General Announcement::Corporate Governance Report

TOSEI CORPORATION

CORPORATE GOVERNANCE

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

Tosei Corporation assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Last updated: 1st December 2021

Tosei Corporation

Representative Director: Seiichiro Yamaguchi

For Contact: Corporate Management Department

Tel:[phone]

Securities code: 8923

URL : https://www.toseicorp.co.jp/english

The state of corporate governance of Tosei Corporation ("the Company") is as described below:

1. Fundamental Approach toward Corporate Governance, Capital Structure, Corporate Attributes, and Other Basic Information

1. Fundamental Approach

Fundamental Approach toward Corporate Governance

Our Group aspires to be a valuable contributor to all kinds of our stakeholders in the society, including the shareholders, the employees, the business partners and others, by promptly and appropriately responding to the changes in the business environment and continuing operational activities which enable the Group to achieve a sound growth. For this purpose, the Group has placed the greatest importance on enhancement of corporate governance, and in particular, "fully cultivating compliance mind", "enhancing risk management" and "conducting timely disclosure" as three key initiatives. Furthermore, the Group is determined to make efforts in a unified manner, from the top management down to each employee of the Group companies, led by the Board of Directors, to develop an internal control system as required by the Companies Act and the Financial Instruments and Exchange Act, as well as to set up a system which is credible to investors, as a financial instruments business operator.

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

*The description of the Corporate Governance Code is based on the revised code (except for the contents apply only for the prime market), which will be effective from June 2021.

Supplementary Principle 2-4-1 Ensuring Diversity, including Active Participation of Women

⇒In light of the importance of human resource strategies in enhancing corporate value in the medium-to-long-term, the Company will continue to engage in human resource development based on its basic policy on human resource development, while also revising various personnel systems to meet the requirements of the time and developing environments that enhance engagement of employees. However, at this time, although we have a track record of appointing women and mid-career hires to management positions, we do not disclose targets or actual figures for appointments.

Supplementary Principle 4-11-1 Basic view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size

⇒The Board of Directors is deemed to contribute to the medium- to long-term growth of the Group when it is comprised of a diverse range of members. Going forward, the Group's policy is to

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appoint any eligible candidate when they are identified. As of this document's last update, there is no female Director in office.

The skills matrix, which lists the knowledge, experience and abilities of each director, will be disclosed in the notice of the 72nd Ordinary General Meeting of Shareholders to be held in February 2022.

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

The Company discloses the basic policy for each of principles of the Corporate Governance Code as "Tosei Corporation Basic Policy on Corporate Governance (hereinafter, the Company's Basic Policy)" on the Company's website below. In addition, the Basic Policy was partially revised as of December 1, 2021.

https://www.toseicorp.co.jp/english/ir/governance/basic_policy/

1. Company's disclosure regarding to policies, basic rules, procedures, outline of analysis and others which are required to disclose under "The Preparation Guidelines for Preparing the Corporate Governance Reports (Tokyo Stock Exchange)" are written in below,

General Principle 1.4 Cross-shareholdings

Basic policy for maintaining cross-shareholdings and exercising voting right

⇒As of this document's last update, the Company does not own any shares of another listed company for strategic purposes. More details are described in "the Company's Basic Policy" Principle 1-4

General Principle 1.7 Related Party Transaction

Basic rules of appropriate manner in case of entering transactions involving conflict of interest with director(s) or major shareholders (related parties)

⇒"the Company's Basic Policy" Principle 1-7

General Principle 2.6 Roles as Asset Owner of Corporate Pension Funds

⇒As of this document's last update, the Company does not have any corporate pension funds.

General Principle 3.1 Full Disclose

ⅰ)Company objectives(e.g. business principles), business strategies and business plans ⇒"the Company's Basic Policy" Principle 3-1,

and Company's website (https://www.toseicorp.co.jp/)

ⅱ)Basic views and guideline on corporate governance based on each of the principles of the Code ⇒details are described in Section Ⅰ .1

• )Board policies and procedures in determining the remuneration for the senior management and directors

⇒"the Company's Basic Policy" Principle 3-1

ⅳ)Board policies and procedures in the appointment of the senior management and the nomination of directors and Kansayaku candidates

⇒"the Company's Basic Policy" Principle 3-1

ⅴ)Explanation with respect to the individual appointments and nominations based on ⅳ) ⇒details are described below (a)

