Corporate Governance Report (Last Update: July 7, 2022)

Corporate Governance Report

Last Update: July 7, 2022

TOCALO Co., Ltd.

Noriyuki Mifune, President

Contact: HR & General Affairs Division

([phone])

Securities Code: 3433

https://www.tocalo.co.jp

The corporate governance of TOCALO Co., Ltd. (the "Company") is described below.

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

and Other Basic Information

1. Basic Views

The Company recognizes that effective corporate governance is one of the most important management issues.

Based on the recognition that "a company is a member and public entity of society," our basic stance on corporate governance is to ensure management transparency and to further strengthen the trust placed in us by all of our stakeholders, those being our shareholders, business partners, employees and local communities. Alongside that, we aim to increase corporate value and achieve sustainable and sound growth of the Group as a whole, and thereby contribute to society through our surface treatment processing business.

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

[Supplementary Principle 2-4-1 Ensuring diversity in the appointment of core human resources, etc.]

As of April, 2022, the Company had 77 female employees, or 9.9% of all regular employees, including three female managers which account for 2.04% of all managers.

Additionally, the Company has recruited three foreign nationals from 2018 to the present through its activities, such as accepting students from overseas and making inquiries to universities whose foreign graduates have been recruited by Japanese companies, from the standpoint of securing personnel who are to be seconded abroad for its future global business expansion.

The Company also regularly recruits mid-carrier employees based on its in-house workforce plan. As of April, 2022, mid-carrier hires account for 40.3% of all regular employees and 39.4% of all managers. In ensuring diversity, the introduction of our new personnel system in April 2021 has enabled career development tailored to each employee while respecting diversity.

Since July 2020, the Company has been promoting diversity focused on greater participation from women, by reviewing the internal environment and work regulations, and other activities, so as to create a workplace where both men and women feel comfortable at work and can play an active role on equal footing. As a new

- 1 -

initiative, in-house advertisements and events are planned and implemented so the necessity of these activities will be better understood companywide. Also, training to help women improve their skills and move upward in their career is being considered.

The Company has not disclosed voluntary and measurable goals yet but will consider identifying appropriate KPIs for future issues (materiality).

The hiring practices of the Company are people-oriented, and emphasize an individual's abilities and achievements regardless of gender or nationality.

Because of importance that respecting different perspectives and values has towards achieving sustainable growth and increasing corporate value, the Company earnestly hires human resources with different experiences, skills and careers, and creates a work environment where they can play an active role. Recognizing that ensuring diversity is also important for managers who play a central role, discussions are being held to set measurable goals that match the current situation and future initiatives of the Company. Moreover, for the purpose of providing employees with opportunities to demonstrate their values and abilities, and encourage their growth, the Company formulates specific plans for personnel development and improvement of internal environments.

[Supplementary Principle 3-1-3 Sustainability initiatives]

The Company holds quarterly Sustainability Committee meetings chaired by President to discuss various sustainability issues such as greenhouse gas emission reduction, formulate policies, plans and initiatives, check the progress of initiatives, and other matters. It also strives to appropriately disclose information on its website.

Regarding investment in human capital and intellectual property, the Company is studying ways to make information disclosures easier for the general public to understand based on management strategies and issues.

In addition, with the vision of "contributing to a bright future for people and nature," the Company has positioned tackling climate change as one of the important management issues, and is advancing initiatives based on the TCFD recommendations. The four core elements in organizational management- "governance," "risk management," "strategy," and "metrics and targets"-are described on its website. (https://www.tocalo.co.jp/sustainability/tcfd/)

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

[Principle 1-4 Strategically held shares]

1. Policy on strategically held shares

The Company did not retain any at the end of March 2022. As a general rule, we will not retain any

strategically held shares in the future.

2. Criteria for exercising voting rights

Strategically held shares serve to continuously improve the value of the Company through the associated

voting rights. Voting rights would be exercised, for example, in cases where shareholder value is

significantly damaged or a serious non-compliance is found. Any decisions whether or not to approve

proposals will be made only after collecting sufficient information.

- 2 -

[Principle 1-7 Transactions with related parties]

Based on the Rules of the Board of Directors, the Company regards matters such as competitive transactions, conflict-of-interest transactions, and the acquisition/disposal of large amounts of equipment/property by directors, as important management issues that should be presented to the Board of Directors, in a timely manner. These matters are deliberated in the interest of the Company and its shareholders as a whole and are treated in the same way even if our business partners are major shareholders, etc.

[Principle 2-6 Fulfilling responsibilities as owner of corporate pension assets]

Regarding the management of corporate pension reserve funds, the Company issues management guidelines that set forth target investment yield, basic portfolio content and divergence tolerance for achieving targets to the asset management institution. Then, we monitor how those funds are managed through reports on the management status, stewardship activities, etc. provided periodically by the asset management institution. The Secretariat for Corporate Pension comprises members with appropriate qualifications selected and assigned from the human resources, finance, accounting, and other departments.

[Principle 3-1 Enhancement of information disclosure]

1. Our goals (Corporate Philosophy, Management Policy, Management Indices) For our corporate philosophy and management policy, please visit our website. (https://www.tocalo.co.jp/csr/index.html)
   Management indices are on a consolidated basis.
   (1) Ordinary income ratio: Stable achievement of 15% or higher
   (2) Return on equity (ROE): Stable achievement of 15% or higher
   (3) Return on assets (ROA): Stable achievement of 15% or higher We have set three goals as shown above.
2. Basic views on corporate governance

Our basic views on corporate governance are elucidated in "I-1 Basic Views" of this Report.

