寿スピリッツ（2222） – [Delayed] Corporate Governance Report

Corporate Governance Last Updated: December 27, 2021 Kotobuki Spirits Co., Ltd. President & CEO: Seigo Kawagoe Contact: Shinji Matsumoto Director General Manager Corporate Planning Division Securities Code: 2222 https://www.kotobukispirits.co.jp/ The corporate governance of Kotobuki Spirits Co., Ltd. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information 1. Basic Views Kotobuki Spirits Co., Ltd. (the “Company”) strives to reinforce and enhance its corporate governance practices while aiming to continuously maximize shareholder value over the long-term. To such ends, we heighten the soundness and efficiency of our management while also focusing on the interests of each and every stakeholder who lends support to our business initiatives, underpinned by management philosophy impelling us “to create happiness, provide happiness,” as a basic policy of our business. Management Philosophy “To create happiness, provide happiness.” Corporate Motto “Thankfulness & Gratitude” “Originality & Ingenuity” “Earnestness & Sincerity” Business Creed • We take our pleasure in pleasing our customers. • We talk dreams each other, and strive daily to be the number one. • We have consciousness of being professionals and true courage, and inspire people. • We set high goals, earnestly strive, and accomplish them without fail. • We will realize both materialistic and spiritual affluences by creating higher values. [Reasons for Non-compliance with the Principles of Japan’s Corporate Governance Code] Update The following statements are based on Japan’s Corporate Governance Code revised in June 2021. (Some of the principles for the Prime Market to be applied from April 2022 are omitted.) [Supplementary Principle 4.1.3] Specific plans regarding successorship of the CEO and other top executives Although the Company does not prepare specific plans regarding successorship with respect to the CEO and other top executives at this point in time, its management does recognize the notion that bringing up the next generation of top management is one of the highest management priorities that must be addressed in order for the Company to achieve sustainable growth and increase corporate value over the medium to long term. As such, we implement training programs for our mid-career executives and others, and are furthermore taking steps to hasten development of management skills by engaging in initiatives that address business challenges, with the aim of cultivating the next generation of senior managers who will spearhead the organization’s sustainable growth and development. Going forward, the Board of Directors will appropriately supervise efforts that include those of developing our next generation of senior managers with its sights set on increasing our corporate value over the medium to long term based on the deliberations and recommendations of the – 1 – Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. [Supplementary Principle 4.2.1] Management remuneration system linking remuneration to financial results over the medium to long term The Company makes decisions regarding Director remuneration upon having considered factors that include business results relative to specific positions of the Directors. We strive to ensure that management’s remuneration functions as a healthy incentive for generating sustainable growth. To such ends, when it comes to remuneration mechanisms that better link management remuneration to medium-to long-term business results and shareholder value going forward, the Board of Directors will consider factors that include the necessity of such mechanisms and objective and transparent procedures, based on the deliberations and recommendations of the Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. – 2 – [Disclosure Based on the Principles of Japan’s Corporate Governance Code] Update [Principle 1.4] Cross-shareholdings The Company maintains cross-shareholdings based on the view that doing so helps it to maintain and develop favorable business relationships while also enabling it to maintain stable financing relationships. We accordingly hold stock deemed to help increase our corporate value, and the Board of Directors regularly assesses holdings with respect to the medium- to long-term economic rationale of such holdings, the status of transactions, and other such factors. Based on such policy, we act to reduce holdings if we find there to be an absence of rationale for maintaining such holdings. We appropriately exercise our voting rights upon comprehensively placing consideration on factors that include how the outcome might affect sound management of the issuing company and enhancement of its corporate value over the medium to long term. [Principle 1.7] Related party transactions When conducting related party transactions, we appropriately engage procedures with respect to the Board of Directors and disclose such matters in our securities reports and other such documents. We subject all Officers of the Company (including officers of the Kotobuki Spirits Group (the “Group”)) to surveys regarding related party transactions, and monitor such activity. When it comes to transactions within the Group, we strive to ensure compliance with our “Regulations on Affiliate Management” which forbid any such transaction that would be detrimental to the interests of either party. [Supplementary Principle 2.4.1] Ensuring diversity in the promotion to core human resources (i) Policies on ensuring diversity The Group recognizes that promoting diversity in workstyles and employment, such as by securing human resources who have diverse perspectives and encouraging their active participation, is one of the highest management priorities that must be addressed in order for the Group to achieve sustainable growth and increase corporate value over the medium to long term. The Group is working on the following measures to ensure diversity. Promoting female employees to managerial positions to encourage their active participation Hiring professional human resources and foreign nationals through midcareer hires Advancing workstyle reforms and health and productivity management Enhancing human resource development Changing the management’s mindset on diversity (ii) Voluntary and measurable goals for ensuring diversity Promoting female employees to managerial positions While the ratio of female employees in managerial positions was 10.3% as of March 31, 2021, the Group believes it is extremely beneficial to leverage distinctive perspectives of women in management given the Group’s business. The Group will continue to actively promote competent female employees, including midcareer hires, to managerial positions, with the aim of increasing the ratio of female managers to 30%. Promoting midcareer hires to managerial positions The Group has actively hired professional human resources in departments such as product development, production technology, online marketing, IT, and overseas business in line with the expansion of its business, resulting in the ratio of midcareer hires in managerial positions of approximately 60% as of March 31, 2021. Going forward, the Group will further focus on the promotion of new graduate hires to managerial positions through enhancement of human resource development, while also recruiting managers through midcareer hires as needed for business development