Date: June 19, 2020
Company Name: Nihon Dempa Kogyo Co., Ltd.
Representative: Hiromi Katoh, Representative Director
and President
Code: 6779, First Section of the Tokyo
Stock Exchange
Contact:
Michio Aoyama, Corporate Officer andGeneral Manager of Administration
Division
Tel:
03-5453-6711

Re: Issuance of Class Shares through Third-Party Allotment,
Reduction of Amounts of Capital Stock and Legal Capital Surplus
and Appropriation of Surplus, Partial Amendment to the Articles of Incorporation, andReduction of Amounts of Capital Stock andLegal Capital Surplus on Issuance of Class Shares
Nihon Dempa Kogyo Co., Ltd. (“NDK” or “we”) hereby announces that the Board of
Directors of NDK, at its meeting held today, passed a resolution for items 1. and 2.
below.
1.

2.

NDK enters into a class share subscription agreement (the “Subscription
Agreement”) with Japan Industrial Solutions Fund II (the “Planned Allottee”) to
issue a total of 5,000,000,000 yen of the Class A Shares through third-party
allotment to the Planned Allottee (the “Capital Increase through Third-Party
Allotment”, for details, please see “I. The Capital Increase through Third-Party
Allotment” below).
NDK will submit, to the 79th ordinary general meeting of shareholders scheduled
to be held on July 31, 2020 (the “Ordinary General Meeting of Shareholders”),
agendas regarding (i) the reduction of the amounts of capital stock and legal capitalsurplus, the transfer of such amounts to other capital surplus, and the cover of a
deficit in retained earnings brought forward with other capital surplus after thetransfer (the “Cover of Deficit, for details, please see “II. Cover of Deficit” below).
(ii) the partial amendments to the Articles of Incorporation relating to the creationof the provisions for the Class A Shares, etc. (the “Amendments to the Articles ofIncorporation”, for details, please see “III. Partial Amendments to the Articles ofIncorporation” below); (iii) the Capital Increase through Third-Party Allotment; and(iv) the reduction of the amounts of capital stock and legal capital surplus after the
Capital Increase through Third-Party Allotment, and the transfer of such amounts toother capital surplus to be conducted as of October 1, 2020, as the effective date, on
the condition that the Capital Increase through Third-Party Allotment be effected(the “Reduction of the Amount of Capital Stock, etc.”, for details, please see “IV.
Reduction of the Amount of Capital Stock, etc.” below).

1

I. The Capital Increase through Third-Party Allotment
1. Overview of the Offering(1) Payment period
From August 1, 2020 to September 30, 2020 (Note)
Number of shares(2)
5,000 shares of Class A Shares
to be issued(3) Issue price
1,000,000 yen per share
5,000,000,000 yen
For the estimated amount less the estimated issuance(4) Total issue priceexpenses, please see “3. Amounts, Usage and Scheduled
Timing of Use of the Funds to be Procured” below.
Method of
All of the Class A Shares will be allotted to Japan
subscription or(5)
Industrial Solutions Fund II through third-party
allotment
allotment.
(Planned Allottee)
For details, please see Appendix I “Terms andConditions of Class A Shares.”
There is no provisions regarding so-called preferred
dividends with respect to the Class A Shares. The ClassA Shareholders may receive the dividends in the amountper Class A Share, pari passu with commonshareholders, equivalent to the amount obtained bymultiplying (i) the amount of the dividends per acommon share by (ii) the amount obtained by dividing(a) the amount obtained by multiplying the Amount
Equivalent to Paid-in Amount per Class A Share by 1.40
by (b) the acquisition price as set forth in III. (3) (ii)below.

