Chori : Corporate Governance Report

Corporate Governance Report

CORPORATE GOVERNANCECHORI CO., LTD.

Last Update: June 18, 2024

CHORI CO., LTD.

Tatsuyuki Sakoda, President, CEO & COO Inquiries: 03-5781-6201 Stock code: 8014 https://www.chori.co.jp/english/

The status of corporate governance at CHORI CO., LTD. is as follows.

• Basic approach to corporate governance, capital structure, company attributes, and other basic information

1. Basic approach

1. Basic approach

The corporate philosophy of Chori and its subsidiaries (the "Chori Group") says, "As members of the global community, we will work for the betterment of society. We take pride in being fair and sincere, and in continuing to offer superb service in order to deliver superior customer satisfaction."

Based on this corporate philosophy, aiming for sound management and sustainable growth, CHORI CO., LTD. (the "Company") is working to develop a structure to ensure the appropriateness of its operations.

The Company positions the Board of Directors as a body to make strategic decisions and oversee business, and is striving to strengthen corporate governance while complying with laws and social norms, conducting operations effectively and efficiently, and ensur ing the reliability of financial reporting.

To further strengthen the transparency and oversight function of the Board of Directors, the Company has an Audit & Supervisory Committee in place, the majority of which consists of outside directors. Directors who are Audit & Supervisory Committee memb ers exercise voting rights at Board of Directors' meetings. To deepen discussions at Board meetings, the maximum number of directors (excluding those who are members of the Audit & Supervisory Committee) is limited to 10, and the term of office of directors (excluding those who are members of the Audit & Supervisory Committee) and executive officers is set at one year to ensure a results-centered approach. The number of directors who are members of the Audit & Supervisory Committee is limited to five. The Governance Committee, established as a voluntary advisory body to the Board of Directors, consists of the president, CEO & COO and two outside directors who satisfy the requirements for independent directors as stipulated by the Tokyo Stock Exchange. The majority of t he committee's members are outside directors, and an outside director serves as its chair. The Governance Committee deliberates matters such as the nomination of director candidates, policies for determining director compensation, and matters related to the protection of minority shareholder interests. It reports on these matters to the Board of Directors to further strengthen corporate governance.

In addition, the Internal Auditing Department carries out operational audits regarding the legitimacy, appropriateness, and effectiveness of business execution as well as anticipated management risks.

The Company has established internal regulations concerning the management of subsidiaries. The regulations provide a certain level of authority and allow for flexibility while ensuring that business operations are appropriately and efficiently executed.

2) Basic policies

We strive to do the following:

1. Ensure the rights and equality of shareholder
2. Engage in appropriate collaboration with stakeholders other than shareholders
3. Ensure appropriate information disclosure and transparency
4. Ensure the Board of Directors fulfills its roles and responsibilities to promote transparent, fair, prompt, and resolute decision-making
5. Engage in constructive dialogues with shareholders

Reasons for not implementing principles laid out in the Corporate Governance Code

The Company implements all the principles of the Corporate Governance Code.

Disclosure based on principles laid out in the Corporate Governance Code

[Principle 1-4Cross-Shareholdings]■Cross-Shareholdings

(1) Policies regarding holding and reducing the number of cross-shareholdings

The Chori Group may acquire and hold shares of listed companies (hereinafter "cross-shareholdings") in order to maintain, expand, and sustainably develop its business. In such cases, the Board of Directors and other bodies decide on acquisitions after determining the department in charge of the acquisition and considering the business conditions of the investees and the profitability of the investment. The Board of Directors verifies the significance of the cross-shareholdings each year and considers the sale or reduction of shares that are deemed to be of no significance.

(2) Details of verification of cross-shareholdings

Those shares that are held are verified each year for their rationality from the perspectives of the significance of each acquisition and holding, profitability of the investment, transaction scale, and relevant profits. The Company reduces the number of shares of stocks that have become less significant due to changes in business relationships or for some other reason.

(3) Criteria for exercise of voting rights in relation to cross-shareholdings

While respecting the management policies of investee companies, we exercise our voting rights appropriately after suitably co nsidering and judging whether the proposal in question will lead to an increase in the corporate value of the Chori Group and the investee companies in the medium to long term. We also consider the following points in making a comprehensive judgment about the exercise of voting rights.

a. Whether there has been a significant deterioration in business performance or financial position b. Whether there has been any serious compliance violation

c. Whether dividends are paid

d. Whether there are other agenda items that may be detrimental to shareholder value

The Board of Directors each year receives a report on the results of the exercise of voting rights. In addition, we comply with insider

trading regulations when acquiring or disposing of listed shares.