to maintain a good balance. Promoting foreign nationals to managerial positions Commensurate with the expansion and development of the overseas business and the domestic business targeting inbound tourists, the Group will hire foreign nationals and promote them to managerial positions as appropriate upon considering the strategic needs and other factors. (iii) Status of securing diversity For the status of the promotion of female employees, midcareer hires, and foreign nationals to managerial positions, refer to the ESG data disclosed on the sustainability page of the Company’s website. https://www.kotobukispirits.co.jp/sustainability/ (iv) Policies on the development of human resources and internal environment for ensuring diversity and the status thereof – 3 – Refer to the (i) above and “[Supplementary Principle 3.1.3] (Investments in human capital)” of this report. In addition, as part of its initiatives to promote diversity, the Group will develop a positive workplace environment by encouraging male employees to take childcare leave. The Group is also promoting the development of an environment in which senior human resources over 60 years old can participate more actively through revisions to the continued employment system for employees past the retirement age. [Principle 2.6] Roles of corporate pension funds as asset owners Whereas Company and some of its consolidated subsidiaries previously enrolled in an employee’s pension fund for companies in Tottori Prefecture’s food industry, that fund was dissolved per approval of Japan’s Minister of Health, Labour and Welfare granted on March 25, 2016. The Company has no corporate pension funds under management at this time. [Principle 3.1] Full disclosure (i) Company objectives (management philosophy, etc.), business strategy, and business plans The Company’s business policies and other such information is disclosed in its financial statements, presented in its financial results briefings, and posted to its corporate website. (ii) Basic views and basic policy on corporate governance The Company strives to reinforce and enhance its corporate governance practices while aiming to continuously maximize shareholder value over the long-term. To such ends, we heighten the soundness and efficiency of our management while also focusing on the interests of each and every stakeholder who lends support to our business initiatives, underpinned by management philosophy impelling us “to create happiness, provide happiness,” as a basic policy of our business. The Company’s basic views and basic policy on corporate governance are stated under “1. Basic Views” of this report and posted to its corporate website. (iii) Board of Director policies and procedures in determining remuneration of senior management and Directors For basic policy on Director remuneration and methods for determining such remuneration, refer to the section, “Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof” under “Director Remuneration” of this report. (iv) Board of Director policies and procedures in appointing and dismissing senior management and nominating Director candidates When deciding on senior management and Director candidates, the Company engages a policy of nominating qualified individuals capable of fulfilling such duties and responsibilities upon making judgment on comprehensive factors that include a candidate’s character, experience, knowledge, aptitude and health. Director candidate nominations are proposed at general meetings of shareholders, upon having been deliberated on at meetings of the Board of Directors attended by the Independent Outside Directors. Going forward, to further enhance objectiveness and transparency of the procedures to appoint and decide on senior management and Director candidates, we will seek advice from the Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. (v) Individual appointments and dismissal of the senior management and nominations of Director candidates by the Board of Directors The Company’s Notifications of General Meeting of Shareholders disclose details upon appointment of senior management and nomination of Director candidates by the Board of Directors. Such details include career profiles of Director candidates in relation to their individual appointments and nominations, and reasons for appointment and career profiles of all Director candidates. In the event that the Company deems there to be objective grounds for dismissing a senior manager or Director amid a scenario where the Company finds, for instance, that the senior manager or Director has significantly damaged the Company’s corporate value upon having violated laws, regulations, the Articles of Incorporation, etc., the Board of Directors will resolve to remove the senior manager or Director upon having appropriately engaged in exhaustive deliberations in a meeting of the Board of Directors attended by the Independent Outside Directors. Going forward, to further enhance objectiveness and transparency of the procedures of appointment and dismissal of senior management and nomination of Directors, we will establish and seek advice from the Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. – 4 – [Supplementary Principle 3.1.3] Initiatives on sustainability, etc. (i) Initiatives on sustainability As the Group advances various business activities that stem from its management philosophy “to create happiness, provide happiness,” the Group recognizes that issues around sustainability including social and environmental issues are critical for the enhancement of its corporate value over the medium to long term. As such, it has established the following code of conduct for the Group as well as all its officers and employees to prioritize. Conduct fair and sound corporate activities in compliance with laws, regulations, and other social norms Contribute to society through development and provision of excellent products and services that make a profound impact on customers and are beneficial to society Respect personalities and individualities of employees and create a lively and positive workplace environment that is safe and comfortable Respect the standpoints of not only shareholders but also all other stakeholders involved with the Group and widely engage in appropriate communication with society Actively participate in social contribution activities as a good corporate citizen that contributes to the Actively engage in initiatives to protect the global environment and contribute to the creation of an local community enriched and livable society For details on the Group’s initiatives on sustainability, refer to the related items disclosed on the sustainability page of the Company’s website. https://www.kotobukispirits.co.jp/sustainability/ (ii) Investments in human capital The Group aims to thoroughly practice participative management in which each and every employee participates in management with a sense of ownership, underpinned by the fundamental policy under which all employees strive to turn customers, workplace peers, and other stakeholders into ardent fans. To this end, the Group works to instill management philosophy in its employees, strategically place personnel, establish career paths and provide training for enhanced human resource development, promote diversity in human resources such as active participation by women, and change the mindset of the management. (iii) Investments