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.

* 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))

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

External Directors’ Relationship with the Company (2) Updated

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

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

Other Matters Concerning Independent Directors

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

Incentives

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

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.