MODEC : Corporate Governance Report

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

CORPORATE GOVERNANCE

Last Update: August 13, 2024

MODEC, Inc.

Hirohiko Miyata, President & CEO

Contact: +81 -3-5290-1200

Securities code: 6269

https://www.modec.com/

The corporate governance of MODEC, Inc. (the “Company” or “MODEC”) is described below.

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

1. Basic Views

Basic views on corporate governance

The Company establishes its corporate governance system in accordance with the fundamental principles of strict compliance, a focus on shareholder returns and securing business transparency. In particular, with regard to securing transparency, the Company proactively strives to ensure prompt and accurate information disclosure.

Reasons for Non-compliance with the Principles of the Corporate Governance Code

This report is based on the Corporate Governance Code revised in June 2021.

The Company complies with all principles of the Corporate Governance Code.

Disclosure Based on each Principle of the Corporate Governance Code

The Company has established the MODEC, Inc. Corporate Governance Guidelines (hereinafter, the “MODEC Guidelines”). The implementation status of each principle of the Corporate Governance Code is disclosed on the Company’s website. https://www.modec.com/sustainability/pdf/governanceguideline_en.pdf

Please refer to the following items for the Company’s policies regarding matters that the Corporate Governance Code states should be disclosed.

< Principle 1-4>

MODEC Guidelines [Article 7. Basic Policy for Cross-Shareholdings and Exercising Voting Rights Associated with Cross- Shareholdings]

The Company does not currently cross-hold any shares.

< Principle 1-7>

MODEC Guidelines [Article 5. Procedures Concerning Transactions that may Harm the Common Interests of Shareholders]

Based on the concept that “human resources are a source of competitive strength,” we will bring together the strengths of employees throughout the MODEC Group with the aim of realizing “a world where the ocean and humanity co-exist in harmony,” as stated in our vision. The environment surrounding the Company is changing in a dynamic manner as evidenced by the global trend toward “decarbonization.” However, in order for the Company to be needed by society in the future and achieve sustainable growth, we must respond flexibly and quickly to such changes in the environment. Based on this recognition, in our Mid-term Business Plan 2024-2026, we have stated that we will decarbonize our FPSOs and develop new business opportunities, as well as actively invest in human capital, which will be the foundation for growth and transformation. We will promote the development and acquisition of human resources who will contribute to these efforts and create an environment in which such human resources can thrive.

1) Ratio of Women

Based on the above concepts, we are strengthening the recruitment of females at our head office in Japan so that the ratio of females, excluding engineers dispatched offshore, etc., is on a par with levels of other companies in the same industry. In addition, in order to create an environment in which female employees can play an active role in the Company over the medium to long term, we are promoting initiatives to “support the balance between childcare and work,” based on relevant laws.

Target item		Target	FY2023
Ratio	of	female	Greater than maintaining the	results
47%
employees*	female	status quo	16%
Ratio	of	30% by the end of FY2040
managers*

* Excluding engineers dispatched offshore

2) Foreign nationals

As a company operating globally, we train and promote employees at each location based on each individual employee’s abilities and achievements, regardless of their nationality, and we do not set numerical targets for “Foreign national managers.” (Reference) Ratio of foreign national employees: 94.8% (including at overseas bases (FY2023))

3) Mid-career hires

The Company trains and promotes employees based on each individual employee’s abilities and achievements, regardless of whether they joined the Company as a new graduate or as a mid-career hire, and we do not set numerical targets for “Mid- career managers.”

(Reference) Ratio of mid-career hires: 67.2%; Ratio of mid-career hires in managerial positions: 87.2% (Japan head office (2023))

The Company does not have a corporate pension fund system.

MODEC Guidelines [Article 2. Management Philosophy], [Article 3. Basic Policy for Establishment and Enhancement of Corporate Governance System], [Article 12. Roles and Responsibilities of the Board of Directors], [Article 13. Composition of the Board of Directors], [Article 14. Procedures for Nomination of Candidates and Election/Dismissal for Officers], and [Article 15. The Company’s Approach to Executive Remuneration and Decision Procedures]

The election/dismissal of Directors and Directors who are Audit and Supervisory Committee Members is determined in accordance with the policies outlined in the MODEC Guidelines [Article 13. Composition of the Board of Directors] and [Article 14. Procedures for Nomination of Candidates and Election/Dismissal for Officers], based on each individual’s work experience and knowledge. Individual career summaries are disclosed in the Annual Securities Report.

