Corporate Governance Report
Last Update: July 5, 2024

TOCALO Co., Ltd.
Kazuya Kobayashi, President
Contact: HR & General Affairs Division(+81-78-303-3433)
Securities Code: 3433
https://www.tocalo.co.jp

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

I.

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 growthof the Group as a whole, and thereby contribute to society through our surface treatment processing
business.
[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 2024. 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 associatedvoting rights. Voting rights would be exercised, for example, in cases where shareholder value issignificantly damaged or a serious non-compliance is found. Any decisions whether or not to approve
proposals will be made only after collecting sufficient information.

[Principle 1-7

Transactions with related parties]-1-Based on the Rules of the Board of Directors, the Company regards matters such as competitivetransactions, conflict-of-interest transactions, and the acquisition/disposal of large amounts ofequipment/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 2-4-1

Ensuring diversity in the appointment of core human resources, etc.]

With developing diverse human resources to play an active role set as a priority issue (materiality) for
achieving sustainable growth, the hiring practices of the Company emphasize an individual’s abilities andachievements, regardless of gender or nationality, while also respecting different perspectives and values.
The Company focuses on human capital development and improvement of the internal environment so that
employees can work vibrantly by exerting their personalities and abilities.

With regard to human capital development, the Company has taken measures that:
1. Improve proposal-type sales skills in order to provide optimal solutions.
2. Nurture originality and ingenuity in manufacturing and solidify a firm base for it (human resource
development).
3. Provide skills in exploring quality control methods.
4. Foster a corporate culture in which employees can work on technological development with a flexible
mindset.
5. Provide digital skills training and identify DX human resources.
6. Encourage a higher perspective and foster strategic thinking through the global challenge program(development of core human resources).

For internal environment improvement, the Company has taken measures that:
1. Foster a psychologically safe corporate culture.
2. Maintain and improve a work environment that is comfortable, healthy and safe.
3. Provide fair growth opportunities through performance-based evaluations.
4. Support employees in their efforts to balance work and childcare/nursing care responsibilities.
5. Create a workplace environment that enables employees to choose flexible workstyles and work
healthily.
6. Provide learning opportunities and establish an award program.
For details, KPIs, and target values of the measures, please refer to our website.
(https://www.tocalo.co.jp/sustainability/employee/)[Principle 2-6

Fulfilling responsibilities as owner of corporate pension assets]-2-

Regarding the management of corporate pension reserve funds, the Company issues management guidelinesthat 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 andassigned 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/ir/management/policy/)
As for management indices, the following items are set as goals in our medium-term management plan.
<Maintaining a strong financial position>
 Maintaining equity ratio of approx. 70% (remaining a real debt-free company)<Maintaining profitability>
 Maintaining ROE (return on equity) (Target: 15%)
 Maintaining ordinary income ratio (Target: 20%)
 Maintaining and improving EPS (earnings per share)<Payout ratio> Stable dividend payment of approx. 50% of net income (Our dividend policy was revised in May 2023,
and the new policy has been applied since the fiscal year ended March 31, 2024)
 Maintaining DOE (dividend on equity ratio) (Target: 5% or more)<Capital investment> Continued investment in maintaining and improving technological advantages totaling 25.0 to 35.0 billion
yen (5 to 7 billion yen per year)
 Investments in semiconductor production increases, new technological processes, production efficiency
improvements, etc.
<Research and development expenses + Technological development expenses>
 Research and development expenses: Maintaining approx. 3% of consolidated net sales Technological development expenses: Continued investments by production engineering divisions of eachplant

2. Basic views on corporate governanceOur 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.

-3-

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 andRemuneration Advisory Committee, with a majority of the members being independent outside directors
and chaired by an independent outside director. The Committee deliberates proposals on theappointment/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 thatthey can utilize to manage the Company, are selected by the Board of Directors based on the advice andrecommendations of the Nomination and Remuneration Advisory Committee. The Board submits theselected 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 composed 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, aresolution that clarifies the reason for dismissal is made by the Board of Directors and submitted to theGeneral 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 eachcandidate 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.

[Principle 3-1-3

Initiatives on sustainability-related challenges]

The Company holds quarterly Sustainability Committee meetings chaired by the President to discussvarious sustainability issues such as greenhouse gas emission reduction, formulate policies, plans, andinitiatives, check the progress of initiatives, and other matters. It also strives to appropriately disclose
information through the corporate website.
Regarding investment in human capital, based on its human capital development policy, the Company
proactively invests in developing human resources to be the best partner to customers. In fiscal 2023, nonconsolidated training expenses amounted to 76 million yen (75.8 thousand yen per employee).

