May 14, 2020
To Whom It May Concern,
Company:

Arisawa Mfg. Co., Ltd.

Representative:

Yuta Arisawa
Representative Director
Code: 5208
First Section of the Toyo Stock
Exchange

Contact:

Takeshi Masuda
Corporate Planning Division
Senior Executive Officer(TEL: 025-524-7101)

Notice regarding Receipt of Shareholder Proposal and the Opinion of the Company’s Board ofDirectors
Arisawa Mfg. Co., Ltd. (“Arisawa” or the “Company”) received shareholder proposals for inclusionon the agenda for Arisawa’s 72nd general meeting of ordinary shareholders scheduled for June 25,
2020. Arisawa’s board of directors (the “Board”) deliberated on these proposals and resolved asfollows at its May 14, 2020 Board meeting. Arisawa is publishing this notice to announce the Board’sviews on these proposals.
1. Proposing Shareholders: INTERTRUSTEES (CAYMAN) LIMITED SOLELY IN ITSCAPACITY AS TRUSTEE OF JAPAN-UP, and Strategic Capital, Incorporated
The shareholder proposals’ agenda items include: (i) deletion of the provision referring to the holding
and management of securities for investment purposes from the objectives listed in the Articles ofIncorporation; (ii) an amendment to the Articles of Incorporation with regard to disclosure of cost ofcapital; (iii) an amendment to the Articles of Incorporation with regard to the sale of strategically heldshares; and (iv) an amendment to the Articles of Incorporation with regard to the abolition of takeover
defense measures. The details of the shareholder proposals are as set forth in the attachment “Contentof the Agenda Items of the Shareholder Proposals and Reasons for the Proposal,” including therelevant part of the shareholder proposal in its original form.
1) The Board opposes the proposal to delete the provision referring to the holding andmanagement of securities for investment purposes from the objectives listed in theArticles of Incorporation (Agenda item 3 of the Shareholder Proposals), for thefollowing reasons:
The Board believes that the proposed amendment would shackle Arisawa’s investment strategy
and risks interfering with our efforts to increase corporate value.
The Company held 11,689,000,000 JPY transaction price of bonds, 1,838,000,000 JPY of listed stock,
1,470,000,000 JPY of listed investment trust interests, and 15,765,000,000 JPY of securities including
stock of unconsolidated subsidiaries and affiliates worth 362,000,000 JPY on its balance sheet as ofthe end of March 2020. Arisawa purchased the above-referenced bonds worth approximately
11,700,000,000 JPY using US$109,000,000 in proceeds from selling shares of two overseas affiliates.
Arisawa aims to allocate such proceeds to strategic investment opportunities overseas, and has
continued to hold these bonds accordingly. Arisawa established implementation standards for holding
and managing securities, limiting ownership and management to investment grade stocks, andrequiring Board approval for transactions over 200,000,000 JPY. The Company has recorded
cumulative profits from such management of 308,700,000 JPY over the approximately 9 years sincethe commencement of operations in May 2011. In addition, the Board regularly receives reports on
the status of such management.
Moreover, these are strategic funds to allocate to new businesses that exhibit maximum synergies withexisting business and have a high return on capital (“Investment Targets”) in the medium term
management plan currently under development. The Board intends to consider significant
investments as one strategic option, especially when investing in new businesses, after verifying thefuture potential of such businesses and the synergies with Arisawa’s existing businesses. The Boardbelieves that Arisawa must “hold securities” for the management of its strategic funds for this type ofprocess.
Accordingly, the Board concluded that restricting the management of funds in the Articles ofIncorporation until allocated to an Investment Target is not appropriate. The Board believes thatArisawa should retain the ability to pursue various fund management measures going forward,including bonds, to pursue the targets the Board aims to achieve in the medium term managementplan.
For these reasons, the Board opposes this proposal.
2) The Board opposes the proposal to amend the Articles of Incorporation with regard tothe sale of strategically held shares (Agenda Item 4 of the Shareholder Proposals), forthe following reasons:
The Board believes that to amend the Articles of Incorporation in the manner proposed risks
limiting Arisawa’s development. In addition, this proposal is not suitable for inclusion in theArticles of Incorporation, which set forth the basic rules of the Company.
Arisawa acquires and holds stock of Arisawa’s transaction partners when the Board determines thatsuch acquisition will contribute to the medium- to long-term increase in corporate value, taking into
account the establishment of stable and long term business relationships with transaction partners,
business alliances, and the facilitation and strengthening of cooperative business development. The
Board verifies the effects of holding each of these strategically-held stock positions at the board
meeting at the end of the fiscal year. The Board takes the reasonableness of the medium- to long-term
contribution to shareholder value and the improvement and strength of the relationship with thetransaction partner holistically into account in doing so. Arisawa sells those stock positions that theBoard determines do not convey adequate benefits to Arisawa.
The Board evaluated 16 stock holdings at the Board meeting held on March 26, 2019, including thestock holdings identified in the proposal. Arisawa sold four stock holdings during the fiscal year
ending March 2020. As a result, Arisawa had already reduced the 16 listed stock positions held as at
the end of March 2019 to 12 stock positions as of the end of March 2020. The Board will continue toverify the effectiveness of Arisawa’s stock holdings in order to contribute to the improvement ofcorporate value and shareholder value. The Board will continue to work to further the medium- tolong-term increase of corporate value, explain the stock holding policies, results and sales, and seek
the understanding of shareholders on Arisawa’s acquisitions and sales of its transaction partners’
stock.
To require that Arisawa sell all stock positions during the next fiscal year ending March 2021 would
require that Arisawa sell those strategically-held stocks that the Board determined were highly
effective at facilitating and strengthening the maintenance and building of stable and long termbusiness relationships, business partnerships and cooperative business development and contribute to
the enhancement of corporate value. Accordingly, the Board believes such a change may have anegative effect on the Company’s relationships with transaction partners and other business partners.
In other words, the Board believes that the proposed amendments may reduce Arisawa’s medium- tolong-term development prospects, and diminish Arisawa’s corporate value.
For these reasons, the Board opposes this proposal.

