Oiles : Corporate Governance Report

[Translation]

Corporate Governance Report

Last Updated: July 2, 2021

OILES CORPORATION

Masami Iida, President Contact: Corporate Planning & Administrative Division [phone] Securities Code: 6282 https://www.oiles.co.jp/

The corporate governance of OILES CORPORATION (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Views

The Oiles Group positions corporate governance as a top priority and strives to continually strengthen the rationale, soundness, and transparency of its governance system and organization through flexible decision- making and delegation of authority in response to changes in the market and taking the necessary actions to develop the Group and enhance its corporate value.

We also recognize the importance of actively disclosing appropriate information to investors in a timely manner to ensure transparency.

[Reasons for Non-compliance with the Principles of Japan's Corporate Governance Code]

The Company complies with every principles of Japan's Corporate Governance Code.

[Disclosure Based on the Principles of Japan's Corporate Governance Code]

[Principle 1.4 Cross-shareholdings] (Basic policy on cross-shareholdings)

The Company, in the event of holding shares of listed companies as cross-shareholdings, holds issues that lead to building, maintaining and strengthening medium- to long term transactional and collaborative relationships and issues, which through such holding, are anticipated to increase the Company's corporate value.

Specifically, the Board of Directors verifies the rationality of holding cross-shareholdings and the appropriateness of each individual issue annually, specifically scrutinizing that the benefit and risks are in line with the capital costs, etc. in light of the qualitative aspects of the business strategy such as maintaining and securing a smooth and favorable transactional and collaborative relationship with the portfolio company and for quantitative aspects such as dividend income and other medium- to long term economic rationality. As a result of the verification, consideration is given to reducing the holdings of issues that are no longer considered to have rationality as cross-shareholdings.

In light of the above basic policy, one cross-shareholding issue was sold during the fiscal year under review. In addition, the Board of Directors meeting held in November 2020 verified all cross-shareholdings held at that date and confirmed that they were all appropriate.

(Basic policy on exercising voting rights)

The Company decides to exercise its voting rights for each agenda item, respecting such companies' management policies, with the criteria that it will lead to medium- to long term improvement of, or not damage, the corporate value of the Company and the portfolio company. In addition, in the event of circumstances such as where the portfolio company is deemed to have seriously violated laws and regulations,

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[Translation]

breached compliance or have a relationship with anti-social forces, the Company carefully considers its exercise of voting rights also taking into account the response of such company to the relevant circumstances. The handling of matters in relation to the exercise of voting rights on cross-shareholdings is consolidated at the General Affairs Department, Corporate Planning & Administrative Division with a unified response in line with this basic policy.

[Principle 1.7 Related Party Transactions]

The Company takes transactions between directors and the Company to be matters for resolution of the Board of Directors in accordance with laws and regulations and internal rules such as the Board of Directors Regulations.

Note that, as persons of interest, the relevant directors do not participate in such resolution.

In addition, the details of the actual transaction conducted following such approved resolution are reported at the Board of Directors.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

The Company strives to prepare an appropriate investment environment for reserves through the regular monitoring of the management status of pension assets by multiple departments involved in investment, while also aiming to develop human resources by participating in various training programs so that the corporate pension funds can fulfill the function expected of asset owners.

In addition, any conflicts of interest between the beneficiaries of the corporate pension funds and the Company are managed with appropriate procedures.

[Principle 3.1 Full Disclosure]

(1) Management Concept, management strategy and management plan

The management concept, management policy and the Company's medium- to long term management strategy are disclosed on the Company's website and in financial results briefing materials, etc.

1. Basic views and basic policy on corporate governance Described in this Report "I 1. Basic views"
2. Policy and procedures for determining remuneration

The policy and procedures when determining remuneration for directors are described in this Report II 1. "Policy for Determining Remuneration Amounts or Calculation Methods Thereof."

1. Policies and procedures for appointment and dismissal of top management and nomination of candidates for directors and auditors
   (Nomination policy)
   The Company's Board of Directors has appointed people who can achieve the effectiveness of the Board of Directors, contribute to the Company's sustained growth and increase medium- to long term corporate value as top management (directors and operating officers).
   Directors and operating officers are appointed based on the evaluation of aspects such as their management skills, vision, insight, leadership, character, and mental and physical condition premised on them being deemed to have expertise in each department and excellent ability. Auditors are appointed from persons who have knowledge in areas required for the role such as finance, accounting and law.
   In addition, should a director, auditor or operating officer 1) behave in a way that corresponds to serious violations of laws and regulations or compliance violations; 2) have a relationship with anti-social forces; or 3) significantly damage the corporate value through negligence of duties, this shall be deemed a reason for dismissal.

