The Company considers the compensation system for directors and audit & supervisory board members of the Company (the “Directors and Audit & Supervisory Board Members”) to be “the important measures to enhance the motivation and morale of Directors and Audit & Supervisory Board Members and to take appropriate risk for the sake of continued growth of the medium- and long-term corporate value and sustainable growth of our group based on a basic view on corporate governance,” and build and operate the system based on the points set forth below.

The levels of compensation for Directors and Audit & Supervisory Board Members will be determined, taking into consideration various fundamentals in the business content and the business environment of the Company, with reference to the compensation level of directors and audit & supervisory board members in major companies of the same size as the Company based on market capitalization and revenues, etc.

(1) Operating Directors

(a) Ratio of compensation composition

The ratio of compensation composition of operating Directors^(*1) is roughly as follows:
Due to its operating structure, the Company’s performance-based and stock-based compensation system is currently only applicable to persons who reside in Japan. Also, to share value with shareholders and provide further incentive towards sustainable improvements to the Company’s corporate value, separately from the performance-based and stock-based compensation system, Mr. Dacus, as President, Representative Director, and CEO ^(*2) is also eligible for restricted stock units that are based on fulfillment of commitments over a certain period.

• *1Calculated on the assumption that performance-based bonuses and performance-based and stock-based compensation are based on a standard compensation amount.
• *2The basic compensation ratio of fixed compensation, performance-based bonuses, and restricted stock units for Mr. Dacus generally is set at 1:2:4.5. However, the ratio of fixed compensation may be increased if the Company pays certain allowances to persons who reside overseas.

(b) Composition

1. iFixed Compensation
   • A fixed compensation commensurate with the responsibilities for each position will be paid.
   • Compensation will be paid monthly during the term of office.
   • After deliberation and reporting by the Compensation Committee, and based on a decision by the Board of Directors, it is possible to pay certain allowances to persons who reside overseas as part of their base compensation.
   • After deliberation and reporting by the Compensation Committee, and based on a decision by the Board of Directors, an executive allowance may be paid according to position.
2. iiPerformance-based bonuses
   • Short-term incentive compensation will be a performance-based cash compensation that varies based on the company’s business performance and individual evaluations, etc., for the relevant fiscal year.
   • Compensation will be paid annually after the company's business performance and individual evaluations, etc., for the relevant fiscal year have been confirmed.
   • Performance-based bonuses for Mr. Dacus, who is the President, Representative Director, and CEO, and those for other Directors, are designed somewhat differently considering the differences between their duties and responsibilities.

   < Performance-based bonuses for Mr. Dacus, as the President, Representative Director, and CEO >

   • The KPI (Key Performance Indicator), percentages, and evaluation objectives related to performance-based bonuses for Mr. Dacus will be determined by the Board of Directors. This decision by the Board of Directors will be based on reports received from the Compensation Committee, which deliberates taking into account the KPI that will be prioritized in the Company’s new growth strategy and measures to reform the Company’s capital structure and business, as well as the Company’s previous KPI used for performance-based bonuses indicated below.
   • With regard to the coefficient for bonuses used as performance-based compensation, the Company will set a wider range of the coefficient so that bonuses will be more affected by the link to business performance.

   < Performance-based bonuses for other directors >

   • The KPIs for performance-based bonuses is per the table below. In order to evaluate the capability of the main business to make a profit in cash during a given fiscal year and to incorporate the shareholder perspectives, consolidated net income is also used together as a KPI.
   Key Performance Indicators for performance-based bonuses

   KPI	Ratio	Purpose of Evaluation
   (a) Consolidated Operating CF (excl. financial services)*	60%	Evaluation of profit-making capability in the main business in cash
   (b) Consolidated Net Income	40%	Evaluation of the degree of achievement of budgeted net income

   < The coefficient formula pertaining to performance-based bonuses >
   Coefficient pertaining to performance-based bonuses = {(a) + (b)} × (c)
   (a) “Consolidated operating CF” related coefficient × 60%
   (b) “Consolidated net income” related coefficient × 40%
   (c) “Individual evaluations” related coefficient

   • When evaluating KPI, the range of compensation of Representative Directors is set wider by using different coefficients pertaining to performance-based bonuses from other Directors, so that the compensation of Representative Directors will be more affected by the link to performance.
   • The coefficient pertaining to performance-based bonuses will vary depending on, not only an evaluation of KPI, but also individual evaluations.

