Hanwa : Principles for Responding to the Corporate Governance Code

IR NEWS

Date: June 26, 2023

Contact: Yoichi NAKAGAWA (Mr.)

Representative Director, President

Tel: [phone]

Principles for Responding to the Corporate Governance Code

HANWA Co., Ltd. ("the Company") will further introduce measures required for corporate governance hereafter in line with the trend of the times toward improved governance. In response to the enforcement of the Corporate Governance Code, the Company believes that explanations from the Company focused on its current situations and its views will be conducive to the common interests of its shareholders, investors, and the Company. Accordingly, we have disclosed these principles for responding to all items of the Corporate Governance Code.

For disclosure at this time, the Company has partly revised the principles based on its current situations. The Company will endeavor to take measures from a long-term and continuous viewpoint to increase corporate value through reinforced effectiveness of governance.

We appreciate our shareholders and investors' understanding.

Section 1: Securing the Rights and Equal Treatment of Shareholders

General Principle 1

Companies should take appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively.

In addition, companies should secure effective equal treatment of shareholders.

Given their particular sensitivities, adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders.

The Company strives to develop an environment to secure the rights of all shareholders. With regard to corporate information, the Company proactively discloses information deemed beneficial to shareholders in addition to information subject to the timely disclosure standards of the stock exchange. In addition, the Company discloses the above information on its website without delay and makes efforts to disclose the information in English concurrently with its disclosure in Japanese, as far as practicable. With regard to voting rights, the Company provides a voting method via the Internet in addition to a method in writing, so that more shareholders have equal opportunities to exercise their rights.

Principle 1.1 Securing the Rights of Shareholders

Companies should take appropriate measures to fully secure shareholder rights, including voting rights at the general shareholder meeting.

With regard to the provision of opportunities to exercise voting rights, the Company uses a voting site operated by Sumitomo Mitsui Trust Bank, Limited and the Electronic Voting Platform operated by ICJ, Inc. (Investor Communications Japan). The Company therefore recognizes that it duly provides shareholders with wide opportunities to exercise their voting rights and takes appropriate measures.

Supplementary Principles

1.1.1 When the board recognizes that a considerable number of votes have been cast against a proposal by the

company and the proposal was approved, it should analyze the reasons behind opposing votes and why many shareholders opposed, and should consider the need for shareholder dialogue and other measures.

Controversial proposals which a considerable number of votes will be cast in disapproval at the General Shareholders Meeting are recognized as such when they are presented to the meeting. In case of such proposals, the Company takes appropriate measures to carefully explain them to shareholders and clarify why the Company has chosen the content of the proposals.

The Company also acknowledges that approval or disapproval of measures under various management conditions may differ, depending on the various factors, such as positions of the respective shareholders. With respect to proposals which a considerable number of votes have been cast in disapproval as a result of voting in spite of sufficient explanation of the proposals and exchange of opinions, the Company will work to obtain the shareholders' understanding through continuous dialogue with them.

1. When proposing to shareholders that certain powers of the general shareholder meeting be delegated to the board, companies should consider whether the board is adequately constituted to fulfill its corporate governance roles and responsibilities. If a company determines that the board is indeed adequately constituted, then it should recognize that such delegation may be desirable from the perspectives of agile decision-making and expertise in business judgment.
   With regard to the delegation of the matters requiring resolutions of the Shareholders Meeting to the Board of Directors, the Company considers it a necessary condition that the Board of Directors be a structure that can bear the responsibilities to decide such matters. The Company has elected four outside directors who oversee the appropriateness of decision-making by the Board of Directors. As we consider it desirable to delegate authority within a confined scope even though permitted under laws and regulations, the matters requiring resolutions of the Shareholders Meeting delegated to the Board of Directors under the provisions of the Articles of Incorporation at this point are issuance of shares within the authorized number of shares to be issued, implementation of interim dividends, and acquisition of treasury stock.
2. Given the importance of shareholder rights, companies should ensure that the exercise of shareholder rights is not impeded. In particular, adequate consideration should be given to the special rights that are recognized for minority shareholders with respect to companies and their officers, including the right to seek an injunction against illegal activities or the right to file a shareholder lawsuit, since the exercise of these rights tend to be prone to issues and concerns.
   The Company has established Share Handling Regulations to stipulate procedures in advance for the exercise of rights by minority shareholders, and will not prevent the exercise of rights.

Principle 1.2 Exercise of Shareholder Rights at General Shareholder Meetings

Companies should recognize that general shareholder meetings are an opportunity for constructive dialogue with shareholders, and should therefore take appropriate measures to ensure the exercise of shareholder rights at such meetings.

To make the Shareholders Meeting an opportunity for constructive dialogue with shareholders, the Company discloses information at appropriate times, provides shareholders with opportunities to exercise their voting rights, explains business conditions using methods such as slides, and thereby strives to take appropriate measures to ensure the exercise of shareholder rights.

