Takara Bio : Corporate Governance Report

Corporate Governance Report

[TRANSLATION]

This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Last Update: June 29, 2022

Takara Bio Inc.

Koichi Nakao, President & CEO Contact: Takuya Kakemi, Executive Officer, Head of Corporate Management Division Securities Code: 4974 https://www.takara-bio.com/

The corporate governance of Takara Bio Inc. (the "Company") is described below.

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

Other Basic Information

1. Basic Views

Guided by Takara Bio corporate philosophy of "Contributing to the health of humankind through the development of revolutionary biotechnologies such as gene therapy," we are promoting the development of platform technologies for biologics through the core businesses of Reagents and Instruments and CDMO business, and aiming to become a biologics development company* that continuously creates new modalities. Going forward, we will continue to create new value through proactive business activities, achieve sustainable growth, and contribute to society. To this end, it is necessary to strengthen its corporate governance system in order to constantly promote honest and fair corporate activities. We will work to ensure management transparency, improve efficiency, and make swift decisions.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated

(Supplementary Principle 4-1[3] Succession Plan)

Establishment of a process (succession plan) for the development of the next generation of management executives, who will be the successor to us, such as the Chief Executive Officer (CEO), is recognized as an important management issue for achieving sustainable growth and increasing corporate value over the medium to long term. Executive Officers who are not concurrently serving as Directors also attend meetings of the Board of Directors as management team, and participate as observers in our goals and specific management strategies. The Board of Directors will consider the requirements and policies required of the CEO and others, referring to the advice and recommendations of the Nomination and Compensation Committee in light of the business environment surrounding us and our corporate culture.

(Supplementary Principle 4-2[1]Stock-based Compensation System)

We have introduced a cash-based compensation system that is linked to medium- to long-term performance, but do not have a stock-based compensation system in place. Going forward, we recognize that Director incentives for sustainable growth are an important management issue, and the Board of Directors will consider the ratio of remuneration between cash and stock, including the method of determining overall remuneration, with reference to advice and recommendations provided by the Nomination and Compensation Committee.

- 1 -

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

(Principle 1-4Cross-Shareholdings)

We do not currently hold shares of other listed companies as strategic cross-share stockholdings, and our basic policy is not to have in the future.

(Principle 1-7 Related Party Transactions)

We have established the Regulations Governing the Management of Related Party Transactions as a mechanism to properly check transactions between related parties. We conduct transactions after examining the necessity of transactions and the appropriateness of the terms and conditions of transactions.

• Each year, we regularly request each Director to submit a confirmation document on transactions between related parties, and investigate whether or not we have a majority of voting rights held by its Directors and their relatives, or by which they are represented.
• New transactions with related parties shall be approved by the Board of Directors in accordance with the Regulations Governing the Management of Related Party Transactions.
• In accordance with the Regulations Governing the Management of Related Party Transactions, related- party transactions in which transactions continue at the end of each fiscal year are reviewed and approved by the first Board of Directors meeting held after the commencement of the new fiscal year to determine the reasonableness of the continuation of transactions (business necessity) and the appropriateness of the terms and conditions of transactions.
• Competitive transactions and conflict of interest transactions of Directors are implemented with the approval of the Board of Directors in accordance with laws and regulations and the Regulations of the Board of Directors, and the results of these transactions are reported to the Board of Directors on a regular basis each year.

(Supplementary Principles 2-4[1] Ensuring Diversity)

• Based on the concept of promoting the active participation of diverse human resources as stated in the Takara Bio Group's "Basic Policies for Promoting Sustainability Management", we are promoting the
  active participation of diverse human resources, including the promotion of women's active participation. The status of such activities is disclosed on our website and other media. In addition, as we expand and grow our business overseas, we have appointed foreign officers and executives at overseas Group companies. As a result of the promotion to date, new hires and appointments of women and mid-career recruits to managerial positions, as well as the appointment of foreign employees to executives and executives at overseas Group companies, we will continue to work to ensure the diversity of internal human resources.
• To further enhance our corporate value, we have developed a human resource development program aimed at improving the skills of each and every employee. We are also working to create a system that enables all employees to work with enthusiasm while balancing work and personal life in accordance with their individual lifestyles. The status of implementation is disclosed on our website.

(Principle 2-6 Corporate Pension)

We operate a defined benefit corporate pension plan based on our code. In the investment of the defined benefit corporate pension plan, we have established a policy asset composition ratio from a medium-to long- term perspective based on the basic policy and investment guidelines, and presents this ratio to investment managers. The investment status is monitored regularly and reviewed as necessary. In addition, employees engaged in corporate pension affairs shall be assigned with due consideration given to their knowledge and experience. The exercise of voting rights in shares held as part of the plan assets is subject to the judgment criteria of the trustee, and there are no conflicts of interest.

