(Note) This document has been translated from the Japanese original for reference purposes only. In the event ofany discrepancy between this translated document and the Japanese original, the original shall prevail.

May 12, 2016
Company name: Tokuyama Corporation
Representative: Hiroshi Yokota,
President and Representative Director(Code No. 4043, First Section TSE)
Contact: Taro Kobayashi, General Manager
Corporate Communications & Investor Relations Dept.
TEL: +81-3-5207-2552

Notice concerning Issuance of Class Shares by Third-Party Allotment, Partial Amendments to the
Articles of Incorporation, Reduction of Amounts of Capital Stock, Legal Capital Surplus andLegal Retained Earnings, Appropriation of Surplus, and Reduction of Capital Stock and Legal
Capital Surplus Concurrent with Issuance of Shares
Tokuyama Corporation (hereinafter referred to as the “Company,” “Tokuyama” or “we”) hereby announcesthat the Board of Directors of the Company, at its meeting held on May 12, 2016 (hereinafter, the “Board of
Directors Meeting”) made a resolution for items of the following (1) to (5) as follows:(1) The Company enters into a subscription agreement (hereinafter, the “Agreement”) with Japan Industrial
Solutions Fund I, which is an investment limited partnership, (hereinafter, the “Planned Allottee”) to issue,
through a third-party allotment, a total of 20,000,000,000 yen of Class A shares (hereinafter, the “Capital
Increase by Third-Party Allotment”).
(2) The Company partially revises the Articles of Incorporation regarding the establishment of Class A shares,
Class B shares, and Class C shares, etc. (hereinafter, the “Amendments to the Articles of Incorporation”).
(3) The Company decreases capital stock, legal capital surplus, and legal retained earnings (hereinafter, the“Reduction of Capital Stock, etc.”) and offsets a deficit in retained earnings brought forward with a portion ofother capital surplus generated by the Reduction of Capital Stock, etc. and general reserve (hereinafter, the“Appropriation of Surplus”).
(4) On condition that the Capital Increase by Third-Party Allotment takes effect, the Company reduces theamounts of capital stock and legal capital surplus by all of an increase of capital stock and legal capital surplus
accompanying inclusion of the paid-in amount for Class A shares in capital stock and legal capital surplus(hereinafter, the “Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares”).
(5) The Company submits the following proposals to the 152nd Ordinary General Meeting of Shareholders
scheduled to be held on June 24, 2016 (hereinafter, the “Ordinary General Meeting of Shareholders”): (i)1Reduction of Capital Stock, etc; (ii) Appropriation of Surplus; (iii) Amendments to the Articles ofIncorporation; and (iv) the Capital Increase by Third-Party Allotment.
The Capital Increase by Third-Party Allotment is subject to approval at the Ordinary General Meeting of
Shareholders of the proposals of the Amendments to the Articles of Incorporation and the Capital Increase by
Third-Party Allotment. The Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuanceof Shares is subject to the Capital Increase by Third-Party Allotment taking effect. In addition, payment forClass A shares by the Planned Allottee is subject to approval at the Ordinary General Meeting of
Shareholders of the proposals: Amendments to the Articles of Incorporation; Capital Increase by Third-Party
Allotment; Reduction of Capital Stock, etc.; Appropriation of Surplus; election of one person named by the
Planned Allottee as External Director of the Company, and others.

I.

Issuance of Class A Shares

1.

Overview of Offer of Class A Shares(1)

Payment dateJune 27, 2016

(2)

Number of shares to beissued20,000 shares(3)

Issue value

1,000,000 yen per share(4)

Amounts of procurement
funds

20,000,000,000 yen(5)Method of offering or
allotment (Planned
Allottee)(6) Other

Allotted by a third-party allotment method.
Japan Industrial Solutions Fund I

20,000 shares

The dividend rate of Class A shares is set at 5.0% a year until March 31,
2017, 5.5% a year from April 1, 2017 to March 31, 2018, 6.0% a year
from April 1, 2018 to March 31, 2019, and 6.5% a year on and after April
1, 2019. Class A shareholders are entitled to receive dividends inpreference to common shareholders and in the same priority as Class B
shareholders and Class C shareholders. Dividends for Class A
shareholders are cumulative. In principle, Class A shareholders are notentitled to receive dividends of common shares of the Company inaddition to the said preferred dividends.
Put options, the consideration for which is cash and Class B shares, put
options, the consideration for which is common shares, call options, theconsideration for which is cash, and call options, the consideration forwhich is cash and Class C shares, are attached to Class A shares.
Class A shares have no voting rights and share transfers are restricted.
The dividend rate of Class B shares is set at 5.0% a year. Class B
shareholders are entitled to receive dividends in preference to commonshareholders and in the same priority as Class A shareholders and Class C
shareholders. Dividends for Class B shareholders are cumulative. In
principle, Class B shareholders are not entitled to receive dividends ofcommon shares of the Company in addition to the said preferred2dividends.
Put options, the consideration for which is common shares, and call
options, the consideration for which is cash, are attached to Class B
shares.
Class B shares have no voting rights and share transfers are restricted.
The dividend rate of Class C shares is set at 5.0% a year. Class C
shareholders are entitled to receive dividends in preference to commonshareholders and with the same priority as Class A shareholders and ClassB shareholders. Dividends for Class C shareholders are cumulative. In
principle, Class C shareholders are not entitled to receive dividends ofcommon shares of the Company in addition to the said preferred
dividends.
Put options, the consideration for which is cash and Class B shares, put
options, the consideration for which is common shares, and call options,the consideration for which is cash, are attached to Class C shares.
Class C shares have no voting rights and share transfers are restricted.
Put options, the consideration for which is cash and Class B shares, areattached to Class A shares. If the put options are exercised, cash in theamount calculated by adding Class A accumulated unpaid dividends andClass A daily prorated unpaid dividends to the amount equivalent to thepaid-in amount at the time of acquisition, per Class A share (hereinafter,
the “Amount of Class A Residual Assets to Be Distributed”) and a certain
number of Class B shares in accordance with the said timing of theexercise of options will be delivered. If put options, the consideration forwhich is cash and Class B shares, attached to all Class A shares, areexercised, and put options, the consideration for which is common shares,
attached to all Class B shares that are delivered by the aforementioned
exercise of options, are exercised, the maximum dilution rate will beapproximately 9.1% under the situation where Class B accumulated
unpaid dividends and Class B daily prorated unpaid dividends do notexist, depending on the timing of exercising put options, the consideration
for which is cash and Class B shares, attached to Class A shares, and themarket price of common shares of the Company at the time of exercising
put options, the consideration for which is common shares, attached toClass B shares.
Put options, the consideration for which is cash and Class B shares,
attached to Class A shares, are to redeem the Amount of Class A Residual
Assets to Be Distributed in cash and additionally to redeem the portion of
the call premium that may reach 22% of the amount equivalent to thepaid-in amount at maximum in Class B shares. By attaching such put
options, the financing burden on the Company can be mitigated, comparedwith redeeming the total amount including the portion of the call premiumin cash, as well as reducing the dilution, compared with the case whereby
Class A shares are converted directly into common shares.
In addition, put options, the consideration for which is common shares of
the Company, are attached separately to Class A shares. However, the said3put options cannot be exercised if the distributable amount of theCompany on the last day of each fiscal year on or after the end of March2017 exceeds the amount calculated by multiplying the amount equivalent
to the paid-in amount for all Class A shares and Class C shares alreadyissued (excluding treasury shares for both) by 1.05. If the said put options
attached to all Class A shares are exercised, the maximum dilution rate
will be approximately 41.3% under the situation where Class A
accumulated unpaid dividends and Class A daily prorated unpaid
dividends does not exist.
While call options, the consideration for which is cash and Class C shares,
are attached to Class A shares, the contents of put options, theconsideration for which is cash and Class B shares, attached to Class C
shares, and put options, the consideration for which is common shares,
attached to Class C shares, are in principle the same as those of put
options, the consideration for which is cash and Class B shares, attachedto Class A shares, and put options, the consideration for which is commonshares, attached to Class A shares. Therefore, in respect of all Class C
shares that will be delivered as a result of all Class A shares acquired,based on call options, the consideration for which is cash and Class C
shares, (i) if put options, the consideration for which is cash and Class B
shares, are exercised, thereby delivering Class B shares, and then put
options, the consideration for which is common shares, of all the above
Class B shares are exercised, and (ii) if put options, the consideration forwhich is common shares, are exercised, the maximum dilution rate ofeach case will be the same as the above.
The Company and the Planned Allottee, in the Agreement, have agreed on(i) the conditions for exercising put options, the consideration for which is
cash and Class B shares, attached to Class A shares, and put options, theconsideration for which is common shares, attached to Class A shares, and(ii) the conditions for exercising put options, the consideration for whichis cash and Class B shares, attached to Class C shares, and put options, theconsideration for which is common shares, attached to Class C shares. On
and after July 1, 2019, in principle, Class B shares will be delivered byexercising put options, the consideration for which is cash and Class B
shares, attached to Class A shares or Class C shares, or when commonshares are delivered by exercising put options, the consideration for whichis common shares, attached to Class A shares or Class C shares.
The Capital Increase by Third-Party Allotment is subject to approval at theOrdinary General Meeting of Shareholders of the following proposals:
Amendments to the Articles of Incorporation and Capital Increase by
Third-Party Allotment.

