Corporate Governance

Basic Policy on Corporate Governance

Chapter 1 General Provisions

Basic Approach to Corporate Governance

Article 1: The Company shall recognize its responsibilities to its shareholders and other stakeholders, and shall work to enhance corporate governance in accordance with this policy in order to ensure the sustainable growth of the Company and to enhance its corporate value over the medium to long term.

Corporate Philosophy, etc.

Article 2: The Company shall establish a corporate philosophy and code of conduct as a foundation for the execution of proper business operations, and all employees shall comply with the ethics set forth in the corporate philosophy and code of conduct.

Appropriate information disclosure

Article 3: The Company shall disclose financial and other information in a timely and appropriate manner in accordance with laws and regulations, and shall also disclose information other than that required by laws and regulations in a timely and appropriate manner.

Basic Capital Policy

Article 4: The basic policy of the Company’s capital policy shall be as follows

Return on equity (ROE) shall be one of the important management indicators, and the Company shall set a target for ROE in its management plan. In addition, we aim to achieve a dividend payout ratio of 40% or more as a means of returning profits to shareholders.

Basic Policy Concerning Policy Shareholdings and Exercise of Voting Rights Related to Policy Shareholdings

Article 5: The Company’s basic policy regarding policy shareholdings of listed shares and basic policy regarding the exercise of voting rights pertaining to policy shareholdings shall be as follows

Basic Policy on Policy Ownership of Listed Stocks

We will hold shares for policy purposes if we believe that holding such shares will enhance our corporate value and benefit all stakeholders, including our shareholders.

Policy on verification of appropriateness of policy shareholdings

Policy stockholdings shall be verified annually based on whether the benefits and risks associated with each stock holding are commensurate with the cost of capital and whether they are in line with the objectives of the holding, such as maintaining medium- to long-term relationships and creating synergies, and the results shall be reported to the Board of Directors and disclosed through appropriate means.

Basic Policy on the Exercise of Voting Rights Pertaining to Shares Held for Policy Purposes

Voting rights for policy shareholdings shall be exercised based mainly on a comprehensive judgment of the following points.

• Contributing to the enhancement of our corporate value or not damaging our corporate value

• Appropriate decision-making that leads to medium- and long-term improvements in the issuer’s corporate value.

Chapter 2 Shareholder Relations

Ensuring shareholder rights

Article 6: The Company shall take appropriate measures to ensure that the rights of shareholders are substantially secured, and shall give due consideration to ensuring the equality of shareholders.

General Meeting of Shareholders

Article 7: The Company shall recognize that the General Meeting of Shareholders is a forum for constructive dialogue with shareholders and shall endeavor to create an environment in which shareholders can exercise their voting rights appropriately.

2 The Company shall send out the convocation notice of the ordinary general meeting of shareholders early and disclose such convocation notice on the Company’s website before sending it out so that shareholders can have sufficient time to consider the proposal of the general meeting of shareholders.

Dialogue with Shareholders

Article 8: The Company’s policy for promoting constructive dialogue with shareholders shall be as follows

Policy to promote constructive dialogue with shareholders

1. The director in charge of the Corporate Administration Division will oversee overall dialogue with shareholders as the director in charge of investor relations.

2. The Administration Division shall hold regular meetings including the director in charge, and confirm and share IR information at such meetings.

3. The Company shall hold semi-annual meetings to which institutional investors and analysts are invited to report and explain its business results, outlook for the next fiscal year, management plan, and progress in achieving the plan. The Company will also disclose such information on its website.

4. The director in charge reports the content of dialogue with shareholders to the Board of Directors and shares the information.

5. The Company shall establish regulations to prevent insider trading and manage insider information.
   In addition, a certain period of time prior to the announcement of financial results shall be a quiet period during which the Company refrains from dialogue with shareholders regarding financial information.

Chapter 3 Responsibilities of the Board of Directors, etc.

Role of the Board of Directors, etc.

Article 9: The Company shall introduce an executive officer system to separate the management supervision function from the business execution function in order to accelerate the decision-making process and strengthen the supervisory function.

2 The main roles of the Board of Directors shall be to make decisions on the Company’s business operations, including decisions on important matters as defined by law, the Articles of Incorporation, and the Board of Directors Regulations, to supervise the execution of the Directors, and to create an environment that supports appropriate risk-taking by senior management.

3 In principle, the Company shall hold a management meeting consisting of directors, executive officers and heads of important organizations, including the president, twice a month to approve proposals by senior management and to supervise the execution of such proposals.

Operation of the Board of Directors

Article 10: In principle, materials concerning resolutions of the Board of Directors and matters to be reported shall be provided to officers three (3) business days prior to the meeting of the Board of Directors in order to ensure a sufficient period of time for consideration.

2 Explanation of the contents of this document shall be provided to the Outside Directors and Outside Corporate Auditors as soon as possible after it is provided to them.

Related Party Transactions

Article 11: The Company shall not engage in any competing transactions or transactions involving conflicts of interest among directors and related parties such as management and controlling shareholders, as defined by the Companies Act, without the approval of the Board of Directors.

Qualifications and Nomination Procedures for Directors, etc.

Article 12: The Company’s Directors shall possess excellent humanity, high ethical standards, and a wealth of experience, and shall act in accordance with the Company’s corporate philosophy and code of conduct. The same shall apply to executive officers.