Please refer to the Company’s website for the Mid-term Business Plan. https://www.modec.com/ir/strategy/midterm.html

Please refer to the Company’s website for information on its approach to sustainability and its sustainability policy and initiatives. In FY2023, we established the Sustainability Committee to strengthen our sustainability initiatives. https://www.modec.com/sustainability/

The Company endorses the TCFD Recommendations. Please refer to the Company’s website for information on its climate change initiatives.

https://www.modec.com/sustainability/tcfd.html

MODEC Guidelines [Article 12. Roles and Responsibilities of the Board of Directors]

MODEC Guidelines [Article 13. Composition of the Board of Directors]

MODEC Guidelines [Article 13. Composition of the Board of Directors]

MODEC Guidelines [Article 13. Composition of the Board of Directors]

Please refer to the Notice of Convocation of the 38th Annual General Meeting of Shareholders (page 25) “(Reference) Skill Matrix” for information on the skills that are required of the Board of Directors and the balance of knowledge, experience, and abilities.

https://www.modec.com/ir/stock/pdf/2023_agm_notice_en.pdf

MODEC Guidelines [Article 18. Limitation of Interlocking Directorates of Independent Officers]

MODEC Guidelines [Article 16. Evaluation of the Board of Directors]

Please refer to the Company’s website for a summary of the Board of Directors’ effectiveness evaluation. Summary of the Board of Directors’ Effectiveness Evaluation https://www.modec.com/sustainability/governance.html

MODEC Guidelines [Article 24. Support System for Officers]

MODEC Guidelines [Article 25. Basic Policy] and [Article 26. System for Promoting Dialogue] The Company’s website includes content for individual investors. (Japanese Only)

In accordance with our basic views on corporate governance, we implement the following systems and measures. ・Establish the Budget and Planning Group under the CFO, a unit responsible for IR.

・Actively hold individual interviews with domestic and overseas institutional investors, small meetings with the President or CFO (meetings where the President or CFO exchanges opinions with investors and analysts), and financial results briefings ・Prepare and publish a wide range of IR information in Japanese and English, including financial results, financial statements, and timely disclosure, as well as materials for financial results briefings and mid-term business plans, and strive to enhance

fair and timely disclosure by posting IR information on the Company’s website.

・Report opinions obtained through dialogue with shareholders and investors to the Board of Directors every six months ・Conduct surveys to identify genuine shareholders twice a year to ascertain shareholder composition

・Thoroughly comply with internal rules concerning the prevention of insider trading, including by giving due consideration to fair disclosure when engaging in IR activities

The Company formulated the Mid-term Business Plan 2024-2026 and disclosed it in February 2024. In order to strengthen the Company’s profitability, the Plan identifies the foundational projects and their prospects, and sets financial KPIs (including return on equity (ROE) and Price-Book value Ratio (PBR)) as targets.

Please refer to the Company’s website for the Mid-term Business Plan 2024-2026, “Explore a Sustainable Future with Innovation.”

https://www.modec.com/ir/strategy/midterm.html

	FY2023	FY2026
	(Actual)	(Target)
Net Profit (*1)	96 million USD	175 million USD
ROE	10.70%	12.0%
PBR	1.12	> 1.0
Adjusted EBITDA (*2)	248 million USD	300 million USD

• 1 Profit attributable to owners of parent
• 2 Adjusted EBITDA represents EBITDA before adjustments of non-recurring extraordinary items