Supplementary Principle 3-1-3 Disclosure of The Company's sustainability initiatives

⇒"the Company's Basic Policy" Principle 3-1,

and Company's website (https://www.toseicorp.co.jp/)

General Principle 4.1 Roles and Responsibilities of the Board (1)

Supplementary Principle 4-1-1 Outline of the scope Board of Directors delegate to the management of company

⇒"the Company's Basic Policy" Principle 4-1

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General Principle 4-9 Independent Standards and Qualification for Independent Directors

Independence Standards for Independent Directors ⇒"the Company's Basic Policy" Principle 4-9

General Principle 4.10 Use of Optional Approach

Supplementary Principle 4-10-1 Use of Optional Approach

⇒"the Company's Basic Policy" Principle 4-10

General Principle 4-11 Preconditions for Board and Kansayaku Board Effectiveness

Supplementary Principle 4-11-2 The status of directors or Kansayaku who serves concurrently as directors, Kansayaku or the management at other listed companies

⇒details are described below (b)

Supplementary Principle 4-11-3 Summary of the analysis/evaluation result of the effectiveness of the entire Board of Directors

⇒details are described below (c)

General Principle 4-14 Directors and Kansayaku Training

Supplementary Principle 4-14-2 Policy in Training of Directors and Kansayaku

⇒"the Company's Basic Policy" Principle 4-14

General Principle 5-1 Policy for Constructive Dialogue with Shareholders

⇒"the Company's Basic Policy" Principle 5-1

(a)Reasons for nominating current Directors and Audit & Supervisory Board Members (Kansayaku) as candidate for Directors and Audit & Supervisory Board Members (Kansayaku).

〈Director〉(appointed at the 70th Ordinary General Meeting of Shareholders of the Company held on 26 February, 2020)

⇒Reasons for nomination as candidate for Director are described in Notice of the 70th Ordinary General Meeting of Shareholders (https://pdf.irpocket.com/C8923/aMKh/qgv4/pY3r.pdf )

〈Audit & Supervisory Board Members〉(appointed at the Ordinary General Meeting of Shareholders of the Company held on 27 February, 2019(the 69th) and 25 February, 2021(the 71th))

⇒details are described in Section Ⅱ.1【Audit & Supervisory Board Members】

(b)The status of Directors/Audit & Supervisory Board Members (Kansayaku) who serves concurrently as directors, Kansayaku or the management at other listed companies as of 1st December 2021

Position	Name	Title, Listed companies
President and CEO	Seiichiro Yamaguchi	Non
Director	Noboru Hirano	Non
Director	Masaaki Watanabe	Non
Director	Hideki Nakanishi	Non
Director	Shunsuke Yamaguchi	Non
Director	Hitoshi Oshima	Non
Director	Kenichi Shohtoku	Non
Director	Hiroyuki Kobayashi	Outside Auditor of Tohto Suisan Co., Ltd.
Director	Masao Yamanaka	Outside Auditor of CHIYODA CO., LTD.
Outside Auditor of System Location Co., Ltd.
Audit & Supervisory Board Member	Hitoshi Yagi	Non
(full-time)
Audit & Supervisory Board Member	Toshinori Kuroda	Non
(full-time)
Audit & Supervisory Board Member	Tatsuki Nagano	Outside Director of System Location Co., Ltd
Audit & Supervisory Board Member	Osamu Doi	Non

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(c)Summary of the analysis/evaluation result of the effectiveness of the entire Board of Directors

1. Evaluation Process
   A questionnaire, given to all members of the Board of Directors (nine (9) Directors and four (4) Audit & Supervisory Board Members, as of November 30, 2020), is carried out regarding:
2. 1. Composition of the Board of Directors
   2. Effectiveness of the Board of Directors (quality and amount of discussion)
   3. Discussion of candidates at the reelection of Directors and Compensation program of the Board of Directors
   4. The operation of the Board of Directors
   5. The Directors' own self-assessments
   6. Relation with shareholders and other stakeholders
   7. Others

(7 categories, 37 items) (responses from all eleven (13) members are collected).

1. Analysis of Questionnaire Results Major analysis results
   1. The current structure and diversity of the Board of Directors maintain appropriate levels given the nature and category of the business of the Group. However, we need to continually consider the diversity of our board of directors. In addition, it is necessary to tackle the issues of developing next-generation leaders, including representative directors, more systematically.