-2-3) The Board opposes the proposal to amend the Articles of Incorporation with regard todisclosure of cost of capital (Agenda Item 2 of the Shareholder Proposals).
We have understood and respect the valuable opinion of our shareholders on information
disclosure underlying this proposal. However, the Board believes that this proposal for thedisclosure of the Company’s cost of capital is not suitable for inclusion in the Articles ofIncorporation, which sets forth the basic rules of the Company.
Cost of capital is an indicator of the competitiveness of a company. The Board understands very wellthat the management needs to have an accurate understanding of the Company’s cost of capital.
However, the corporate governance code does not require disclosure of the weighted average cost ofcapital figures. The Company is currently formulating its mid-term management plan, and the Board
believes that we are at an important stage for the Company’s movement to disclose important
information. However, the Board is concerned that we would risk not only damaging corporate value,
but also reducing shareholder returns, were our competitors able to identify Arisawa’s cost of capitalfrom a web search. This is precisely because cost of capital is an important indicator of theCompany’s competitiveness at this stage while we aim for more growth. As a specific example, when
Arisawa participates in an auction process, the Board believes the Company may be disadvantaged
because competitors in the auction may calculate the maximum amount that Arisawa can bid based on
our cost of capital and predict our bid price, depriving Arisawa of the opportunity to win the bid.
Arisawa has consistently responded to user needs in technological innovation and productdevelopment since the Company’s founding in 1909. Arisawa has developed its own “weaving,painting, shaping” technology, has excellent labor relations, and has sought to increase corporate
value by all means available, including by raising capital through investment. The Board willcontinue to work to increase Arisawa’s medium- to long-term corporate value and achieve sustainablegrowth and stable existence by continuing to cultivate this accumulated history and technology.
Concretely, the Board intends to make strategic investments in new businesses that exhibit maximum
synergies with existing businesses and have a high return on capital, and in addition to invest in new
product development that anticipates user needs, to enhance and expand our productivity in order tomaintain and expand the profit base of our existing businesses.
Moreover, the Board is currently formulating the Company’s medium-term management plan. The
Board will set targets for profitability and capital efficiency based on our precise grasp of theweighted average cost of capital. However, the Board is concerned that making the precise value of
Arisawa’s cost of capital available to the public each time may have an adverse effect on Arisawa’s
future business strategy. Accordingly, the Board believes that it may not always be accretive toshareholders to include such a blanket requirement for periodic public disclosure in the Articles ofIncorporation.
Accordingly, the Board believes disclosure that does not damage the competitiveness of the Company
should be decided by the Board. The Board will decide whether information should be disclosed, or
not disclosed, in its judgment at the time based on the Company’s situation, including the timing ofthe announcement of the medium-term management plan, rather than uniformly setting out in theArticles of Incorporation a blanket requirement to disclose the weighted average cost of capital.
For these reasons, the Board opposes this proposal.
4) The Board will be proposing an amendment to the Articles of Incorporation regarding
the takeover defense measures at the Shareholders Meeting as Agenda Item Number 2(Agenda Item 1 of the Shareholder Proposals)
The Board resolved to discontinue takeover defense measures at the Board meeting on May 30,
2019, and in 2020 the Board is proposing an amendment to the Articles of Incorporation
regarding the takeover defense measures at the Shareholders Meeting as Agenda Item Number
2.