[Principle 1-7 Related Party Transactions]

■Appropriate procedures for related party transactions

Competitive transactions and transactions involving conflicts of interest between the Company and its directors and executive officers are subject to approval by the Board of Directors in accordance with relevant laws and regulations and the "Regulations of the Board of Directors." If such a transaction is conducted, pertinent facts related to the transaction are reported to the Board of Directors.

In addition, transactions between the Company and major shareholders are decided after negotiations, taking market prices and other factors into account. The status of transactions with major shareholders is regularly reported to the Governance Committee. Please also refer to "Ⅰ Basic approach to corporate governance, capital structure, company attributes, and other basic information, 4. Policies regarding the protection of minority shareholders in the event of transactions involving controlling shareholders " in this report and "Part I Overview of Company, Section 5 Financial Status, [Related Party Information]" in our Annual Securities Report.

https://www.chori.co.jp/ir/library/report/

[Supplemental principle 2-4-1 Ensuring diversity within the Company, including promoting the active participation of women] ■Ensuring diversity in promotion of core human resources

The Company has established an "ideal employee profile" in our Human Resource Policy, which is used in the "Human Resources Management Policy of the Chori Group" as a code of conduct for employees and as the basis for personnel policies related to recruiting, training, transfers, and evaluations. We respect the fundamental human rights of each employee, eliminating unfair discrimination based on nationality, race, religion, sex, age, disability, and other factors, and promoting human resource development that enables each employee to maximize their abilities and the creation of an environment in which they can work in a healthy and vigorous manner.

In our medium-term management plan, "Chori Innovation Plan 2025", we have set a target ratio of 30% or more women among the total number of people hired for general positions and those who change to general positions, and aim to increase the ratio of women in management positions. We are promoting efforts to further expand opportunities for women to play active roles in the future, including the response to the Act on the Promotion of Women's Participation and Advancement in the Workplace .

We also focus on mid-career hiring, with mid-career hires accounting for approximately 40% of the employees who have joined the Company in the last five years. Furthermore, we are actively recruiting and promoting non-Japanese employees to promote global business development, which is one of the strengths of trading companies. A total of approximately 500 employees hired locally work at our various overseas bases, and some have been promoted to important positions such as supervisors.

We will continue to promote the appointment of diverse human resources to realize a basic policy of our medium-term plan, which is to become "a corporate group that continues to evolve and change on a global scale, underpinned by its exceptional capabilities and expertise."

As for promoting the participation of women, we have set the aforementioned specific numerical targets, which we are working to achieve as a priority. We have not set specific numerical targets regarding mid-career recruitment and recruitment of non-Japanese. However, we are employing various measures with the goal of improving respective ratios.

[Principle 2-6 Roles of Corporate Pension Funds as Asset Owners] ■Exercise of role as asset owner

The Company has not adopted a corporate pension plan.

[Principle 3-1 (i) Full Disclosure]

■Corporate philosophy, management strategies, and management plans

The Company has formulated a corporate philosophy, corporate slogan, and management policy, which can be found on our website. https://www.chori.co.jp/english/company/philosophy/

In addition, our three-yearmedium-term management plan, "Chori Innovation Plan 2025", which we disclosed on April 28, 2023, is positioned as the final stage of our "Chori Innovation Plan", which we have been promoting since the fiscal year ended March 2018, with the aim of "normalizing ordinary profit in the ¥10 billion range. As stated in our medium-term plan, the Chori Group is pursuing its VISION2030 with the keywords of sustainability, well-being, and innovation, and is working to further improve its corporate value as it targets net sales of ¥400 billion and profit before income taxes of ¥20 billion in the fiscal year ending March 2031.

Please refer to our medium-term management plan, which is available on our website. https//www.chori.co.jp/english/ir/management/plan.html

[Principle 3-1 (ii) Full Disclosure]

■Basic approaches and basic policies regarding corporate governance

Our basic approach to corporate governance is described in "Ⅰ Basic approach to corporate governance, capital structure, company attributes, and other basic information, 1. Basic approach" of this report.