2.

Purpose of and Reason for Issuing Class A Shares(1) Background to and purpose for issuing Class A shares
Based on the key words “Accelerating Our Growth Strategies,” the Company put in place a three-year4management plan in May 2012 and made efforts to build a structure to accelerate growth and address issues.
According to the plan, we aimed to expand the polysilicon business at Tokuyama Malaysia Sdn. Bhd., inorder to reinforce the strategic growth business. However, due to the failure to ensure the stabilization of thequality and productivity of semiconductor-grade polysilicon and a worsening business environment caused
by a slump in the market of solar-grade polysilicon, we posted large impairment losses for the manufacturing
facilities for both grades as a result of considering investment collectability. Consequently, the Company
posted extraordinary losses of 88.4 billion yen and 125.7 billion yen in its consolidated financial results forthe fiscal year ended March 31, 2015 and the fiscal year ended March 31, 2016, respectively. As a result,consolidated net assets plummeted to 60.2 billion yen (fiscal year ended March 31, 2016) from 236.4 billion
yen (fiscal year ended March 31, 2014), and our consolidated shareholders’ equity ratio was reduced to29.3% for the fiscal year ended March 31, 2015 and 12.8% for the fiscal year ended March 31, 2016. To
quickly restore the trust of our stakeholders, including business partners with whom we have had closetransactions for a long time, it is imperative for us to reinforce the deteriorated shareholders’ equity andstrengthen the financial platform.
As announced on May 12, 2016, the Company has set “New Foundation” as its vision, and aims to become
the world’s No. 1 in the field of advanced materials through unique technologies in its growth businesses(Specialty Products, Life & Amenity, and new businesses) and attain Japan’s top position in its traditional
businesses (Chemicals and Cement) in terms of competitiveness by 2025. As the cornerstone of the Group’s
revitalization toward achieving those goals, we have formulated a five-year medium-term management plan
covering from fiscal 2016 to fiscal 2020. The Company aims to achieve 335.0 billion yen in net sales and36.0 billion yen in operating income in fiscal 2020 by implementing operational measures in line with thepositioning of growth businesses and traditional businesses, as well as carrying out cross-business measures
for strengthening the competitiveness of the Tokuyama Factory.
We believe that appropriate and strategic capital expenditures are important to consistently carry out the
five-year medium-term management plan for building the “cornerstone of the Group’s revitalization” andachieve the plan’s numerical targets of net sales and operating income. In the medium-term management plan,
we plan to invest a total of 116.0 billion yen over five years, including aggressive investments for expansionof capacity and sales, as well as investments in maintenance and renewal, and for strategic investments limitin M&As, etc. of 20.0 billion yen.
We intend to further expand our businesses and achieve growth by steadily implementing the five-year
medium-term management plan, rapidly improving shareholders’ equity, which has been impaired to 12.8%,
and maintaining and enhancing the trust of stakeholders including our business partners.
Taking such circumstances into account, since February of this year, the Company has investigated andreviewed multiple investors who could contribute the funds required to reinforce the Company’s capital.
From a small number of candidate allottees who could afford to pay the amount required for the increase incapital, the Planned Allottee who is feasible to meet the conditions has been selected. The Board of Directors

5

Meeting resolved to issue a total of 20,000,000,000 yen of Class A shares to the said allottee. We consider
that this resolution will pave the way for recovering the equity to the former level and stabilizing ourfinancial position as a result, as well as securing the necessary funds for capital expenditures to expand
capacity and sales of advanced materials, rationalize investments for strengthening the competitiveness of theTokuyama Factory, make strategic M&A investments, which will be used specifically for the expansion ofaluminum nitride manufacturing facility, which is a part of the aforementioned capital expenditure limit, andsome of funds required for M&As, thus contributing to reinforcing the revenue base of the Company’s groupand enhancing shareholder value in the long run. Through this reinforcement of shareholders’ equity, we will
fulfill the expectations of our stakeholders, including our shareholders.

(2) Reason for procuring funds through Class A shares
The Company had investigated various options from the perspective of considering the impact on existing
shareholders, while attempting to stabilize its financial position at an early stage. Consequently, as mentioned
above in “(1) Background to and purpose for issuing of Class A shares,” to improve our financial platform
against the background of the Company’s shareholders’ equity being significantly impaired in the financial
results for the fiscal year ended March 31, 2016, we believe that it is necessary and appropriate to increase
shareholders’ equity by procuring funds in the form of capital.
Furthermore, with regard to financing methods, considering the management environment surrounding theCompany, its financial position and business performance, and its share price, the Company decided that acapital increase through a public offering of the common shares of the Company and a capital increase througha third-party allotment of its common shares would be inappropriate, because shareholder value could be
adversely affected due to the significant dilution of common shares. The Company has concluded that it ismore effective to raise funds by issuing class shares, in order to constrain a dilution of common shares, procure
the necessary funds with certainty, and stabilize its financial position. To achieve this, we consideredexperience of investments in class shares, characteristics of investors, amount of financing required, andeconomic conditions, and investigated investors who were likely to positively study the Company’s capitalincrease through our class shares. Consequently, the Company has judged that the best option is to issue ClassA shares to the Planned Allottee, an investor who can agree to the above conditions and understand theCompany’s business purpose and management policy.

(3) Overview of Class A shares, Class B shares and Class C sharesClass A shares have preference over common shareholders in terms of dividend, and a preferred dividend ratethat varies depending on the period is set.
In addition, (i) put options, the consideration for which is cash and Class B shares, (ii) put options, theconsideration for which is common shares, (iii) call options, the consideration for which is cash, and (iv) call6

options, the consideration for which is cash and Class C shares, are attached to Class A shares. The Planned
Allottee cannot exercise put options, the consideration for which is cash and Class B shares, and put options,the consideration for which is common shares, until July 1, 2019, except where certain events occur.
Call options, the consideration for which is cash, attached to Class A shares, are designed to enable partial
redemption of 5.0 billion yen. Besides, if the acquisition date based on the said call options and the date ofrequest for acquisition of consideration related to the put options, the consideration for which is cash and ClassB shares, or the put options, consideration for which is common shares, are the same and prior to June 30,
2019, the said call options have priority.
By attaching call options, the consideration for which is cash and Class C shares, to Class A shares, if the
distributable amount of the Company is greater than a certain amount on the last day of each fiscal year after
March 31, 2018, this scheme is designed to reduce the preferred dividend compared to Class A shares anddecrease the premium in the case of exercising call options, the consideration for which is cash, by converting
an amount equivalent to the paid-in amount for Class A shares to Class C shares.
The Company aims to strengthen its financial base by increasing profits, and make all redemptions in cash.
Individual overviews of Class A shares, Class B shares, and Class C shares are as described below.

Overview of Class A Shares(i)Preferred Dividends

The preferred dividend rate of Class A shares is set at 5.0% a year until March 31, 2017, 5.5% a year from
April 1, 2017 to March 31, 2018, 6.0% a year from April 1, 2018 to March 31, 2019, and 6.5% a year on andafter April 1, 2019. Class A shareholders are entitled to receive dividends in preference to commonshareholders and in the same priority as Class B shareholders and Class C shareholders. If dividends for ClassA shareholders are insufficient in a fiscal year, the said shortfall will be carried over to the following fiscal
year and after and cumulative. In principle, Class A shareholders are not entitled to receive dividends ofcommon shares of the Company in addition to the said preferred dividends.

(ii) Put options, the consideration for which is cash and Class B shares
Put options, the consideration for which is cash and Class B shares, are attached to Class A shares. Although
the terms and conditions of the Class A share issuance allow Class A shareholders to request that the Company,at any time on and after the payment date, acquire all or a part of the Class A shares, the consideration ofwhich is cash and Class B shares, the Planned Allottee, through a provision in the Agreement, is entitled toexercise put options, the consideration for which is cash and Class B shares, only on and after July 1, 2019.
However, in the Agreement, it has been agreed that the Planned Allottee is entitled to exercise put options, theconsideration for which is cash and Class B shares, at any time, even before July 1, 2019, (i) if the Company