-4-

As for investment in intellectual property, it is the Company’s policy to maintain spending on research anddevelopment and technological development at around 5% of consolidated net sales, aiming to create many
new technologies and know-how through advanced and customized coatings. In fiscal 2023, these expenses
amounted to 2,335 million yen (5.0%).
In addition, with the vision of contributing to a bright future for people and nature, the Company has
positioned tackling climate change as an important management issue, and is advancing initiatives based on
TCFD recommendations and constructively disclosing information in the four core areas of governance,
strategy, risk management, and metrics and targets. Specifically, the Company estimated the financial
impact of risks and opportunities related to climate change, and based on the results, set indicators andtargets for measures deemed particularly important. Going forward, the Company will further refine
analyses and proceed with measures to mitigate risks and increase opportunities based on the set indicatorsand targets. For details, please visit our website. (https://www.tocalo.co.jp/sustainability/tcfd/)[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 businessexecution.

[Principle 4-9

Judgment criteria for independency of independent outside directors and their

qualifications]
The criteria used to judge the independency of independent outside directors and their qualifications aredescribed in II-1 Organizational Composition and Operation of this Report.[A1][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 andRemuneration Advisory Committee, with a majority (four out of seven) of the members being independent
outside directors and chaired by an independent outside director. The Committee deliberates theappointment of director candidates (including succession plans), remuneration for directors, and othermatters, and gives advice and recommendations to the Board of Directors based on which Board resolutions
are made.
At the Company, there are two male and two female independent outside directors who have a broad rangeof specialized skills in corporate management and management strategies, manufacturing and technologies,
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.]-5-

When appointing members to the Board of Directors, our first priority will be to seek persons who havedemonstrated leadership in business execution as a department head and have the knowledge and insight tooversee 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 andexpertise 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 ended March 31, 2024.

[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 thedetails 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 theBusiness Report of the Convocation Notice of the General Shareholder Meeting,[A2] and that of any
candidates to be appointed as new officers, in the Reference Documents for the General Meeting of
Shareholders[A3].

[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 theBoard of Directors based on questionnaires prepared by the Secretariat for the Board of Directors. In fiscal
2023, 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]
Directors of the Company acquire knowledge of roles, responsibilities, laws and regulations by actively
participating in external courses and seminars for self-improvement. Our full-time Audit & Supervisory
Board Members, as members of the Japan Corporate Auditors Association, enhance their knowledge byattending seminars and so on, and share information with other Audit & Supervisory Board Members.

[Principle 5-1

Policy on constructive dialogue with shareholders]Company management or personnel in charge of IR hold financial results briefings and small meetings for
institutional investors every time we announce our quarterly financial results, and hold briefings forindividual investors as well. We also accept requests for individual interviews. By posting IR-related
information and an inquiry form on our website, we provide a platform where general shareholders canobtain information and ask us questions.

-6-

[Response Toward Achieving Management Conscious of Cost of Capital and Stock Price] [Disclosure in
English available]
Having analyzed the current status of our cost of capital and return on capital, we have formulated a
response policy toward improvement. Please visit our website for details.
(Japanese) https://pdf.irpocket.com/C3433/nGVW/JAga/nzkY.pdf(English) https://pdf.irpocket.com/C3433/CiO3/ys5c/Iog1.pdf

2. Capital Structure
Foreign Shareholding Ratio

More than 30%[Status of Major Shareholders]Name / Company Name
The Master Trust Bank of Japan, Ltd.
Custody Bank of Japan, Ltd.
BBH FOR FIDELITY LOW-PRICED STOCK FUND
(PRINCIPAL ALL SECTOR SUBPORTFOLIO)TOCALO Employees Shareholding Association
NORTHERN TRUST CO. (AVFC) RE FIDELITY FUNDSSTATE STREET BANK AND TRUST COMPANY 505001
GOVERNMENT OF NORWAY
Kumiko Saijo
STATE STREET BANK WEST CLIENT - TREATY 505234
KIA FUND F149
Controlling Shareholder (except for Parent
Company)
Parent Company

Number of Shares Owned
10,282,200
6,902,300

Percentage (%)
17.30
11.16

2,813,528

4.73

2,632,204
2,008,485
1,283,835
1,242,990
1,036,400
908,000
858,400

4.43
3.38
2.16
2.09
1.74
1.53
1.45

—
None

Supplementary Explanation—

3. Corporate Attributes
Listed Stock Market and Market Section

TSE Prime Market

Fiscal Year-End

MarchType of Business

Metal Products

Number of Employees (consolidated) as of
the End of the Previous Fiscal YearSales (consolidated) as of the End of thePrevious Fiscal Year

More than 1000

From ¥10 billion to less than ¥100 billion-7-

Number of Consolidated Subsidiaries as of
the End of the Previous Fiscal Year

Less than 10

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling
Shareholder—

5. Other Special Circumstances Which May Have Material Impact on Corporate Governance—

II. Business Management Organization and Other Corporate Governance Systems
regarding Decision-making, Execution of Business, and Oversight in Management
1. Organizational Composition and Operation
Organization Form

Company with Audit & Supervisory Board[Directors]
Maximum Number of Directors Stipulated in
Articles of Incorporation
Term of Office Stipulated in Articles ofIncorporation15