[Principle 3-1 (iii) Full Disclosure]

■Policies and procedures for decisions on compensation

For our policies and procedures for determining compensation for executive directors and executive officers, please refer to "Ⅱ Status of corporate management organizations and other corporate governance structures related to management decision-making, execution, and direction, 1. Organizational composition and operation, Director compensation " in this report and "Part I Overview of Company, Section 4 Status of the submitting company, 4. Corporate governance status, etc., (4) Compensation for executive officers, etc. " in our Annual Securities Report.

https://www.chori.co.jp/ir/library/report/

[Principle 3-1 (iv) Full Disclosure]

■Policies and procedures for selection or dismissal of director candidates

(1) Policies and procedures for selection of top management (directors and executive officers)

The Board of Directors is composed of members with diverse perspectives, experience, and skills to ensure transparent, fair, prompt, and resolute decision-making. We ensure that outside directors who are Audit & Supervisory Committee members have a high degree of independence so they can exercise effective supervisory functions. In addition, we expect them to have a certain level of knowledge about the trading industry to which the Company belongs.

The president and the Governance Committee propose nominations of directors (excluding directors who are Audit & Supervisory Committee members) to the Board of Directors after deliberation by the Governance Committee. Following a resolution by the Board of Directors, the nominations are then submitted as proposals to the General Meeting of Shareholders. The president and the Governance Committee also propose nominations of director candidates who are to serve as Audit & Supervisory Committee members to the Board of

Directors after deliberation by the Governance Committee and approval by the Audit & Supervisory Committee, and those nominations are then submitted as proposals to the General Meeting of Shareholders.

Executive officers are defined as those responsible for the execution of the Company's business operations, and after deliberation by the Governance Committee, the president and the Governance Committee propose candidates to the Board of Directors, and candidates are selected by resolution.

(2) Policies and procedures for dismissal of top management

In the event of a serious legal or compliance violation by a member of top management, the Governance Committee discusses the dismissal of that member. Based on the results of such discussion, the Board of Directors will thoroughly deliberate and consider dismissal, following procedures in accordance with laws and regulations, the Articles of Incorporation, etc.

[Principle 3-1 (v) Full Disclosure]

■Reasons for selections and nominations of individual director candidates

Please refer to the reference documents in the Notice of the Annual General Meeting of Shareholders for the reasons for selection of director candidates. The notice is available on our website.

https://www.chori.co.jp/english/ir/stock/assembly/

[Supplemental principle 3-1-3 Full disclosure] ■Initiatives on sustainability

As stated in its corporate philosophy, the Chori Group promotes sustainability-based management to continuously contribute to "the betterment of society as members of the global community." The Company positions the Board of Directors as a body to make strategic decisions and oversee business, and is striving to strengthen corporate governance while complying with laws and social norms, conducting operations effectively and efficiently, and ensuring the reliability of financial reporting.

In addressing sustainability in general, we established the Sustainability Promotion Preparatory Committee in July 2023 to promote sustainability as called for in our medium-term management plan, "Chori Innovation Plan 2025", and have been considering such matters as our basic sustainability policy and materiality. Following considerations during the preparatory period, we established the Sustainability Promotion Committee on April 1, 2024. The purpose of the Sustainability Promotion Committee is to promote specific measures related to Chori's sustainability and work to enhance Chori's sustainable corporate value, set targets and check their progress, and monitor other sustainability measures.

In addition, in April 2024, we identified materiality (key issues) and formulated sustainability-related policies.

The Company regards each and every one of its Group employees as its most valuable management resource and has established its policy for human resources, "Utilize people, and be useful to them. Nurture people, and develop with them. Connect people, and join together with them" to secure and nurture exceptionally talented individuals who are indispensable to the growth of our business.

As a company that has been in business for over 160 years, we believe it is our mission to continue to grow together with our employees and pass our traditions to the next generation. We aim to realize a cycle in which each employee gains a sense of pride and accomplishment in their work, feels a sense of personal and professional growth, and gets a sense of happiness, which in turn, leads to improvement of corporate value. To achieve this, our medium-term management plan, "Chori Innovation Plan 2025", includes three strategies related to human resources: investment in human capital, improvement of engagement, and promotion of health management.

In addition, we strive to appropriately disclose information regarding the impact of climate change-related risks and earnings opportunities on our business activities and earnings, based on the framework suggested by the Task Force on Climate-related Financial Disclosures (TCFD). (For details, please refer to "Disclosure based on TCFD recommendations" on our website.)

Please refer to our website, our Annual Securities Report, and our communication report, "Tsumugu Report," for information on our sustainability and human capital initiatives, etc.

