May 13, 2021
Dear allCompany Name: Arisawa Manufacturing Co., Ltd.
Representative Name: Yuta Arisawa, Representative
Director and CEO(Tokyo Stock Exchange First Section, Code: 5208)
Contact information: Takeshi Masuda, Senior Executive
Officer responsible for Corporate Planning Department(TEL: 025 – 524 – 7101)
Notice regarding receipt of documents relating to the exercise of shareholder proposal
rights and opinions of the Company’s Board of Directors
Arisawa Manufacturing Co., Ltd. (the “Company”) received a document concerning the exercise of shareholder
proposal rights regarding the agenda at the 73rd annual general meeting of shareholders scheduled to be held on June 25,2021. The Board of Directors’ opinion in respect of the shareholder proposals was decided at the Board of Directors
meeting held on May 13, 2021, so we notify you of such opinion as follows.

1.

Proposing Shareholder
Shareholder name: INTERTRUST TRUSTEES (CAYMAN) LIMITED SOLELY IN ITS CAPACITY AS
TRUSTEE OF JAPAN－UP and STRATEGIC CAPITAL, INC.

2.

Content of Shareholder Proposals
1）Agenda Item(1)Deletion of “holding and managing securities” from the Company’s purpose set out in theArticles of Incorporation(2)

Amendments to the Articles of Incorporation related to the sale of Strategic Shareholdings(3)

Appropriation of Surplus(4)

Reversal of General Reserve2) Contents of Agenda Items and Reasons for the Proposals
As described in the attached Annexure titled “Shareholder proposal agenda items content and reasonsfor the proposals”. The relevant parts of the shareholder proposals that were set out in the documents
received from the proposing shareholders have been set out as they appeared in their original text.

3. Opinion of the Company’s Board of Directors1) Agenda item 1: Deletion of “holding and managing securities” from the Company’s purpose set out in
the Articles of Incorporation(1)

The Board of Directors’ Opinion
The Board of Directors opposes this proposal.

(2)

Reasons
The Board of Directors believes that amending the Articles of Incorporation based on thisproposal will hinder the Company’s attempts to increase corporate value by acting as a restraint
on the Company’s business strategy, financial strategy and investment strategy.
The securities held by the Company are held as strategic investment funds to be invested in newbusinesses with high return on investment while maximizing synergies with existing businesses,
as noted in the medium-term management plan announced on 29 October 2020. The Company’sdirection is to utilize these securities to expand the earnings base of the existing businesses anddevelop new use cases for existing businesses. The implementation of the public tender offer tomake ThinFlex Corporation of Taiwan (“ThinFlex”) a wholly-owned subsidiary, as announced
on January 27, 2021, is a part of this kind of direction.
The Company holds JPY 11,908,000,000 of securities on its balance sheet as of 31 March 2021,including bonds with a trading price of JPY 7,881,000,000, listed shares of JPY 2,562,000,000,exchange traded funds of JPY 1,054,000,000, and shares of non-consolidated
subsidiaries/affiliated companies of JPY 318,000,000. This represents a decrease of JPY
3,857,000,000 when compared to the Company’s balance sheet holdings of JPY 15,765,000,000
as of 31 March 2020. In particular, the value of bonds with a trading price decreased by JPY
3,808,000,000. This decrease was due to the proceeds from the sale of the bonds being used for
the ThinFlex tender offer mentioned above.
To restrict the means of capital management from one investment to another in the articles ofincorporation is not, we have determined, an appropriate corporate activity. We have further
determined that we should preserve the ability of the Company to rely on various capitalmanagement methods, including to hold securities, as we pursue achievement of the goals in
our medium-term management plan going forward.
Therefore, the Board of Directors opposes this proposal.

2) Agenda item 2: Amendments to the Articles of Incorporation related to the sale of Strategic
Shareholdings(1)

The Board of Directors’ Opinion
The Board of Directors opposes this proposal.