2 years

Chairperson of the Board

President

Number of Directors

9

Appointment of Outside Directors

Appointed

Number of Outside Directors

4

Number of Independent Directors Designatedfrom among Outside Directors

4-8-Relationship with the Company (1)NameAttribute

Relationship with the Company*
a

b

c

d

e

f

g

h

i

j

k

Toshimitsu
LawyerKamakura
Keiko Takihara
Other
Yoko Sato
CPA
Kazuyuki Tomita
From another company* Categories for “Relationship with the Company”* “○” when the director presently 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 presently falls or has recently fallen under the category;“▲” when a close relative of the director fell under the category in the pasta. Executive of the Company or its subsidiaries
b. Non-executive director or executive of a parent company of the Company
c. Executive of a fellow subsidiary company of the Company
d. A party whose major client or supplier is the Company or an executive thereof
e. Major client or supplier of the Company or an executive thereof
f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or otherproperty from the Company besides compensation as a director/Audit & Supervisory Board Member[A4]g. Major shareholder of the Company (or an executive of the said major shareholder if the said shareholder isa juridical person)
h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f)(the director himself/herself only)
i. Executive of a company at which an executive of the Company holds concurrent position as an outside
officer (the director himself/herself only)
j. Executive of a company or organization that receives a donation from the Company (the director
himself/herself only)
k. Others
Relationship with the Company (2)NameToshimitsu
Kamakura

Designation as
Independent
DirectorSupplementary
Explanation of
the Relationship—-9-

Reasons of Appointment
Toshimitsu Kamakura has a high degreeof expertise and deep insight as alawyer. He also has no interests in the
Company and is judged to be an outside
director who is unlikely to have aconflict of interest with generalshareholders. Therefore, he has been
designated an independent officer.

Keiko Takihara

—Yoko Sato—

Kazuyuki Tomita—Voluntary Establishment of Committee(s)Corresponding to Nomination Committee orRemuneration Committee

Keiko Takihara has considerable insight
related to health enhancement as aprofessor in the health management
department of a university. She also has
no interests in the Company and isjudged to be an outside director who isunlikely to have a conflict of interest
with general shareholders. Therefore,
she has been designated an independent
officer.
As a certified public accountant, Yoko
Sato has expertise in finance andaccounting. She also has no interests in
the Company and is judged to be an
outside director who is unlikely to havea conflict of interest with generalshareholders. Therefore, she has been
designated an independent officer.
Kazuyuki Tomita has experience indeveloping thin coatings, semiconductor
processes, etc., which was gained byworking for a major manufacturing
company, and has deep insight as amanager of a subsidiary of the said
company. He also has no interests in the
Company and is judged to be an outside
director who is unlikely to have aconflict of interest with generalshareholders. Therefore, he has been
designated an independent officer.

Established- 10 -

Status of Establishment of Voluntary Committee, Composition, and Attributes of Chairperson
Committee Corresponding toNomination Committee
Nomination and Remuneration
Advisory Committee
7

Committee Corresponding to
Remuneration Committee
Nomination and Remuneration
Advisory Committee
7

Full-time Members

00Inside Directors

33Outside Directors

44Outside Experts

0

0

Other

0

0

Outside Director

Outside Director

Committee’s NameAll Committee Members

Chairperson
Supplementary Explanation

For the purpose of ensuring the transparency and objectivity of procedures related to the nomination andremuneration of directors, the Company has set up a Nomination and Remuneration Advisory Committeewith an independent outside director as its chair and independent outside directors accounting for the
majority of its members.
The Committee deliberates the following matters at the request of the Board of Directors, and provides
advice and recommendations to the Board of Directors.
(1) Proposals submitted to the General Shareholder Meeting regarding the appointment and dismissal of
directors(2) Appointments and dismissals of representative directors and their succession plans(3) Policy on determining details of remuneration for directors(4) Details of remuneration for individual directors(5) Reviews of remuneration in the event of a scandal, etc.
(6) Establishment, revision, and abolition of basic policies, rules, procedures, etc. necessary to resolve thepreceding items(7) Other matters stipulated by the Nomination and Remuneration Advisory Committee regarding each of
the preceding items[Audit & Supervisory Board Member]
Establishment of Audit & Supervisory Board

Established

Maximum Number of Audit & Supervisory
Board Members Stipulated in Articles of

5

Incorporation
Number of Audit & Supervisory Board
Members4- 11 -

Cooperation among Audit & Supervisory Board Members, Accounting Auditors and Internal Audit
Department
Audit & Supervisory Board Members meet regularly with the accounting auditors to receive detailed
explanations of audit plans, audit results, etc. from the accounting auditors, and actively exchange opinions
and information on their own views. Additionally, Audit & Supervisory Board Members are present for
onsite audits to hear comments made by the accounting auditors and otherwise hold meetings with theaccounting auditors.
In order to achieve the purpose of the auditing role of Audit & Supervisory Board Members, Audit &Supervisory Board Members regularly review reports on the results of internal audits, etc. from the Auditing
Division and exchange opinions and information with them. Moreover, Audit & Supervisory Board
Members may request the Auditing Division to conduct investigations as necessary, and use the results as areference for their audits.
Appointment of Outside Audit & Supervisory
Board Member
Number of Outside Audit & Supervisory Board
Members