(Principle 3-1 Enhancement of Information Disclosure)

From the perspective of ensuring transparency and fairness in our decision-making and realizing effective corporate governance, we will disclose and disseminate information as follows.

1. Business strategies are disclosed in the Annual Securities Report and the Medium-Term Management Plan.
2. We disclose our basic corporate governance policies on our website, annual reports, and securities reports.
3. • 2 -

1. We disclose our policy on remuneration for Directors and Auditors in our annual securities report.
2. Our policies and procedures regarding the nomination of candidates for Directors and Auditors and the appointment and dismissal of Executive Officers are described below.

[1] Policies and procedures for board nominations

We pay attention to ensuring diversity from the perspectives of gender, internationality, career and age. In light of the following standards, the Nominations and Compensation Committee deliberates and examines the issue, and the Board of Directors resolves the issue based on the advice and recommendations of the Committee.

• Having the ability to recognize and resolve management issues from the perspective of superior personality and insight and overall management.
• Internal Directors shall have sufficient knowledge, experience, and track record in specialized fields and have a high level of organizational management capability.
• External Directors shall have extensive experience in their respective fields of origin, and shall have the qualities to give advice and recommendations from an independent standpoint to ensure the appropriateness of decision-making by the Board of Directors.

[2] Policies and Procedures for the Board of Directors to appoint candidates for Auditors

We pay attention to ensuring diversity from the perspectives of gender, internationality, career and age. In light of the following standards, the President & CEO proposes to the Board of Directors with the consent of the Board of Auditors after consultation with other Directors and resolves the proposal.

• Having the ability to recognize management issues and make recommendations to management team from the perspective of superior personality and insight and overall management.
• Internal Auditors shall have sufficient knowledge, experience, and track record in specialized fields.
• External Auditors shall have extensive experiences in their respective fields of origin and abilities to give advice and recommendation from an independent standpoint to ensure the appropriateness of decision- making at the Board of Directors.

1. Policies and procedures for the appointment and dismissal of Executive Officers by the Board of Directors
   (Appointment Policy and Procedures)
   We pay attention to ensuring diversity from the perspectives of gender, internationality, career and age. In light of the following standards, the President & CEO makes proposals to the Board of Directors after consultation with other Directors and resolves the proposals.
    Having the ability to recognize and resolve management issues from the perspective of superior personality and insight and overall management.
    Having sufficient knowledge, experience, and track record in assigned tasks and having a high level of organizational management capability.
   (Policies and Procedures for Dismissal)
   In light of the following standards, the President & CEO submits a proposal to the Board of Directors through consultation with other Directors and makes a resolution.
    Any violation of laws, regulations, the Articles of Incorporation, or any other internal regulations may cause us to suffer a significant loss or significantly hinder our business.
    It is found that there was a considerable hindrance to the execution of its duties.  There is a relationship with an anti-social force that should be criticized socially.
    It is found obviously that each of the requirements of the above-mentioned standards of appointment is not met.

(Supplementary Principle 3-1[3] Sustainability Initiatives, etc.)

Our efforts for sustainability, such as human resource development and environmental measures, are disclosed in the Takara Bio Group "Basic Policy for Promoting Sustainability Management".

In addition, in order to achieve sustainable growth and increase corporate value over the medium to long term, we regard the development of human resources capable of supporting global business growth and the next generation of the Group, and the further improvement of our technological capabilities and quality as extremely important management issues. Accordingly, we will allocate and invest appropriate management resources to develop human resources and improve our technological capabilities and quality.

- 3 -

In accordance with the framework of the Climate Related Financial Information Disclosure Task Force (TCFD), the Group reviews and responds to the impact of climate change-related risks and profit opportunities on our business activities and profits, and discloses related information on our website and other media.

(Supplementary Principle 4-1[1] Roles and Responsibilities of Directors and the Board of Directors)

• In the Regulations Governing Meetings of the Board of Directors, we primarily set the followings as matters to be resolved at meetings of the Board of Directors, and delegate such matters that do not fall under the following to the management team (Directors and Executive Officers). (Supplementary

Principle 4-1[1])

1. Matters concerning the general meeting of shareholders
2. Personnel affairs of Directors, Executive Officers, and important employees
3. Matters concerning the accounting of the Company
4. Matters concerning the disposition and acceptance of important assets that fall under the specific criteria for amounts
5. Other matters stipulated by laws and regulations or the Articles of Incorporation and important business matters, as well as the determination or occurrence of material facts that may affect our group's operations, operations, financial position, and results of operations

(Principle 4-9 Evaluation Criteria for Appointment and Independence of External Directors and Auditors) We have established "Judgment Criteria for the Assignment and Independence of External Officers". In accordance with these criteria, the Board of Directors deliberates and examines the matters and selects candidates for independent External Directors.

