directors, without requiring a resolution by a General Meeting of Shareholders, unless otherwise stipulated in laws or regulations. The purpose of this is to enable flexible profit returns to shareholders by giving authority over dividends of surplus to the Board of Directors.

(Decision-making body for the acquisition of treasury shares)

Yellow Hat’s Articles of Incorporation stipulate that treasury shares may be acquired by market transactions, etc. per the resolution of the Board of Directors as stipulated in Article 165, paragraph (2) of the Companies Act. The purpose of this is to enable flexible financial measures by giving authority over the acquisition of treasury shares to the Board of Directors.

(Requirements for special resolutions at General Meetings of Shareholders)

With regard to the requirements for special resolutions at General Meetings of Shareholders as stipulated in Article 309, paragraph (2) of the Companies Act, the Articles of Incorporation stipulate that the resolutions must be passed by two thirds or more of the voting rights of the shareholders present at the meeting where the shareholders holding one third or more of the voting rights of the shareholders entitled to exercise voting rights are present. The purpose of this is to ensure smooth operation of General Meetings of Shareholders by relaxing the quorum for special resolutions at General Meeting of Shareholders.

Details of audit remuneration, etc.

(Details of remuneration for auditing certified public accountants, etc.)

Classification	Previous consolidated fiscal year		Current consolidated fiscal year
	Remuneration based on audit and attestation services (Million yen)	Remuneration based on non-audit services (Million yen)	Remuneration based on audit and attestation services (Million yen)	Remuneration based on non-audit services (Million yen)
Filing company	63	─	63	─
Consolidated subsidiaries	─	─	─	─
Total	63	─	63	─

Previous consolidated fiscal year

The content of the non-audit services provided to Yellow Hat consists of advisory services concerning the adoption of the Accounting Standard for Revenue Recognition.

(Remuneration for organizations belonging to the same network [PricewaterhouseCoopers] as the auditing certified public accountants, etc. [excluding (Details of remuneration for auditing certified public accountants, etc.)])

Classification	Previous consolidated fiscal year		Current consolidated fiscal year
	Remuneration based on audit and attestation services (Million yen)	Remuneration based on non-audit services (Million yen)	Remuneration based on audit and attestation services (Million yen)	Remuneration based on non-audit services (Million yen)
Filing company	─	4	─	─
Consolidated subsidiaries	─	─	─	─
Total	─	4	─	─

Previous consolidated fiscal year

The content of the non-audit services provided to Yellow Hat consists of financial due diligence.

Current consolidated fiscal year

Not applicable.

(Other important remuneration)

Previous consolidated fiscal year

Not applicable.

Current consolidated fiscal year

Not applicable.

(Details of non-audit services for the filing company provided by auditing certified public accountants, etc.)

Previous consolidated fiscal year

Not applicable.

Current consolidated fiscal year

Not applicable.

(Audit remuneration determination policy)

Our policy concerning the determination of remuneration for the Financial Auditor is to discuss the content of audit plans with the Financial Auditor from the perspectives of effectiveness and efficiency, examine whether remuneration is sufficient for the Financial Auditor to perform the necessary audits, and determine the remuneration with the agreement of the Audit & Supervisory Board.

(Reasons for the agreement of audit remuneration by Audit & Supervisory Board Members)

The Audit & Supervisory Board, having examined the content of the audit plans formulated by the Financial Auditor, the status of audit execution, and the appropriateness of remuneration estimates, has deemed that the Financial Auditor’s remuneration, etc. is of a reasonable level for the maintenance and improvement of audit quality, and has given its agreement per Article 399, paragraph (1) of the Companies Act.

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