Appointed

2

Number of Independent Directors Designatedfrom among Outside Audit & Supervisory Board

2

Members

Relationship with the Company (1)NameAttribute

Relationship with the Company*
a

b

c

d

e

f

g

h

i

j

k

l

m

Toshihiko Yoshida
From another company
Noriko KajiTax Accountant* Categories for “Relationship with the Company”* “○” when the director presently 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 presently falls or has recently fallen under the category;“▲” when a close relative of the director fell under the category in the pasta. Executive of the Company or its subsidiaryb. Non-executive director or accounting advisor of the Company or its subsidiaries
c. Non-executive director or executive of a parent company of the Company
d. Audit & Supervisory Board Member of a parent company of the Company
e. Executive of a fellow subsidiary company of the Company
f. A party whose major client or supplier is the Company or an executive thereof
g. Major client or supplier of the Company or an executive thereofh. Consultant, accountant or legal professional who receives a large amount of monetary consideration orother property from the Company besides compensation as an Audit & Supervisory Board Member
i. Major shareholder of the Company (or an executive of the said major shareholder if the said shareholder isa juridical person)
j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h)(the Audit & Supervisory Board Member himself/herself only)- 12 -

k. Executive of a company at which an executive of the Company holds concurrent position as an outside
officer (the Audit & Supervisory Board Member himself/herself only)
l. Executive of a company or organization that receives a donation from the Company (the Audit &Supervisory Board Member himself/herself only)
m. Others
Relationship with the Company (2)Name

Independent
Director

Supplementary
Explanation of
Relevant Items

Toshihiko
Yoshida



—



—

Toshihiko Yoshida has expertise andknowledge cultivated during his service
as a full-time auditor of a publicly listedcompany. He also has no interests in the
Company and is judged to be an outside
Audit & Supervisory Board Member
who is unlikely to have a conflict ofinterest with general shareholders.
Therefore, he has been designated an
independent officer.
As a tax accountant, Noriko Kaji has
expertise in finance and accounting. She
also has no interests in the Company
and is judged to be an outside Audit &Supervisory Board Member who isunlikely to have a conflict of interest
with general shareholders. Therefore,
she has been designated an independent
officer.

Noriko Kaji

[Independent Directors]
Number of Independent Directors

Reasons of Appointment

6

Matters relating to Independent Directors—- 13 -

[Incentives]
Implementation of Measures to Provide
Incentives to Directors

Performance-linked Remuneration

Supplementary Explanation
The Company pays performance-linked remuneration, composed of cash remuneration and stock-based
portion of remuneration linked to target performance indicators, as an incentive, with the expectation that it
will sustainably increase corporate value and further promote shared value with shareholders. Morespecifically, the performance-linked remuneration is calculated by applying a multiplier obtained from theaverage of the Group’s ordinary income, ordinary income ratio, ROE, and ROA (ordinary income basis)over the last three years to a base remuneration.
Additionally, target performance indicators and their values are reviewed as necessary in response tochanges in the environment so that they are consistent with management plans, and are determined by the
Board of Directors based on the advice and recommendations of the Nomination and Remuneration
Advisory Committee.
The performance-linked cash remuneration is paid evenly every month. As for the stock-based portion of
the performance-linked remuneration, the Company grants restricted stocks with a transfer restricted periodof 30 years once at some point every year. The restriction on transfer is lifted when any one of the eligible
officers or employees of the Company or its subsidiaries retires from his/her post specified by the Board of
Directors of the Company.
Recipients of Stock Options
Supplementary Explanation—[Director Remuneration]
Disclosure of Remuneration for Individual
Directors

No Individual Disclosure

Supplementary Explanation
There is no single director whose total amount of consolidated remuneration, etc. is 100 million yen or
more, therefore individual remuneration is not listed.
Policy on Determining Remuneration Amounts
and Calculation Methods

Established

Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods
The Company’s policy on determining the details of remuneration for individual directors is established bya resolution of the Board of Directors based on advice and recommendations of the Nomination andRemuneration Advisory Committee, after preliminary deliberation by the Committee.
- 14 -