Notice Regarding Identification of Material Issues (Materiality) and Establishment of Sustainability -Related Policies: https://contents.xj-storage.jp/xcontents/AS04137/8424ad2d/1181/461b/b390/c5ba95eed683/20240425143639366s.pdf

Disclosure based on TCFD recommendations:	https://www.chori.co.jp/english/sustainability/environment/tcfd.html
Sustainability:	https://www.chori.co.jp/english/sustainability/
Annual Securities Report, etc.:	https://www.chori.co.jp/ir/library/report/
Tsumugu Report:	https://www.chori.co.jp/english/ir/library/tsumugu/

[Supplemental principle 4-1-1 Roles and responsibilities of the Board of Directors (1)] ■Roles and responsibilities of the Board of Directors

The Company positions the Board of Directors as a strategic decision-making and business oversight body and has established the Regulations of the Board of Directors to clarify the responsibilities and operations of the Board of Directors, items to be resolved by the Board, and the responsibilities of directors. In addition, the Board of Directors can delegate business execution decisions to directors to facilitate prompt business execution. The scope of authority of directors (excluding directors who are Audit & Supervisory Committee members) and executive officers is clearly defined by the Board of Directors in the Authority Rules.

[Principle 4-9 Independence Standards and Qualifications for Independent Outside Directors] ■Independence standards and qualifications for independent outside directors

In addition to the requirements of the Companies Act, the Company determines independence based on the absence of special personal, capital, or other interests between the Company and the relevant parties in accordance with the requirements for in dependence as stipulated by the Tokyo Stock Exchange.

[Supplemental principle 4-10-1 Use of voluntary mechanisms]

■Strengthening independence, objectivity, and accountability in Board of Directors functions

The Company has established the Governance Committee as an advisory body to the Board of Directors for the purpose of strengthening independence, objectivity, and accountability in Board of Directors functions related to director nominations, compensation, and other matters, and for the purpose of protecting the interests of minority shareholders. For details, please refer to the supplementary explanation in "Ⅱ Status of corporate management organizations and other corporate governance structures related to management decision-making, execution, and direction, 1. Organizational composition and operation, Voluntary committees, Status of establishment of voluntary committees, member composition, and attributes of chair " of this report.

[Supplemental principle 4-11-1 Prerequisites for ensuring the effectiveness of the Board of Directors]

■The overall balance of knowledge, experience, and abilities of the Board of Directors, approach to diversity and size, and policies and procedures regarding the appointment of directors

• The Company strives to enhance corporate governance by appointing outside directors to at least one-third of the total number of director positions to ensure the objectivity and appropriateness of the Board of Directors.
• The Board of Directors is composed of members with diverse perspectives, experience, and skills to ensure transparent, fair, prompt, and resolute decision-making. We ensure that outside directors who are Audit & Supervisory Committee members have a high degree of independence so they can exercise effective supervisory functions. In addition, we expect them to have a certain level of knowledge about the trading industry to which the Company belongs. The president and the Governance Committee propose nominations of directors (excluding directors who are Audit & Supervisory Committee members) to the Board of Directors after deliberation by the Governance Committee. Following a resolution by the Board of Directors, the nominations are then submitted as proposals to the General Meeting of Shareholders. The president and the Governance Committee also propose nominations of director candidates who are to serve as Audit & Supervisory Committee members to the Board of Directors after deliberation by the Governance Committee and approval by the Audit & Supervisory Committee, and those nominations are then submitted as proposals to the General Meeting of Shareholders.
• We determine the independence of outside directors by the fact that they have no special personal, capital, or other interests in the Company, in accordance with the requirements for independence as stipulated by the Tokyo Stock Exchange and the requirements of the Companies Act.
• Please refer to the Notice of the Annual General Meeting of Shareholders and Annual Securities Report for the main backgrounds of each director and the skills matrix of the Board of Directors.

Notice of the Annual General Meeting of Shareholders:	https://www.chori.co.jp/english/ir/stock/assembly/
Annual Securities Report, etc.:	https://www.chori.co.jp/ir/library/report/

[Supplemental principle 4-11-2 Prerequisites for ensuring the effectiveness of the Board of Directors] ■Status of outside directors concurrently holding other positions

Please refer to the Notice of the Annual General Meeting of Shareholders and Annual Securities Report for the status of important

concurrent positions of outside directors.
Notice of the Annual General Meeting of Shareholders:	https://www.chori.co.jp/english/ir/stock/assembly/
Annual Securities Report, etc.:	https://www.chori.co.jp/ir/library/report/

[Supplemental principle 4-11-3 Prerequisites for ensuring the effectiveness of the Board of Directors] ■Evaluation of the effectiveness of the Board of Directors

The Company conducts an evaluation of the effectiveness of the Board of Directors each year in order to realize a more effective Board of Directors. The evaluation process involves conducting a questionnaire with all directors on the composition, operation, discussions, and support system of the Board of Directors and then compiling the views of each director.