7and consolidated subsidiaries of the Company breach either financial covenants or any other event of defaults(except minor breaches), set forth in certain loan contracts, etc., as the contracting parties, and the said breachis not remedied within a certain period, (hereinafter, the “Conversion Restriction Removal Reason (i)”), (ii) the
Company fails to fulfill its obligations under the Agreement or breaches representations and warranties (except
minor breaches) (hereinafter, the “Conversion Restriction Removal Reason (ii)”), or (iii) the Company’s
distributable amount, as provided in Article 461, Paragraph 2 of the Companies Act, as of the end of the fiscal
year, falls below the amount calculated by multiplying the total numbers of Class A shares and Class C shares,
which have been issued (except treasury shares for each share), by 1,050,000 yen, on the day the Company’s
Board of Directors approves the financial statements for the latest fiscal year of the fiscal years ending on andafter March 31, 2017 (hereinafter, the “Conversion Restriction Removal Reason (iii),” and Conversion
Restriction Removal Reason (i) through (iii) shall be collectively referred to as the “Conversion Restriction
Removal Reasons.” If the Company becomes aware of any Conversion Restriction Removal Reason occur, or
if it receives a notice with regard to the exercise of put options, the consideration for which is cash and Class B
shares, the Company will promptly disclose it.
The amount of cash to be distributed if the put options, the consideration for which is cash and Class B shares,
are exercised will always be the amount calculated by multiplying the number of Class A shares related to thesaid put options by the Amount of Class A Residual Assets to Be Distributed. The number of Class B shares tobe distributed will be: (i) the number calculated by multiplying the number of the Class A shares related to thesaid put options by 0.16 if the said put options are requested to be exercised from June 27, 2016 of thepayment date to June 30, 2018; (ii) the number calculated by multiplying the number of the Class A shares
related to the said put options by 0.18 if the said put options are requested to be exercised from July 1, 2018 toJune 30, 2019; (iii) the number calculated by multiplying the number of the Class A shares related to the said
put options by 0.20 if the said put options are requested to be exercised from July 1, 2019 to June 30, 2020;and (iv) the number calculated by multiplying the number of the Class A shares related to the said put options
by 0.22 if the said put options are requested to be exercised on and after July 1, 2020.
By attaching the said put options, the consideration for which is cash and Class B shares, to Class A shares, it
became possible for the Amount of Class A Residual Assets to Be Distributed to be redeemed in cash, so thisscheme is designed to restrict dilution compared with the exercise of put options, the consideration for whichis common shares. In addition, it has been agreed in the Agreement that if the date of a request for theacquisition of the consideration related to the said put options and the cash consideration redemption daterelated to call options, the consideration for which is cash which is described later (Class A Cash
Consideration Redemption Date), or the date of the acquisition of consideration related to the call options, theconsideration for which is cash and Class C shares (Cash and Class C Shares Consideration Acquisition Date),
are the same and prior to June 30, 2019, the said call options have priority. Furthermore, by distributing ClassB shares as a call premium, in addition to cash in the Amount of Class A Residual Assets to Be Distributed,
the preferred dividend rate of Class A shares can be limited to a certain level. Thus, the scheme is designed toease the financial burden on the Company, compared with the exercise of call options, the consideration for8which is cash. In addition, even if the share price of the Company falls after the issuance of Class A shares,
dilution can be limited to a certain level because the lower limit of the acquisition price, which is used for
calculations when converting Class B shares into common shares, is fixed to a certain amount, as mentioned
below. As described later, it has been confirmed that the Planned Allottee is studying the preferred exercisingof the said put options, the consideration for which is cash and Class B shares, after July 1, 2019, in which thePlanned Allottee is entitled to exercise the said put options, the consideration for which is cash and Class B
shares, voluntarily.

(iii) Put options, the consideration for which is common shares
Put options, the consideration for which is common shares, are attached to the Class A shares. Although theterms and conditions of the Class A share issuance, in principle, allow Class A shareholders to request that theCompany, at any time on and after the payment date, acquire all or a part of the Class A shares, theconsideration of which is common shares of the Company, the Planned Allottee, through a provision in theAgreement, in principle, is entitled to exercise the put options, the consideration for which is common shares,
only on and after July 1, 2019. However, if both of either Conversion Restriction Removal Reason (i) or (ii)and the Conversion Restriction Removal Reason (iii) occur, the Planned Allottee is entitled to exercise the put
options, the consideration for which is common shares of the Company, even before July 1, 2019.
In addition, put options, the consideration for which is common shares, can be exercised even after July 1,
2019 only if Conversion Restriction Removal Reason (iii) occurs.
If the Company becomes aware of any Conversion Restriction Removal Reasons occur, or if it receives a
notice with regard to the exercise of put options, the consideration for which is common shares, the Company
will promptly disclose it.
If put options, the consideration for which is common shares, are exercised, the Company will distribute toClass A shareholders the number of common shares of the Company that are determined by multiplying thenumber of Class A shares that Class A shareholders requested to be exercised by the Amount of Class A
Residual Assets to Be Distributed, and then dividing that product by the acquisition price. The acquisition
price in this case is initially 174.8 yen (hereinafter, the “Class A Initial Acquisition Price”), equivalent to theaverage value of the Volume Weighted Average Price (hereinafter, the "VWAP") in ordinary trading of thecommon shares of the Company, publicly announced on the Tokyo Stock Exchange, Inc. (hereinafter, the“TSE”) over 20 consecutive trading days prior to May 12, 2016. However, the acquisition price will berevised to a value equivalent to 90% of the average VWAP in ordinary trading of the common shares of theCompany publicly announced on the TSE over 20 consecutive trading days prior to the date when put options,the consideration for which is common shares first become effective after December 27, 2016 and every six
months after the said date (however, the revised acquisition price will neither be less than 80% (139.8 yen) ofClass A Initial Acquisition Price, nor greater than 120% (209.8 yen) of Class A Initial Acquisition Price).
The Planned Allottee is not entitled to exercise put options, the consideration for which is common shares,9until June 30, 2019 unless both of either Conversion Restriction Removal Reason (i) or (ii) and the Conversion
Restriction Removal Reason (iii) occur. Therefore, the Company aims to avoid a dilution caused by the put
options, the consideration for which is common shares, as much as possible by building up its internal reserves
and redeeming Class A shares mandatorily using the call options, the consideration for which is cash. In
addition, it has been agreed in the Agreement that if the date of the request for acquisition of the consideration
regarding said put options and the cash consideration redemption date related to call options, the consideration
for which is cash (Class A Cash Consideration Redemption Date), which is described later, are the same, suchcall options have priority.
Further, when revising the acquisition price, the lower limit of the revised acquisition price is fixed at a
certain amount. Therefore, if the Company’s share price declines, dilution by put options, the consideration
for which is common shares, can be limited to a certain level.
As mentioned above, we believe that sufficient consideration has been also paid to the impact on existing
shareholders from the dilution of common shares caused by the issuance of Class A shares.

(iv) Call options, the consideration for which is cash
Any time on and after June 27, 2016, the Company may acquire all or part of the Class A shares in exchange
for cash to the extent permissible under laws and regulations on a day to be determined separately by theCompany’s Board of Directors (hereinafter, the “Class A Cash Consideration Redemption Date”). The amountto be paid by the Company in this case will be the amount calculated by multiplying the amount equivalent to
the paid-in amount for Class A shares by the redemption coefficient that is determined depending on thetiming of the Class A Cash Consideration Redemption Date, and then adding that product to the Class A
accumulated unpaid dividends and the Class A daily prorated unpaid dividends. Specifically, the redemption
coefficient is: (i) 1.07, if the Class A Cash Consideration Redemption Date falls between June 27, 2016 andJune 30, 2017; (ii) 1.13, if the date falls between July 1, 2017 and June 30, 2018; (iii) 1.19, if the date falls
between July 1, 2018 and June 30, 2019; (iv) 1.25, if the date falls between July 1, 2019 and June 30, 2020;and (v) 1.30, if the date is on and after July 1, 2020. In addition, it has been agreed in the Agreement, that if theClass A Cash Consideration Redemption Date and the date of request for acquisition of the consideration
related to put options, the consideration for which is cash and Class B shares, attached to Class A shares andClass C shares, are the same and after July 1, 2019, the said put options have priority.

(v) Call options, the consideration for which is cash and Class C shares
Call options, the consideration for which is common shares, are attached to Class A shares. Although the terms
and conditions of the Class A share issuance allow the Company to acquire all of the Class A shares inexchange for cash and Class C shares to the extent permissible under laws and regulations, on a day to be
determined separately by the Company’s Board of Directors (hereinafter, the "Cash and Class C Shares

10Consideration Acquisition Date") any time after the day when the Company’s Board of Directors approves thefinancial statements of the Company related to the fiscal year ending March 31, 2018. However, the Company,
by a provision in the Agreement, is entitled to acquire all of the Class A shares, based on call options, theconsideration for which is cash and Class C shares, only if the Company’s distributable amount, as provided in
Article 461, Paragraph 2 of the Companies Act, as of the end of the fiscal year, exceeds the amount calculated
by multiplying the number of issued Class A shares (excluding treasury shares) by 1,000,000 yen, and thenadding 40.0 billion yen to that product, on the day the Company’s Board of Directors approves the financial
statements for the latest fiscal year of the fiscal years ending on and after March 31, 2018. In addition, it has
been agreed in the Agreement that if Cash and Class C Shares Consideration Acquisition Date and the date ofrequest for acquisition of the consideration related to put options, the consideration for which is cash and ClassB shares, attached to Class A shares and Class C shares are the same and after July, 1, 2019, the said put
options have priority.
The cash to be distributed if Class A shares are acquired based on call options, the consideration for which is
cash and Class C shares, will be the total of the Class A accumulated unpaid dividends and the Class A daily
prorated unpaid dividends. The number of Class C shares to be distributed will be the ratio of one unit of ClassC share to one unit of Class A share.
By attaching the said call options, the consideration for which is cash and Class C shares, to Class A shares, if
the distributable amount of the Company is greater than a certain amount on the last day of each fiscal year
after March 31, 2018, this scheme is designed to reduce the preferred dividend rate compared with Class A
shares and decrease the premium in the case of exercising call options, the consideration for which is cash, by
converting an amount equivalent to the paid-in amount for Class A shares to Class C shares.

