User Local : Corporate Governance Report-202112

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Latest Revision:	December 22, 2021
Company:	User Local, Inc.
TSE Code:	3984
Representative:	Masao Ito
	Representative Director
	& CEO
Inquiries:	Administrative Division
	03-6435-2167
URL:	https://www.userlocal.jp/

The corporate governance of User Local, Inc. (the "Company") is described below.

I. Our Basic Policy on Corporate Governance, Capital Structure, Company Attributes, and Other Basic Information

1. Our Principle

Under the mission of "Driving global evolution by combining big data and AI", the Company positions the enhancement of corporate governance as the most important issues. The Company believes that it is important to continue to maximize sustainable corporate value and contribute to society while building relationship of trust with all stakeholders.

Based on this recognition, the Company has committed to highly transparent management with enhancement of the efficiency and soundness of management.

The Company's corporate governance priorities

・To enhance management supervision by the Board of Directors and the Audit and Supervisory Board to ensure accountability to shareholders.

・To reinforce internal control system and compliance to enhance the corporate value

• To engage in constructive dialog with stakeholders and disclose corporate information appropriately.

Rationale for Not Implementing Certain Principles of the Corporate Governance Code

[Applicable Code]

The statements are described based on the revised Code of June 2021 which includes principles for companies listed on the Prime Market.

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Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

[Supplementary Principle 2.4.1 Voluntary and Measurable Goals for Ensuring Diversity]

The Company believes that employees are the most important asset and the foundation for the growth of the Company. The Company is working on initiatives aimed at formulating human resources strategies and developing the environment in which each employee with diverse values and expertise can demonstrate their abilities to the fullest. The Company has also created the workplace where employees can be active regardless of ages or gender with promoting younger employees and female employees in management positions.

On the other hand, the Company does not establish target values for each attribute because the Company has set the primary goal to attract talented employees with equal opportunities for assessment and promotion regardless of gender, nationality, etc.

[Supplementary Principle 3.1.3 Disclosure, etc. Based on TCFD Recommendations]

The Company is mainly engaged in the cloud-based business and as of today, it does not any impact of climate change-related issues on the Company's business. Therefore, it does not make any disclosure, etc. based on TCFD recommendations. However, the Company regards addressing climate change-related issues as an important initiative to ensure stable development of the economy and secure a safety of life of people. Therefore, the Company uses the data center that uses 100% green electricity, and also works to digitize paperwork and save energy of the office.

[Supplementary Principle 4.1.2 Disclosure of Medium-term Management Plan]

Due to the rapid changes in the environment and technology of the industry we belong to, the Company believes that it is not appropriate to formulate a medium-term plan with specific targets. The Company explains about the medium- to long-term management strategies through IR to promote understanding among shareholders and investors.

[Supplementary Principle 4.1.3 Succession Plan]

The Company regards a succession plan for the Representative Director and the other top executives as an important issues and considers this matter on the Board of Directors, including Independent Outside Directors. The Company believes that we should set the succession plan adequately under the supervision of the Board of Directors going forward.

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Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

[Supplementary Principle 4.10.1 Use of Optional Approach]

The Company has not established any optional advisory committees as of now. However, the decisions on the appointment, dismissal and remuneration of Directors are subject to the approval of the Board of Directors that consists of Directors and Independent Outside Directors. The Company believes that we have established a system for appropriate involvement and advice of Independent Outside Directors. As of now, the system is functioning properly, and the Company considers that it is no need to set up any optional advisory committees.

Disclosure Based on the Principles of the Corporate Governance Code

[Applicable Code]

The statements are described based on the revised Code of June 2021 which includes principles for companies listed on the Prime Market.

[Principle 1.4 Cross-Shareholdings]

The Company does not hold the any listed shares as cross-shareholdings. If the Company conducts cross-shareholdings in the future, the Company will do so only after the Board of Directors examines whether the cross-shareholdings are reasonable and appropriate.

[Principle 1.7 Related Party Transactions]

The Company has a basic policy of not engaging in related party transactions. If the Company conducts transactions with its Directors and their close relatives, the Company will do so only after the Board of Directors examines whether the transactions are reasonable and appropriate. And the status of such transactions will be reported to the Board of Directors regularly.