in intellectual property As a corporate group that contributes to society, the Group invests in research and development taking into account rapid changes in social trends as well as market and consumer needs. In the confectionery manufacturing business, the Group explores and researches raw materials that are useful for developing high value-added products, and in businesses other than confectionery manufacturing, the Group researches beneficial substances and nutrients in collaboration with academic institutions with a focus on health functions, against the backdrop of people’s increased awareness on health associated with the aging of population. Through these research efforts, the Group promotes acquisition of intellectual properties and development of products pertaining to the health and foods fields. [Supplementary Principle 4.1.1] Roles and Responsibilities of the Board of Directors (the scope of matters delegated to the management) The Company’s Board of Directors is bound by stipulations of the Articles of Incorporation, laws and regulations. Meanwhile, the Company’s “Regulations of the Board of Directors” stipulate matters to be resolved by the Board of Directors. Through its pure holding company structure, the Company aims to achieve a swift and flexible approach to decision-making and Group management carried out with a sense of immediacy by keeping the Group’s functions of management supervision separate from its functions of business execution. To such ends, the Company’s “Regulations on Affiliate Management” and its “Regulations on Delegation of Authority” clearly specify the scope of authority delegated in relation to decision-making that pertains to business of Group companies, and the scope of matters subject to reporting. [Principle 4.9] Independence standards and qualification of Independent Outside Directors The Company appoints as Independent Outside Directors those who do not maintain interests that might conflict with those of general shareholders, in compliance correspondingly with provisions of the independence criteria of “the Guidelines concerning Listed Company Compliance, etc.” stipulated by the Tokyo Stock Exchange. As for qualification required of Independent Outside Directors, the Company appoints – 5 – those who are likely to constructively engage in deliberations during meetings of the Board of Directors, from a standpoint of neutrality and objectivity. [Supplementary Principle 4.10.1] Policy regarding the independence of the composition of the Nominating and Remuneration Advisory Committee, etc. The Company has established the Nominating and Remuneration Advisory Committee as an advisory body to the Board of Directors, with the aim of strengthening supervisory functions on the Board of Directors and enhancing the Group’s corporate governance system by ensuring transparency and objectivity in the evaluation and decision-making processes pertaining to the nomination and remuneration, etc. of Directors (including those of Group companies). Committee members and the chairperson of the Nominating and Remuneration Advisory Committee are appointed by resolution of the Board of Directors. The Committee shall comprise three or more members, a majority of whom shall be Independent Outside Directors, and its chairperson shall be an Independent Outside Director, to ensure the independence of the Committee and make its discussions substantive. Currently, the Committee comprises four Independent Outside Directors (chairperson: Matsuo Iwata and committee members: Megumi Yoshimoto, Koichi Noguchi, and Yasuhiro Tanaka) and one Inside Director (committee member: Masamichi Yamane). When the Company deliberates on the following particularly important matters (including those of Group companies) such as nomination and remuneration, the Board of Directors shall consult the Nominating and Remuneration Advisory Committee in advance and receive a resolution or report pertaining to such consulted matters based on approval by a majority of the members of the Nominating and Remuneration Advisory Committee. The Board of Directors shall also obtain appropriate involvement and advice from the Nominating and Remuneration Advisory Committee, including those based on perspectives of diversity, such as gender, and skills. Matters relating to the composition and balance of the Board of Directors Matters relating to the appointment and dismissal of Directors Matters relating to the selection and dismissal of Representative Directors and senior Directors Matters relating to the independence standards of Outside Directors Matters relating to the selection and dismissal of members of the Nominating and Remuneration Advisory Committee Matters relating to successorship plans Matters relating to the policies and procedures in determining remuneration of Directors Matters relating to the contents of remuneration of Directors Other matters deemed necessary by the Board of Directors [Supplementary Principle 4.11.1] Views on balance, diversity and size of the Board of Directors The Company’s Board of Directors comprises six Inside Directors, (including one Director who is an Audit and Supervisory Committee member), who have diverse expertise as well as a deep knowledge of the Group’s businesses, a sense of balance and achievement, and decision-making ability; as well as four Outside Directors (including two Directors who are Audit and Supervisory Committee members), including one female Director, who have diverse perspectives as well as a wealth of experience and advanced knowledge and expertise regarding corporate management, finance and accounting, legal affairs, and society and culture, etc., aiming at lively deliberations and quick decision making. The Company strives to achieve an overall composition and scale of the Board of Directors that is optimal from the perspectives of sustainable growth and increase in corporate value over the medium to long term. Furthermore, going forward, the procedure for selecting Director candidates will include deliberations by the Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. In addition, to ensure the balance and diversity of the Board of Directors as a whole in terms of knowledge, experience, and capability, which are required for the Group’s sustainable growth and increase in corporate value over the medium to long term, the Board of Directors of the Company has set the following skills and competencies as those that should be possessed by Directors in light of the Group’s management philosophy “to create happiness, provide happiness,” the Ethics Guidelines, and management strategies. 