(vi) Voting rights and restrictions on transfer
The Class A shares do not have voting rights. Any transfer of the Class A shares by requires the approval of
the Company’s Board of Directors.

Overview of Class B Shares(i)Preferred dividends

The preferred dividend rate of Class B shares is set at 5.0% a year. Class B shareholders are entitled toreceive dividends in preference to common shareholders and in the same priority as Class A shareholders andClass C shareholders. If dividends for Class B shareholders are insufficient in a fiscal year, the shortfall will
be carried over to the following fiscal year and after and cumulative. In principle, Class B shareholders are
not entitled to receive dividends of common shares of the Company in addition to the said preferred
dividends.

(ii) Put options, the consideration for which is common shares
11Put options, the consideration for which is common shares of the Company, are attached to Class B shares.
Class B shareholders are entitled to request that the Company, at any time, acquire all or a part of the Class B
shares, the consideration for which is common shares of the Company. Besides, it has been agreed in theAgreement that if the date of a request for the acquisition of the consideration related to the said put options
and the cash consideration redemption date related to call options, the consideration for which is cash, which
is described later (Class B Cash Consideration Redemption Date) are the same, the said call options havepriority.
If Class B shareholders exercise the put options, the consideration for which is common shares of theCompany, the Company will distribute to Class B shareholders the number of common shares of theCompany that are determined by multiplying the number of Class B shares that Class B shareholders
requested to be exercised by the total of an amount equivalent to the amount to be paid in, Class B
accumulated unpaid dividends, and the Class B daily prorated unpaid dividends, and then dividing that
product by the acquisition price. The acquisition price in this case is initially 174.8 yen (hereinafter, the“Class B Initial Acquisition Price”), equivalent to the average value of the VWAP in ordinary trading of thecommon shares of the Company publicly announced on the TSE over 20 consecutive trading days prior to
May 12, 2016. However, the acquisition price will be revised to a value equivalent to 90% of the average
VWAP in ordinary trading of the common shares of the Company publicly announced on the TSE over 20
consecutive trading days prior to the date when put options, the consideration for which is common shares,
first become effective after December 27, 2016 and every six months after the said date (however, the revised
acquisition price will neither be less than 80% (139.8 yen) of Class B Initial Acquisition Price nor greaterthan 120% (209.8 yen) of Class B Initial Acquisition Price).

(iii) Call options, the consideration for which is cash
Any time on and after the issuance date of Class B shares, the Company may acquire all Class B shares inexchange for cash to the extent permissible under laws and regulations on a day to be determined separatelyby the Company’s Board of Directors (hereinafter, the “Class B Cash Consideration Redemption Date”). The
amount to be paid by the Company in this case will be the amount calculated by multiplying the amountequivalent to the paid-in amount for Class B shares by the redemption coefficient that is determined
depending on the timing of the Class B Cash Consideration Redemption Date, and then adding that product to
the Class B accumulated unpaid dividends and the Class B daily prorated unpaid dividends. Specifically, theredemption coefficient is: (i) 1.07, if the Class B Cash Consideration Redemption Date falls between June 27,2016 and June 30, 2017; (ii) 1.13, if the date falls between July 1, 2017 and June 30, 2018; (iii) 1.19, if thedate falls between July 1, 2018 and June 30, 2019; (iv) 1.25, if the date falls between July 1, 2019 and June30, 2020; and (v) 1.30, if the date is on and after July 1, 2020.

(iv) Voting rights and restrictions on transfer
Class B shares do not have voting rights. Any transfer of the Class B shares requires the approval of the
12Company’s Board of Directors.

Overview of Class C Shares(i) Preferred dividends
The preferred dividend rate of Class C shares is set at 5.0% a year. Class C shareholders are entitled to receive
dividends in preference to common shareholders and in the same priority as Class A shareholders and Class B
shareholders. If dividends for Class C shareholders are insufficient in a fiscal year, the said shortfall will be
carried over to the following fiscal year and after and cumulative. In principle, Class C shareholders are notentitled to receive dividends of common shares of the Company in addition to the said preferred dividend.

(ii) Put options, the consideration for which is cash and Class B shares
Put options, the consideration for which is cash and Class B shares, are attached to Class C shares. Although
the terms and conditions of the Class C share issuance allow Class C shareholders to request that theCompany, at any time after the issuance date of Class C shares, acquire all or part of Class C shares, theconsideration of which is cash and Class B shares, the Planned Allottee, through a provision in the Agreement,
is entitled to exercise put options, the consideration for which is cash and Class B shares, only on and after
July 1, 2019. However, if any Conversion Restriction Removal Reasons occur, the Planned Allottee is entitled
to exercise the put options, the consideration for which is cash and Class B shares, even before July 1, 2019.
If the Company becomes aware of any Conversion Restriction Removal Reasons occur, or if it receives a
notice with regard to the exercise of put options, the consideration for which is cash and Class B shares, theCompany will promptly disclose it.
In addition, it has been agreed in the Agreement that if the date of a request for the acquisition of theconsideration related to the said put options and the cash consideration redemption date related to call options,the consideration for which is cash which is described later (Class C Cash Consideration Redemption Date) are
the same and prior to June 30, 2019 the said call options have priority.
The amount of cash to be distributed if the put options, the consideration for which is cash and Class B shares,
are exercised will always be the amount calculated by multiplying the number of Class C shares related to thesaid put options by a total of the amount equivalent to the paid-in amount for Class C shares, the Class C
accumulated unpaid dividends, and the Class C daily prorated unpaid dividends. The number of Class B shares
to be distributed will be: (i) the number calculated by multiplying the number of Class C shares related to thesaid put options by 0.16 if the said put options are requested to be exercised before June 30, 2018; (ii) the
number calculated by multiplying the number of the Class C shares related to the said put options by 0.18 if
the said put options are requested to be exercised from July 1, 2018 to June 30, 2019; (iii) the number
calculated by multiplying the number of the Class C shares related to the said put options by 0.20 if the said
put options are requested to be exercised from July 1, 2019 to June 30, 2020; and (iv) the number calculated bymultiplying the number of the Class C shares related to the said put options by 0.22 if the said put options are13requested to be exercised on and after July 1, 2020.

(iii) Put options, the consideration for which is common shares
Put options, the consideration for which is common shares, are attached to Class C shares. Although the terms
and conditions of the Class C share issuance, in principle, allow Class C shareholders to request that theCompany, at any time after the issuance of Class C shares, acquire all or part of Class C shares, theconsideration of which is the common shares of the Company, the Planned Allottee, through a provision in
the Agreement, in principle, is entitled to exercise the put options, the consideration for which is commonshares, only on and after July 1, 2019. However, if both of either the Conversion Restriction Removal Reason(i) or (ii), and the Conversion Restriction Removal Reason (iii) occur, the Planned Allottee is entitled toexercise put options, the consideration for which is common shares of the Company, even before July 1,
2019.
In addition, put options, the consideration for which is common shares, can be exercised even after July 1,
2019 only if the Conversion Restriction Removal Reason (iii) occurs.
If the Company becomes aware of any Conversion Restriction Removal Reasons occur, or if it receives a
notice with regard to the exercise of put options, the consideration for which is common shares, the Company
will promptly disclose it.
In addition, it has been agreed in the Agreement that if the date of a request for the acquisition of theconsideration related to the said put options and the cash consideration redemption date related to call options,the consideration for which is cash which is described later (Class C Cash Consideration Redemption Date)
are the same, the said call options have priority.
If put options, the consideration for which is common shares, are exercised, the Company will distribute toClass C shareholders the number of common shares of the Company that are determined by multiplying thenumber of Class C shares that Class C shareholders requested to be exercised by the total of an amountequivalent to the paid-in amount, the Class C accumulated unpaid dividends and the Class C daily prorated
unpaid dividends, and then dividing that product by the acquisition price. The acquisition price in this casewill initially be 174.8 yen (hereinafter, the “Class C Initial Acquisition Price”), equivalent to the averagevalue of the VWAP in ordinary trading of the common shares of the Company publicly announced on the
TSE over 20 consecutive trading days prior to May 12, 2016. However, the acquisition price will be revised
to a value equivalent to 90% of the average VWAP in ordinary trading of the common shares of the Company
publicly announced on the TSE over 20 consecutive trading days prior to the date when put options, theconsideration for which is common shares, first become effective after December 27, 2016 and every six
months after the said date (however, the revised acquisition price will neither be less than 80% (139.8 yen) ofClass C Initial Acquisition Price nor greater than 120% (209.8 yen) of Class C Initial Acquisition Price).