Supplementary Principles

1.2.1 Companies should provide accurate information to shareholders as necessary in order to facilitate appropriate decision-making at general shareholder meetings.

The Company considers that it should promptly disclose information which would facilitate appropriate

decision-making by shareholders at the Shareholders Meeting. In addition, the Company posts the Notice of the Shareholders Meeting on the Company's website to broadly provide information.

1.2.2 While ensuring the accuracy of content, companies should strive to send convening notices for general shareholder meetings early enough to give shareholders sufficient time to consider the agenda. During

2 / 33

the period between the board approval of convening the general shareholder meeting and sending the convening notice, information included in the convening notice should be disclosed by electronic means such as through TDnet or on the company's website.

Currently, the notice for shareholders to access the electronic provision of information is to be sent out approximately three weeks prior to the Shareholders Meeting. In order to respect the purpose of the electronic provision system, which is required to be introduced in March of this year, and to ensure that shareholders have sufficient time to consider the agenda, regardless of the start date of the electronic provision measure stipulated in the Companies Act, the Notice of the Shareholders Meeting is published electronically on Japan Exchange Group's website and the Company's website as soon as possible after the decision to convene the Shareholders Meeting.

1.2.3 The determination of the date of the general shareholder meeting and any associated dates should be made in consideration of facilitating sufficient constructive dialogue with shareholders and ensuring the accuracy of information necessary for such dialogue.

The date of the Annual Shareholders Meeting of the Company is determined in late June, the third month

after the fiscal year end, which is the time limit for extensions of final returns under the Corporation Tax Act. The Company selects this schedule to ensure itself the time required for account settlement and other procedures necessary for holding the Shareholders Meeting after the fiscal year end, with no intention to prevent shareholders from attending the meeting. Generally, we c hold our general meeting of shareholders at the Osaka Head Office, where our registered head office is located, on the day when the ordinary general meetings of shareholders are concentrated. A total of 100 to 150 shareholders attend the meeting every year. We have moved forward the date of the 71st Ordinary General Meeting of Shareholders. We will continue to provide shareholders in Japan and overseas with sufficient time to consider the exercise of their voting rights by disclosing convening notices as soon as possible. At the same time, we will flexibly set the date of the general meeting of shareholders, while ensuring an appropriate time period for preparation.

1.2.4 Bearing in mind the number of institutional and foreign shareholders, companies should take steps for the creation of an infrastructure allowing electronic voting, including the use of the Electronic Voting Platform, and the provision of English translations of the convening notices of general shareholder meeting.

In particular, companies listed on the Prime Market should make the Electronic Voting Platform available, at least to institutional investors.

As mentioned above, the Company has created an infrastructure for the exercise of voting rights that allows shareholders to use a voting site operated by Sumitomo Mitsui Trust Bank, Limited and the Electronic Voting Platform operated by ICJ, Inc. (Investor Communications Japan), in addition to voting in writing, to ensure that institutional and foreign shareholders have opportunities to exercise voting rights. In addition, with regard to the Notice of the Shareholders Meeting, the essentials of the agenda are translated into English and posted on the Company's website, etc.

1.2.5 In order to prepare for cases where institutional investors who hold shares in street name express an interest in advance of the general shareholder meeting in attending the general shareholder meeting or exercising voting rights, companies should work with the trust bank (shintaku ginko) and/or custodial

institutions to consider such possibility.

Currently, the Company permits shareholders recorded on the shareholder register to attend the Shareholders Meeting. The Company does not permit beneficial shareholders to attend the Meeting because there are no means by which to confirm the credibility of shareholding by beneficial shareholders. If and when the Company receives such a request, it will judge the matter according to the stance on information provision of true shareholders and the trust bank and/or custodial institutions, the representation of the true shareholders, and other factors.

The Company believes that if a system is established in the future to allow issuers to recognize true shareholders, the Company may deliberate on allowing them to attend the Shareholders Meeting.

3 / 33

Principle 1.3 Basic Strategy for Capital Policy

Because capital policy may have a significant effect on shareholder returns, companies should explain their basic strategy with respect to their capital policy.

The Company aims at comprehensively increasing corporate value and sustainable corporate growth and believes that the most important management responsibilities is to enable sustainable returns of earnings to shareholders while building sufficient internal reserves for the reinforcement of management base and investment in future growth.

If the Company intends to raise funds by means that dilute existing shares, the Company will implement the fundraising after the Board of Directors sufficiently examines the purpose and effect of the funds and upon careful explanations are provided to shareholders.

With regard to shareholder returns, the Company's basic policy is to continuously pay stable dividends, while striving to sustainably enhance corporate value and aiming to increase the amount of dividends over the medium to long term.

In addition, the Company strives to improve capital efficiency and maintain financial soundness, taking into account capital structure and the levels of various management indicators.

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 purpose is 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.