The details of the policy on determining remuneration for individual directors are as follows.
1. Basic policy
To serve as an appropriate incentive for increasing corporate value, the directors’ remuneration system shalltake into consideration the duties and responsibilities of individual directors, including whether full or parttime, performance of the Company, and other factors. More specifically, remuneration for directors who are
not outside directors or part-time directors consists of a base remuneration, which is a fixed remuneration,and cash remuneration and stock-based portion of remuneration as performance-linked remuneration. For
outside directors and part-time directors, who primarily take on a supervisory role, only base remuneration
shall be paid based on their duties.
2. Policy on determining amounts of base remuneration for individual directors
Base remuneration, or cash remuneration paid monthly, is determined based on duties, responsibilities, andyears of service of each director.
3. Policy on determining details and amounts, and calculating methods of the number of shares for
performance-linked remuneration and non-monetary remuneration granted
The Company pays performance-linked remuneration, composed of cash remuneration and stock-based
portion of remuneration linked to target performance indicators with the expectation that it will further
promote shared value with shareholders. More specifically, the performance-linked remuneration is
calculated by applying a multiplier obtained from the average of the Group’s ordinary income, ordinary
income ratio, ROE, and ROA (ordinary income basis) over the last three years to the base remuneration. The
reasons for having selected these performance indicators are that they are optimal indicators for measuringcontribution to the increase in our corporate value and are objectively clear.
Additionally, target performance indicators and their values are to be reviewed as necessary in response tochanges in the environment so that they are consistent with management plans, and determined by the Boardof Directors based on the advice and recommendations of the Nomination and Remuneration Advisory
Committee.
Performance-linked cash remuneration is paid evenly every month. As for the stock-based portion of
performance-linked remuneration, the Company grants restricted stocks with a transfer restricted period of
30 years once at some point every year. The restriction on transfer is lifted when any one of the eligible
officers or employees of the Company or its subsidiaries retires from his/her post specified by the Board of
Directors of the Company.
4. Payment ratio of base remuneration, performance-linked remuneration, and non-monetary remuneration,etc. for individual directors
The payment ratio of base remuneration, performance-linked remuneration, and stock-based portion of
remuneration for directors who are not outside directors and part-time directors, when the average of theGroup’s ordinary income, ordinary income ratio, ROE, and ROA (ordinary income basis) over the last three
years are achieved, shall be roughly set to 7:2:1, and shall be determined by the Board of Directors based on
the advice and recommendations of the Nomination and Remuneration Advisory Committee.
5. Matters regarding determination of the details of remuneration for individual directors
Specific amounts of remuneration or the number of shares granted for individual directors are drafted basedon the calculation method specified by the Board of Directors, and deliberated in advance by the
Nomination and Remuneration Advisory Committee, which is chaired by an independent outside director
with the majority of the members being independent outside directors. Based on advice andrecommendations of the Committee, President and Representative Director[A5] determines remuneration
for individuals within the scope of power set by a resolution of the Board of Directors.

- 15 -

[Supporting System for Outside Directors and/or Audit & Supervisory Board Members]
The HR & General Affairs Division, which serves as the Secretariat for the Board of Directors, provides
support to outside directors. For outside Audit & Supervisory Board Members, the Auditing Division
provides necessary support for their audits and serves as the Secretariat for the Audit & Supervisory Board.

2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration
Decisions (Overview of Current Corporate Governance System)
1. Overview of business execution, audits and oversight
TOCALO is a corporation with an Audit & Supervisory Board and has appointed outside officers. We
believe that our audit system involving outside Audit & Supervisory Board Members is an effective function
for monitoring management and that the current system is appropriate under the current circumstances of
the Company. We ask our outside directors for advice to ensure and improve legal compliance andtransparency of our corporate management practices and actions.
(1) About business execution
The Board of Directors of the Company consists of nine directors and four of whom are outside directors. In
addition to the Board meeting at least once a month, the Board holds a Management Policy Meeting withthe same members to deliberate and discuss important management issues. Moreover, all directors except
outside directors attend important internal meetings to give instructions and exchange opinions on businessexecution.
(2) Methods of auditing and oversight(a) Internal audits
The Company has set up the Auditing Division under the direct control of President as Internal Audit
Department. Based on the internal audit plan, the Auditing Division conducts internal audits of eachorganization year-round, in principle, and regularly reports results and findings to President to promote
improvements. Internal audits of our subsidiaries are carried out in collaboration with the Corporate
Planning Division and Overseas Business Department of the Company and the Internal Audit Department of
the subsidiary.
(b) Audits conducted by Audit & Supervisory Board Members
The Audit & Supervisory Board of the Company consists of four Audit & Supervisory Board Members(including two outside Audit & Supervisory Board Members). The policy, plan, method and work
assignments of audits conducted by Audit & Supervisory Board Members are determined after consultation
with the Audit & Supervisory Board. All Audit & Supervisory Board Members attend the regular Board
meetings and business policy meetings of the Company, and full-time Audit & Supervisory Board Members
attend other important internal meetings whenever held. Regarding the performance of our subsidiaries, theAudit & Supervisory Board of the Company receives a monthly report in writing from subsidiaries andholds a Group Audit & Supervisory Board Member Liaison Council meeting every three months, at which
Audit & Supervisory Board Members of the subsidiaries report on their quarterly performance, audit results,
etc. In this way, we are actively exchanging information.
- 16 -