(6)

Other

The right to request acquisition in exchange for commonshares is attached to the Class A Shares. Although theTerms and Conditions of Class A Shares provides that,in principle, on or after August 1, 2020, each Class A
Shareholder may at any time request NDK to acquire, in
exchange for common shares, all or part of the Class A
Shares, in accordance with the provisions of the
Subscription Agreement, the Class A Shareholders may,
only after July 1, 2023, exercise the right to request
acquisition in exchange for common shares. In case ofoccurrence of the Conversion Restriction Removal
Event (defined in III. (3) (ii) below), the Class A
Shareholders may exercise the right to request
acquisition in exchange for common shares of NDKeven before July 1, 2023.
The number of common shares delivered in case of
exercise of the right to request acquisition in exchange
for common shares attached to the Class A Shares shallbe the number obtained by dividing the amount obtained2

by multiplying (a) the amount obtained by multiplying
the Amount Equivalent to Paid-in Amount per Class A
Share by 1.40 by (b) the number of the Class A Sharesconcerning the exercise request, by the acquisition priceas set forth in III. (3) (ii) below.
NDK may at any time on and after August 1, 2020
acquire all or part of the Class A Shares in exchange formoney. The amount of money to be delivered when thecall options for money attached to the Class A shares are
exercised will be, in principle, the amount calculated bymultiplying (i) the amount obtained by multiplying theAmount Equivalent to Paid-in Amount per Class A
Share by the redemption factors as set forth in III. (3)(iii) below by (ii) the number of the Class A Shares inrespect of the Redemption for Money.
Although there are no voting rights or restrictions ontransfer of the Class A Shares, pursuant to the
Subscription Agreement, unless the Transfer Restriction
Removal Event (defined in III. (3) (iv) below) occurs orunless approved by the Board of Directors of NDK, thePlanned Allottee may not transfer the Class A Shares toa third party during the period until June 30, 2023
(inclusive).
The issuance of the Class A Shares is subject to theconditions that approval of the following proposals is
obtained at the Ordinary General Meeting of
Shareholders: (i) the Cover of Deficit (ii) the
Amendments to the Articles of Incorporation; (iii) the
Capital Increase through Third-Party Allotment; (iv) the
Reduction of the Amount of Capital Stock, etc.; and (v)the election of one (1) person designated by the Planned
Allottee as an outside director of NDK (the “Election of
Outside Director”).
(Note) With respect to the Capital Increase through Third-Party Allotment, it was
resolved that the payment period under the Companies Act shall be from
August 1, 2020 to September 30, 2020. The resolution for such payment period
was made because, regarding the satisfaction of a part of the conditions
precedent for the payment obligation of the Planned Allottee related to theClass A Shares as set forth in the Subscription Agreement, the timing cannot be
confirmed in advance. In addition, NDK and the Planned Allottee are inagreement that, in principle, the payment will be made on the date on which
three (3) business days elapse after the date on which all of the conditions
precedent are satisfied or waived (which is limited to a date during the payment
period).
2.

Purpose of and Reason for Offering(1) Background to and purpose of offering
3The NDK group companies (the “Group”) specialize in the manufacturingof quartz crystal devices for frequency control, selection, and detection, andshare a founding philosophy of “contributing to the prosperity of society andworld peace through our service to customers.” The Group has been supporting
the development of the electronics industry from within since its establishment.
The Group has made customer satisfaction its fundamental management policy,
and has been leading industry through the development, manufacturing andsale of highly reliable products.
However, due to a significant slowdown in demand from both major
smartphone manufacturers and emerging Chinese smartphone manufacturers in
the fiscal year ended March 31, 2018, projected sales in the mobile
telecommunications market fell considerably short of expectations.
Furthermore, as a result of the production capacity expansion in the past in linewith the management plan in place at the beginning of the period, costs
increased and profitability worsened significantly. Consequently, for the fiscal
year ended March 31, 2018, we recognized impairment losses of approximately
6.5 billion yen, mainly on production facilities for smartphone devices, such as
TCXOs (temperature compensated crystal oscillators), crystal units withbuilt-in temperature sensors, and SAW (surface acoustic wave) devices, and wewere obliged to recognize a net loss of more than 10 billion yen. In order toaddress this situation, and aiming to restructure the operating foundations toensure stable profit, NDK, in order to reduce costs through structural reforms,
started structural reforms of reduction of the fixed costs through restructuring
the production system from the fiscal year ended March 31, 2019, for the
purpose of reducing fixed costs by selecting targeted product markets andimproving the productivity and cost-competitiveness of the entire Group.
In the fiscal year ended March 31, 2020, we shifted our production line forsmall mass-produced products for mobile communications from the Sayama
factory to our Hakodate factory in an effort to restructure our production
system, and we have generally proceeded with the reduction of fixed costs asplanned. However, due to the continuing China-US trade friction and effects
from other factors, NDK was not able to improve the Group’s management
environment, and, as a result, sales for automotive electronics and industrial
equipment devices continued to fall short of expectations. Therefore, inNovember 2019, NDK resolved to implement new structural reforms.
Specifically, in order to reduce fixed costs in addition to improving theefficiency of operation on a standalone basis of NDK, we offered voluntary
early retirement to approximately 100 employees at NDK and a total of 129
employees retired. Accordingly, a structural reform expense of 2.5 billion yen,including special retirement expense for the voluntary retirees, was recognizedas other operating expense. We also recorded an impairment loss ofapproximately 3.9 billion yen for the fiscal year ended March 31, 2020, in
consideration of the effect of the spread of the COVID-19 on NDK’s
performance. As a result, for the fiscal year ended March 31, 2020, werecorded an operating loss of 8.2 billion yen and a current loss of 8.7 billion
yen. Consequently, NDK’s consolidated shareholders’ equity decreased byapproximately 19.9 billion yen, from approximately 25.2 billion yen at the end

