Digital Arts : CORPORATE GOVERNANCE

CORPORATE GOVERNANCE

Updated: June 22, 2022

Digital Arts Inc.

Toshio Dogu, Representative Director, President and CEO

Contact: Isao Konishi, Administration Department

03-5220-6045

Securities Code: 2326

https://www.daj.jp/

The state of corporate governance of Digital Arts Inc. ("the Company") is described below.

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

1. Fundamental Views

The Company's corporate governance policy consists of "engaging in speedy decision-making and clarifying the roles and responsibilities incidental to this," "maintaining objective checking systems both internally and externally" and "ensuring timely and fair disclosure" and we will endeavor to continue maintaining and strengthening this approach in the future.

The Board of Directors comprises a total of 6 persons, including 1 Representative Director, 1 Director (excluding Directors who are Audit & Supervisory Committee members) and 4 Directors who are Audit & Supervisory Committee members, meets once a month in principle, and makes decisions on important matters related to the foundation of the Company's management. The Company holds meetings of the Executive Committee once a month. Serving as a body preceded by the Board of Directors, it consists of the Representative Director, Full-time Directors and General Managers of individual Departments. It determines individual management strategies based on the prior deliberations and decision-making of the Board of Directors and reviews the status of business execution.

In addition, it holds meetings of the Management Reporting and Liaison Committee once a week in principle. Composed of General Managers of separate Departments and Sections and higher-ranking members, it reports on the state of progress of operations in each division and builds consensus. These meeting bodies clarify their respective roles and responsibilities and seek to enrich discussions at the Board of Directors and give shape to its decisions. We have also established functional departments responsible for clarifying the segregation of duties and ensuring checks and balances to maintain corporate governance.

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

The Company has implemented all of the principles of the Corporate Governance Code.

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

[Principle 1.4: Cross-Shareholdings]

The Company currently does not hold shares of other listed companies as cross-shareholdings.

It is the Company's fundamental policy to acquire and hold shares of a trade partner, etc. as cross-shareholdings if the cross-shareholding is deemed to contribute to the enhancement of the Group's corporate value over the medium to long term, considering capital cost and other factors from the viewpoint of building a stable and long-term relationship with the trade partner, entering into a business alliance, or facilitating and strengthening cooperative business development, etc.

However, investment decisions shall be made by the Board of Directors and the reasonableness of continuous cross-shareholdings shall be evaluated periodically by the Board of Directors in light of the initial purpose of the cross-shareholding. When exercising voting rights associated with cross- shareholdings, the Company shall make a comprehensive judgment of the relevant proposals with respect to points such as whether or not the proposals would contribute to the development of appropriate corporate governance, the enhancement of the issuer's corporate value over the medium to long term, and the impact of the proposals to the Company.

[Principle 1.7: Related Party Transactions]

When the Company conducts a transaction with its officers, major shareholders and others, it shall submit the matter to the Board of Directors in advance and obtain the board's approval in order to ensure that the transaction will not adversely affect common interests of the Company and shareholders, except where the terms and conditions of the transaction are clearly the same as those for general transactions.

[Supplementary Principle 2.4.1: Ensuring Diversity in the Recruitment, etc. of Core Human Resources]

The Company considers that, in order to realize the corporate philosophy of "Contributing to a more convenient, comfortable and safer Internet life" and the sustained growth of the Company, it is essential to create growth opportunities through synergies generated from diverse human resources with various values and to continuously maximize employees' achievement levels, by positively recruiting talented persons and fostering all the employees including existing employees. Accordingly, the Company is actively recruiting highly competent personnel who can share its corporate philosophy, regardless of their background (academic background, career history, etc.) and characteristics (nationality, gender, age, disability, etc.), and is promoting the appointment of optimal human resources in managerial positions by helping employees achieve continued growth based on improved employee development systems.

The ratio of female employees to all employees in the Company is 29% while the ratio of female managers (section managers and higher) to all managers is 11%. The Company has been developing systems and an environment that enables female employees to be active in the workplace, has been positively recruiting or promoting them to managerial positions. It will maintain these initiatives in the future.

The percentage of mid-career hires is 66% of all employees of the Company and 92% of all managers (section managers and higher). Although these percentages are high because the Company has been positively recruiting diverse human resources, it will appoint optimal human resources in managerial positions in the future, irrespective of whether they are new graduates or mid-career workers. The percentage of non-Japanese employees in the Company is 2% of all employees. Although this low percentage reflects the fact that the main market for the Company's core business is in Japan, the Company will positively hire non-Japanese as the number of non-Japanese workers is increasing in Japan.