(c) Accounting audits
For the fiscal year ended March 31, 2024, the accounting audit work of the Company was executed by twocertified public accountants, Mr. Takuya Urakami and Mr. Teruaki Arioka of PricewaterhouseCoopers
Japan, with the assistance of three certified public accountants and about 13 others (who have passed thecertified accountant examination, etc.). Mr. Takuya Urakami has been providing accounting services to theCompany for one year and Mr. Teruaki Arioka for three years.
2. Strengthening business execution, auditing and oversight(1) Thorough enforcement of compliance and risk management
We have set up a Compliance Committee to build and manage a cross-sectional compliance system that
includes all Group companies. The Compliance Committee discusses important compliance issues andreports the results to the Board of Directors. Furthermore, the Risk Management Committee monitors thestatus of cross-organizational risk management, including compliance-related problems, and examines
measures companywide. In order to promote compliance awareness amongst officers, we have adopted asystem in which a Confirmation of Director’s Business Execution and a Confirmation of Business
Execution of Audit & Supervisory Board Members are submitted to the Audit & Supervisory Board at theend of each fiscal year.
(2) Proactive information disclosure
Recognizing that it is extremely important to disclose information in a timely and appropriate manner to all
stakeholders, including shareholders and investors, we are striving to enhance management transparency
through extensive information disclosure.

3. Reasons for Adoption of Current Corporate Governance System
TOCALO is a corporation with an Audit & Supervisory Board and has appointed outside officers. We
believe that an audit system involving outside officers is an effective function for monitoring management
and that the current system is optimal for the current situation the Company is in.
Additionally, based on the recognition that a company is a member and public entity of society, we believethat the foundation of corporate governance is to ensure management transparency and to further strengthen
the trust placed in us by all of our stakeholders such as shareholders, business partners, employees and local
communities. Alongside that, we aim to increase corporate value and achieve sustainable and sound growthof the Group as a whole, and thereby contribute to society through our surface treatment processing businessand it is amongst the most important management issues. In order to address these issues, we recognize that
it is desirable for us to further enhance our corporate governance system.

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III. Implementation of Measures for Shareholders and Other Stakeholders
1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights
Supplementary Explanations
Early Notification of General
Shareholder Meeting
Scheduling AGMs Avoiding
the Peak Days

Allowing Electronic Exerciseof Voting Rights
Participation in the Electronic
Voting Platform and Other
Initiatives to Improve the
Voting Rights Exercise
Environment for Institutional
Investors
Providing Convocation Notice(Summary) in English
Other

The Convocation Notice of the 73rd Ordinary General Shareholder
Meeting[A6] (held on June 27, 2024) was sent out on June 3.
We try to hold general shareholder meetings early in the reporting season to
avoid the peak days in the business community. This fiscal year, however,we were forced to hold the meeting on a peak day due to venue
arrangements.
Electronic voting over the internet has been an effective means forexercising voting rights.
Voting rights can be exercised using the electronic voting platform for
institutional investors operated by ICJ Co., Ltd.

It has been posted on our website.
With a system in place to invite questions via the Internet prior to eachgeneral meeting of shareholders, we are working to further improve
communication with shareholders.

2. IR Activities
Supplementary Explanations

Explanation Provided byRepresentative Himself

Regular Investor Briefings for
Individual Investors
Regular Investor Briefings forAnalysts and Institutional
Investors

Posting of IR Materials on
WebsiteEstablishment of Department
and/or Manager in Charge ofIR

We exhibit at an investment fair for individual
investors and hold a mini corporate briefing
session once a year.
Twice a year (after fiscal year-end and interim
account closings), President of the Company
holds financial results briefings. Whenquarterly results are available, we hold small
meetings for institutional investors.
We publish earnings briefings, fact sheets,
financial results briefing materials and othermaterials. When an important matter emerges,
it is posted on our website as swiftly as
possible in time with public announcement.
(https://www.tocalo.co.jp/ir/index.html[A7])
The Corporate Planning Division is thecontact point for IR-related inquiries.

- 18 -NoYes

3. Measures to Ensure Due Respect for Stakeholders
Supplementary Explanations
Stipulation of Internal Rules
for Respecting the Position of
Stakeholders

Implementation ofEnvironmental Activities, CSR
Activities etc.

Our management philosophy stipulates that the Company shall be built on
good relationships with and the trust we earn from all stakeholders,
including shareholders, business partners, employees and local
communities. Additionally, in order to manage important matters related tothe business of the Group (internal information), we have establishedInternal Information Management and Insider Trading Control Rules, aswell as a system based on the prompt and fair disclosure of accurate
information.
TOCALO is a manufacturer specialized in surface treatment processing withthermal spraying as the core. Our environmental philosophy is to contributeto society and protect the global environment through the various
advantages that coatings have to offer, such as resource-savings, laborsavings, and environmental load reduction. We have set environmental
targets for the following themes.
(1) Energy and resource conservation in business activities(2) Contribution to the environment by promoting business activities
Moreover, we have formulated an annual budget to actively engage incontribution to communities and society at large. We provided aid fordisaster reconstruction, next-generation education, cultural and artistic
activities, and promotion of sports. We also made donations to children’s
funds and support organizations, and provided aid to international students.