4

of the fiscal year ended March 31, 2017 to approximately 5.3 billion yen at theend of the fiscal year ended March 31, 2020. In the fiscal year ending March
31, 2021, global economic stagnation is expected to continue due to theworldwide outbreak of the COVID-19, and there are concerns about the impactof the pandemic on NDK’s performance.
On the other hand, from the medium and long term perspective, along withthe full-scale operation of the next-generation high-speed communication
standard, “5G”, the need for higher frequency devices has increased, anddemand for higher-accuracy crystal devices is expected to increase more thanever before. NDK also expects growing demand for crystal devices equipped
per vehicle due to the expected increase of installation of ADAS (Advanced
Driver Assistance Systems) in automobile. We are on the verge of a hugebusiness opportunity; therefore, in order to prepare for such business
opportunity, NDK has formulated the mid-term management plan for the three(3) years commencing in the fiscal year ending March 31, 2021 (hereinafter the“Mid-Term Management Plan”) of which the most important measures are (A)selective injection of resources in the upstream process, where NDK has
competitive advantages, (B) improving productivity in the down-stream
process (assembly), (C) continuation of structural reform and drastic reductionof fixed costs, (D) review sales mix of existing products and business portfolioand (E) improve NDK’s financial position (for further details, see “Noticeconcerning NDK’s Mid-Term Management Plan” dated June 19, 2020).
NDK reached a conclusion that, in order for NDK to emerge from thecurrent difficult management environment and to unfailingly conduct each of
the top priority matters listed in the Mid-Term Management Plan above, it isessential not only to secure the necessary funds and resources through theprocurement of reliable capital funds and various business support from outside
investors, but also to promptly improve its financial position by increasing
capital and to resolve the financial and business issues faced by the Groupquickly and fundamentally. With this in mind, in order to hold discussions withoutside investors specifically and seek the possibility of raising funds on morefavorable terms for NDK, NDK has asked several domestic and international
financial investor to consider investing in the company as a potential sponsor,
and has been searching for an outside investor who can provide capital to NDK
since October 2019. As a result of such search, the Planned Allottee, inFebruary 2020, expressed the possibility of providing capital; therefore, NDK
appointed Nagashima Ohno & Tsunematsu as its legal advisor and Industrial
Growth Platform, Inc. as its financial advisor. The Planned Allottee conducted
due diligence from March to April 2020 and in April 2020, we entered into
discussions with the Planned Allottee with respect to the specifics of the
Planned Allottee’s offer to NDK. Subsequently, we received a specificinvestment offer from the Planned Allottee based on the results of the due
diligence and other factors. NDK has considered the Planned Allottee’s trackrecord of the investment in class shares, its characteristics as an investor andthe details of the offer (size of the amount of issuance of class shares and othereconomic conditions), and concluded that the offer was the best possible option
for NDK at the present time. Accordingly, NDK resolved to accept the Planned5Allottee’s investment offer. The Planned Allottee is an investor who
understands the business objectives and management policies of NDK, andhighly appreciates the potential of NDK. Further, NDK resolved that the
Planned Allottee would be its optimal partner to improve the corporate value of
NDK since the Planned Allottee has experience in investing in class shares andhas supported companies targeted for investments in its past investment
projects, and would be able to provide necessary advice to NDK for achieving
the objectives listed above and assistance in strengthening NDK’s governance.
(2) Reason for Selecting the Capital Increase through Third-Party Allotment
Before deciding to pursue the Capital Increase through Third-Party
Allotment, NDK compared and examined various funding approaches as
described below. NDK considered that the most important factor was, toprocure the necessary capital for establishing a competitive production systemand to raise equity funds promptly and reliably within the time frame desired
by NDK, in order to improve the financial position of NDK as soon as
possible.
For example, considering the current difficult management environment
surrounding NDK, the financial position and operating results of NDK, and
NDK’s share price, a capital increase through a public offering of commonshares would not be a realistic option, and a large-scale capital increase througha third-party allotment of common shares would immediately cause a marked