(The above percentages are as of December 1, 2021)

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

The Company does not participate in a particular corporate pension fund but has an introduced the defined contribution pension plan for asset formation of employees. Moreover, the Company deliberates on the selection of a fund manager from multiple viewpoints and ensures appropriate fund management by means such as the periodic provision to employees of opportunities to learn about fund management, including at the time of joining the Company.

[Principle 3.1: Full Disclosure]

1. The Company posts it corporate philosophy, etc. on its website.
2. The Company describes its fundamental policy of corporate governance in its corporate governance report.

1. The fundamental policy for remuneration of Directors (excluding Directors who are Audit & Supervisory Committee members) of the Company is to have a remuneration structure that functions as an incentive for promoting the improvement of corporate value as a whole and to determine the remuneration of each Director (excluding Directors who are Audit & Supervisory Committee members) at an appropriate level, based on his/her job

responsibility, etc. In consultation with the Board of Directors, the Nomination and Remuneration Advisory Committee discusses the policy on determination and builds a consensus in the committee. The Board of Directors then makes a decision. Remuneration of Directors who are Audit & Supervisory Committee members are resolved by the Audit & Supervisory Committee.

1. The appointment of Directors (excluding Directors who are Audit & Supervisory Committee members) and Directors who are Audit & Supervisory Committee members is resolved by the Board of Directors by comprehensively taking into account the balance of each candidate's career history, achievements, human qualities, knowledge, experience, abilities, etc., (1) based on opinions organized upon deliberations by the Nomination and Remuneration Advisory Committee in response to consultations from the Board of Directors in the case of Directors (excluding Directors who are Audit & Supervisory Committee members) and (2) based on the consent of the Audit & Supervisory Committee in case of Directors who are Audit & Supervisory Committee members.
2. Reasons for the selection and dismissal of each candidate are described in notices of convocation of general shareholder meetings.

[Supplementary Principle 3-1-3. Initiatives for sustainability, etc.]

The Company provides explanations about its initiatives on sustainability, investments in human capital and intellectual property, etc. in a specific manner in securities reports and results briefing materials. The Company will also consider stepping up information disclosure in the future.

Disclosure of the Company's response to the TCFD is also posted on the Company's website. https://www.daj.jp/csr/environment/

[Supplementary Principle 4.1.1: Scope of Matters Delegated to Management]

The Board of Directors has the function of overseeing the management of the Company as a whole, including supervision of the execution of duties by business executors, ensures management fairness and transparency, and makes decisions for the Company primarily on the execution of important operations under the laws and regulations. Moreover, the execution of, and decision making on, matters other than important business operations shall be delegated to Executive Committee meeting and other subordinate meeting bodies as well as to officers in charge of relevant business operations and others. The Board of Directors oversees those meeting bodies and the status of the execution of duties by the officers and others.

[Principle 4.9: Independence Standards and Qualification for Independent Directors]

The Company selects Outside Directors who are independent officers in accordance with the requirements for Outside Directors prescribed by the Companies Act and the independence criteria set by Tokyo Securities Exchange.

[Supplementary Principle 4.10.1 Independence, authority, roles, etc. regarding constituents of the Nomination and Remuneration Advisory Committee]

The Company is a company with Audit & Supervisory Committee. Three of the six members of the Board of Directors are Independent Outside Directors, accounting for half of the total members of the Board of Directors.

One Outside Director who is an Audit & Supervisory Committee member is female, and Outside Directors appropriately express their opinions and offer necessary advice from various perspectives regarding gender, skills and other matters, leveraging their highly professional knowledge and abundant experience in deliberations on important matters at the Board of Directors' meetings.

The Company has also established a Nomination and Remuneration Advisory Committee as a voluntary advisory body for the Board of Directors for the purpose of ensuring the objectivity and transparency of the process of nominating candidates for Directors, determining remuneration of Directors and reinforcing the accountability of the Board of Directors.

The Board of Directors determines the nomination of candidates for Directors and remuneration of Directors based on the results of consultations with the Nomination and Remuneration Advisory Committee in which Outside Directors represent a majority.

[Supplementary Principles 4.11.1 View on diversity and size of the Board of Directors]

To ensure the effectiveness of the Board of Directors, the Company stipulates in its Articles of Incorporation that the number of Directors (excluding Directors who are Audit & Supervisory Committee members) shall be six persons or less and that the number of Directors who are Audit & Supervisory Committee members shall be four persons or less.

For the Board of Directors to contribute to sustained growth and the enhancement of corporate value of the Company over the medium to long term, the Company appoints Internal Directors who are familiar with its business and Outside Directors who have rich experience and specialist knowledge acquired outside the Company.