(Nomination procedures)

In regard to the nomination procedures for top management, a voluntary Nominating Committee was established with independent outside directors comprising the majority of committee members at the Board of Directors meeting held in October 2018 to ensure independent, objective and transparent procedures. Therefore, we established a structure for the nomination of top management to be determined at the Board of Directors upon a process of consultation and report on findings from the Nominating Committee.

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[Translation]

Note that for candidates for directors and auditors, the consent of the Audit & Supervisory Board is obtained in regards to auditors, and once determined at the Board of Directors, the matter is referred as an agenda item for discussion at the General Meeting of Shareholders.

1. Explanation of appointment and dismissal of top management and appointment, dismissal and nomination of candidates for directors and auditors
   When nominating and appointing directors and auditors, the career history of each candidate has to date been listed in the "Notice of the General Meeting of Shareholders" together with the reason for appointment in relation to outside directors, and the "Reason for appointment" has been listed for all candidates since the Company's 65th Ordinary General Meeting of Shareholders with the addition of the "Outline of the expected role" from the 70th Ordinary General Meeting of Shareholders in light of amendments to the Companies Act (Japanese only).

In addition, in the event of circumstance corresponding to a reason for dismissal, the appropriate procedures and reasons are explained in light of the circumstances.

[Supplementary Principle 4.1.1 Scope of Delegation from the Board of Directors to Executive Operating Officers]

In addition to matters prescribed by laws and regulations and in the Articles of Incorporation, the Company's Board of Directors approves important matters prescribed by the Board of Directors Regulations such as important management issues including the management policy and business plan. In addition, the scope of assignment of authority to executive operating officers was reorganized through revision of the agenda standards of the Management Meeting and the Board of Directors that resolve important matters and agenda items for discussion and reporting at the Board of Directors were newly revised. The relevant regulations that prescribe the details of such authorities were revised in April 2021 and have commenced operation.

[Principle 4.9 Independence Standards and Qualifications for Independent Outside Directors]

The Company appoints two outside directors with extensive knowledge and experience that can contribute to advancing the Oiles Group's business, and in accordance with requirements for outside directors prescribed by the Companies Act and independence standards prescribed by the financial instruments exchange.

[Supplementary Principle 4.11.1 The Overall Balance, Diversity and Size of the Board of Directors]

The Company's Board of Directors comprises diverse human resources with different backgrounds such as specialist knowledge and experience with the number of directors appropriate for the effective function of the Board of Directors. Currently, in addition to five directors well-versed in each area of the Company's business, there are two independent outside directors with considerable knowledge and experience in specialist areas such as corporate management for a total of seven directors and four auditors, including two independent outside auditors.

In addition, the Board of Directors determines the policy and procedures for the balance of knowledge, experience and ability as well as the diversity and composition of the overall Board of Directors, through a process of deliberation and report on findings of the Nominating Committee, which comprises a majority of independent outside directors. The composition of the Board of Directors when this report was updated was six men and one woman.

[Supplementary Principle 4.11.2 Concurrent positions of Directors and Auditors]

Concurrent positions at other companies are listed in the Notice of the General Meeting of Shareholders and securities reports (Japanese only).

[Supplementary Principle 4.11.3 Assessment of Board of Directors Effectiveness]

The Company has analyzed and evaluated the effectiveness of the Board of Directors based on a self- evaluation of each director annually since fiscal 2015, which is aimed at improving the function of the Board of Directors.

In regard to the fiscal 2020 assessment of the effectiveness of the Board of Directors, as was the case last year, each respective director and auditor in attendance at the Board of Directors completed a questionnaire, and the aggregate results were analyzed and evaluated at the Board of Directors.