Based on the results of the questionnaire, the Governance Committee and the Board of Directors evaluate and analyze the effectiveness of the Board of directors as a whole. Through this process, it was determined that the Board of Directors is composed of suitably qualified members that include outside directors, and the Borad of Directors ' meetings are held in a free and open environment that facilitates constructive discussions and the exchange of opinions. Accordingly, it has been deemed that the Board of Directors is operating appropriately on the whole and that its effectiveness is ensured.

We have confirmed that feedback on the status of dialogue with shareholders and investors, which was identified as an issue in the previous fiscal year, has shown improvement. As an ongoing issue, we recognize the need for further discussion and expansion of deliberations based on follow-up on the progress of the medium-term management plan beyond quantitative targets. In addition, we have shared the opinion that sufficient discussion should be held with an awareness of profitability, capital efficiency, and other factors in determining management strategies and plans. Furthermore, we have shared the opinion that in determining succession plans and director compensation, the way in which discussions and reports are to be conducted by the Board of Directors should be consi dered based on deliberations by the Governance Committee. Hereafter, we will continue to discuss management and business issues we have identified and continuously work to improve the effectiveness of the Board.

[Supplemental principle 4-14-2 Director training] ■Director training policy

Our basic policy is to provide directors with training opportunities to help them properly fulfill their roles and responsibilities. Our annual internal executive training includes lectures and training by experts. The Company also provides training for newly appointed executives and opportunities to participate in outside seminars sponsored by economic organizations and others. From time to time, we pr ovide outside directors with information on the Chori Group's management philosophy, corporate management, business activities, organization, etc., with the aim of deepening their understanding of these aspects of the Chori Group. Prior to meetings of the Board of Directors, we also provide outside directors with explanations of agenda items to be discussed at those meetings.

[Principle 5-1 Policy for Constructive Dialogue with Shareholders] ■Policy for constructive dialogue with shareholders

1. The executive officer in charge of information handling oversees matters related to investor relations (IR) and public relations, cooperate with the Corporate Management Department and relevant departments, and communicates information to shareholders and investors. If a request is made for an interview with an executive officer other than those in charge of matters related to IR and public relations (including outside directors), the Company will consider responding to the request within reasonable limits based on its details.
2. The relevant internal departments proactively cooperate to achieve constructive dialogues with shareholders and investors through the preparation of disclosure materials and the sharing of important information while conducting their business activities.
3. Methods of dialogue other than individual meetings

• General Meeting of Shareholders

The Company regards the general meeting of shareholders as an opportunity to fulfill its responsibility of providing explanat ions to shareholders and works accordingly to carefully address their questions and understand the intent of their opinions.

• Individual investors

The Company promotes dialogue with its individual shareholders by holding company briefings exclusively for such investors, which are attended by the president, CEO & COO of the Company

• Institutional investors

For institutional investors, the Company holds financial briefings attended by the president, CEO & COO upon the conclusion of its six - month and full-year financial results announcements. At these financial briefings, the Company reports on the details of its financial performance, addresses various questions, and collects the opinions of its shareholders. In addition, the department in charg e of IR and public relations conducts individual meetings for institutional investors.

(4) Overview of activities in the fiscal year ended March 2024

• Financial results briefings for institutional investors and analysts: Twice

• Company briefings for individual investors: Once
• Individual IR meetings: 18 times
• Meetings with investors regarding sustainability: Twice

(5) Feedback

The Company promotes the sharing and use of information obtained from dialogues through the reporting of opinions of shareholders to the respective committees and their disclosure to the directors, management executives, and relevant departments as necessary.

In the fiscal year ended March 2024, reports were made at meetings of the Board of Directors in August 2023 and March 2024.

(6) The Company complies with the Insider Trading Prevention Regulations and ensures thorough information management.

[Actions to realize management conscious of capital costs and stock prices] [Disclosure available in English]

We formulate management strategies after gaining an accurate understanding of our own capital costs. We estimate the cost of shareholders' equity to be about 7%, based on the opinions of external institutions . Our ROE (net profit attributable to owners of parent basis) in the fiscal year ended March 2024 was 12.5%, well above the cost of shareholders' equity, and our P/B ratio was 1.02 times, exceeding one, as of the end of March 2024. We will continue to enhance our corporate value by instilling management based on ROIC, we added as a KPI in our medium-term management plan, improving capital efficiency, and steadily implementing the basic strategies set forth in the medium-term plan.