IV. Matters Related to the Internal Control System
1. Basic Views on Internal Control System and the Progress of System Development
In accordance with the Companies Act and the Ordinance for Enforcement of the Companies Act, theCompany decided basic policies on developing a system to ensure the Company business is properly
executed (hereinafter referred to as “Internal Control System”), as follows, at the Board of Directors
meeting held on September 18, 2015.

1. System to ensure that the execution of duties by directors, executive officers, and employees of acorporate group consisting of the Company and its subsidiaries complies with laws, regulations and thearticles of incorporation(1) Top management shall familiarize officers and employees of the Company with the underlying spirit ofestablished corporate action guidelines and compliance rules, so they thoroughly understand thatcompliance with laws and social ethics is a prerequisite of corporate activities.
(2) A Compliance Committee chaired by the General Manager of the Administrative Headquarters, who isappointed to be in charge of compliance, shall be established to implement and manage a cross-sectional
compliance system for the Company and its Group companies. The Compliance Committee shall discuss- 19 -

important compliance issues and report the results to the Board of Directors. The Corporate Planning
Division shall act as the Secretariat for the Compliance Committee and thoroughly ensure complianceamong officers and employees. The Internal Audit Department (the Auditing Division) shall audit the statusof compliance in cooperation with the Corporate Planning Division.

2. Matters concerning the storage and management of information related to the execution of duties bydirectors of the Company
In accordance with Document Management Rules and Record Management Rules, the General Shareholder
Meeting Minutes, the Board of Directors Meeting Minutes, and other information related to the execution ofduties by directors shall be recorded in writing or electromagnetic media, properly stored and managed (ordisposed). How the concerned information is managed shall be audited, and the rules reviewed as necessary.

3. Rules and other systems regarding risk management of a corporate group consisting of the Company andits subsidiaries(1) Each department/division and subsidiary shall report its performance periodically at a meeting attended
mainly by directors and executive officers, and conduct risk management through continuous monitoring.
(2) Regarding risks pertaining to corporate activities and management strategies of the Group related tocompliance, dealing with antisocial forces, environmental considerations, disasters, quality, information
security, credit management, investments and loans, export control, etc., the department responsible for therespective matters shall establish rules, guidelines, manuals, and other tools to ensure that everyone is awareof them. In the event of an unforeseeable situation, a Headquarters for Disaster Control shall be set up
immediately to take countermeasures in accordance with Disaster Countermeasures Rules.
For risks that newly arise other than the above, the Board of Directors of the Company promptly appoints a
director who will be responsible for handling the situation and implement the necessary system.
(3) The Risk Management Committee shall monitor the status of cross-organizational risk management andexamine Group-wide measures.

4. System for ensuring the efficient execution of duties by directors and executive officers of a corporategroup consisting of the Company and its subsidiaries
The efficiency with which duties are executed by directors and executive officers of the Group is improved
using the following business management system.
(1) When carrying out daily business operations, authority shall be delegated based on Segregation of
Duties Rules, Administrative Authority Rules, etc., and persons in charge at each level shall carry out theirduties in accordance with rules on decision-making.
(2) A Management Policy Meeting[A8] composed of directors and Audit & Supervisory Board Members of
the Company shall be set up for prompt decision-making regarding policies for important matters of theGroup.

- 20 -

5. System for reporting to the Company matters related to the execution of duties by directors, etc. of theCompany’s subsidiaries
In accordance with Affiliated Companies Management Rules, when making important decisions, affiliatedcompanies are required to consult with the responsible department and Head Office of the Company and toreport important matters, etc. Along with that, to enhance integrated Group management, affiliatedcompanies shall also obtain prior approval from the Board of Directors and top management of theCompany for the acquisition and disposal of important assets.

6. Matters concerning a system of employee assistance requested by Audit & Supervisory Board Members,
the independence from directors of said employees, and ensuring the effectiveness of instructions to said
employees(1) Audit & Supervisory Board Members may order employees belonging to the Auditing Division to carryout matters concerning duties necessary for audits conducted by the Audit & Supervisory Board Members
and duties of the Secretariat for the Audit & Supervisory Board. The employees who receive the Audit &Supervisory Board Members’ orders shall ensure independence so they will not be given any instructions ororder from directors, superiors, etc.
(2) Appointments and transfers of employees who are to assist the duties of Audit & Supervisory Board
Members shall require the approval of Audit & Supervisory Board Members.