2. Capital Structure Updated

Foreign Shareholding Ratio	20% or more but less than 30%

Name or Company Name	Number of Shares	Percentage
	Owned	(%)
MITSUI & Co., Ltd	10,162,300	14.86
Mitsui O.S.K. Lines, Ltd.	10,162,300	14.86
The Master Trust Bank of Japan, Ltd. (Trust Account)	4,443,800	6.50
MITSUI E&S Co., Ltd.	2,502,400	3.66
Custody Bank of Japan, Ltd. (Trust Account)	2,008,327	2.93
MSIP CLIENT SECURITIES	1,391,255	2.03
BNY GCM CLIENT ACCOUNT JPRD AC ISG (FE-AC)	1,178,426	1.72
JP MORGAN CHASE BANK 385632	1,115,880	1.63
BNYM AS AGT/CLTS 10 PERCENT	999,400	1.46
JP JPMSE LUX RE UBS AG LONDON BRANCH EQ CO	845,866	1.23

Supplementary Explanation

As of June 30, 2024

1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder
   N/A
2. Other Special Circumstances which may have a Material Impact on Corporate Governance UpdatedN/A

1. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight

External Directors’ Relationship with the Company (1) Updated

Name

Attributes

Relationship with the Company*

a

b

c

d

e

f

g

h

i

j

k

Koichi Wakana

From another company

○

Yasuchika Noma

From another company

○

Kazuko Shiraishi

Other

Kazuhisa Nishigai

From another company

Masato Kobayashi

Lawyer

Hiroko Noda

CPA

Toshihiko Fujita

Tax Accountant

Masaaki Amma

From another company

△

*Categories for “Relationship with the Company”.

(Use “○” 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.

Person who executes business for the Company or its subsidiary

b.

Person who executes business for a non-executive director of the Company’s parent company

c.

Person who executes business for a fellow subsidiary

d.

Person/entity for which the Company is a major client or a person who executes business for said person/entity

e.

Major client of the Company or a person who executes business for said client

f.

Consultant, accounting expert, or legal expert who receives large amounts of cash or other assets from the Company in

g.

addition to remuneration as a director/company auditor

Major shareholder of the Company (in cases where the shareholder is a corporation, a person who executes business for

h.

the corporation)

Person who executes business for a client of the Company (excluding persons categorized as any of d, e, or f above)

i.

(applies to director him/herself only)

Person who executes business for another company that holds cross-directorships/cross-auditorships with the Company

j.

(applies to director him/herself only)

Person who executes business for an entity receiving donations from the Company (applies to director him/herself only)

k.

Other

External Directors’ Relationship with the Company (2) Updated

Membership

Designation

Name

of Audit and

as

Supplementary Explanation of the

Reasons for Appointment

Supervisory

Independent

Relationship

Committee

Director

Mr. Koichi Wakana has been elected as an

External Director in the expectation that

– Management Officer, Mitsui

he will provide advice on the overall

Koichi

& Co., Ltd.

management of the Company and monitor

– Director, Mitsui & Co. Plan

business execution of the Company from

Wakana

Systems, Ltd.

an outsider’s point of view based on his

wide range of business experience at a

major general trading company as well as

practical knowledge related to the

Company’s business.

Mr. Yasuchika Noma has been elected as

an External Director in the expectation

– Executive Officer, Mitsui

that he will provide advice on the overall

Yasuchika

O.S.K. Lines, Ltd.

management of the Company and monitor

business execution of the Company from

Noma

an outsider’s point of view based on his

wide range of business experience at a

major shipping company as well as

practical knowledge related to the

Company’s business.

< Status of concurrent

Ms. Kazuko Shiraishi has been elected as

an External Director in the expectation

positions>

that she will provide advice on the overall

– External Director (Audit and

management of the Company and monitor

Supervisory Committee

business execution of the Company from

Members), SCSK Corporation

an outsider’s point of view based on her

Kazuko

extensive knowledge and wealth of

○

experience in international affairs she

Shiraishi

gained through her career at government

and public offices.

Ms. Kazuko Shiraishi satisfies the

standards for Independent Directors

established by the Tokyo Stock Exchange

and the Regulations Regarding Criteria for

the Independence of External Directors

established by the Company.

Mr. Kazuhisa Nishigai has been elected as

an External Director in the expectation

– Outside Director, Okabe Co.,

that he will provide advice on the overall

Ltd.

management of the Company and monitor

– Member of the management

business execution of the Company from

Council, Yamagata University

an outsider’s point of view based on his

extensive knowledge and management

ability gained through his involvement in

Kazuhisa

○

the management of a major listed

manufacturing company, as well as wide

Nishigai

range of business experience related to

production engineering, plant

management and sales, etc.