3. Determination of remuneration for senior management and directors

How remuneration for senior management and directors is determined is described in II-1 Organizational Composition and Operation [Director Remuneration] of this Report.

4. Appointment and dismissal of senior management and nomination of candidates for directors and Audit & Supervisory Board members

As an advisory body for the Board of Directors, the Company has established a Nomination and Remuneration Advisory Committee, with a majority of the members being independent outside directors and chaired by an independent outside director. The Committee deliberates proposals on the

• 3 -

appointment/dismissal of director candidates and gives advice and recommendations to the Board of Directors. Director candidates, who as directors are expected to have broad experience and deep insight that they can utilize to manage the Company, are selected by the Board of Directors based on the advice and recommendations of the Nomination and Remuneration Advisory Committee. The Board submits the selected candidates to the General Shareholder Meeting for approval in the form of a resolution. Audit & Supervisory Board member candidates must have expertise and knowledge in auditing. They are selected by the Board of Directors after their qualifications have been deliberated and agreed to by the Audit & Supervisory Board, more than a half of which is comprised of Outside Audit & Supervisory Board members. The Board submits the selected candidates to the General Shareholder Meeting for approval in the form of a resolution. Regarding the dismissal of directors and Audit & Supervisory Board members, if a director/Audit & Supervisory Board member has committed fraud or seriously violated laws, regulations or the articles of incorporation in the course of executing his/her duties, or if no longer meets requirements, a resolution that clarifies the reason for dismissal is made by the Board of Directors and submitted to the General Shareholder Meeting for approval.

5. Explanation of individual appointments, dismissals and nominations

The reasons for the appointment of individual outside directors and outside Audit & Supervisory Board members are described in II-1 Organizational Composition and Operation [Directors] and [Audit & Supervisory Board members] of this Report. With regards to appointments, the background of each candidate and the reasons for appointment are described in the Convocation Notice of the General Shareholder Meeting. When a dismissal takes place, it will be disclosed as appropriate according to its importance.

[Supplementary Principle 4-1-1 Scope of delegation to senior management]

The Board of Directors is operated based on the important matters stipulated in the Rules of the Board of Directors. Based on the management strategies, plans, policies, etc. approved by the Board of Directors, decisions concerning business execution are delegated to the senior management in charge of business execution.

[Principle 4-9 Judgement criteria for independency of independent outside directors and their qualifications]

The criteria used to judge the independency of independent outside directors and their qualifications is described in II-1 Organizational Composition and Operation of this Report.

[Supplementary Principle 4-10-1 Authority, role, etc. of the Nomination and Remuneration Advisory Committee]

As an advisory body for the Board of Directors, the Company has established a Nomination and Remuneration Advisory Committee, with a majority (three out of five) of the members being independent

- 4 -

outside directors and chaired by an independent outside director. The Committee deliberates the appointment of director candidates (including successor plans), remuneration for directors, and other matters, and gives advice and recommendations to the Board of Directors based on which Board resolutions are made.

At the Company, there are one male and two female independent outside directors who have a broad range of specialized skills in legal affairs, finance and accounting, internationalism and diversity, and environmental and social issues, and they provide recommendations based on their expertise.

[Supplementary Principle 4-11-1 Policy for ensuring diversity in the Board of Directors, etc.]

When appointing members to the Board of Directors, our first priority will be to seek persons who have demonstrated leadership in business execution as a department head and have the knowledge and insight to oversee our business from multiple perspectives. The candidates are then selected through deliberation by the Board of Directors, after fully considering their management skills, aptitude and contributions made to the company, and ensuring balance and diversity among our human resources. As for the experience and expertise expected of each candidate, a skills matrix is presented in the Convocation Notice of the General Shareholder Meeting and the Securities Report for the fiscal year ending in March 2022.

Additionally, based on the resolution at the Ordinary General Shareholder Meeting held on June 25, 2021, one independent outside director with management experience at other companies has been appointed.

[Supplementary Principle 4-11-2 Status of concurrent position of directors and Audit & Supervisory Board members]

If directors and Audit & Supervisory Board members, including outside directors and outside Audit & Supervisory Board members, also serve as officers of other companies, the Board of Directors confirms the details thereof and ensures that said dual service does not pose any problems for the business of the Company. The status of any concurrent positions held by officers as of the date of account closing is described in the "Business Report" of the Convocation Notice of the General Shareholder Meeting, and that of any candidates to be appointed as new officers, in the "Reference Material for the General Shareholder Meeting".

[Supplementary Principle 4-11-3 Evaluation of the effectiveness of the Board of Directors]

At the Company, all directors and all Audit & Supervisory Board members evaluate the effectiveness of the Board of Directors based on questionnaires prepared by the Secretariat for the Board of Directors. In fiscal 2021, the Board of Directors was evaluated as being generally appropriate in terms of composition, operation, agenda and other relevant matters. The results were reported to all directors and all Audit & Supervisory Board members. Efforts are being made to further enhance the effectiveness of the Board of Directors.

[Supplementary Principle 4-14-2 Policy on training for directors and Audit & Supervisory Board members]

- 5 -