We consider the return of profit to shareholders as one of our most important management issues. We set the dividend amount at a level that satisfies our targets of a consolidated annual dividend payout ratio of 30% and dividend on equity (DOE) of 3.5% or higher, tak ing into consideration the business environment and other factors while securing funds for investment in business development. The consolidated payout ratio in the fiscal year ended March 2024 was 30.2% and DOE was 4.1%.

In addition, the Company has introduced a performance-linked stock compensation plan for executive directors and executive officers, with the aim of providing incentive to sustainably enhance the Company's corporate value and promote further value sharing with shareholders.

2. Capital structure

	Ratio held by non-Japanese		10% or more, and less than 20%
	shareholders
Major Shareholders
	Name or Designation	Number of shares		Percentage
					of shares
				held (Shares)
					held (%)
	Toray Industries, Inc.		12,967,310		52.33
	The Master Trust Bank of Japan, Ltd. (Trust Account)	1,750,300		7.06
	BBH FOR FIDELITY LOW-PRICED STOCK FUND	989,944		3.99
	(PRINCIPAL ALL SECTOR SUBPORTFOLIO)
	Hurex Co., Ltd.		735,700		2.97
	Custody Bank of Japan, Ltd. (Trust Account)		733,600		2.96
	Wacoal Corp.		548,890		2.21
	STATE STREET BANK AND TRUST CLIENT OMNIBUS ACCOUNT OM02 505002	341,040		1.38
	NORTHERN TRUST CO. (AVFC) RE IEDP AIF CLIENTS NON TREATY ACCOUNT	296,000		1.19
	RE FUND 107-CLIENT AC		244,900		0.99
	J.P. MORGAN SE - LUXEMBOURG BRANCH 381639	204,000		0.82
	Controlling shareholders (excluding		―――
	parent company)
	Parent company		Toray Industries, Inc. (Listed: Tokyo Stock Exchange, stock code: 3402)

Supplementary explanation

In addition to the above, the Company holds 522,180 shares of treasury stock.

3. Company attributes

Listed stock exchanges and market	Tokyo Stock Exchange Prime Market
segments

Fiscal year-end

Industry

Consolidated number of employees at end of most recent business year

March

Wholesaling

1,000 or more

Consolidated sales in most recent	¥100 billion or more, and less than ¥1 trillion
business year
Number of consolidated subsidiaries at	10 or more, and fewer than 50
end of most recent business year

4. Policies regarding the protection of minority shareholders in the event of transactions involving controlling shareholders

The Company conducts transactions for the purchase and sale of fibers and chemicals, etc. with the parent company, and the transactions for the current fiscal year amounted to ¥1,430 million in net sales and ¥5,703 million in net purchases. Terms and conditions concerning sales and purchases of fibers, chemicals, etc. are determined through negotiation based on market prices, etc. In addition, the Company utilizes the Toray Group's Cash Management System as a means of fund settlement. Interest rates on these transactions are determined at reasonable levels after due consideration of market interest rates.

The Company's Board of Directors understands the details of the above transactions, and because the final decision-making is carried out independently of the parent company, the Board of Directors deems that there is no harm to the Company's interests.

The Governance Committee, chaired by an Outside Director, periodically deliberates on the transactions with the parent company and its corporate group and ensures their appropriateness. Furthermore, information exchange with the parent company is carried out on a regular basis to understand issues with legal compliance and issues from the viewpoint of efficiency.

If it becomes necessary to deliberate important transactions or actions in which the interests of the controlling shareholder and minority shareholders conflict, we will establish a special committee consisting only of independent outside directors and external experts to address the matter.

5. Other special conditions with significant impact on corporate governance

Toray Industries, Inc., our parent company, holds 12,967,000 of the Company's common shares (52.41% of voting rights).

The Company constantly works to strengthen the combination of our ability to sell and collect information on fibers and chemicals, which represent our core business, in Japan and overseas, and the parent company's ability to develop materials in order to generate synergies and enhance corporate value for both companies. In addition, by operating under a parent company, the Company is able to gain a better understanding of market trends and the business environment, enhance its credibility, and enjoy other benefits that come with being a Group company.