14

(iv) Call options, the consideration for which is cash
Any time on and after the issuance date of Class C shares, the Company may acquire all or part of Class C
shares in exchange for cash to the extent permissible under laws and regulations on a day to be determined
separately by the Company’s Board of Directors (hereinafter, the "Class C Cash Consideration Redemption
Date"). The amount to be paid by the Company in this case will be the amount calculated by multiplying theamount equivalent to the paid-in amount for Class C shares by the redemption coefficient that is determined
depending on the timing of the Class C Cash Consideration Redemption Date and then adding that product to
the Class C accumulated unpaid dividends and the Class C daily prorated unpaid dividends. Specifically, theredemption coefficient is: (i) 1.10, if the Class C Cash Consideration Redemption Date is before June 30,
2018; (ii) 1.16, if the date falls between July 1, 2018 and June 30, 2019; (iii) 1.18, if the date falls between July
1, 2019 and June 30, 2020; and (iv) 1.20, if the date is after July 1, 2020. It has been agreed in the Agreementthat if the Class C Cash Consideration Redemption Date and the date of request for acquisition of theconsideration related to put options, the consideration for which is cash and Class B shares, attached to ClassA shares and Class C shares are the same and after July 1, 2019, the said put options have priority.

(v) Voting rights and restrictions on transfer
Class C shares do not have voting rights. Any transfer of the Class C shares requires the approval of theCompany’s Board of Directors.

3.

Amounts, Purpose and Planned Time of Spending Funds Procured(1) Amounts of funds to be procured(i)

Total paid-in amount

20,000,000,000 yen(ii)

Estimated issuance expenses

300,000,000 yen(iii)

Estimated retained balance

19,700,000,000 yen* The major components of “Estimated issuance expenses” are registration costs, financial advisers’ fees,
legal advisers’ fees and value analysis costs.

15

(2) Specific purpose of funds to be procured
Specific usage

Amount (million yen)

Planned time ofspending(i)

Investment for introduction and expansion ofequipment to realize higher quality and improve
productivity toward increasing sales of advanced
materials

9,500

July, 2016 to June,
2018

(ii)

Investment for maintenance and renewal ofmachinery and equipment, etc., rationalization andothers to improve the competitiveness of theTokuyama Factory

4,800

July, 2016 to June,
2019

Strategic investment in M&A, etc. that will lead to(iii) the establishment of stable markets overseas andindustrial reorganization.

5,400

July, 2016 to June,
2019* The funds will be managed in a bank account until they are actually to be disbursed.

4.

Practical Approach to the Reasonableness of Purpose of Funds

By appropriating funds procured by the issuance for the Capital Increase by Third-Party Allotment to capital
expenditure for expanding sales of advanced materials, rationalization expenditures for reinforcing thecompetitiveness of the Tokuyama Factory and investment for growth through strategic M&A investments,
etc., we aim to become the world’s No. 1 in the field of advanced materials through unique technologies inrespect of growth businesses (Specialty Products, Life & Amenity, and new businesses) and attain Japan’s top
position in traditional businesses (Chemicals and Cement) in terms of competitiveness. This will reinforce thefuture earnings base and contribute to enhancing our corporate value. Therefore, the Company believes thatusing the funds as indicated above is reasonable.

5.

Reasonableness of Issuing Condition, etc.

(1) Calculation ground for amount to be paid in and its specific contents
In determining the issuing conditions of Class A shares, the Company requested that PLUTUS CONSULTING
Co., Ltd. (hereinafter, "PLUTUS CONSULTING"), which is a third party valuation organ independent of theCompany, calculate the value of Class A shares to ensure fairness, and obtained a calculation report for ClassA shares (hereinafter, the "Calculation Report") from PLUTUS CONSULTING. Under certain assumptions(dividend rate of the Class A shares, put options, the consideration for which is common shares, put options,the consideration for which is cash and Class B shares, call options, the consideration for which is cash, call
options, the consideration for which is cash and Class C shares, the Company’s share price and its volatility,
credit spreads, etc.), PLUTUS CONSULTING has calculated the fair value of the Class A shares using theMonte Carlo Simulation, which is a general calculation model for valuing share options. The Calculation
Report states that the price per Class A share is 1,013,000 yen.
Details of the results of the calculation for Class A shares are as follows.
16

(i)

The valuation of Class A shares is 1,013,000 yen per share.

(ii) Main issuing conditions considering the valuation of Class A shares
Description

Numerical value

Overview of numerical value adopted

20,000 shares

As per the terms and conditions of the Class A
share issuance

20,000 million yen

As per the terms and conditions of the Class A
share issuance

1,000,000 yen

As per the terms and conditions of the Class A
share issuance

5.0 to 6.5 %As per the terms and conditions of the Class A
share issuance

Put options, the consideration
for which is cash and Class B
shares‐As per the terms and conditions of the Class A
share issuance

Put options, the consideration
for which is common shares‐

As per the terms and conditions of the Class A
share issuance

Call options, theconsideration for which iscash‐

As per the terms and conditions of the Class A
share issuance

Call options, theconsideration for which is
cash and Class C shares‐

As per the terms and conditions of the Class A
share issuance

Number of shares to be issued
Total issue value
Issue value
Preferred dividends*

Regarding put options, the consideration for which is common shares, and call options, theconsideration for which is cash and Class C shares, it is not possible to objectively evaluate theprobability of exercising these options while satisfying certain conditions. Therefore, the evaluation
is made assuming that these options are not exercised.

(iii) Overview of numerical values adopted
Description

Numerical value

Overview of numerical value adopted

Class A initial conversion
price

174.8 yen per As per the terms and conditions of theshare Class A share issuanceClass B initial conversion
price

174.8 yen per
As per the contents of the Class B shares
shareClass C initial conversion
price

174.8 yen per
As per the contents of the Class C shares
share

Duration until maturity

Share price
Share price volatility

Duration in consideration of presumable
5.4 years premises of behavior of parties
concerned
171 yen per share

Closing price at the TSE on the valuation
record day

48.17 % Calculated by seeing share information17

Description

Numerical value

Overview of numerical value adopted
in the most recent period that
corresponds to the period up to maturity,
on a weekly basis

Dividend yield

Risk free rate0%

Calculated based on the most recent
dividend of common shares

Used the distribution yield rate of
medium-term Japanese government−0.242 %bonds that corresponds to the period up
to maturity(iv) Valuation model used
Description

Numerical value

Overview of numerical values adopted

Action by the Company

Preferred dividends for each class sharesis assumed to be paid in each term. If theCompany receives a request for
acquisition, the consideration for whichis cash and Class B shares, from theallottee, the Company will accept such
request. It is assumed that, in a situation
where the allottee retains Class B shares,
if the conversion price to common shares‐ exceeds the upper limit, the Company
will exercise call options and acquire allresidual Class B shares. In addition, forcertain reasons, which are the conditions
for conversion to Class C shares, it is notpossible to objectively evaluate theprobability of occurrence. Therefore, it isassumed that call options, theconsideration for which is cash and ClassC shares, will not be exercised.

Action by the Planned
Allottee

It is assumed that the allottee will
exercise put options, the consideration
for which is cash and Class B shares,
appropriately in view of the fundcontinuance period after the issuance ofClass A shares. The evaluation is madeon the assumption that in case the share‐ price of the Class B shares acquired ishigher than the conversion price tocommon shares, such class shares will be
converted to common shares, as needed,by 10% of the average trading volume
and sold in the market, and in case ClassB shares remain at the end of the fundcontinuance period, all of such residual
18

Description

Numerical value

Overview of numerical values adopted
Class B shares will be sold to any third
party at the price to which a specified
discount is applied.

Calculation method used

Monte Carlo Simulation, which is a
‐ general calculation model for valuing
share options

The Company determined that the Capital Increase by Third-Party Allotment would not be deemed to be afavorable issuance by comprehensively considering the above valuation results in the Calculation Report of
PLUTUS CONSULTING, which is a third party evaluation organ independent of the Company, andconsidering that the issuing conditions for Class A shares was decided through consultations and negotiations
with the Planned Allottee, taking into account the Company’s business environment and financial condition.
However, because there are no objective market prices for Class A shares, the valuation of class shares isvery advanced and complex, and various ways of thinking are possible with regard to the valuation of classshares, the possibility that the paid-in amount for Class A shares under the Companies Act might be favorable
for the Planned Allottee in particular cannot totally be denied. Therefore, considering that it was appropriate
to confirm the intentions of shareholders, the Company decided to issue Class A shares on the condition thatapproval by a special resolution at the Ordinary General Meeting of Shareholders would be obtained, forprudence.