1. Having experience in a position with responsibilities for corporate management and practical experience in 2. Being well-versed in solving issues on finance, accounting, and capital policies and having related corporate reforms knowledge 3. Having knowledge of and experience in legal affairs and risk management – 6 – 4. Having knowledge of and experience in personnel affairs, labor management, and human resource development 5. Having knowledge of general consumer lives 6. Having knowledge of ESG Refer to the final page of this report for a list of skills possessed by individual Directors (including Directors who are Audit and Supervisory Committee Members), which make up an appropriate balance. Note: A skill matrix for Directors is shown at the end of this report. [Supplementary Principle 4.11.2] Directors with concurrent assignments Concurrent assignments of the Company’s Directors are disclosed in the General Meeting of Shareholders Notifications and securities reports. Outside Directors of the Company concurrently serving as officers of other listed companies are to rationally limit the scope of such duties so that they are able to devote the time and effort required for them to appropriately fulfill their respective roles and responsibilities as Outside Directors of the Company. [Supplementary Principle 4.11.3] Evaluation of the effectiveness of the Board of Directors The Company carried out an analysis and evaluation based on the results of a “Survey Related to Effectiveness of the Board of Directors” conducted for all Directors (including Directors who are Audit and Supervisory Committee Members) in March 2021 and discussion in the Board of Directors meetings. As a result, at this time, the Board of Directors has been evaluated to be achieving overall effectiveness as it has a good overall balance of knowledge, experience, and capability for performing the roles and responsibilities of the Board of Directors, it maintains an appropriate size, and its meetings are run appropriately with decisions made based on high-quality, active discussion. Going forward, the Company will conduct evaluations of the effectiveness of the Board of Directors once a year, disclosing a summary of the evaluations and continuing its efforts to improve the Board of Director’s effectiveness. [Supplementary Principle 4.14.2] Training policy for Directors Upon ushering in Outside Directors, the Company provides them with opportunities to learn and understand details pertaining to the Company’s business environment, particularly those involving the Company’s history, business overview, and tours of the Group’s factories. The Directors engage in diligent study to ensure that they acquire knowledge and information necessary for them to fulfill their roles and responsibilities as Directors. This involves, taking part in seminars that draw on external specialized institutions and other such bodies and participating in training exchanges with external organizations and other such bodies. The Audit and Supervisory Committee members belong to the Japan Audit & Supervisory Board Members Association, and accordingly improve their auditing skills by gaining access to knowledge and information they need as Audit and Supervisory Committee members by participating in various training sessions held by the Association. [Principle 5.1] Policy on constructive dialogue with shareholders The Company’s policy on systemic development and initiatives for facilitating constructive dialogue with its shareholders is as follows: (i) The Company’s investor relations activities are spearheaded by the President & CEO and the Director and General Manager of the Corporate Planning Division; (ii) Investor relations information is handled by the Corporate Planning Division which is the department in charge of IR in coordination with related departments of the business company; (iii) The Company’s primary IR activities encompass efforts that involve holding biannual financial results briefings and quarterly meetings with individual institutional investors and analysts, and engaging in planning and operation of the investor relations section of the corporate website. The Company also posts materials and video footage of its financial results briefings and general meetings of shareholders to the investor relations section of its corporate website; (iv) The Company shares opinions, etc. gained through IR activities by appropriately reporting such feedback in meetings of the Board of Directors and Executive Committee; and (v) The Company appropriately and prudently controls insider information when engaging in dialogue on the basis of its “Regulations on Information Disclosure” and its “Regulations on Preventing Insider Trading.” – 7 – 2. Capital Structure Foreign Shareholding Ratio From 10% to less than 20% [Status of Major Shareholders] Update Name Number of Shares Owned (Shares) Shareholding Ratio (%) S. Kawagoe Corporation The Master Trust Bank of Japan, Ltd. (Trust account) Custody Bank of Japan, Ltd. (Trust account) SSBTC CLIENT OMNIBUS ACCOUNT (Standing proxy: The Hongkong and Shanghai Banking Corporation Limited, Tokyo Branch) The San-in Godo Bank, Ltd. TORIGIN LEASE Corporation Kotobuki Spirits Employee Stock Ownership Association The Shoko Chukin Bank, Ltd. Fukuyama Transporting Co., Ltd. Kiyoko Takahashi Controlling Shareholder (except for Parent) Parent (Listed Stock Market) － N/A Supplementary Explanation Update 9,300,000 2,947,000 1,913,700 1,621,014 900,000 762,000 626,825 360,000 360,000 333,000 29.88 9.47 6.15 5.21 2.89 2.45 2.01 1.16 1.16 1.07 The information in the “Status of Major Shareholders” above is based on the shareholder register as of September 30, 2021. 3. Corporate Attributes Listed Stock Market and Market Section Tokyo Stock Exchange First Section Fiscal Year-End Type of Business March Foods Number of Employees (Consolidated) at End of the Previous Fiscal Year 1,000 or more Net Sales (Consolidated) for the Previous Fiscal Year From ¥10 billion to less than ¥100 billion Number of Consolidated Subsidiaries at End of the Previous Fiscal Year From 10 to less than 50 – 8 – 4. Policy for Measures to Protect Minority Shareholders in Conducting Transactions with Controlling 5. Special Circumstances Which May Have Material Impact on Corporate Governance Shareholder － No items to report. – 9 – II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Supervision in Management 1. Organizational Composition and Operation Organization Form Company with audit and supervisory committee [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Appointment of Outside Directors Appointed Number of Outside Directors Number of Independent Officers Designated from among Outside Directors Outside Directors’ Relationship with the Company (1) President 15 1 10 4 4 Name Attribute Matsuo Iwata From another company Megumi Yoshimoto From another company Koichi Noguchi Attorney at law Yasuhiro Tanaka Certified public tax accountant Relationship with the Company* a b c d e f g h i j k 〇 〇 〇 〇 * 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; and “” when a close relative of the director fell under the category in the past a. Executive (a person who executes business; hereinafter, the same) of the Company or its subsidiary b. Non-executive director or executive of the parent of the Company c. Executive of a fellow subsidiary of the Company d. 