(2)

Reasons
The Board of Directors considers this proposal to be unfitting in nature for the type offundamental rules and regulations of the Company to be set out in the Articles of Incorporation.
The Board of Directors further believes that to include this type of proposal in the Articles ofIncorporation may hinder the Company’s development.
The Company decides whether or not to acquire and hold shares in a particular business partner
based on whether it will contribute to the medium-to-long-term corporate value of the Company.
This determination takes into account the stable and long term business relationships with ourbusiness partners, business collaboration and/or the facilitation and strengthening ofcollaborative business development. These strategic shareholdings are holistically evaluated by－2－

the Board of Directors at the end of each fiscal year, taking into account the medium-to-longterm financial benefit and the strengthening and maintenance of relationships with business
partners. We sell off those stocks that we view as not having adequate benefits of ownership or
having a reduced need to be held in order to maintain business relations. Specifically, of the 12
listed stocks held as at the end of March 2020, we sold three in the 73rd fiscal year (fiscal year
ended March 2021), and at the end of March 2021, we continued to hold nine stock positions.
Going forward, we will continue to aim to reduce our holdings in such securities following
evaluation of the effects of holding them, in order to contribute to shareholder value andcorporate value.
To require the sale of all stocks during the 74th fiscal year (fiscal year ending March 2022) asproposed in this proposal would require that we sell strategically held shareholdings that
contribute to the Company’s corporate value and have a significant, positive impact in terms ofmaintaining and building the Company’s stable and long-term business relationships, andfacilitating and strengthening business cooperation and collaborative business development.
Such a forced sale would unavoidably have an adverse impact on the Company’s relationships
with its business partners, collaborating businesses and other business partners. The Board ofDirectors believes that such amendments to the Articles of Incorporation may hinder theCompany’s potential for medium-to-long-term growth, and accordingly, may damage theCompany’s corporate value.
Therefore, the Board of Directors opposes this proposal.
3）Agenda item 3: Appropriation of Surplus(1)

The Board of Directors’ Opinion
The Board of Directors opposes this proposal.

(2)

Reasons
The Company has set a policy to invest its earnings during the period in the development of newuse cases and the maintenance and expansion of its earnings base, which are essential for thesustained growth of the Company, in the medium-term management plan, as well as toproactively allocate funds to shareholder returns. Under this policy, the Company targets
allocating more than 60% of the Company’s consolidated net profit to be returned toshareholders in light of the Company’s mid-term performance goals during the period ending
March 2025.
The Board of Directors believes that to set the Company’s dividend payout ratio to 100%, asrecommended by this proposal, risks damaging the Company’s investment for maintaining andexpanding its earnings base and developing new use cases, which are necessary andindispensable for the Company’s sustainable growth and improvement of its corporate value
over the medium-to-long-term.
Therefore, the Board of Directors opposes this proposal.

4) Agenda item 4: Reversal of General Reserve(1)

The Board of Directors’ Opinion
The Board of Directors opposes this proposal.

(2)

Reasons
We set out in the medium-term management our aim to provide stable and proactive shareholder
returns, and to return more than 60% of consolidated net profit to shareholders.
－3－In this shareholder proposal, the total amount of the general reserve fund, which is JPY
24,020,000,000, is to be reversed. The Board of Directors believes that transferring the entire
amount of the general reserve to retained earnings and making it available for distribution byboard resolution is in tension with improving corporate value over the medium-to-long-term
through sound and sustainable growth and securing sustainable profits for shareholders.
Since its founding in 1909, the Company has endeavored to increase corporate value by
consistently working on technical innovation and product development while also responding
to user needs based on its own “Weaving, Coating and Molding” technology, all while
maintaining good labor relations. The Board of Directors believes that it has an obligation toaim for sound and sustainable growth and improved corporate value over the medium-to-longterm, by continuing to foster the Company’s history and accumulated technology.
Based on this philosophy, the Company has had distributions be determined after obtaining theapproval of the shareholders at the shareholders’ meeting. We have determined that it isnecessary to accumulate a reasonable amount of general reserve in order to continue to provide
stable shareholder returns and to secure sound and sustainable growth.
Therefore, the Board of Directors opposes this proposal.