(2) Grounds on which the Company determined that the amounts to be issued and the size of the sharedilution is reasonable
The Company is financing a total of 20,000,000,000 yen by issuing 20,000 shares of Class A shares.
Considering that the purpose of issuing the Class A shares and the usage of funds, as mentioned above, arereasonable, the Company has determined that the amounts of class shares to be issued are also reasonable.
Although the Class A shares do not have voting rights at general meetings of shareholders, as mentioned
previously, a dilution impact might affect existing shareholders due to the exercise of put options, theconsideration for which is common shares, attached to Class A shares, or the exercise of put options, theconsideration for which is common shares, attached to Class B shares, that will be distributed by the exerciseof the put option, the consideration for which is cash and Class B shares, attached to Class A shares. If put
options, the consideration for which is common shares, are assumed to be exercised at the lower limit of theacquisition price (139.8 yen) regarding all Class A shares, common shares with a maximum of 143,061 voting
rights will be distributed under a situation where a Class A accumulated unpaid dividends and Class A daily
prorated unpaid dividends do not exist. This means that the ratio to the total amount of 346,371 voting rights
related to the Company’s issued common shares based on the shareholders’ register as of March 31, 2016 will
be approximately 41.3%. In the case that put options, the consideration for which is cash and Class B shares,
attached to all Class A shares are exercised at the time as most Class B shares are distributed (that is, the said
19

put options are exercised after July 1, 2020.) , if all put options, the consideration for which is common sharesattached to all Class B shares, to be distributed by the exercise of the above options are exercised at the lower
limit of the acquisition price (139.8 yen), common shares with a maximum of 31,473 voting rights will be
distributed under a situation where a Class B accumulated unpaid dividends and Class B daily prorated unpaid
dividends do not exist. This means that the ratio to the total amount of 346,371 voting rights related to theCompany’s issued common shares based on the shareholders’ register as of March 31, 2016, will beapproximately 9.1%. Accordingly, the dilution will be smaller than the maximum dilution caused by theexercise of put options, the consideration for which is common shares, attached to all Class A shares.
Although call options, the consideration for which is cash and Class C shares, are attached to Class A shares,
the contents of put options, the consideration for which is cash and Class B shares, attached to Class C sharesand put options, the consideration for which is common shares, attached to Class C shares are, in principle, thesame as those of put options, the consideration for which is cash and Class B shares, attached to Class A sharesand put options, the consideration for which is common shares attached to Class A shares. Therefore, inrespect of all Class C shares that will be distributed as a result of all Class A shares being acquired, based oncall options, the consideration for which is cash and Class C shares, (i) if put options, the consideration forwhich is cash and Class B shares, are exercised, thereby distributing Class B shares, and then put options, theconsideration for which is common shares, of all the above Class B shares are exercised; and (ii) if put options,the consideration for which is common shares, are exercised, the maximum dilution rate of each case will be
the same as the above.
Although share dilution may occur if the common shares of the Company are distributed by exercising theput options of Class A shares, Class B shares, or Class C shares, (i) an increase in shareholder’s equity
through the Capital Increase by Third-Party Allotment contributes to the stability of financial position; (ii) as
it has been agreed in the Agreement that unless Conversion Restriction Removal Reasons occur, the Planned
Allottee will not exercise put options until July 1, 2019, three years after the payment date, thereby avoiding
early dilution of common shares and securing time to enhance corporate value through the reconstruction ofbusiness strategies; (iii) even on and after July 1, 2019, put options, the consideration for which is commonshares, that can cause a greater dilution cannot be exercised if the Company has a certain distributableamount on the last day of each fiscal year; (iv) Class A shares, Class B shares, and Class C shares areattached with call options, the consideration for which is cash, that the Company is entitled to exercise any
time after the issuance date. The Company can make its own judgment on resorting to mandatory redemptionof Class A shares, Class B shares, and Class C shares, thereby preventing the exercise of put options, theconsideration for which is common shares, or put options, the consideration for which is cash and Class B
shares. Thus, this scheme is designed to avoid dilution (furthermore, regarding the period prior to June 30,
2019, if the dates of the request for the acquisition of the consideration related to the put options, theconsideration for which is common shares, and put options, the consideration for which is cash and Class B
shares, and the cash consideration redemption date related to call options, the consideration for which is cash,
are the same, call options, the consideration for which is cash, have priority); and (v) in order to further
20

reduce the impact of dilution on existing shareholders, measures have been taken, such as setting the lower
limit of the revised acquisition price of any put options, the consideration for which is common shares,
attached to Class A shares, Class B shares, and Class C shares. From these perspectives, the Company has
concluded that the size of the dilution caused by the issuance of Class A shares is also reasonable.
The Company is scheduled to make a redemption in cash for the entire amount, in order to eliminate thepossibility of dilution as much as possible. The Company will appropriate procured funds to invest in growthand build a sound financial position through increased profits.
Call options, the consideration for which is cash and Class C shares, are attached to Class A shares. The
Company is entitled to acquire all Class A shares, based on call options, the consideration for which is cash
and Class C shares, in case the Company’s distributable amount, as provided in Article 461, Paragraph 2 of
the Companies Act, as of the end of the fiscal year, exceeds the amount calculated by multiplying the number
of issued Class A shares (excluding treasury shares) by 1,000,000 yen, and then adding 40.0 billion yen tothat product, on the day the Company’s Board of Directors approves the financial statements for the latest
fiscal year of the fiscal years ending on and after March 31, 2018. The Company believes that it will be able
to ensure the aforementioned distributable amount early by implementing the medium-term management plan,and is scheduled to make cash redemption flexibly in the light of its improved financial condition.

6.

Reasons for Selecting the Planned Allottee, etc.

(1) Outline of the Planned Allottees(i) Name

Japan Industrial Solutions Fund I(ii) Location

2-2-2 Marunouchi, Chiyoda-ku, Tokyo(iii) Grounds, etc. forincorporation

Limited Partnership Act for Investment(iv) Purpose of incorporation

Acquisition of securities(v) Partnership formation
date

November 16, 2010(vi) Limited liability partners

Development Bank of Japan Inc.
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking Corporation
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mitsubishi Corporation
Deutsche Bank AG, Tokyo Branch(vii) Summary of operating

Name

Japan Industrial Solutions Co., Ltd.

partner

Location

2-2-2 Marunouchi, Chiyoda-ku, Tokyo(General partnership)

Name and title ofrepresentative

Shinichi Saito, President and CEO

Business

Acquisition and holding of securities

Capital stock

100,000,000 yen(General partner)

21

(viii) Relationships of theCompany with the said
fund and the operating
partner

Relationshipbetween the
Company and thesaid fundNo direct or indirect contribution was made to
the said fund by the Company, parties connectedwith the Company, or affiliated companies of theCompany.

Relationships
between the
Company and theoperating partner

There are no capital, personal, or transactional
relationships to be described between the
Company and the operating partner of the said
fund.

*1 The capital contribution ratio of the limited liability partners is not described, because the Planned
Allottee has not disclosed it.
*2 In the representations and warranties in the Agreement, the Planned Allottee has made a written
representation that the Planned Allottee, or its limited liability partners have no relationship whatsoever
with antisocial forces. In addition, the Company has confirmed that, through the confirmation of thehistories, officers, major shareholders, and establishment status of internal controls systems described in
the Annual Securities Report for each limited liability partner of the Planned Allottee and throughconsultations with representative of the general partner of the Planned Allottee, the Planned Allottee or its
limited liability partners have no relationship whatsoever with antisocial forces, and a confirmation letteron such matter has been submitted to the TSE.

(2) Reason for selecting the Planned Allottee
As described in the above “2. Purpose of and Reason for Issuing of Class A Shares,” regarding the polysiliconbusiness at Tokuyama Malaysia Sdn. Bhd., due to the failure to ensure the stabilization of the quality andproduction of the semiconductor-grade products and a worsening business environment caused by a slump in
the polysilicon market for solar-grade products, we posted large impairment losses for both grades of productas a result of considering investment collectability. Consequently, the Company posted extraordinary lossesof 88.4 billion yen and 125.7 billion yen in its consolidated financial results for the fiscal year ended March
31, 2015 and the fiscal year ended March 31, 2016, respectively. As a result, consolidated net assets
plummeted to 60.2 billion yen (fiscal year ended March 31, 2016) from 236.4 billion yen (fiscal year ended
March 31, 2014).
Although this erosion of capital is unlikely to affect the Company’s management immediately, the Company
investigated and reviewed multiple investors, who could contribute the funds required to reinforce theCompany’s capital in the light of the need to turn around this financial conditions at an early stage andcement the competitive edge in our main operations for the future. Among the small number of allottee
candidates, we have decided to issue Class A shares to Japan Industrial Solutions Fund I, which cancontribute the funds required to increase the capital of the Company, has solid experience of investing inJapan, and has agreed to the management policy of the Company of improving corporate value in the medium
and long term, as well as the purpose of offering Class A shares and its marketability.
The Company and the Planned Allottee have agreed to enter into the Agreement on matters regarding
contributions to the Company. A summary is below.
221. Matters the Company must comply with
The Company has given the Planned Allottee a pledge: (i) to make its best and reasonable efforts to achieve
the Company’s business plan; (ii) to submit to the Company’s general meeting of shareholders an agenda andproposal to select a person designated by the Planned Allottee as an External Director of the Company, andmake its best and reasonable efforts to have such proposal obtain approval, as far as the Planned Allottee
holds more than a specified number of Class A shares and Class C shares; (iii) to establish a monitoring
meeting regarding the Company’s business plan, etc. and decide the contents thereof through discussions with
the Planned Allottee; (iv) to make specified reports on financial conditions. etc. to the Planned Allottee; (v) toobtain prior approval from the Planned Allottee in case the Company (and the Company’s consolidated
subsidiaries for certain matters) conducts specified matters (such as change the Articles of Incorporation, etc.,
issue shares, etc., acquire treasury shares, distribute dividend of surplus, dispose of specified important
properties, carry out specified reorganization, make specified loans or guarantee, etc., launch bankruptcy
disposition procedures, etc., or change the business plan, etc.), as far as the Planned Allottee holds more thana specified number of Class A shares and Class C shares; (vi) with the purpose of enabling a dividend of
surplus regarding class shares and acquiring class shares in exchange for cash from the Planned Allottee, toendeavor to generate funds required for a dividend of surplus or the said acquisition and distributable amountas much as possible; and (vii) to discuss with the Planned Allottee a necessary review of the business plan incase the Company and consolidated subsidiaries of the Company breach either financial covenants or any
other event resulting in default set forth in specified loan contracts, etc. or breach obligations provided in theAgreement, as the contracting parties.