-3-In the past year, the Board has repeatedly considered measures to improve corporate value andshareholder value, including new measures against inappropriate acquisitions that would damage
Arisawa’s corporate value. The Board has begun to formulate a medium-term management plan toimprove profitability and capital efficiency going forward, in addition to striving for greater
maximization of corporate value. The Board also plans to oppose tender offer activity that woulddamage corporate value by making the management decision-making process more transparent. The
Board decided to submit a proposal for an amendment to the Articles of Incorporation regarding
takeover defense measures at the general shareholders meeting in light of such Board resolutions andplan.
End.

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Attachment – Contents of the Agenda Items of the Shareholder Proposal and Reasons for theProposal
The relevant part of the Shareholder Proposal is shown in its original English form.

1.

Proposed Agenda Items(1). Remove discontinued poison pill from the Article of Incorporation(2). Improve the low stock valuation(3). Dissolve bond investments to improve capital efficiency(4). Sell cross-shareholdings including those recently acquired to improve capital efficiency

2.

Overview of our proposal(1). Remove discontinued poison pill from the Article of Incorporation
In May 2019, the Board of Directors' meeting resolved to discontinue its takeover defense measure.
However, the provision stipulating such a measure still exists in the articles of incorporation. To
eliminate such contradiction and make it clear that the Company no longer adopt a takeover defense
measure, we are proposing to remove the provision from the articles of incorporation.

(2). Improve the low stock valuation
Arisawa's capital efficiency is lower than its cost of capital, resulting in low stock price valuations.
Our proposal is to request the disclosure of the figures regarding the cost of capital and its basis ofcalculation, thus raising management's awareness of the cost of capital and promoting effective
dialogue with shareholders to improve the stock valuation.

(3). Dissolve bond investments to improve capital efficiency
One reason for Arisawa's low capital efficiency is that it owns more than 12 billion yen in bonds.
Shareholders are investing in Arisawa for its main business, not for its bond investment. Therefore,
we are proposing to sell securities including bonds held for investment purposes within one year.
We hope that the proceeds from the sale will be used to enhance shareholder value.

(4). Sell cross-shareholdings including those recently acquired to improve capital efficiency
While Arisawa sold some cross-shareholdings in the last fiscal year, they also acquired other sharesas cross-shareholdings. Holding listed shares has unnecessarily impact on the financial results dueto their price movements. As Arisawa has stated that it is “difficult to assess the quantitative effect”
of holding such shares, we propose selling the cross-shareholdings. We further hope that theproceeds will be used to enhance shareholder value.

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3.

The detailed translation of our proposal(1). Revision of the provisions of articles with regard to abolition of takeover defense measures
Delete Chapter 7 of the current Articles of Incorporation.

(2). Revision of the provision of articles with regard to disclosure of cost of capital
Add the following chapter and article to the current Articles of Incorporation.
The chapter and article numbers are based on Proposals of (1) above being approved. In the event
it is rejected, the chapter and article numbers will be adjusted as appropriate

CHAPTER VII. COST OF CAPITAL(Disclosure of Cost of Capital)
Article 41. The Company shall disclose, in the Corporate Governance Report (hereinafter referredto as “Report”) which it submits to the Tokyo Stock Exchange, its Weighted Average Cost ofCapital and its basis of calculation which it comprehends at the point of within 1 month before thesubmittal of the Report.

(3). Deletion of the provisions of articles with regard to Holding and Operation of Securities forinvestment purposes
Delete Article 2 (6) from the current Articles of Incorporation and renumber the items following
the current Article 2 (6) accordingly. Add a new Supplementary Provision to the current Article ofIncorporation.
Supplementary Provision Article 1(Implementation Date)
Article 1 The amendment of Article 2 (6) of the Articles of Incorporation shall come into effect asof the recording date of voting rights at the 73rd Annual General Meeting of Shareholders, and thisSupplementary Provision shall be deleted on the same day.

(4). Revision of the provisions of articles with regard to the Dissolution of Cross-shareholdings
Add the following chapter and article to the current Articles of Incorporation.
The chapter and article numbers are based on Proposals of (1) and (2) above being approved. In theevent any are rejected, the chapter and article numbers will be adjusted as appropriate
CHAPTER VIII. DISSOLUTION OF CROSS-SHAREHOLDINGS(Dissolution of cross-shareholdings)
Article 42. The Company shall sell all the cross-shareholdings, as of the effective date of the-6-

revision of the Articles of Incorporation, immediately during the 73rd fiscal period.

A detailed explanation of the above proposal will be available from June 1, 2020 at https://proposalfor-arisawa-from-sc-2020.com, or please refer to the special websites linked at the top right of Strategic
Capital’s homepage at https://stracap.jp/english/.
End.

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