－4－Annexure “Shareholder proposal agenda item content and reasons for the proposals"
The relevant parts of the shareholder proposals that were set out in the documents received from theproposing shareholders have been set out as they appeared in the original text.
1. Proposed Agenda Items(1)

Deletion of “holding and managing securities” from the Company’s purpose set out in the Articlesof Incorporation(2)

Amendments to the Articles of Incorporation related to the sale of Strategic Shareholdings(3)

Appropriation of Surplus(4)

Reversal of General Reserve

2. Contents of Proposal(1)

Deletion of “holding and managing securities” from the Company’s purpose set out in the Articlesof Incorporation
Delete the current Article 2(6) from the Articles of Incorporation and renumber the items following
the current Article 2(6) accordingly. Add a new supplementary provision on the implementation
date of this amendment to the Articles of Incorporation.
Supplementary Provision(Implementation date)
Article 1: The amendment to Article 2(6) of the Articles of Incorporation shall come into effect atthe end of March 2022.

(2)

Amendments to the Articles of Incorporation related to the sale of Strategic Shareholdings
The following chapter and article will be newly inserted in the current Articles of Incorporation:
Chapter 7: Strategic Shareholdings(Sale of Strategic Shareholdings）
Article 41: The Company shall, as at the date of this new Article coming into force, promptly sellof all of its strategically held listed shares during the 74th fiscal year.

(3)

Appropriation of Surplus
1) Types of Dividend Assets
Cash2) Matters concerning the allocation of dividend assets and their total amountIn addition to the dividend proposed by the Board of Directors and passed at the 73rd general
meeting of shareholders (the “Company’s Profits Appropriation Proposal”) which dividend
amount per common share shall be referred to herein as the “Company Proposed DividendAmount”, the Company shall also make a dividend distribution of an amount per common shareequal to JPY 48 minus the Company Proposed Dividend Amount.
The 73rd net profit per share is rounded down to the nearest yen (the “Real EPS”). If the relevant
amount is an amount other than JPY 48 then the first JPY 48 will be the Real EPS.
Furthermore, the total amount of dividends will be the amount obtained by multiplying theabove dividend per common share by the number of shares subject to dividends as of therecorded date of the voting rights in respect of the 73rd annual general meeting of shareholders.
－5－3)The date when the surplus dividend becomes effective
The day after the date of the 73rd annual general meeting of shareholders.
In addition, if the Company’s Profits Appropriation Proposal is proposed at the 73rd annual
general meeting of shareholders, then this proposal will be additionally proposed as being both
independent of, and compatible with, the Company’s Profits Appropriation Proposal.

(4)

Reversal of General Reserve
1) Item of Surplus to be increased and amount of increase
Item: Retained Earnings Carried Forward
Amount: JPY 24,020,000,000
2) Item of Surplus to be reduced and amount of decrease
Item: General Reserve
Amount: JPY 24,020,000,000

3. Reason for the proposal(1)

Deletion of “holding and managing securities” from the Company’s purpose set out in the Articlesof Incorporation
The Company is advised to sell off all of the securities it holds for investment purposes within oneyear.
The Company has disclosed that it holds no securities for purely investment purposes, however asat the end of March 2020, the Company holds non-stock securities exceeding JPY 15,400,000,000(including securities recorded as current assets), including bonds with a balance sheet amount ofjust under JPY 11,500,000,000. The Company’s Articles of Incorporation provides for “holdingand managing securities” as a business purpose, and these securities are held and managed forinvestment purposes.
In the first place, the Company’s shareholders do not expect the Company to profit from holding
securities such as bonds. Instead, the shareholders expect the Company to increase its profits
through its core business, and they hold shares in the Company on the basis of that expectation.
The shareholders should not permit the Company to place upon them the risks associated with its
holding of securities for investment purposes.
A shareholder proposed to delete “holding and managing securities” from the purposes of theArticles of Incorporation last year, but the Board of Directors opposed the proposal on the basisthat the holding of securities is essential for managing strategic funds and that the Company has
generated cumulative operating profits of JPY 3,087,000,000 in the approximately 9 years ofholding and managing securities since May 2011.
However, the self-proclaimed “operating profit of JPY 3,087,000,000 in 9 years” is, according to
the calculations of the proposing shareholders, equivalent to an internal rate of return (“IRR”) of
no more than 1.7%. This IRR is significantly below the Company’s cost of capital, which has
caused continued damage to shareholder value. In addition, the capital adequacy ratio of theCompany is about 70% as at the end of December 2020, and factoring in the cost of capital of theCompany, raising funds for M&A with interest bearing debt would improve shareholder value.
Using securities to fund M&A is another factor that has continued to damage the shareholder valueof the Company.
－6－