2. Restriction on exercising put option
The Planned Allottee is not entitled to exercise put options, the consideration for which is cash and Class B
shares, attached to Class A shares and Class C share, unless any Conversion Restriction Removal Reasonsoccur, and is not entitled to exercise put options, the consideration for which is common shares, attached toClass A shares and Class C shares unless both of either Conversion Restriction Removal Reason (i) or (ii) andConversion Restriction Removal Reason (iii) occur, from the payment date until June 30, 2019.
In addition, prior to June 30, 2019, if the date of the request for acquisition of the consideration related to theabove put options and the consideration redemption (acquisition) date regarding call options are the same, thecall options will have priority.
Furthermore, the Planned Allottee is entitled to exercise put options, the consideration for which is commonshares, attached to Class A shares and Class C shares, only if Conversion Restriction Removal Reason (iii)
occurs, even after July 1, 2019.

3. Restrictions on transfer, etc.
The Planned Allottee, without prior approval in writing from the Company, cannot transfer Class A shares,
Class B shares, and Class C shares, owned by the Planned Allottee. In addition, if the Planned Allottee, with23

prior approval in writing from the Company, transfers Class A shares, Class B shares, and Class C shares that
the Planned Allottee owns, the Planned Allottee is required to ensure that the said purchaser of the shares
pledges to comply with the obligations of the Planned Allottee provided in the Agreement.

4. Conditions precedent to the payment obligation
The conditions precedent for the Planned Allottee’s obligation to pay for the Class A shares are the case inwhich the Ordinary General Meeting of Shareholders approves the Amendments to the Articles ofIncorporation, Capital Increase by Third-Party Allotment, Reduction of Capital Stock, etc., Appropriation of
Surplus, election of one person named by the Planned Allottee as External Director of the Company, andothers.
(3) Planned Allottees’ policies for holding shares
The Company has received an explanation from the Planned Allottee that the Planned Allottee has the policyof holding the Class A shares in the medium term in principle.
The Planned Allottee cannot exercise put options, the consideration for which is cash and Class B shares,
attached to Class A shares unless any Conversion Restriction Removal Reasons occur and put options, theconsideration for which is common shares, unless both of either Conversion Restriction Removal Reason (i)or (ii) or Conversion Restriction Removal Reason (iii) occur until June 30, 2019.
It has been confirmed that the Planned Allottee is looking at preferably exercising the put options, theconsideration for which is cash and Class B shares, after July 1, 2019. If the Planned Allottee exercises put
options, the consideration for which is cash and Class B shares, the Planned Allottee will acquire Class B
shares through the said exercise. In that case, there is a possibility that the Planned Allottee will acquirecommon shares of the Company by exercising the put options, the consideration for which is common shares,
attached to the Class B shares.
As mentioned previously, put options, the consideration for which is common shares, may be exercised only if
Conversion Restriction Removal Reason (iii) occurs, even after July 1, 2019.
Furthermore, pursuant to the Agreement, the Planned Allottee, without prior approval in writing from theCompany, cannot transfer Class A shares, Class B shares and Class C shares, owned by the Planned Allottee.
Acquiring Class A shares, Class B shares and Class C shares by transfer requires the approval of theCompany’s Board of Directors. The Company will obtain written confirmation from the Planned Allottee by
the payment date that if all or a part of the Class A shares, Class B shares and Class C shares and the commonshares of the Company issued by exercising the put option to be allotted are transferred by the Planned
Allottee within two years from the payment date, the Planned Allottee shall report the said transfer to theCompany in writing (i.e. the name and the address of the transferee, the number of transferred shares, thetransfer date, the transfer price, the reason for transfer, the method of transfer, etc.) without delay, and thePlanned Allottee will agree that the Company reports the said contents of the report to the TSE, and the said
contents will be made publicly available.

24

(4) Contents confirmed with regard to funds required for the payment by the Planned Allottee
The Company obtained a report that the Planned Allottee will complete preparation of funds required for thepayment by the payment date, and the Company has also concluded that funds for the subscription will befully secured by the payment date by confirming the financial report of the limited liability partners to the
Planned Allottee.

7.

Major Shareholders after the Offering and Their Shareholding Ratios(1) Common shares
The number of dilutive shares of Class A shares is not included in the calculation of the major shareholders
and shareholding ratio of the common shares after the offering of the Class A shares as it is difficult toreasonably estimate that number at this moment.
Before the offering (as of March 31, 2016)
The Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Services Bank, Ltd. (Trust
Account)
NIPPON LIFE INSURANCECOMPANY

3.66%

3.11%
2.36%

Meiji Yasuda Life Insurance Company

2.13%

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

2.03%

Sojitz Corporation

1.85%

AC ISG (FE - AC)
Sumitomo Metal Mining Co., Ltd.
Mitsubishi UFJ Trust and Banking
Corporation(Note)The same as left.

5.70%

The Yamaguchi Bank, Ltd.

BNY GCM CLIENT ACCOUNT JPRD

After the offering

1.74%
1.69%
1.67%

In the shareholding ratio in the table above is based on the shareholders’ register as of March 31,
2016 and rounded to the second decimal place.

(2) Class A shares
Before the offering (as of May 12, 2016)
Not applicable

After the offering
Japan Industrial Solutions Fund I

25

100.00%8.

Future Outlook

The Company aims to stabilize its financial position on a consolidated and non-consolidated basis for the
fiscal year ending March 31, 2017 through the issuance of Class A shares. For details of the future outlook,please see the consolidated performance forecast for the fiscal year ending March 2017 set out in the"Summary of Consolidated Financial Statements for Fiscal 2015” released by the Company on May 12, 2016.

9.

Procedures of Ethical Actions of a Corporate

As the issuance of these Class A shares will result in the dilution rate to be 25% or more, the Company plansto obtain an approval by a special resolution at the Ordinary General Meeting of Shareholders as an approval
procedure of shareholders in compliance with Article 432 in the Securities Listing Regulations provided forby the TSE.

10. Business Results for and Status of Equity Finance in Recent Three Fiscal Years(1) Business results for recent three years (consolidated)
Fiscal Year Ended
March 31, 2014

Fiscal Year Ended
March 31, 2015

Fiscal Year Ended
March 31, 2016

Consolidated net sales

287,330 million yen

302,085 million yen

307,115 million yen

Consolidated operating income

20,270 million yen

19,530 million yen

23,071 million yen

Consolidated ordinary income

14,965 million yen

12,920 million yen

17,725 million yen

Consolidated profit (loss)
attributable to owners of parent

10,218 million yen(65,349 million yen)

(100,563 million yen)

Consolidated basic earnings(loss) per share

29.37 yen

(187.85 yen)(289.10 yen)

Dividends per share

6.00 yen

– yen

– yen

660.18 yen

467.36 yen

147.98 yen

Consolidated net assets per share(2) Current number of issued shares and number of dilutive shares (as of March 31, 2016)
Ratio to total number of issued
sharesNumber of shares
Number of issued shares349,671,876 shares

100%

Number of dilutive shares atcurrent conversion price(exercise price)––

Number of dilutive shares atminimum conversion price(exercise price)––

Number of dilutive shares at
maximum conversion price(exercise price)

–

–

26

(3) Recent share prices(i)Share prices for recent three years
Fiscal Year Ended

Fiscal Year Ended

Fiscal Year Ended

March 31, 2014

March 31, 2015

March 31, 2016

Opening

259 yen341 yen

250 yenHigh469 yen371 yen

303 yenLow

225 yen

233 yen

130 yen

Closing

338 yen

252 yen

174 yen(ii) Share prices for recent six months
November
2015

December
2015

January
2016

February
2016

March
2016

April
2016

Opening

244 yen

264 yen

259 yen

166 yen

159 yen

176 yenHigh

282 yen

276 yen

264 yen

184 yen

179 yen

196 yenLow

243 yen254 yen

213 yen

130 yen

153 yen

151 yen

Closing

263 yen

263 yen

236 yen

158 yen

174 yen

186 yen(iii) Share price on the business day immediately preceding the date of resolution authorizing the issuanceMay 11, 2016
Opening

177 yenHigh

177 yenLow

171 yen

Closing

171 yen(4) Equity finance for recent three years
Not applicable.