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, accounting professional or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier of the Company (which does not correspond to any of d., e., or f.) (the i. Executive of a corporation to which outside officers are mutually appointed (the director himself/herself corporation) only) director himself/herself only) – 10 – j. Executive of a corporation that receives a donation from the Company (the director himself/herself only) k. Other Outside Directors’ Relationship with the Company (2) Name Membership of Audit and Supervisory Committee Designation as Independent Officer Supplementary Explanation of the Relationship Matsuo Iwata 〇 － Reasons for Appointment Mr. Matsuo Iwata has been involved in corporate management over many years, and accordingly draws on the abundant experience and extensive knowledge he has gained as a manager throughout his career. Accordingly, the Company has appointed him to the position of Outside Director upon having deemed that he is capable of applying such strengths to management of the Company from a perspective of neutrality and objectivity. Moreover, the Company has furthermore assigned him the designation of Independent Officer given that there are no special interests between him and the Company, and he does not pose concerns regarding potential conflict of interest with general shareholders. Ms. Megumi Yoshimoto possesses abundant experience and extensive knowledge gained through many years’ experience as an announcer and through working as a lecturer and professor at multiple universities. She also possesses a distinctive perspective as a woman. Accordingly, the Company has appointed her to the position of Outside Director upon having deemed that she is capable of applying such strengths to management of the Company from a perspective of neutrality and objectivity. She has never in the past been directly involved in the management of a company. However, the Company judges she will appropriately fulfill her duties as an Outside Director based on the above reasons. Megumi Yoshimoto 〇 － – 11 – Moreover, the Company has furthermore assigned her the designation of Independent Officer given that there are no special interests between her and the Company, and she does not pose concerns regarding potential conflict of interest with general shareholders. Mr. Koichi Noguchi is qualified as an attorney at law and wields expert knowledge and abundant experience in the realm of legal affairs as an attorney at law. Accordingly, the Company has appointed him to the position of Outside Director upon having deemed that he is capable of applying such strengths to management of the Company, from a perspective of neutrality and objectivity. He has never in the past been directly involved in the management of a company. However, the Company judges he will appropriately fulfill his duties as an Outside Director based on the above reasons. Moreover, the Company has furthermore assigned him the designation of Independent Officer given that there are no special interests between him and the Company, and he does not pose concerns regarding potential conflict of interest with general shareholders. Mr. Yasuhiro Tanaka wields expert knowledge and abundant experience in the realms of finance and accounting as a certified public tax accountant. Accordingly, the Company has appointed him to the position of Outside Director upon having deemed that he is capable of applying such strengths to management of the Company, from a perspective of neutrality and objectivity. He has never in the past been directly involved in the management of a company. However, the Company judges he will appropriately fulfill his duties as an Outside Director based on Koichi Noguchi 〇 〇 － Yasuhiro Tanaka 〇 〇 － – 12 – the above reasons. Moreover, the Company has furthermore assigned him the designation of Independent Officer given that there are no special interests between him and the Company, and he does not pose concerns regarding potential conflict of interest with general shareholders. [Audit and Supervisory Committee] Committee’s Composition and Chairperson’s Attributes Total Committee Members Full-time Members Inside Directors Chairperson Outside Directors 3 1 1 2 Inside director Audit and Supervisory Committee Appointment of Directors and/or Employees to Support Duties of the Audit and Supervisory Committee Not appointed Reasons for Applying Current Systems The Audit and Supervisory Committee does not assign employees to assist in the duties of the Audit and Supervisory Committee because it cooperates with the Internal Audit Department as necessary. Cooperation among Audit and Supervisory Committee, Financial Auditor and Internal Audit Department With respect to mutual cooperation involving internal audits, the Audit and Supervisory Committee, and accounting audits, the Audit and Supervisory Committee receives explanations from the Financial Auditor regarding accounting audits, and coordinates efforts that involve exchanging information. In addition, the Internal Audit Office coordinates efforts with the Audit and Supervisory Committee and the Financial Auditor by reporting findings of operational audits to the Audit and Supervisory Committee and the Financial Auditor. As for such audits, the Internal Audit Office appropriately furnishes reports and exchanges opinions with the Administrative Division which acts as an internal control department and strives to maintain internal controls through initiatives that include following up on issues identified and areas for improvement. [Voluntary Committees] Voluntary Establishment of Committee(s) Equivalent to Nominating Committee or Remuneration Committee Established – 13 – Status of Establishment of Voluntary Committees, Composition and Chairperson’s Attributes Name of Committee Total Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson Voluntary Committee Equivalent to Nominating Committee Voluntary Committee Equivalent to Remuneration Committee Nominating and Remuneration Advisory Committee Nominating and Remuneration Advisory Committee Supplementary Explanation 5 5 0 0 1 1 4 4 0 0 0 0 Outside director Outside director The Company has established the voluntary Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors, as an advisory body to the Board of Directors. The Committee comprises five Directors. It is chaired by Outside Director Matsuo Iwata, and also includes one Inside Director (Masamichi Yamane) and three other Outside Directors (Megumi Yoshimoto, Koichi Noguchi, and Yasuhiro Tanaka). The Committee receives advisory requests from the Board of Directors regarding the nomination and remuneration of Directors (including those of Group companies), and after deliberation in the committee, the deliberation result, etc., is reported to the Board of Directors. Furthermore, the Committee meetings are held at least once a year in principle, and may also be held whenever necessary. The Company has assigned the designation of Outside Officer to all of its Independent Officers who qualify as independent officers. [Independent Officers] Number of Independent Officers 4 Matters relating to Independent Officers [Incentives] Implementation of Measures to Provide Incentives to Directors None Supplementary Explanation The Company makes decisions regarding Director remuneration upon having considered factors that include business results relative to specific positions of the Directors. We strive to ensure that management’s remuneration functions as a healthy incentive for generating sustainable growth. To such ends, when it comes to remuneration mechanisms that better link management remuneration to medium-to long-term business results and shareholder value going forward, the Board of Directors will consider factors that include the necessity of such mechanisms and objective and transparent procedures, based on the deliberations and recommendations of the Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. – 14 – Recipients of Share Options Supplementary Explanation － [Director Remuneration] Supplementary Explanation Disclosure of Individual Directors’ Remuneration No individual disclosure The Company distinguishes between the