dilution of common shares, which could be disadvantageous to the existing
shareholders. With respect to a gratis allotment of stock acquisition rights(rights offering) that would allocate the stock acquisition rights to the existing
shareholders or a gratis allotment of shares that would allocate the shares to theexisting shareholders, the amount that can be raised is uncertain because not all
stock acquisition rights might be exercised due to determinations byshareholders in light of stock price trends and other factors and because it
would not be clear whether all of the shareholders would respond to theshareholder allotment; and NDK reached the conclusion that it is currently not
an appropriate option for NDK.
On the other hand, NDK believes that a capital increase through third-party
allotment of class shares, by which NDK can undoubtedly procure the required
amount, and which, depending on its design, would make it possible to avoid
the marked dilution of shares or a change in the shareholder composition willbe the most effective option for NDK if NDK selects an appropriate outside
investor. Therefore, as described in (1) above, NDK continued to seek out an
outside investor, and the Planned Allottee offered to conduct the Capital
Increase through Third-Party Allotment. Accordingly, NDK resolved to issue
the Class A Shares, which would restrain an extensive and marked dilution andwould not cause an immediate change in the shareholder composition, to the
Planned Allottee through the third-party allotment. In so resolving, NDK took
into consideration the potential impact that conducting a capital increase
through third-party allotment of common shares would have on stable business
operations and the stock price of NDK. NDK reached a conclusion that
conducting the Capital Increase through Third-Party Allotment would be the6best possible approach for NDK at present time to improve its financial
position promptly and reliably and to establish a competitive production
system.
If the Class A Shares are allotted to the Planned Allottee through the Capital
Increase through Third-Party Allotment, on the assumption that the rights torequest acquisition in exchange for common shares are exercised regarding allof the Class A Shares, the number of voting rights related to NDK’s commonshares to be distributed will be 192,837 units, and the ratio to the total numberof 195,949 voting rights related to NDK’s issued common shares based on theshareholders’ register as of March 31, 2020 will be approximately 98.4%. As
such, dilution of NDK’s common shares would potentially occur to a certain
extent by the Capital Increase through Third-Party Allotment. However, thenumber of shares of common stock to be issued upon the exercise of the rightto acquire common stock as consideration is fixed from the outset, and thepotential dilution rate will not increase depending on future share price trends
and the timing of exercise, and, as described in (3) (ii) below, it has been
agreed in the Subscription Agreement that unless the Conversion Restriction
Removal Event (defined in (3) (ii) below) occurs, the Planned Allottee will not
exercise the right to request acquisition in exchange for common shares until
June 30, 2023 (inclusive), thereby avoiding early dilution of common sharesand securing time to enhance corporate value through realization of the resultsof various measures, and, as described in (3) (iii) below, the Class A Shares areattached with call options for money that NDK is entitled to exercise at any
time on or after August 1, 2020, and this scheme is designed in such a way thatallows NDK to control the dilution caused by the exercise of the right torequest acquisition in exchange for common shares to a certain extent bycarrying out a mandatory redemption of the Class A Shares based on its own
judgment. NDK has implemented measures to lessen the potential impact ofdilution on the existing shareholders; therefore, in light of the fact that the
Capital Increase through Third-Party Allotment contributes to the enhancementof NDK’s corporate value, NDK believes that the extent of the dilution by the
Capital Increase through Third-Party Allotment, which may affect the existing
shareholders, will be within a reasonable amount.
(3) Overview of the Class A Shares(i) Dividends of Surplus
There is no provisions with respect to the Class A Shares regarding
so-called the preferred dividends. The Class A shareholders are entitled toreceive dividends in cash per Class A Share, pari passu with commonshareholders, equivalent to the amount obtained by multiplying (i) the amountof the dividends per a common share by (ii) the amount obtained by dividing(a) the amount obtained by multiplying the Amount Equivalent to Paid-in
Amount of the Class A Shares by 1.40 by (b) the acquisition price.
(ii) Right to Request Acquisition in Exchange for Common Shares
The rights to request acquisition in exchange for common shares are7