Those results indicated an overall improvement in the assessment of the Board of Directors with an increase in points for "composition of the Board of Directors," "Operations of the Board of Directors" and "Process

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[Translation]

of Board of Directors deliberations" in particular. In addition, the assessment indicated active proposals by outside directors and outside auditors and an environment conducive to making frank proposals based on smooth proceedings advanced by the chairperson, with an evaluation that the effectiveness of the Board of Directors has been ensured.

On the other hand, in addition to the active discussion concerning the medium- to long term strategy and direction, which is recognized as an issue, there was thorough dissemination of the feedback on the progress and direction of management to the workplace.

In light of these results, the Company sincerely accepted the issues and opinions voiced to further increase the effectiveness of the Board of Directors, and is implementing initiatives to appropriately implement the necessary measures, and further enhance and strengthen the corporate governance structure.

[Supplementary Principle 4.14.2 Training Policy for Directors and Auditors]

If directors and auditors are appointed from within the Company, appointments are made of people who are familiar with the Company's business, finances and organization, as well as being able to sufficiently fulfill such responsibilities. The study of laws and regulations such as the Companies Act and knowledge of management required as directors and auditors is provided following appointment through in-house training courses and external training courses such as seminars.

In addition, explanation of the Company's business is provided for new outside directors as well as new outside auditors when initially appointed and opportunities are provided to deepen their understanding of the Company's business.

Furthermore, training courses are held for directors and operating officers at least once a year such as training courses on the latest management, legal and tax matters with outside experts as lecturers.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]

The Company believes the understanding and support of its shareholders and investors is vital to increase the Company's medium- to long term corporate value.

Therefore, the Company wants to build a long-term relationship of trust with shareholders and investors by making every effort to provide timely, appropriate and accurate information in a fair manner.

In regard to IR, director and the general manager of the Corporate Planning & Administrative Division is the officer in charge of IR and the General Affairs Department is the IR contact that coordinates with relevant departments.

Furthermore, apart from convening two financial results briefings where the Company's President provides explanation each year (for interim and final results), the financial results briefing materials are posted on the Company's website in Japanese and English. We will strive to strengthen IR activities in future.

In addition, opinions and matters of concern, etc. raised by shareholders and investors, etc. through IR activities, are reported in a timely and appropriate manner through the Board of Directors and the Management Meeting.

The financial results briefing for the full year results for the fiscal year ended March 2021 has been cancelled due to the impact of COVID-19 and the relevant materials and the explanatory video by the Company's President were posted to the Company's website on May 20 and May 28 respectively.

In regard to the management of insider information, to prevent insider trading, we have prepared Group Internal Information Management Regulations and aim to appropriately manage the standards for handling the management of internal information and related matters.

2. Capital Structure

		Foreign Shareholding Ratio		From 10% to less than 20%
[Status of Major Shareholders]
		Name			Number of Shares Owned			Shareholding Ratio
				(Shares)			(%)
		Tokyo Small and Medium Business	2,966,450		9.26
		Investment & Consultation Co., Ltd.

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[Translation]

		Mizuho Bank, Ltd.	1,200,505		3.75
		Nippon Life Insurance Company	969,600		3.03
		The Master Trust Bank of Japan, Ltd. (Trust	910,900		2.84
		account)
		Keisuke Kawasaki	829,641		2.59
		Keita Kawasaki	721,099		2.25
		Oiles East Japan Mutual Prosperity	709,229		2.21
		Association
		Custody Bank of Japan, Ltd. (Trust Account	691,700		2.16
		E)
		STATE STREET LONDON CARE OF	660,200		2.06
		STATE STREET BANK AND TRUST,
		BOSTON SSBTC A/C UK LONDON
		BRANCH CLIENTS- UNITED KINGDOM
		Oiles Employee Shareholding Association	590,767		1.84
		Controlling Shareholder (except for Parent)		－
		Parent (Listed Stock Market)		N/A
		Supplementary Explanation
		－
3. Corporate Attributes
		Listed Stock Market and Market Section		Tokyo Stock Exchange
			First Section
		Fiscal Year-End		March
		Type of Business		Machinery
		Number of Employees (Consolidated) at End		1,000 or more
		of the Previous Fiscal Year
		Net Sales (Consolidated) for the Previous		From ¥10 billion to less than ¥100 billion
		Fiscal Year
		Number of Consolidated Subsidiaries at End		From 10 to less than 50
		of the Previous Fiscal Year

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

－

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

－

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