remuneration paid to Directors and the remuneration paid to Audit and Supervisory Board Members when disclosing remuneration. Officer remuneration for the year ended March 31, 2021 Annual total amount of remuneration for Directors (excluding Audit and Supervisory Committee members): ¥88,800 thousand Annual total amount of remuneration for Directors (Audit and Supervisory Committee members): ¥21,120 thousand Policy for Determining Remuneration Amounts or Calculation Methods Thereof Established Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof At its Board of Directors meetings held on February 17 and May 13, 2021, the Company resolved its policy on determining the details of individual remuneration for Directors (excluding Directors who are Audit and Supervisory Committee members; the same applies hereinafter). Furthermore, the Board of Directors judged that remuneration for individual directors for the fiscal year under review is in line with the determination policy, since the method of determining the details of the remuneration and the details of the remuneration conform to the determination policy. In addition, the individual remuneration for Directors who are Audit and Supervisory Committee members is determined within the remuneration limit through consultation with the Audit and Supervisory Members considering the duties and responsibilities. The policy for determining the amounts of officer remuneration and the method for calculating them. (1) Basic policy The remuneration system for the Directors of the Company places maximum emphasis on sustainably increasing corporate value over the medium to long term; and the Company’s policy when determining the remuneration of individual directors, is to set it at an appropriate level based on the duties and so forth of each Director. Specifically, the Company has decided to pay only fixed remuneration (monetary remuneration) from a medium- to long-term perspective. (2) Policy on determining individual amounts of remuneration, etc. for basic remuneration (monetary remuneration) Basic remuneration for the Directors of the Company (excluding Outside Directors) is fixed monthly remuneration determined through comprehensive consideration, also giving weight to position, duties, contribution to the Company’s performance based on position and duties, levels at other companies comparable to the number of years worked, the Company’s performance, and the level of employee salaries. Basic remuneration for Outside Directors is monthly fixed remuneration, determined in consideration of duties and responsibilities, and levels at other companies, etc. (3) Method of determining details of individual remuneration of Directors To determine the individual remuneration of Directors, the Representative Director creates a proposal based on the above policy within the remuneration limit for Directors resolved at the Ordinary General Meeting of – 15 – Shareholders held on June 28, 2016. Then, the Board of Directors receives a report on the deliberation of the proposal by the Nominating and Remuneration Advisory Committee, and having heard the opinion of the Audit and Supervisory Committee in advance, deliberates on the proposal and makes the determination. Regarding the activities of the Board of Directors within the process for determining the amount of remuneration, etc. for officers of the Company in the fiscal year under review, remuneration of officers in the fiscal year under review was deliberated and determined at the Board of Directors meeting held on June 23, 2020. Furthermore, with regard to the amount of remuneration of Directors, at the Ordinary General Meeting of Shareholders held on June 28, 2016, approval was granted for maximum remuneration amounts, such that remuneration for Directors (excluding Directors who are Audit and Supervisory Committee members) is to amount to no more than ¥300 million annually (of which, remuneration for Outside Directors is to amount to no more than ¥25 million annually), and remuneration for Directors who are Audit and Supervisory Committee members is to amount to no more than ¥50 million annually. We strive to ensure that management’s remuneration functions as a healthy incentive for generating sustainable growth. To such ends, when it comes to remuneration mechanisms that better link management remuneration to medium-to long-term business results and shareholder value going forward, the Board of Directors will consider factors that include the necessity of such mechanisms and objective and transparent procedures, based on the deliberations and recommendations of the Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors. [Supporting System for Outside Directors] Whereas there is no section in charge of assisting the Outside Directors, the Administrative Division and Corporate Planning Division take action as necessary, particularly in terms of furnishing prior notification regarding matters to be discussed in the meetings of the Board of Directors and explanations in that regard. 2. Matters on Functions of Business Execution, Audit and Supervision, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) The Company’s Board of Directors has ten members (of which, four are Outside Directors), consisting of President & CEO Seigo Kawagoe who serves as the Chairperson, and Directors Masamichi Yamane, Shinji Matsumoto, Masayuki Shirouchi, and Ryoichi Sakamoto, Outside Director Matsuo Iwata and Megumi Yoshimoto, Director (Audit and Supervisory Committee member) Takashi Kuchiki, and Outside Directors (Audit and Supervisory Committee members) Koichi Noguchi and Yasuhiro Tanaka. The Company’s Board of Directors determines important matters related to business execution and supervises execution of duties by Directors, as stipulated in the Articles of Incorporation, laws and regulations, and pursuant to the “Regulations of the Board of Directors” which define matters to be resolved by the Board of Directors. To ensure that the Directors execute their duties efficiently, the Board of Directors meets once per month, in principle, and holds extraordinary meetings when necessary. The Company’s Audit and Supervisory Committee takes on the role of auditing the Directors’ execution of business, and has three members (of which, two are Outside Directors), consisting of Director (full-time Audit and Supervisory Committee member) Takashi Kuchiki and Outside Directors (Audit and Supervisory Committee members) Koichi Noguchi and Yasuhiro Tanaka. Meetings of the Audit and Supervisory Committee are held once a month, in principle, on an as-necessary basis, in order to decide audit plans and report on audit execution. The Audit and Supervisory Committee members attend meetings of the Board of Directors, and also attend the Group Executive Committee meetings and other important meetings in order to gain an understanding of important decision-making processes and the status of business execution. The Audit and Supervisory Committee members may view important documents related to business execution and may furthermore seek explanations from Directors or employees as necessary. On June 22, 2021, the Company established the voluntary Nominating and Remuneration Advisory Committee, a majority of whose members are Independent Outside Directors, as an advisory body to the – 16 – Board of Directors. The Committee comprises five Directors. It is chaired by Outside Director