   • *Managerial accounting figures based on NOPAT excluding financial services.
3. iiiPerformance-based and stock-based compensation
   • Performance-based and stock-based compensation currently only is applicable to Directors who reside in Japan.
   • Medium- and long-term incentive compensation is a performance-based and stock-based compensation that varies based on the company’s business performance, management indicators and non-financial indicators, etc., (the introduction of the BIP Trust system* as the stock-based compensation system was resolved at the Annual Shareholders’ Meetings held in May, 2019).
   • Performance-based and stock-based compensation will enhance sharing profits and risks with our shareholders who have medium- and long-term perspectives by providing points during the term of office based on which shares will be delivered.
   • The initial covered period shall be four fiscal years starting from the fiscal year ended February 29, 2020 and the subsequent covered periods shall be per three fiscal years.
   • Shares will be delivered to Directors upon their retirement.
   • Points to be granted for each fiscal year will be calculated by multiplying the standard points based on their position by a coefficient pertaining to performance-based and stock-based compensation and will vary between 0% and 200% depending on the achievement level of targets, etc.
   • The KPI for performance-based and stock-based compensation is per the table below. In order to incorporate medium- and long-term shareholder perspectives, consolidated ROE and consolidated EPS are used as indicators and the degree of achievement will be evaluated.
   • The Company, aiming for a balance of corporate value and social value, added a target to reduce the amount of CO₂ emissions under the environmental declaration called “GREEN CHALLENGE 2050” made in May 2019, as the KPI for performance-based and stock-based compensation from the fiscal year ended February 28, 2021.
   • The degree of improvement in employee engagement was added as a KPI for performance-based and stock-based compensation from the fiscal year ended February 28, 2023 to further promote the creation of an environment that allows various human resources to exercise their abilities.

   • *A BIP (Board Incentive Plan) trust is an incentive plan for officers established with reference to a performance share plan and a restricted share compensation plan in the U.S.
   Key Performance Indicators for performance-based and stock-based compensation

   KPI	Ratio	Purpose of Evaluation
   (a) Consolidated ROE	60%	Evaluation of profitability against equity
   (b) Consolidated EPS	40%	Evaluation of net income from shareholder perspectives
   (c) CO2 Emissions	See the formula below	Evaluation of the degree of promoting a reduction in the environmental burden
   (d) Employee Engagement		Evaluation of the degree of improvement in employee engagement*

   * Comprehensive evaluation by the Compensation Committee

   • < Coefficient formula pertaining to performance-based and stock-based compensation >
     Coefficient pertaining to performance-based and stock-based compensation = {(a)+(b)}× {(c)+(d)}
     (a) “Consolidated ROE” related coefficient × 60%
     (b) “Consolidated EPS” related coefficient × 40%
     (c) “CO₂ emissions” related coefficient
     (d) “Employee engagement” related coefficient
   • When evaluating KPI, the range of compensation of Representative Directors is set wider by using different performance-based coefficients from other Directors, so that the compensation of Representative Directors will be more affected by the link to performance.
4. ⅳRestricted stock units
   • The restricted stock units are applicable only to operating Directors who reside overseas (Mr. Dacus, as President, Representative Director, and CEO); thus, there will not be an overlap between these units and the Performance-Based and Stock-Based Compensation System mentioned in item (ⅲ) above.
   • Restricted stock units will be delivered as incentive-based compensation conditional on fulfillment of commitments over a certain period of time.
   • In the restricted stock unit plan, units for delivery of shares will be provided to Eligible Directors during the relevant Director’s term in office, to share value with shareholders and to provide further incentives toward sustainable improvements to the Company’s corporate value.
   • The initial period of eligibility will be the three (3) fiscal years from the fiscal year ending February 28, 2026.
   • The delivery, etc. of shares, etc. to Eligible Directors shall be conducted based on a resolution to be passed at the Board of Directors meeting held after the adjournment of the first Annual Shareholders’ Meeting convened after expiration of the aforementioned period of eligibility.

   • *A restricted stock unit plan is a system of stock compensation through which Eligible Directors are delivered a number of units determined by the Board of Directors in advance. Conditional on continuous fulfillment of duties as Eligible Directors, a specified number of shares, or the cash equivalent, is issued to Eligible Directors based on the number of vested units after the end of a specified period. Such specific period is the period from the Company’s first Annual Shareholders’ Meeting convened during the number of fiscal years specified by the Board of Directors to the adjournment of the first Annual Shareholders’ Meeting convened after the conclusion of said number of fiscal years.

(c) Malus and Clawback

　If a Director who is eligible for each type of compensation engages in serious misconduct or commits a violation, the Board of Directors passes a resolution to change the Company’s past financial statements due to material errors in accounting or accounting fraud, or any similar events to be designated by the Board of Directors, depending on the nature of the relevant compensation, occurs, the Company may choose not to deliver or provide all or a part of each type of compensation (malus) or may request the return of all or a part of each type of compensation delivered or provided to that Director (clawback).

(2) Outside Directors and Audit & Supervisory Board Members

(a) Ratio of compensation composition

The compensation for Outside Directors and Audit & Supervisory Board is fixed compensation only as described in below (b).

(b) Composition

• With an emphasis on further strengthening the independence of Outside Directors and Audit & Supervisory Board Members from management, the compensation of Outside Directors and Audit & Supervisory Board Members consists only of fixed compensation. Performance-based compensation (bonuses and stock-based compensation) will not be paid to Outside Directors and Audit & Supervisory Board Members.
• Compensation will be paid monthly during the term of office.
• Executive allowance according to their position may be paid based on the resolution by the Board of Directors’ meeting after deliberation and reporting by the Compensation Committee.

The amount of compensation of directors and Audit & Supervisory Board members is decided within the following compensation limit determined at the Shareholders’ Meeting.
　The Company has already abolished the severance payment system for directors and Audit & Supervisory Board members, and no severance payments will be paid to directors and Audit & Supervisory Board members.