attached to the Class A Shares. Although the Terms and Conditions of the ClassA Shares allow the Class A Shareholders to request that NDK, at any time on
and after August 1, 2020, acquire all or part of the Class A Shares with
common shares of NDK as consideration, the Planned Allottee is entitled toexercise the right to request acquisition in exchange for common shares only
on or after July 1, 2023 in accordance with the provision of the Subscription
Agreement. However, in case of occurrence of an event outlined below (the“Conversion Restriction Removal Event”), the Planned Allottee is entitled toexercise the right to request acquisition in exchange for common shares of
NDK even before July 1, 2023.
(1) If indebtedness of NDK under the loan agreement, etc. executed by NDK
is accelerated (except the case where the creditors agree to maintain theoutstanding balance of loans or suspension with respect to the relevantloan agreement, etc.);(2) If there is breach (limited to material breach) of any of the obligations or
representations and warranties under the Subscription Agreement;(3) If NDK does not file an annual securities report or quarterly reportpursuant to the Financial Instruments and Exchange Act by the statutory
deadline;(4) If the total amount of the net asset of NDK on the non-consolidatedbalance sheet as of the year end for each fiscal year ending on or after
March 31, 2021 falls below certain amount; and(5) If the amount of EBITDA of NDK for each fiscal year ending on or after
March 31, 2022 calculated based on the following formula (“EBITDA”)
falls under certain standard.
(Formula of EBITDA)
Gross profit - Selling, general and administrative expenses - Researchand development expenses + Depreciation and amortization (total of the
figures recorded in cost of sales, selling, general and administrative
expenses, and research and development expenses)+ Impairment losses(total of the figures recorded in cost of sales, selling, general andadministrative expenses,) (all of them are consolidated basis)
The number of common shares to be delivered when the rights to request
acquisition in exchange for common shares attached to the Class A Shares are
exercised will be the number obtained by multiplying the amount obtained bymultiplying the Amount Equivalent to Paid-in Amount per Class A Share by
1.40 by the number of the Class A Shares subject to the exercise request, anddividing that product by the acquisition price. The acquisition price is 363 yen(the “Initial Acquisition Price”) and the acquisition price will not be amended.
The Initial Acquisition Price is the amount obtained by multiplying the averagevalue of the Volume Weighted Average Price (the “VWAP”) in ordinary tradingof the common shares of NDK, published by the Tokyo Stock Exchange, Inc.
(the “TSE”), over 30 consecutive trading days prior to today by 90%.
(iii) Call Option for Money
Any time on or after August 1, 2020 upon coming of the date determined8