(Supplementary Principle 4-10[1] Utilization of Voluntary Mechanism)

In order to ensure the independence and objectivity of the functions of the Board of Directors with respect to nomination of Director candidates and compensation of Directors, we have established a Nomination and Compensation Committee under the Board of Directors, which consists primarily of independent External Officers, to obtain appropriate advice and recommendations. The committee is composed of three or more members, the majority of whom are External Directors, and the chairperson of the committee is to be selected from among External Directors. Therefore, the independence of committee is ensured. The committee deliberates and examines the nomination of Director candidates and the individual remuneration of Directors prior to the resolution of the Board of Directors, and advises and suggests the results thereof to the Board of Directors.

(Supplementary Principle 4-11[1] Concept on the versatility of the Board of Directors)

The Board of Directors is composed of Directors with advanced expertise and experience in each business, and independent External Directors who possess a wealth of experience and broad insight and provide advice and recommendations from the perspective of all stakeholders, including shareholders, based on their extremely high level of expertise. We believe that at the present time, Directors are an appropriate combination of skills in the execution of management strategies, and that this is the optimal structure.

We believe that the roles and responsibilities of the Board of Directors to achieve sustainable growth and increase corporate value over the medium to long term are extremely important. In order to continuously improve its effectiveness, it is important to continuously examine the composition of the Board of Directors. We will continue to consider the composition of the Board of Directors in response to management strategies and changes in the environment. Skill matrices are disclosed in the notice of general meeting of shareholders.

(Supplementary Principles 4-11[2] Concurrent Duties as an Officer of a Listed Company)

When External Directors, External Auditors and other Officers serve concurrently as Officers of other listed companies other than our group, we disclose brief history annually in our securities report.

(Supplementary Principle 4-11[3] Evaluation of the Effectiveness of the Board of Directors)

We evaluate the effectiveness of the Board of Directors with a focus on its operational aspects. An overview of this is available on our website.

(Supplementary Principles 4-14[2] Executive Training)

As a training policy for Directors and Auditors, including External Directors and External Auditors, and Executive Officers, we will encourage and support participants in academic conferences and seminars in

- 4 -

accordance with their respective experiences and knowledge, provide the necessary information to fulfill their respective roles and responsibilities, and provide support for the acquisition of knowledge, as well as support for the expenses required for these activities on an ongoing basis.

(Principle 5-1 Constructive Dialogue with Shareholders)

We appoint a person in charge of information management and appoint the Public & Investor Relations Department as the department in charge of IR. For analysts and investors, we hold a financial results briefing once every six months and hold a series of individual investor briefings sequentially in an effort to improve the understanding of us.

We have established the Takara Bio Corporate Governance Policy and posted it on our website about our basic approach to corporate governance and the status of initiatives, including the above.

• Takara Bio Inc. "Corporate Governance"

Website:https://ir.takara-bio.co.jp/ja/sustainability/governance.html

2. Capital Structure

		Foreign Shareholding Ratio	Updated			Less than 10%
[Status of Major Shareholders]		Updated
		Name / Company Name							Number of Shares Owned	Percentage (%)
	Takara Holdings Inc.							73,350,000	60.91
	The Master Trust Bank of Japan, Ltd. (Trust	7,320,600	6.08
	Account)
	The Japan Custody Bank, Ltd. (Trust Account)	3,311,500	2.75
	THE BANK OF NEW YORK MELLON SA/NV 10	1,100,000	0.91
	STATE STREET BANK WEST CLIENT-TREATY	661,700	0.55
	505234
	JP MORGAN CHASE BANK 385781			602,417	0.50
	J.P. MORGAN BANK LUXEMBOURG S.A. 384513	533,700	0.44
	STATE STREET BANK AND TRUST COMPANY	501,886	0.42
	505001
	The Bank of Kyoto, Ltd.							500,000	0.42
	The Dai-ichi Life Insurance Company, Ltd.	482,200	0.40
		Controlling Shareholder (except for	Parent	-
		Company)
		Parent Company					Takara Holdings Inc. (Listing : Tokyo) (Code 2531)

Supplementary Explanation

-

3. Corporate Attributes

				Tokyo Stock Exchange
	Listed Stock Market and Market Section	Updated
		Prime
	Fiscal Year-End			March
	Type of Business			Chemicals
		- 5 -