Mr. Kazuhisa Nishigai satisfies the

standards for Independent Directors

established by the Tokyo Stock Exchange

and the Regulations Regarding Criteria for

the Independence of External Directors

established by the Company.

			Mr. Masato Kobayashi has been elected as
			an External Director in the expectation
			– Partner, City-Yuwa Partners	that he will provide advice on the overall
			– External Audit & Supervisory	management of the Company and monitor
			Board Member, Japan	business execution of the Company from
			Platform of Industrial	an outsider’s point of view based on a
Masato		○	Transformation, Inc.	wealth of experience and professional
	– Director, Misaki Engagement	insight on overall legal affairs as an
Kobayashi
		Master Fund	attorney.
			– Director, Misaki Engagement	Mr. Masato Kobayashi satisfies the
			Master Fund Ⅱ Ltd.	standards for Independent Directors
				established by the Tokyo Stock Exchange
				and the Regulations Regarding Criteria for
				the Independence of External Directors
				established by the Company.
				Ms. Hiroko Noda has been newly elected
			as an External Director who is an Audit
			– Representative Director,	and Supervisory Committee Member, as
			Probity consulting Co., Ltd.	she is deemed to be capable of
			– Representative, Noda	performing appropriate audit, based on
			Certified Public Account Office	her abundant experience and broad
			– External Director (Audit &	knowledge acquired at accounting
Hiroko Noda	○	○	Supervisory Committee	departments of foreign financial
Member), Okabe Co., Ltd.	institutions and as a certified public
			– Outside Director (Audit &	accountant and management consultant.
			Supervisory Committee	Ms. Hiroko Noda satisfies the standards
			Member), S.T. COPORATION	for Independent Directors established by
			– Outside Director, CHORI CO.,	the Tokyo Stock Exchange and the
			LTD.	Regulations Regarding Criteria for the
				Independence of External Directors
				established by the Company.
			Mr. Toshihiko Fujita has been newly
			elected as an External Director who is an
			– Director, Hongo Tsuji Tax &	Audit and Supervisory Committee
			Consulting	Member, as he is deemed to be capable of
				performing appropriate audit, based on
Toshihiko				his wealth of experience at government
○	○		and public offices, and his professional
Fujita		insight in taxation business.
				Mr. Toshihiko Fujita satisfies the standards
				for Independent Directors established by
				the Tokyo Stock Exchange and the
				Regulations Regarding Criteria for the
				Independence of External Directors
				established by the Company.
			Mr. Masaki Amma had been an	Mr. Masaaki Amma has been newly
			Executive officer of Japan Bank	elected as an External Director who is an
			for International Cooperation	Audit and Supervisory Committee
			(JBIC), our lender; however, it	Member as he is deemed to be capable of
			has been for more than six years	performing appropriate audit, based on
			since his retirement from the	his wealth of experience and high level of
Masaaki	○	○	position in June 2017, and we	insight in domestic and overseas finance
consider that he has sufficient	gained at government-affiliated financial
Amma
		independence.	institutions.
			Mr. Masaaki Amma satisfies the standards
			for Independent Directors established by
			– Senior Executive Officer,	the Tokyo Stock Exchange and the
			PricewaterhouseCoopers	Regulations Regarding Criteria for the
			Sustainability LLC	Independence of External Directors
				established by the Company.

Audit and Supervisory Committee

Composition of Audit and Supervisory Committee and Attributes of the Chairperson

Matters Concerning Independence of Said Directors and/or Staff from Executive Directors

The Office of Audit and Supervisory Committee has been established as a department to assist the Audit and Supervisory Committee and Audit and Supervisory Committee Members in their duties. Suitable employees have been assigned to the Office to assist the Audit and Supervisory Committee and Audit and Supervisory Committee Members in their duties.

In addition, employees who assist the Audit and Supervisory Committee and Audit and Supervisory Committee Members in their duties shall follow the instructions of the Audit and Supervisory Committee and Audit and Supervisory Committee Members, and personnel changes and evaluations of employees who assist the Audit and Supervisory Committee and Audit and Supervisory Committee Members in their duties shall respect the opinions of Audit and Supervisory Committee Members to the maximum extent possible.