2, 4. Although the Board of Directors as a meeting body is at a level where it is effective, there is room to further advance reviews of the quality and quantity of meeting documents and identifying discussion issues for each agenda item prior to the meeting, while continuously and effectively sharing functions with other meeting bodies.

3. With regard to each voluntary committee, the transparency of processes and reports has been ensured. In the future, we should aim to further secure appropriateness by improving information

on the skills, etc. of candidates in their nomination.

1. 1. We should make efforts as a company to provide opportunities to further support the personal development of Directors and Audit & Supervisory Board Members.
   2. Good relationships with stakeholders continue to be maintained, and information on the expectations of investors, etc. is also shared by reporting it to the Board of Directors in a timely and appropriate manner.
   3. Ongoing efforts are made to ensure that there is adequate cooperation between the Directors (Board of Directors) and Audit & Supervisory Board Members (Audit & Supervisory Board) and that sharing of information regarding managerial matters, etc. is done without problem.
2. Deliberation of evaluation
   After aggregating questionnaire responses and reporting the analysis results at the Pre-Board meeting discussion held in February 2021, a discussion on eventual results was held at the regular meeting of the Board of Directors held in the same month, and was resolved to include the evaluation results in the Corporate Governance Report.
3. Evaluation results
   ⚫ Effectiveness of the current Board of Directors is fully secured.
   ⚫ To strengthen Group governance and further enhance corporate value as a Group to achieve the new medium-term management plan "Infinite Potential 2023," we will continue discussions about the effectiveness and diversity of the Board of Directors and examine and institute individual measures that will contribute to an improvement in the effectiveness, as needed.

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1. Disclosure of matters other than those in (1)
   General Principle (1-1) of the Company's Basic Policy requires the implementation of causal analysis and the consideration of whether or not dialogues with shareholders, etc. are necessary, as well as the disclosure thereof as needed, if votes against a matter proposed by the Company exceed 25% at the general meeting of shareholders. The ratio of opposition against the proposal of the renewal of takeover defense measures (ratio of the number of voting rights against the proposal to the total number of voting rights exercised for the proposal (however, limited to those in which pros, cons and abstention were confirmed)) at the 71st Ordinary General Meeting of Shareholders of the Company held on February 25, 2021 ended up at about 35%.
   In response to this result, the Company's Board of Directors resolved at its regular meeting held on April 26, 2021 to sincerely conduct an analysis of the factors behind this result and disclose the following results of deliberations in the Corporate Governance Reports.
   (Results of deliberations)
   With respect to the takeover defense measures of the Company, given that some of them (independence of outside directors and the term of office of directors, etc.) do not meet the formal approval criteria set by the voting advisory company, opposition to the proposal at the Company's general meeting of shareholders is recommended. However, they are not takeover defense measures that will harm the common interests of shareholders in practical terms, and the Company has decided that it will meet the interest of many shareholders to be prepared for the elimination of a large-scale acquisition of the shares that will not contribute to the continuous enhancement of the corporate value of the Company and the common interests of its shareholders (for example, those that would obviously harm the corporate value and the common interests of the shareholders, those with the potential to effectively coerce shareholders into selling their shares, and those that would temporarily control the Company's management to acquire important assets at a low price, or the so-called company disintegration-type acquisition). Therefore, the Company will continue to make efforts to gain the understanding of shareholders through dialogues with them.

2. Capital Structure

	Foreign shareholding ratio		Over 30%
【Major Shareholders】
	Name of shareholders	Number of Owned	Share Holding
			Shares	Ratio (%)
	Seiichiro Yamaguchi	12,885,500	27.31
	Zeus Capital Limited	6,000,000	12.71
	QUINTET PRIVATE BANK（EUROPE）S.A.107704	3,777,400	8.00
	SSBTC CLIENT OMNIBUS ACCOUNT	1,804,400	3.82
	The Master Trust Bank of Japan, Ltd. (Trust Account)	1,523,200	3.22
	Custody Bank of Japan, Ltd. (Trust Account)	851,900	1.80
	GOLDMAN, SACHS& CO. REG	843,223	1.78
	GOVERNMENT OF NORWAY	835,929	1.77
	NORTHERN TRUST CO. (AVFC) RE IEDU UCITS CLIENTS	778,400	1.65
	NON LENDING 15 PCT TREATY ACCOUNT
	SMBC Nikko Securities Inc.	628,700	1.33
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