Matsuo Iwata, and also includes one Inside Director (Masamichi Yamane) and three other Outside Directors (Megumi Yoshimoto, Koichi Noguchi, and Yasuhiro Tanaka). The Committee receives advisory requests from the Board of Directors regarding the nomination and remuneration of Directors (including those of Group companies), and after deliberation in the committee, the deliberation result, etc., is reported to the Board of Directors. Furthermore, the Committee meetings are held at least once a year in principle, and may also be held whenever necessary. The Company’s Internal Audit Office consists of one member, General Manager of Internal Audit Office Manabu Ashiho. The Internal Audit Office conducts internal audits with respect to the Company and the Group, pursuant to the “Internal Audit Regulations” which stipulate basic matters regarding the Company’s internal audits, thereby ensuring that business operations are undertaken appropriately and effectively in accordance with relevant laws and regulations, the Articles of Incorporation, and internal regulations, and subject to internal controls. The Company’s President & CEO makes direct appointments with respect to the Internal Audit Office, which acts as an organization under direct control of the President. Upon performing audits, the Internal Auditors are able to seek submission of documents, explanation of content thereof, and other necessary information. They also wield authority, etc. to seek confirmation from external parties when necessary. The Compliance Committee is chaired by the Company’s President & CEO Seigo Kawagoe and the Company’s Director in charge of management Masamichi Yamane serves as the Chief Compliance Officer. Meanwhile, its membership consists of individuals appointed to the committee from the respective Group companies. The committee holds meetings once every three months, in principle, on an as-necessary basis in order to address exclusive prerogatives, pursuant to the “Compliance Regulations” which define compliance initiatives, such as training and education on compliance and corporate ethics, action taken based on findings of investigations into matters such as reporting through the whistleblowing system, and measures involving risk management to address risk events. The Compliance Committee acts as a system that facilitates monitoring, with its meetings attended by Director (full-time Audit and Supervisory Committee member) Takashi Kuchiki and General Manager of Internal Audit Office Manabu Ashiho. The Group Executive Committee is chaired by the Company’s President & CEO Seigo Kawagoe, and its members include Directors Masamichi Yamane, Shinji Matsumoto, Masayuki Shirouchi, and Ryoichi Sakamoto, and respective Directors and relevant department heads of the Group companies. It holds meetings once per month, in principle, and acts to ensure managerial efficiency, soundness and transparency, while accelerating decision-making. To such ends, it promotes guidance and training with respect to affiliated companies, while also communicating the Group’s business policies, reporting on business activities of respective Group companies, and supervising business execution, pursuant to the “Regulations on Affiliated Companies” which stipulate aims of streamlining management of the Group. The Group Executive Committee acts as a system that facilitates monitoring, with its meetings attended by Director (full-time Audit and Supervisory Committee member) Takashi Kuchiki, Outside Directors (Audit and Supervisory Committee members) Koichi Noguchi and Yasuhiro Tanaka, and General Manager of Internal Audit Office Manabu Ashiho. CPA audits are assigned to Deloitte Touche Tohmatsu LLC, which undertakes them as ordinary accounting audits and is subject to advice on managerial issues and other such matters in the course of performing such audits. The Company furnishes various forms of information and data, and otherwise maintains an environment that facilitates the performance of swift and accurate audits. The certified public accountancy that performs such services and assistants involved with audit work are as follows: Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Masashi Mizuno Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Joji Furukawa – 17 – Six Certified Public Accountants, four persons who have passed the certified public accountant examination and eleven other persons 3. Reasons for Adoption of Current Corporate Governance System When it comes to corporate governance, the Company believes the notion of ensuring that the function of management oversight enlists external objectivity and neutrality is of key importance, and enhances the oversight function of management by establishing its Audit and Supervisory Committee such that a majority of its membership consists of Outside Directors, four of whom possess a high degree of independence. In addition, the Company has established the voluntary Nominating and Remuneration Advisory Committee such that a majority of its membership consists of Independent Outside Directors, in order to ensure transparency and objectivity of the evaluation and decision process with regard to the nomination and remuneration of its Directors (including those of Group companies). As such, the Company deems that the system operates sufficiently for the enhancement of corporate governance. – 18 – III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Energize General Shareholders Meetings and Smooth Exercise of Voting Rights Supplementary Explanations Early Notification of General Shareholders Meeting The Company strives to send out its Notifications of General Shareholders Meetings prior to the legally mandated deadline. Scheduling AGMs Avoiding the Peak Day Allowing Electronic or Magnetic Exercise of Voting Rights The Company arranges to hold its annual general meetings of shareholders on dates that will make it possible for many shareholders to attend, and accordingly avoids holding such meetings on dates that are likely to have a concentration of such meetings held by other companies. The Company posts Notifications of General Shareholders Meetings and notices of resolutions to its corporate website. In addition, the Company strives to make the explanations easy for shareholders to understand by presenting information in a visual format using slides at General Shareholders Meetings. 