It is highly probable that the Company allocated a part of the above securities in cash as funds forthe acquisition of ThinFlex Corporation of Taiwan as a wholly owned subsidiary, which wasannounced in December 2020. However, even after acquiring ThinFlex Corporation of Taiwan asa wholly owned subsidiary, the Company’s valuation remained low. It is clear that the Board ofDirectors’ policy that “holding securities is essential for managing strategic funds to be allocatedto new businesses” does not contribute to the improvement of shareholder value.
For the above reasons, “holding and managing securities” should be removed from the Company’sArticles of Incorporation and it should be made clear that the objectives of the Company do notinclude holding or managing securities for investment purposes. Further, as outlined in thesupplemental provision, all securities should be sold within one year and used together with thesale price in (2) below to improve the shareholder value of the Company.
(2)

Amendments to the Articles of Incorporation related to the sale of Strategic Shareholdings
The Company holds 23 issues of strategic shareholdings with a balance sheet amount (nonconsolidated) of JPY 1,890,000,000. The proposing shareholders proposed the sale of strategic
shareholdings last year. The Board of Directors opposed this proposal on the basis that theCompany should be able to hold shares that contribute to increasing corporate value and impact on
the Company’s stability, formation/maintenance of long-term business relationships, businesscooperation, and facilitation of collaborative business development.
In the first place, it is not understood nor explained how holding these strategic shares willcontribute to creating business relationships or to strengthening existing connections.
Further, the balance sheet amount (non-consolidated) of strategically held shares of the Company
as of the end of March 2020 has decreased by about JPY 840,000,000 from the end of March 2019.
Even after deducting the decrease of approximately JPY 70,000,000 due to the decrease in thenumber of shares during the fiscal year ended March 2020, the impact of fluctuations in market
value of approximately JPY 770,000,000 can still be seen. Considering this kind of impact that theholding of strategic shares can cause, the Company should sell off its strategic shareholdings inorder to protect its financial soundness.

(3)

Appropriation of Surplus
The 48 yen referred to in “2. Contents of the Proposal, (3) Appropriation of Surplus” is the latest
forecast of net profit per share as of April 23, 2021. This proposal plans to distribute all net profit,that is, a dividend payout ratio of 100%, regardless of the Company’s proposal for dividends pershare.
As mentioned above, the Company has a high capital adequacy ratio of approximately 70%. We
have repeatedly requested the Company to take measures to increase ROE and shareholder value
by increasing interest-bearing debt, i.e., by increasing leverage. Despite this, under theCompany’s shareholder return policy, if a total return to shareholders of 60% continues, capitalwill to build up and leverage will drop, which will mean that further increases in capital only
reduce ROE. Returning surplus funds to shareholders will increase shareholder value and will
eventually lead to an increase in stock prices. Therefore, dividends from the surplus should beincreased.
Further, we would like to make it clear that our proposed policy of adopting a dividend payout
ratio of 100% from the fiscal year ending March 2022 onwards will not involve the Company
accumulating capital in the medium-to-long term.
In addition, even if the proposed disposal of surplus is implemented, the total dividend will bewithin the range of net profit, so it will not significantly change the level of capital, and theCompany’s financial condition will remain strong.
－7－(4)

Reversal of General Reserve
Since the 69th annual general meeting for shareholders, the Company has reduced retained earnings
carried forward, which has been the key source of shareholder returns. Further, the Company has
accumulated a general reserve fund every year, but has not provided any specific reason for doingso. Despite the Company’s high capital adequacy ratio of about 70%, we would like the Company
to stop adding additional reserve funds with an unknown purpose. We would like the Company to
use the increasing retained earnings carried forward as a source of dividends to shareholders or asa source of share buybacks that are “appropriately considered” in the medium-term management
plan to improve shareholder value.

－8－