Cooperation among the Audit and Supervisory Committee, Accounting Auditor and Internal Auditing Department

By a resolution approved at the 38th Annual General Meeting of Shareholders held on March 27, 2024 to amend the Articles of Incorporation, the Company transitioned from a company with a Board of Statutory Auditors to a company with an Audit and Supervisory Committee.

As stated below, the Audit and Supervisory Committee, the Accounting Auditor, and the Internal Auditing Department, a department responsible for internal audits, shall work in close collaboration.

The Audit and Supervisory Committee receives an explanation of the audit plan from the Accounting Auditor at the beginning of the fiscal year and receives reports on audit results during the fiscal year and at the end of the fiscal year. By holding regular meetings, the Audit and Supervisory Committee shares awareness and exchange opinions with the Accounting Auditor on the important risks faced by the Company. The Internal Auditing Department also attends these meetings.

In addition, the Internal Auditing Department holds monthly meetings with a full-time Audit and Supervisory Committee Member. At those meetings, the Internal Auditing Department reports on the overall status of audit operations, including individual audits, and maintains close contact by exchanging opinions on the current status of the Company and its subsidiaries. The opinions obtained by the Internal Auditing Department from the Audit and Supervisory Committee through these activities are used as reference when selecting priority items for individual audits, etc., in order to improve the effectiveness and efficiency of audits.

The Internal Auditing Department audits the entire corporate group, comprising the Company and its subsidiaries, and reports directly to the President, the Board of Directors, and the Audit and Supervisory Committee, creating a so-called “dual reporting lines.”

Voluntary Established Committee(s)

Voluntary Establishment of Committee(s) equivalent toEstablished

Nomination Committee or Remuneration Committee

Status of Voluntarily Established Committee(s), Attributes of Members Constituting the Committee and the Committee Chairperson

Committee’s

All

Full-time

Internal

External

External

Other

Chairperson

Name

Members

Members

Directors

Directors

Experts

Voluntarily Established

Nomination and

Committee Equivalent

External

Remuneration

3

0

0

3

0

0

to Nomination

Director

Committee

Committee

Voluntarily Established

Nomination and

Committee Equivalent

External

Remuneration

3

0

0

3

0

0

to Remuneration

Director

Committee

Committee

Supplementary Explanation Updated

The Company has established the Nomination and Remuneration Committee, a non-mandatory body, under the Board of Directors with the aim of strengthening the functions of the Board of Directors with regard to the nomination and remuneration of Directors and Executive Officers. It is stipulated that the majority of the Committee’s members be independent External Directors to ensure transparency and objectivity, and to engage in fair and appropriate deliberations.

The Committee met ten times in the fiscal year ended December 31, 2023 and deliberated and reported on selection criteria (skill matrix) and election proposals for Directors. In addition, the Committee provided recommendations and advice, engaged in discussions, and provided reports regarding the remuneration system for Directors and Executive Officers.

Matters Concerning Independent Directors

Number of Independent Directors	6

Other Matters Concerning Independent Directors

The Company designates all External Directors to Independent Directors who meet the qualifications as Independent Directors.

Incentives

	Implementation Status of Measures related to			Other
	Incentives Granted to Directors

Supplementary Explanation for Applicable Items

At the 38th Annual General Meeting of Shareholders held in 2024, a resolution was approved to introduce a new stock price- linked remuneration (performance cash) for Directors (excluding non-executive Directors), replacing the previously adopted share-based remuneration, with the aim of achieving sustainable enhancement of corporate value of the Company over the medium to long term, providing eligible Directors with incentives for future performance, and further promoting the value- sharing with our shareholders.

When determining the amount of bonus to be paid as an incentive for achieving management targets, it was decided that the amount of bonus shall be determined by multiplying the base amount for each rank by a coefficient, which is calculated from the amount of consolidated profit and cash flows for the applicable fiscal year, and by taking into account the actual dividends paid.