2 Based on the first paragraph of this Article, candidates for Directors shall be determined by the Board of Directors.

3 Based on the first paragraph of this Article, the selection and dismissal of executive officers shall be determined by the Board of Directors.

Role of Corporate Auditors, etc.

Article 13: The primary role of the Statutory Auditors shall be to audit the execution of duties by the Directors.

Qualifications and Nomination Procedures for Corporate Auditors

Article 14: Corporate auditors of the Company shall be persons of good character, high ethical standards, and a wealth of experience, and shall act in accordance with the Company’s corporate philosophy and code of conduct.

2 Candidates for corporate auditor shall be determined by the Board of Directors based on this Article and with the consent of the Board of Corporate Auditors.

Director and Auditor Training

Article 15: Directors and corporate auditors of the Company shall actively collect necessary information in order to fulfill their roles and responsibilities.

2 The Company’s training policy for directors and corporate auditors shall be as follows

Training Policy for Directors and Corporate Auditors

Directors and corporate auditors shall endeavor to acquire the knowledge necessary to fulfill their roles and responsibilities upon and after assuming office, and the Company shall provide them with opportunities to do so.

Role of Independent Outside Directors

Article 16: The primary role of independent outside directors shall be to supervise the management of the Company from the perspective of a position that is free from any conflict of interest with general shareholders.

Criteria for Independence of Independent Outside Directors and Outside Corporate Auditors

Article 17: The criteria for determining the independence of the Company’s Independent Outside Directors and Outside Corporate Auditors shall be separately stipulated and disclosed.

Remuneration for directors, etc.

Article 18: The Company’s policy on remuneration, etc. for directors, corporate auditors and executive officers (“Officers, etc.”) shall be as follows

• Compensation for internal directors and executive officers shall consist of fixed compensation, performance-linked compensation and performance-linked stock compensation.

• Remuneration for outside directors and corporate auditors shall be fixed remuneration only.

• Performance-linked compensation shall be calculated based on the performance indicators of net sales, gross profit, and operating income, as well as the degree of performance achievement.

• The performance-linked stock compensation for internal directors shall employ a “stock benefit trust (hereinafter referred to as BBT (Board Benefit Trust)”. BBT is an incentive grant system linked to stock value in accordance with the resolution of the Company’s 64th annual general meeting of shareholders held on June 29, 2017 and the director stock benefit regulations provided separately. The Company’s shares and money equivalent to the amount of the Company’s shares converted at market value (hereinafter referred to as the “Company’s shares, etc.”) shall be paid as an incentive plan linked to the value of the Company’s shares in accordance with the resolution of the Company’s 64th annual general meeting of shareholders held on June 29, 2017 and the director share benefit regulations separately stipulated. In principle, the Company’s shares, etc. shall be paid at the time of retirement of a director.

• The performance-linked stock compensation for executive officers shall be provided through a “Stock Benefit Trust (hereinafter referred to as “J-ESOP” (Japanese version of Employee Stock Ownership Plan)),” which is an incentive plan linked to the value of the Company’s shares and cash equivalent to the amount obtained by converting the Company’s shares to market value (hereinafter referred to as “the Company’s shares, etc.”) in accordance with the separately prescribed rules for granting shares to executive officers. The J-ESOP is an incentive plan linked to the value of the Company’s shares and the Company’s shares converted at market value (hereinafter referred to as the “Company’s shares, etc.”). In principle, the Company’s shares, etc. shall be paid at the time of the Executive Officer’s retirement.

Self-assessment

Article 19: Each director shall annually conduct a self-evaluation of the effectiveness of the Board of Directors and his/her own performance as a director, and submit the results of such self-evaluation to the Board of Directors. The Board of Directors shall analyze and evaluate the effectiveness of the Board of Directors as a whole based on each director’s self-evaluation, and shall disclose a summary of the results in a timely and appropriate manner.

Independence Criteria for Outside Directors and Outside Corporate Auditors

1. A person who is our major business partner (*1) or its executive person (*2)

2. Our major business partners or their executive officers

3. Our principal lenders (*3) or their executive officers

4. Consultants, accounting experts, or legal experts who receive more than ¥10 million per year in cash or other assets from the Company other than remuneration for directors and corporate auditors (if the person receiving such assets is a corporation, partnership, or other organization, a person belonging to such organization).

5. The Company’s accounting auditor or employees, etc. of such accounting auditor

6. Our major shareholder(*4) (If our major shareholder is a corporation, the person who executes the business of the corporation)

7. Executives of organizations to which we donate a certain amount of money (*5)

8. Companies in which the Company’s executive officers serve on the Board of Directors

9. Applicants who have met 1-8 above in the past 3 years.

10. Close relatives of persons falling under 1 to 9 above and the following (*6)
    1) Persons who execute the business of our group (including directors who do not execute the business)
    (ii) A person who has fallen under (i) above in the past three years.
    Even if a person does not meet these criteria, the Company may designate a person as an independent director/auditor if the Company determines that the person has independence, after disclosing the reason for such designation.

Created: December 8, 2015
Updated: April 1, 2025
TDC SOFT Inc.

Hiroyoshi Kobayashi, President and Representative Director