11. Schedule for Issuance of Class A Shares
Resolution of the Board of Directors relating to the Capital Increase by
Third-party Allotment and conclusion of the Agreement
May 12, 2016 (Thursday)

Resolution of the Board of Directors relating to the Capital Increase by
Third-Party Allotment submitted to the Ordinary General Meeting of
Shareholders

June 24, 2016 (Friday)

Resolution at the Ordinary General Meeting of Shareholders (planned)

June 27, 2016 (Monday)

Payment date (planned)27

II. Partial Amendments to the Articles of Incorporation
1.

Reasons for Amendments to the Articles of Incorporation

To allow Class A shares, Class B shares and Class C shares to be issued, new provisions in relation to Class A
shares, Class B shares and Class C shares, i.e., increasing Class A shares, Class B shares and Class C shares as
new classes of shares will be added to the Articles of Incorporation.

2.

Schedule for Amendments to the Articles of Incorporation
Resolution of the Board of Directors relating to the Amendments to the
Articles of Incorporation
May 12, 2016 (Thursday)

Resolution of the Board of Directors relating to proposal of theAmendments to the Articles of Incorporation submitted to the Ordinary
General Meeting of Shareholders
Resolution at the Ordinary General Meeting of Shareholders (planned)

June 24, 2016 (Friday)

Effective date of the Amendments to the Articles of Incorporation(planned)

III. Reduction of Capital Stock, etc.
1.

Purpose of the Reduction of Capital Stock, etc.

For the Company to promptly build its healthy financial position and prepare for a dynamic and flexible capital
policy in the future, the Company decided on the Reduction of Capital Stock, etc. to transfer: (i) capital stockand legal capital surplus to other capital surplus; and (ii) legal retained earnings to retained earnings brought
forward.

2.

Terms and Conditions of the Reduction of Capital Stock, etc.

(1) Amount of capital stock to be decreased
43,458,962,788 yen(2) Amount of legal capital surplus to be decreased
57,670,181,909 yen(3) Amount of legal retained earnings to be decreased
4,122,180,058 yen

28

(4) Method of the Reduction of Capital Stock, etc.
After implementing the Reduction of Capital Stock, etc. in accordance with the provisions of Article 447,
Paragraph 1 and Article 448, Paragraph 1 of the Companies Act, the Company will transfer: (i) the entire
outstanding balances of capital stock and legal capital surplus to other capital surplus; and (ii) the entire
outstanding balance of legal retained earnings to retained earnings brought forward.

3.

Schedule for the Reduction of Capital Stock, etc.
Resolution of the Board of Directors relating to the Reduction of Capital
Stock, etc.
May 12, 2016 (Thursday)

Resolution of the Board of Directors relating to proposal of theReduction of Capital Stock, etc. submitted to the Ordinary General
Meeting of Shareholders

May 20, 2016 (Friday)

Public notice with respect to statements of objection by creditors(planned)

June 20, 2016 (Monday)

Final deadline for statements of objection by creditors (planned)

June 24, 2016 (Friday)

Resolution at the Ordinary General Meeting of Shareholders (planned)
Effective date of the Reduction of Capital Stock, etc. (planned)

4. Future Outlook
The Reduction of Capital Stock, etc. is a transfer appropriation in which capital stock and legal capitalsurplus in net assets are transferred to the account of other capital surplus and in which legal retained
earnings in net assets are transferred to the account of retained earnings brought forward, which does notchange the Company’s net asset amount and does not have any impact on the Company’s performance.

IV. Appropriation of Surplus

1.

Purpose of the Appropriation of Surplus

The Company, as indicated in “III. Reduction of Capital Stock, etc.” above, will implement the Reduction of
Capital Stock, etc. The Company also decided to appropriate surplus in accordance with the provisions ofArticle 452 of the Companies Act to dispose of deficit in retained earnings brought forward by using a
portion of other capital surplus generated by the Reduction of Capital Stock, etc. and general reserve.
The Appropriation of Surplus is subject to the Reduction of Capital Stock, etc. taking effect.

29

2.

Terms and Conditions of the Appropriation of Surplus(1) Items and amounts of surplus to be decreased
Other capital surplus

81,928,922,351 yen

General reserve

11,571,000,000 yen(2) Items and amounts of surplus to be increased
Retained earnings brought forward

3.

93,499,922,351 yen

Schedule for the Appropriation of Surplus
Resolution of the Board of Directors relating to the Appropriation of
Surplus
May 12, 2016 (Thursday)June 24, 2016 (Friday)

4.

Resolution of the Board of Directors relating to proposal of theAppropriation of Surplus submitted to the Ordinary General Meeting of
Shareholders
Resolution at the Ordinary General Meeting of Shareholders (planned)
Effective date of the Appropriation of Surplus (planned)

Future Outlook

The Appropriation of Surplus is a transfer appropriation in which other capital surplus and general reserve in
net assets are transferred to the account of retained earnings brought forward, which does not change theCompany’s net asset amount and does not have any impact on the Company’s performance.

(Reference)
Capital stock, legal capital surplus, other capital surplus, legal retained earnings and retained earnings
brought forward of the Company before and after the effective date of the Reduction of Capital Stock, etc.
and the Appropriation of Surplus.
Before coming into effect

After coming into effectCapital stock

53,458,962,788 yen

10,000,000,000 yen

Legal capital surplus

57,670,181,909 yen

0 yen

Other capital surplus

0 yen

19,200,222,346 yen

Legal retained earnings

4,122,180,058 yen

0 yen

Retained earnings brought
forward(97,622,102,409 yen)

0 yen

30

V.

Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares

1. Purpose of the Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares
As described previously in “1. Purpose of the Reduction of Capital Stock, etc.” in “III. Reduction of Capital
Stock, etc.,” in order for the Company to promptly build its healthy financial position and prepare for a
dynamic and flexible capital policy in the future, the Company decided on the Reduction of Capital Stock andLegal Capital Surplus Concurrent with Issuance of Shares to transfer capital stock and legal capital surplus toother capital surplus.
The Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares is subject to
the Capital Increase by Third-Party Allotment taking effect.

2. Terms and Conditions of the Reduction of Capital Stock and Legal Capital Surplus Concurrent withIssuance of Shares(1) Amounts of capital stock to be decreased
10,000,000,000 yen(Composition) 10,000,000,000 yen, the amount equivalent to the “amount of capital stock to be increased”
through the issuance of Class A shares.
(As the amount of capital stock will increase by 10,000,000,000 yen at the same time as the payment of theamount to be paid in for Class A shares, the amount of capital stock after the effective date will not decrease
from the amount of capital stock prior to the effective date.)(2) Amount of legal capital surplus to be decreased.
10,000,000,000 yen(Composition) 10,000,000,000 yen, the amount equivalent to the “amount of legal capital surplus to be
increased” through the issuance of Class A shares.
(As the amount of legal capital surplus will increase by 10,000,000,000 yen at the same time as the paymentof the amount to be paid in for Class A shares, the amount of legal capital surplus after the effective date will
not decrease from the amount of legal capital surplus prior to the effective date.)(3) Method of the Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares
After implementing the Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance ofShares in accordance with the provisions of Article 447, Paragraphs 1 and 3 and Article 448, Paragraphs 1
and 3 of the Companies Act, the Company will transfer the respective entire outstanding amounts of capitalstock and legal capital surplus to other capital surplus.

31

3. Schedule for the Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares
May 12, 2016 (Thursday)

Resolution of the Board of Directors relating to the Reduction of Capital
Stock and Legal Capital Surplus Concurrent with Issuance of Shares

May 20, 2016 (Friday)

Public notice with respect to statements of objection by creditors(planned)

June 20, 2016 (Monday)

Final deadline for statements of objection by creditors (planned)

June 27, 2016 (Monday)

Effective date of the Reduction of Capital Stock and Legal Capital
Surplus Concurrent with Issuance of Shares (Planned)

4. Future Outlook
The Reduction of Capital Stock and Legal Capital Surplus Concurrent with Issuance of Shares is a transfer
appropriation in which capital stock and legal capital surplus in net assets are transferred to the account ofother capital surplus, which does not change the Company’s net asset amount and does not have any impact
on the Company’s performance.

(For reference)
Capital stock, legal capital surplus, and other capital surplus of the Company before and after the effective
date of the Reduction of Capital Stock, etc., the Appropriation of Surplus and the Reduction of Capital Stockand Legal Capital Surplus Concurrent with Issuance of Shares.
Before coming into effect

After coming into effect

10,000,000,000 yen

10,000,000,000 yen

Legal capital surplus

0 yen

0 yen

Other capital surplus

19,200,222,346 yen

39,200,222,346 yen

Capital stock

32