2. IR Activities Supplementary Explanations Explanation by Representative Regular Investor Briefings for Analysts and Institutional Investors A Company’s representative explains details of financial results and forward-looking strategy twice annually, with the first-half financial and year-end financial results. Yes Posting of IR Materials on Website Establishment of Department and/or Manager in Charge of IR The following website link provides access to Financial Reports, other timely disclosure materials, and financial Results Briefings Materials: https://www.kotobukispirits.co.jp/ Department in charge of IR: Corporate Planning Division Manager in charge of IR: Shinji Matsumoto, Director and General Manager of the Corporate Planning Division 3. Measures to Ensure Due Respect for Stakeholders Provisions to Ensure Due Respect for Stakeholders in Internal Rules, etc. Formulation of Policies for Information Provision to Stakeholders Supplementary Explanations The Kotobuki Spirits Group Ethics Guidelines constitute codes and standards of conduct applicable to all Group employees. Accordingly, the guidelines stipulate that we show due respect toward all stakeholders involved with the Group, while endeavoring to maintain sound and positive relationships. The Company strives to disclose information to each of its stakeholders in a timely, appropriate, and fair manner, and has accordingly established “Regulations on Information Disclosure” and “Regulations on Preventing Insider Trading.” – 19 – IV. Matters Related to Internal Control System 1. Basic Views on Internal Control System and Progress of System Development 1. Basic policy on business operations The Company and the Group maintain basic policies applicable to all Officers and employees with respect to their execution of duties, underpinned by the management philosophy as follows. [Management Philosophy] To create happiness, provide happiness. [Corporate Motto] Thankfulness & Gratitude Originality & Ingenuity Earnestness & Sincerity [Business Creed] • We take our pleasure in pleasing our customers. • We talk dreams each other, and strive daily to be the number one. • We have consciousness of being professionals and true courage, and inspire people. • We set high goals, earnestly strive, and accomplish them without fail. • We will realize both materialistic and spiritual affluences by creating higher values. The Company is aware that developing and operating systems that ensure proper business execution is a key responsibility of management, and accordingly builds its internal control system as follows. The Company keeps striving to appropriately develop its system of internal control in a manner that addresses changes in its internal and external environments. 2. Basic policy on internal controls (1) System for retaining and managing information pertaining to execution of duties by Directors Information pertaining to execution of duties by Directors is to be retained and managed in a manner that enables Directors to view it as necessary, and accordingly managed in adherence to laws and regulations, as well as with the regulations on document management and other internal regulations. (2) Regulations and other system for managing risk of loss The Company stipulates matters involving managing risk of loss stemming business executed by the Company and the Group in its regulations on approval document, regulations on accounting, regulations on sales management, regulations on purchasing management, and other such regulations on managing operations. When risk of loss materializes, the Director in charge of duties relevant thereof addresses such risk in accordance with stipulations of internal regulations, and accordingly makes final decisions upon engaging procedures that include deliberations of the Board of Directors and approval, tailored to the degree of such risk. (3) System for ensuring that the Directors execute their duties efficiently To ensure that the Directors execute their duties efficiently, the Board of Directors holds meetings once per month, in principle, and extraordinary meetings when necessary, during the course of which the Directors are to make decisions on important matters and supervise the status of the Directors’ execution of business. With respect to business executed on the basis of decisions made by the Board of Directors, the organizational regulations, regulations on segregation of duties, and Regulations on Delegation of Authority stipulate matters involving respective persons in charge and their responsibilities, and procedures for executing their duties. In managing their business results, the Company and the Group draw up quantitative targets constituting business plans, in a manner that involves clearly assigning targets and remaining thoroughly committed to profitability. The Group Executive Committee consists of the President & CEO, Officers in charge and relevant department heads, and holds meetings on a monthly basis. Its duties involve checking – 20 – business results and status of implementation of measures, ensuring managerial efficiency, soundness, and transparency, and prompt decision-making. (4) System for ensuring that Directors and employees execute their duties in compliance with laws, regulations and the Articles of Incorporation The Company and the Group clearly state the business philosophy (released on January 1, 2003) which forms criteria for assessing all matters based on the management philosophy. Furthermore, we draw up the “Kotobuki Spirits Group Ethics Guidelines” and “Compliance Regulations” with the aims of clarifying our fundamental stance on corporate ethics and legal compliance, and thoroughly adhere to the management philosophy and corporate ethics keeping all Officers and employees informed of such matters. Moreover, we have established the “Compliance Committee” which acts as an organization that extends laterally across the Group and strives to develop, maintain and improve our compliance system. The Board of Directors develops the regulations of the Board of Directors based on laws, regulations and the Articles of Incorporation, and furthermore sets standards for Board deliberations and reporting. The respective Directors mutually monitor and supervise execution of the Company’s business, in accordance with such standards for deliberations and reporting. We have established the voluntary Nominating and Remuneration Advisory Committee, an advisory body to the Board of Directors, a majority of whose members are Independent Outside Directors, to ensure independence and objectivity of the decision on the nomination and remuneration of Directors. The “Internal Audit Office” performs internal audits based on the Internal Audit Regulations in order to ensure appropriateness of systems of business operation. The Company and the Group have established a whistleblowing system upon having specified “Regulations on Whistleblowing” that aim to facilitate corrective action and preventative measures appropriately taken on the basis of preventing violations of laws and regulations, etc., and achieving early detection thereof. The Company maintains confidentiality of details reported and ensures that whistle-blowers are not subjected to disadvantageous treatment. (5) System for ensuring proper business operations in the Group, which consists of the Company as well as its parent company and subsidiaries In managing its operations, the Group manages subsidiaries based on the “Regulations on Affiliate Management.” Moreover, involve the Group Executive Committee engages communicating the Group’s business policies, reporting on business activities of respective Group companies, and supervising business execution. In addition, decisions of key importance made by subsidiaries require approval procedures of the Company’s Board of Directors, which makes adjustments to ensure that resources are allocated efficiently. Business transactions between companies belonging to the Group are to be appropriately carried out in accordance with laws, regulations, accounting principles, tax laws, and other social norms. The Internal Audit Office performs internal audits with respect to the Company and the Group, and reports its findings to the Representative Directors and Audit and Supervisory Committee of the Company and the Group. in efforts that (6) Matters regarding employees who assist in the duties of the Audit and Supervisory Committee, matters regarding