Persons Eligible for Stock Options

Supplementary Explanation for Applicable Items

N/A

Director Remuneration

	Status of Disclosure of Individual Director’s			No Disclosure for any Directors
	Remuneration

Supplementary Explanation for Applicable Items
(The above information is based on actual results for the fiscal year ended on December 31, 2023 prior to the transition to a
company with an Audit and Supervisory Committee.) The Company discloses the total amount of remuneration for Directors
and Corporate Auditors in securities reports and business reports. The total amount of remuneration for Directors was ¥294
million, and the total amount of remuneration for Corporate Auditors was ¥55 million. Of these amounts, the total amount of
remuneration paid to eleven (11) External Officers (eight (8) External Directors and three (3) External Corporate Auditors) was
¥78 million.
Policy on Determining Remuneration Amounts	Established
and Calculation Methods

Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods

The Company has established a Nomination and Remuneration Committee, where a majority of the members are External Directors, and an independent External Director serves as chairperson. This ensures transparency and objectivity and allows the Committee to determine remuneration in a fair and appropriate manner. The Board of Directors confirms consistency with the decision-making policy of the Nomination and Remuneration Committee when determining the details of remuneration, etc., for individual Directors for the current fiscal year, and the Board of Directors also respects the reports of the Committee. Therefore, we have determined that this is in line with the abovementioned policy for determining remuneration, etc.

Details of the policy regarding the determination are as follows.

a. Basic Policy on remuneration for officers, etc.

The Company’s remunerations system for officers, etc. is determined in accordance with the following basic policy with the aim of maximizing the value to be provided to shareholders and other stakeholders.

・The system shall be designed to function as an appropriate incentive commensurate with overall corporate performance and individual achievements, so as to facilitate medium- to long- term enhancement of corporate value and the realization of the management plan of the Company.

・The system shall reflect the roles, responsibilities, and achievements of each officer, etc., thereby encouraging the performance of duties according to the responsibilities of the position.

・The remuneration shall be set at a competitive level to allow the Company to attract the excellent talent available in the market, while complying with regulations and guidelines on executive remunerations.

・The system shall be determined based on appropriate governance and control, and shall be reviewed on a timely basis in views of the business environment and other factors.

b. Structure of the remuneration

The Company’s remuneration for officers, etc. shall comprise basic remuneration, which is fixed remuneration, bonuses, which are performance-linked remuneration, and stock price-linked remuneration (performance cash), which is medium- to long- term performance-linked remuneration.

The ratio of each type of remuneration to the total remuneration for each officer, etc. is based on levels of officer remuneration survey data and management remuneration guidelines by an external specialized organization in order to provide appropriate incentives for achieving performance targets. The fluctuation range of performance-linked remuneration, assuming fixed remuneration is set at 100, is designed to be approximately 15% to 230%.

Basic remuneration is remuneration commensurate with the roles and responsibilities of each officer, etc., and is intended to encourage the performance of duties according to the responsibilities of the position. The amount of remuneration is determined in accordance with the rank of each officer, etc.

Bonuses are remuneration in consideration of overall corporate performance in a single fiscal year and are intended to function as an incentive for achieving management targets. The amount of bonus shall be determined by multiplying the base amount for each rank by a coefficient, which is calculated from the amount of consolidated profit (profit attributable to owners of parent) and cash flows for the applicable fiscal year, and by taking into account the actual dividends paid.

Stock price-linked remuneration (performance cash) is remuneration intended to achieve sustainable enhancement of corporate value of the Company over the medium to long term, provide eligible Directors with incentives for future performance, and further promote the value-sharing with our shareholders. Under the Program, stock points are granted each fiscal year in accordance with the rank and business performance. At the time of retirement from the office, the amount of remuneration will be calculated by multiplying the accumulated stock points by the stock price as of the time of retirement, which will be paid in cash.

For External Directors and Directors who are Audit and Supervisory Committee Members, remuneration shall comprise only basic remuneration, which is fixed remuneration, without a performance-linked remuneration component, to ensure independence from management.

c. Process for determining the executive remuneration, etc.

The Board of Directors has deliberated and decided on the policy for determining executive remuneration based on the recommendation from the Nomination and Remuneration Committee.