7. System for directors, executive officers, and employees of the Company, and directors, Audit &Supervisory Board Members, and employees of subsidiaries to report to the Audit & Supervisory Board
Members [A9]of the Company, other systems for reporting to the Audit & Supervisory Board Members, anda system in which anyone who reports information shall not suffer from unfavorable treatment(1) Directors, executive officers, and employees of the Company shall report the status of execution of theirduties whenever requested by the Audit & Supervisory Board Members. Moreover, they shall instructdirectors, Audit & Supervisory Board Members, and employees of subsidiaries to report the status ofexecution of their duties whenever requested by the Audit & Supervisory Board Members of the Company.
(2) Audit & Supervisory Board Members attend meetings of the Board of Directors and other important
meetings, and they shall periodically receive reports on business status, financial conditions, etc.
(3) If directors, executive officers, and employees of the Company and directors, Audit & Supervisory
Board Members and employees of subsidiaries discover or learn of any matter that exerts or may exert asignificant impact on the Company, they shall promptly report such matter to the Audit & Supervisory
Board Members of the Company.
(4) A whistleblowing system shall be established so that the Audit & Supervisory Board Members of theCompany can receive reports from directors, executive officers, and employees of the Company anddirectors, Audit & Supervisory Board Members and employees of subsidiaries.

- 21 -

(5) Directors, executive officers, and employees of the Company and directors, Audit & Supervisory Board
Members and employees of subsidiaries shall never be treated unfavorably because of information that they
provide to the Audit & Supervisory Board Members of the Company.

8. Matters concerning policies related to expenses and liabilities incurred in the execution of duties by Audit& Supervisory Board Members and advance payments or redemption procedures for said expenses
When Audit & Supervisory Board Members request the Company to pay in advance or reimburse expenses
needed to execute their duties, such expenses shall be paid in advance or reimbursed appropriately andpromptly at the request of the Audit & Supervisory Board Members or the Audit & Supervisory Board
unless said expenses are deemed unnecessary for the execution of the said duties.

9. Other systems to ensure effective audit implementation by Audit & Supervisory Board Members(1) Audit & Supervisory Board Members attend the Board of Directors meetings and other important
meetings to grasp and audit the business conditions and decision-making process.
(2) Internal systems centering on the Auditing Division shall be developed and enhanced so that Audit &Supervisory Board Members can perform their audit work more efficiently.
(3) Audit & Supervisory Board Members shall be guaranteed their access to independent advice and support
for their audit work from experts such as lawyers and accountants as necessary.

10. System to ensure the reliability of financial reportingIn accordance with the provisions of the Financial Instruments and Exchange Act, the Company and its
subsidiaries shall establish a Basic Policy on Financial Reporting and, based on this policy, shall strive to
conduct business appropriately and ensure the reliability of financial reporting.

2. Basic Concept on the Exclusion of Anti-social Forces and the Development Thereof
It shall be strictly observed as our corporate ethical behavior to sever relationships with antisocial forces andgroups that threaten social order and public safety.

V. Other
1. Adoption of Anti-Takeover Measures
Adoption of Anti-Takeover Measures

Not Adopted

Supplementary Explanation—- 22 -

2. Other Matters Concerning to Corporate Governance System
The internal system for timely disclosure of our corporate information is as follows.
1. System for timely disclosure of our corporate information(1) The General Manager of the Administrative Headquarters serves as the Chief Information Management
Officer in relation to the management and timely disclosure of internal information (also serves as theInformation Handling Manager that is the contact point for the Tokyo Stock Exchange), and the HR &General Affairs Division Manager serves as the Manager in charge of Information Management. (Theresponsibilities of the Chief Information Management Officer of each subsidiary are delegated to therepresentative director of the subsidiary.)(2) The person in charge of internal information management of the department involved in the generation(including approval) and acquisition of internal information shall be the head of each division (General
Manager, Factory Manager, etc.). When internal information is generated, each division head immediately
reports the details to the General Manager of the Administrative Headquarters and the HR & General Affairs
Division Manager.
(3) The Chief Information Management Officer (the General Manager of the Administrative Headquarters)
and the Manager in charge of Information Management (the HR & General Affairs Division Manager) areresponsible for examining whether or not information should be deemed internal information and give
advice to each division head as necessary.
(4) Upon receiving decisions on important matters, reports, and approvals of account closing information,etc., from business execution organizations such as the Board of Directors and the Management Policy
Meeting, the General Manager of the Administrative Headquarters immediately consults with the HR &General Affairs Division Manager on the announcement and discloses it in a timely manner. However, if
there is an urgent need for the information, etc., the General Manager of the Administrative Headquarters
shall obtain approval from President and Representative Director to disclose it in a timely manner.

2. Flow of timely disclosure
As shown in the attached diagram.

- 23 -

Flow of timely disclosure[A10]

General Managers(Chief Information Management Officer of eachdivision)

Report and inquiry about generation,
approval, etc. of internal information
Advice, etc.

Chief Information Management Officer (General Manager of Administrative
Headquarters)
Department Manager in charge of Information Management (HR & General Affairs
Division Manager)

Proposals to be discussed,
reports, etc.

Emergency reporting on matters

Board of Directors
Management Policy Meeting(Approval for announcement)

President and Representative Director

Instruction of announcement

General Manager of Administrative
Headquarters(Chief Information Management Officer)

Timely disclosure

Tokyo Stock Exchange- 24 -