The Skill Matrix, which identifies the skills and other attributes of directors, is disclosed in the Notice of the Convocation of Annual Shareholders Meeting. https://www.daj.jp/ir/stock/meeting/

[Supplementary Principle 4.11.2 Status of concurrent holding of managerial positions of other listed companies by Directors]

As Directors (excluding Directors who are Audit & Supervisory Committee members) and Directors who are Audit & Supervisory Committee members are required to understand the Company's business, etc., attend meetings of the Board of Directors and secure necessary time to prepare for such attendance, they limit the concurrent holding of managerial positions at listed companies other than the Company to the extent reasonable based on their own fiduciary responsibilities. Moreover, the Company discloses the status of the concurrent holding of important positions by its Directors (excluding Directors who are Audit & Supervisory Committee members) and Directors who are Audit & Supervisory Committee members in notices of convocation of general shareholder meetings every year.

[Supplementary Principle 4.11.3: Analysis and Evaluation of Effectiveness of the Board of Directors as a Whole]

The Board of Directors analyzes and evaluates its effectiveness by conducting a questionnaire with all Directors on a non-anonymous basis once a year.

A questionnaire on the effectiveness of the Board of Directors for the 27th fiscal year was conducted with all the Directors, and the Board of Directors deliberated on the questionnaire results, shared perceptions and determined improvement policies.

In the questionnaire results for the fiscal year under review, many respondents evaluated the frequency and duration of meetings of the Board of Directors, the content of relevant materials, the time for review, the number of agenda items and the time for deliberation as appropriate or generally appropriate. Accordingly, the Company considers that frameworks for the operation, etc. of the Board of Directors are generally well organized and that the effectiveness of the Board is ensured.

On the other hand, it considers that further discussions are required regarding the nomination of candidates for Directors and remuneration of Directors.

[Supplementary Principle 4.14.2 Training Policy for Directors]

The Company selects persons who are able to fully accomplish their required roles and responsibilities (including legal responsibilities) as Directors (excluding Directors who are Audit & Supervisory Committee members) and Directors who are Audit & Supervisory Committee members. In particular, it selects persons who are familiar with the business, financial affairs, organizations, etc. of the Company as internally selected Directors (excluding Directors who are Audit & Supervisory Committee members) and internally selected Directors who are Audit & Supervisory Committee members.

To ensure that Directors (excluding Directors who are Audit & Supervisory Committee members) and Directors who are Audit & Supervisory Committee members acquire the necessary knowledge and information for fully accomplishing their roles and responsibilities, they devote themselves to studies such as voluntarily participating in external seminars, get-together sessions with external associations or other companies, etc. The Company bears all relevant expenses.

[Principle 5.1: Policy for Constructive Dialogue with Shareholders]

The Company places importance on constructive dialogue with shareholders and others and works to hold dialogues mainly between its management team members and shareholders through a range of opportunities, aspiring to give shareholders insight into the Company's management policy and to positively obtain and make use of management analysis and opinions from shareholders, while also aiming for the sustained growth of the Group and the medium to long term enhancement of its corporate value.

2. Capital Structure

Percentage of Foreign Shareholders30% or more

[Status of Major Shareholders]

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

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5. Special Circumstances which may have Material Impact on Corporate Governance

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Relationship with the Company (2)

[Audit & Supervisory Committee]

Member Composition and Chairperson's Attribute

Director or Employee Responsible for

Assisting the Audit and SupervisoryAppointed.

Committee in Fulfilling Its Duties

Matters concerning the independence of the said Directors and employees from Executive Directors

Administration Department plays the role of secretariat for the Audit & Supervisory Committee and appropriately assists the Committee in audit operations. In addition, when employees assigned to assist in audit operations receive an instruction regarding audit operations from the Audit & Supervisory Committee, said employees shall not, in connection with said instruction from the Committee, be obliged to receive any instruction from Directors.

Cooperation among the Audit and Supervisory Committee, Accounting Auditors and Internal Audit Department

With respect to audits by the accounting auditor for quarterly and yearly financial settlement and the status of cooperation between Directors who are Audit & Supervisory Committee members and the accounting auditor, Directors who are Audit & Supervisory Committee members receive detailed reports of the status of audit from the accounting auditor who conduct audits and employees who assist audits operations, and exchange opinions as necessary at appropriate times. Moreover, with respect to the status of cooperation between Directors who are Audit & Supervisory Committee members and Internal Audit Department, a cooperative system for constant information exchange has been established to ensure that Directors who are Audit & Supervisory Committee members periodically receive reports on the status of internal audits, audit results, etc. from persons in charge of internal audits.