[Supplementary Principle 2.4.1 Voluntary and Measurable Goals for Ensuring Diversity]

The Company believes that employees are the most important asset and the foundation for the growth of the Company. The Company is working on initiatives aimed at formulating human resources strategies and developing the environment in which each employee with diverse values and expertise can demonstrate their abilities to the fullest. The Company has also created the workplace where employees can be active regardless of ages or gender with promoting younger employees and female employees in management positions.

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Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

The Company actively recruits employees on the basis of equal evaluation regardless of gender, nationality, etc. With respect to the status of ensuring diversity as of end of the previous fiscal year, the share of females at managerial positions was 27%.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners] The Company does not have a company pension fund.

[Principle 3.1 Full Disclosure]

(i) Corporate mission

Under the mission of "Driving global evolution by combining big data and AI", the Company developing business. Observing user behavior from the perspective that the user is always right, the Company has delivered the services that meet the needs of the times and established the system of low-cost operations that can be offered to a large number of customers over the long term.

The forecast for the next fiscal year is disclosed in the Summary of Financial Results.

1. Basic Views and Guidelines on Corporate Governance Based on Each of the Principles of the Code
   For the Company's basic views and guidelines on corporate governance, please refer to "Ⅰ .1 Our Principle of Our Basic Policy on Corporate Governance, Capital Structure, Company Attributes, and Other Basic Information.
2. Board Policies and Procedures in Determining the Remuneration of Senior Management and Executive Directors
   The Company's policy on determining the remuneration of Directors is to determine the amount and the method of calculation at a level appropriate to the roles and responsibilities of the Directors, and it consists of fixed compensation and stock compensation. The amount of individual fixed remuneration for Directors is delegated to Representative Director within the limit of the total remuneration amount resolved at the General Meeting of Shareholders which was held on October 10, 2014 after discussion by the Board of Directors, taking into consideration the duties to be assigned, the performance of each fiscal year, the degree of contribution, the trends of other companies in the same industry, and other factors. The Company introduced a restricted stock compensation plan as the stock compensation, and the amount of individual remuneration has been determined following discussion by the Board of Directors in consideration of the purpose of providing incentives for the sustainable

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Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

enhancement of the Company's corporate value within the amount approved at the Ordinary General Meeting of Shareholders to be held on September 22, 2021 which is within the existing compensation limit above.

1. Board Policies and Procedures for the Appointment/Dismissal of Senior Management and the Nomination of Executive Director and Auditor Candidates
   The Company nominates candidates for Directors, taking into account the results of the director's evaluation and the employee's personnel evaluation, and proposes at the ordinary general meeting of shareholders by resolution of the Board of Directors. In nominating candidates for Outside Directors, the Company nominates the persons, taking into account the balance between experience, knowledge, skills and diversity in addition to a high degree of independence, and proposes at the ordinary general meeting of shareholders by resolution of the Board of Directors. In nominating candidates for Audit and Supervisory Board Members, the Company nominates the persons, taking into account the areas of expertise of the Outside Corporate Auditors who are retiring or remaining and proposes at the ordinary general meeting of shareholders by resolution of the Audit and Supervisory Board.
2. Explanations with Respect to the Individual Appointments/Dismissals and Nominations Described in (iv)
   Reasons for appointment of Directors and Audit and Supervisory Board Members are described on the Notice of Annual General Meeting of Shareholders with their brief personal records.

[Supplementary Principle 3.1.3 Initiative, etc. on Sustainability]

Under the mission of "Driving global evolution by combining big data and AI", the Company believes that our business activities, especially such as the services that are provided free of charge and educational activities has been contributing to resolve social issues and sustainable society. Also, these initiatives are high affinity with ESG and the Sustainable Development Goals (SDGs). The Company provides detailed explanation on our initiatives, etc. on sustainability on the Company's website.

Examples of services that we provide free of charge are as follows.

・Providing OCR free of charge for the realization of a paperless society ・Free provision of AI algorithms

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