With the exception of one director who does not execute business, the executives and employees at the Company do not concurre ntly serve as executives or employees at the parent company or Group companies and the Company does not accept employees through transfers from the parent company or Group companies. In addition, the Company has its own management plan in place, through the execution of which we have developed our business.

The Company and its parent company, Toray have entered into an agreement to implement the following items in order to achieve sustainable growth and enhance corporate value.

1. Examination of the appropriateness of maintaining the Company's listing
2. Execution of appropriate transactions between the Company and Toray
3. Ensuring the effectiveness of governance that takes into consideration the interests of the Company's general shareholders
4. Appropriate execution of risk management as the Toray Group (including matters for prior consultation on certain matters pertaining to governance and internal control)
   Based on these factors, we believe that the Company's independence from the parent company, etc. in its business operations is

sufficiently ensured.

• Status of corporate management organizations and other corporate governance structures related to management decision-making, execution, and direction

1. Organizational composition and operation

Organization Form	Company with Audit & Supervisory Committee

Directors

Maximum number of directors stipulated 15 in Articles of Incorporation

Term of office stipulated in Articles of Incorporation

Chairman of the Board

Number of directors

Appointment of outside directors

Number of outside directors

Number of outside directors designated as independent directors

1 year

Company president

8

Appointed

3

3

Relationship with the Company (1)

Name

Attribute

Relationship with the

Company*

a

b

c

d

e

f

g

h

i

j

k

Masaaki Sawano

Lawyer

Hiromasa Suzuki

From another company

Hiroko Noda

From another company

• Categories for "relationship with the Company"
• "○" when the director currently falls or has recently fallen under the category; "△" when the director fell under the category in the past
• "●" when a close relative of the director currently falls or has recently fallen under the category; "▲" when the close relative fell under the category in the past
  a Executive of a listed company or its subsidiaries
  b Executive or non-executive director of the parent company of a listed company c Executive of a fellow subsidiary company of a listed company
  d A party whose major client or supplier is a listed company, or an executive thereof e Major client for supplier of a listed company, or an executive thereof
  f Consultant, accountant, or legal professional who receives a large amount of monetary consideration or other property from a listed company aside from executive compensation
  g Major shareholder of a listed company (or an executive of the said major shareholder when the shareholder is a corporate entity)
  h Executive of a client or supplier company of a listed company (which does not correspond to any of d, e, or f) (the said individual only) i Executive of a company between which external directors are mutually appointed (the said individual only)
  j Executive of a company or organization that receives a donation from a listed company (the said individual only) k Other

Relationship with the Company (2)

	Audit &		Supplementary
	Supervisory	Independent
Name	explanation of the	Reasons for appointment
Committee	officer
	applicable item
	member
				Masaaki Sawano satisfies the requirements for
				independent directors as stipulated by the Tokyo Stock
				Exchange, and we have determined that his
				independence has been secured and appointed him as
				an independent director. In addition, we have appointed
Masaaki Sawano	○	○	―――	him as an outside director, as he is expected to provide
appropriate advice regarding the management of the
				Company and on the grounds that he is deeply familiar
				with corporate legal work as a lawyer and has sufficient
				insight to supervise corporate management. We also
				deem that he has no material conflict of interest with
				the Company and that no conflict of interest will arise
				with general shareholders.
				Hiromasa Suzuki satisfies the requirements for
				independent directors as stipulated by the Tokyo Stock
				Exchange, and we have determined that his
				independence has been secured and appointed him as
				an independent director. In addition, we have appointed
				him as an outside director, as he is expected to provide
Hiromasa Suzuki	○	○	―――	appropriate advice regarding the management of the
Company and on the grounds that he has many years
				of involvement in corporate management and a wealth
				of experience in group management as a top executive
				of a company, which involved orchestrating the
				establishment of a company. We also deem that he has
				no material conflict of interest with the Company and
				that no conflict of interest will arise with general
				shareholders.
				Hiroko Noda satisfies the requirements for independent
				directors as stipulated by the Tokyo Stock Exchange,
				and we have determined that her independence has
				been secured and appointed her as an independent
				director. In addition, we have appointed her as an
				outside director based on her knowledge, experience,
Hiroko Noda		○	―――	and abilities as a certified public accountant as well as
○	her sufficient expertise in management gained through
				her years of experience as an outside director and a
				management consultant. As an outside director, she is
				expected to provide appropriate advice to the
				Company's management. We also deem that she has
				no material conflict of interest with the Company and
				that no conflict of interest will arise with general
				shareholders.