For the Company, which is in charge of intermediary distribution in the supply chains of various industries such as construction, automobiles, home appliances, etc., securing functions to increase added value in the distribution process and participation in various supply chains are considered essential from the perspective of maintaining and strengthening the Company's sustainable profitability.

Therefore, if it is likely that the Company can contribute to the establishment and strengthening of business relationships and the strengthening of functions necessary for the Company, such as immediate delivery, small-lot delivery, and processing, the Company considers whether or not to hold the shares of the company in question based on the expected effects.

We understand that such shareholdings are recognized as so-called "strategic shareholdings" and that they should be judged carefully from the perspective of deterioration of capital efficiency, hollowing out of capital invested by investors, market risk of shareholdings, and loosening of management judgment by securing stable shareholders. We believe that we should hold shares within the scope of necessity and rationality after verifying whether there is a specific relationship between the company we hold shares in and our business, as well as the benefits and risks that can be obtained from holding shares.

Based on the above, when holding shares, we examine whether the benefits associated with the holding of the shares are commensurate with the cost of capital and strive to maintain profitability at a level commensurate with the cost.

As for the specific verification method, every year, we present to the department in charge of the issuer of the stock we hold a chart comparing the rate of return from transactions and dividends received with the cost of capital, and confirm the intention to continue holding each stock. For stocks that do not meet the cost of capital, the Management Committee and the Board of Directors discuss how to respond.

In addition, the Investment Review Committee conducts a multifaceted review of the rationality of our holdings, such as by examining the effectiveness of holding stocks that have been acquired for three years. In the previous fiscal year, the Company acquired two listed issues (in addition to eleven listed issues acquired through client stock ownership plan that the Company is a member of) and sold three listed issues.

Market risk arising from holding listed shares is managed within the context of company-wide financial discipline, while maintaining a balance with the fund-raising side.

With respect to the exercise of voting rights of strategic shareholding companies, from the perspective of

4 / 33

maintaining the governance of the companies we hold from the standpoint of shareholders, we have established the following screening criteria for the exercise of voting rights from the perspective of consistency with our medium- to long-term holding objectives.

(Screening Criteria)

1. a company whose value of shares are judged to be significantly impaired according to its stock price level and financial conditions
2. a company whose operating income, ordinary income, or net income was recorded as negative in its business results for the previous fiscal year
3. a company that caused a scandal with significant social impact, including violations of laws and regulations or anti-social acts
4. a company that submits a proposal that is likely to hinder the purpose of shareholding and significantly impair the value of shares, including any proposal on changes of control or substantial revisions of corporate organization

Supplementary Principles

1.4.1 When cross-shareholders (i.e., shareholders who hold a company's shares for the purpose of cross- shareholding) indicate their intention to sell their shares, companies should not hinder the sale of the cross-held shares by, for instance, implying a possible reduction of business transactions.

In the event that a policy-holding shareholder indicates his/her intention to sell the Company's shares, the Company will confirm the background of the intention to sell the shares. However, in principle, the Company will respect the intention of the other party. However, in the event that a sale or other reason impairs its business relationship or relationship of trust with the Company, or in the event that the Company holds the shares of a policy-holding shareholder, the Company might review the continuation of our business relationship or took measures such as selling off as if the purpose of holding had ceased to exist. In addition, in the event that a sale by a policy-holding shareholder is expected to have a major impact on its stock price, the Company would request a policy-holding shareholder to discuss the method and timing of the sale.

1.4.2 Companies should not engage in transactions with cross-shareholders which may harm the interests of the companies or the common interests of their shareholders by, for instance, continuing the transactions without carefully examining the underlying economic rationale.

In its business activities, the Company believes that it is essential to ensure economic rationality in business transactions in order to achieve sustainable growth and increase corporate value, and this does not depend on whether or not the Company holds policy-held stocks.

Principle 1.5 Anti-Takeover Measures

Anti-takeover measures must not have any objective associated with entrenchment of the management or the board. With respect to the adoption or implementation of anti-takeover measures, the board and kansayaku should carefully examine their necessity and rationale in light of their fiduciary responsibility to shareholders, ensure appropriate procedures, and provide sufficient explanation to shareholders.

We have continued to implement Large Scale Purchase Countermeasures (so-called Takeover Defense) since they were introduced in February 2007. However, we discontinued the takeover defense measures at the conclusion of the Ordinary General Meeting of Shareholders held on June 22, 2018.

Supplementary Principles

1.5.1 In case of a tender offer, companies should clearly explain the position of the board, including any counteroffers, and should not take measures that would frustrate shareholder rights to sell their shares in response to the tender offer.

In the event of a large-scale purchase of our shares, we will require the purchaser to provide necessary and sufficient information, and will disclose the opinions of our Board of Directors in a timely and appropriate manner. In addition, we will endeavor to secure the time and information necessary for shareholders to consider, and will take appropriate measures to the extent permitted by the Financial Instruments and Exchange Act, the Companies Act, and other relevant laws and regulations.

5 / 33