Audit & Supervisory Committee

Member composition and chair attributes

	Total number of		Full-time members		Inside directors		Outside directors		Chair
	members
Audit & Supervisory	4		1		1		3		Inside director

Committee
Directors and employees available to	Yes
assist the Audit & Supervisory
Committee in its duties

Independence of directors and employees providing assistance from the executive directors receiving that assistance

The Company assigns a staff member exclusively to the Audit & Supervisory Committee to support the execution of that committee's duties. The staff member assigned to the Audit & Supervisory Committee is not subject to the instructions or orders of directors (excluding directors who are Audit & Supervisory Committee members), but is subject to the instructions and orders of the Audit & Supervisory Committee. Personnel transfers, evaluations, etc., are carried out only after prior consultation with the Audit & Supervisory Committee, ensuring independence from the operating departments and the effectiveness of the Audit & Supervisory Committee's instructions to the staff member.

Status of collaborations with the Audit & Supervisory Committee, the accounting auditor, and the internal auditing division

1) Status of collaborations between the Audit & Supervisory Committee and the accounting auditor

The Audit & Supervisory Committee meets with the accounting auditor at the beginning of the fiscal year to discuss audit plans and key audit items, regularly receives explanations of the results of the accounting auditor's audits, and holds meetings as necessary to exchange information and opinions. In addition, Audit & Supervisory Committee members attend audits conducted by and review meetings held by the accounting auditor to receive explanations on the status of financial reporting and internal controls, along with explanations on proposals for improvement. This collaboration with the accounting auditor leads to more efficient and effective audits.

2) Status of collaborations between the Internal Auditing Department and the Audit & Supervisory Committee

The Audit & Supervisory Committee receives regular reports on audits conducted by the Internal Auditing Department, confirms the status of business execution by the various departments and subsidiaries, and notifies the Internal Auditing Department of th e results of audits by the Audit & Supervisory Committee, exchanging opinions on relevant matters with the Internal Auditing Department. The Audit & Supervisory Committee collaborates closely with the Internal Auditing Department, requesting information or investigations as necessary, to achieve efficient audits.

Voluntary committees

Voluntary establishment of

committee(s) corresponding toYes nominating committee or compensation committee

Status of establishment of committees, member composition, and chair attributes

		Committee name
Voluntary committee		Governance
equivalent to
	Committee
nominating committee
Voluntary committee		Governance
equivalent to
	Committee
compensation
committee

Total number		Full-time
of members		members
3		0
3		0

Inside		Outside		Outside		Other
directors		directors		experts		members
1		2		0		0
1		2		0		0

Chair

Outside director

Outside director

Supplementary explanation

The Company established the Governance Committee as a voluntary advisory body to the Board of Directors . It aims to strengthen independence, objectivity, and accountability in its functions related to director nominations, compensation, and other matters, and to protect the interests of minority shareholders. The Governance Committee has three members, the Company's president, CEO & COO and two independent outside directors. Independent outside directors therefore form a majority. An independent outside director serves as the chair.

The following activities were conducted in the fiscal year ended March 2024.

Number of meetings: 6

Committee composition

Chair:

Masaaki Sawano (independent outside director)

• Member: Hiromasa Suzuki (independent outside director)
• Member: Kazuo Sakihama (president, CEO & COO)

Attendance

• Sawano: 6 times
• Suzuki: 6 times
• Sakihama: 6 times

Agenda items and main deliberations

• Matters related to appointment and treatment of executives, and management structure
• Confirmation letter based on CEO succession plan guidelines
• Confirmation of business status between the Company and its parent company
• Results of questionnaire for analyzing and evaluating the effectiveness of the Board of Directors
• Introduction of a performance-linked stock compensation plan, "Board Benefit Trust-Restricted Stock (BBT-RS)"
• Establishment of stock benefit regulations for executives, and partial revision of related regulations

Independent officers

Number of independent officers	3

Other items related to independent officers

―――

Incentives

Status of measures related to	Introduction of performance-linked compensation system
incentives provided to directors

Supplementary explanation of the items in question

The Company has introduced a performance-linked stock compensation system to provide executive directors and executive officers with incentive to continuously improve the Company's corporate value and to promote further value sharing with shareholders (approved at the 76th Annual General Meeting of Shareholders on June 16, 2023; accompanying this adoption, the compensation framework for restricted stock was abolished, and no new restricted stock will be allocated in the future).

Persons receiving stock options

Supplementary explanation of the items in question

―――