separately by NDK’s Board of Directors (the “Date of Redemption for
Money”), NDK may acquire all or part of Class A Shares (in the case of apartial acquisition, limited to the case in which the number of shares to beacquired will be the whole-number multiple of 1,000 shares) in exchange for amoney consideration to the extent permitted by laws and regulations by giving awritten notice (which shall be irrevocable) to the Class A Shareholders at least
10 days in advance of the Date of Redemption for Money (the date on whichsuch written notice has been conducted shall be hereinafter referred to as the“Notice Date”).
The amount of money to be delivered when the call options for money
attached to the Class A shares are exercised will be the amount calculated bymultiplying (i) the amount obtained by multiplying the Amount Equivalent toPaid-in Amount per Class A Share by the following redemption factors by (ii)the number of the Class A Shares in respect of the Redemption for Money(provided, however, if the Date of Redemption for Money is after July 1, 2023,(i) the aforementioned amount or (ii) the amount obtained by multiplying (a)the total amount of common shares distributed in exchange for the acquisitionof the relevant Class A Shares calculated by deeming that the Request for
Acquisition in Exchange for Common Shares is conducted as of the notice datewith respect to the Class A Shares in respect of the relevant Redemption for
Money by (b) the closing price of common shares of NDK at the TSE on thedate prior to the notice date, whichever the higher).
Until June 30, 2021
: 1.13
From July 1, 2021 to June 30, 2022
: 1.25
From July 1, 2022 to June 30, 2023
: 1.38From July 1, 2023 to June 30, 2024
: 1.52
From July 1, 2024 to June 30, 2025
: 1.68From July 1, 2025 onward: 1.85(vi) Voting Rights and Restrictions on Transfer
Unless otherwise specified, no voting rights at general meetings ofshareholders shall be attached to the Class A Shares.
Although there are no restrictions on transfer of the Class A Shares,
pursuant to the Subscription Agreement, unless the event summarized below(the “Transfer Restriction Removal Event”) occurs or unless approved by the
Board of Directors of NDK, the Planned Allottee may not transfer the Class A
Shares to a third party during the period until June 30, 2023 (inclusive).
(1) If indebtedness of NDK under the loan agreement, etc. executed by NDK
is accelerated (except the case where the creditors agree to maintain theoutstanding balance of loans or agree on suspension with respect to therelevant loan agreement, etc.);(2) If there is breach (limited to material breach) of any of the obligations or
representations and warranties under the Subscription Agreement;(3) If NDK does not file an annual securities report or quarterly reportpursuant to the Financial Instruments and Exchange Act by the statutory
deadline;(4) If the total amount of the net asset of NDK on the non-consolidated

9

(5)

balance sheet as of the year end for each fiscal year ending on or after
March 2021 falls below certain amount; andIf the amount of EBITDA of NDK for each fiscal year ending on or after
March 31, 2022 falls under certain standard.

For details of the Class A Shares, please see the Appendix I “Terms andConditions of Class A Shares.”3.

Amounts, Usage and Scheduled Timing of Use of the Funds to be Procured(1) Amounts of funds to be procured(i) Total amount to be paid in
5,000,000,000 yen(ii) Estimated issuance expenses
100,000,000 yen(iii) Estimated retained balance
4,900,000,000 yen* The “Estimated issuance expenses” is the amount equivalent to registrationand license tax, legal fees and financial advisory fees.
(2) Specific usage of funds to be procured
Specific usage
(i)

(ii)

Investment for renovations, increases
in production and replacement of
manufacturing facilities inside andoutside Japan
Investment related to researchdevelopment and technology(iii) Other investments for maintaining
existing manufacturing system(iv) Investment for construction of the
new Suzhou plant

AmountScheduled timing(million yen)of use3,350 October 2020
through September
2023
360 October 2020
through September
2023
1,060 October 2020
through September
2023
130 October 2020
through March 2021

As described in “2. Purpose and Reason for Offering, (1) Background toand purpose of offering” above, the proceeds from the Capital Increase through
Third-Party Allotment will be allocated to the capital expenditure above inorder to establish the competitive manufacturing system. Specifically, withrespect to “(i) investments for renovations, increases in production andreplacement of manufacturing facilities inside and outside Japan”, for the main
purpose of realizing “(B) Improving productivity in the down-stream process”
which is one of the most important measures in the Mid-Term Management
Plan above, NDK will allocate 3,350 million yen to the adoption of amanufacturing system that includes a high speed line for automotive, mobile
communication and industrial equipment. Next, with respect to “(ii)investments related to research development and technology”, NDK will
mainly implement investments for research and development regarding
photolithography processing actively, as a specific measures of “(A) Selective

10

injection of resources in the upstream process, where NDK has competitive
advantages” which is another most important measure in the Mid-Term
Management Plan and allocate 360 million yen thereto. In addition, as “(iii)
other investments for maintaining existing manufacturing system”, NDK will
allocate 1,060 million yen to the maintenance of production systems for the
optical products and ultrasonic devices and to the information system-related
investments and NDK will allocate 130 million yen to “(iv) investments for theconstruction of the new Suzhou plant” as announced in the “Decision on
Factory Relocation Related to Chinese Subsidiary and Posting of Other
Operating Income” dated March 25, 2019. In addition, NDK aims to improve
its financial position promptly and reliably and to establish a competitive
production system by conducting the Capital Increase through Third-Party
Allotment and the measures above.
Although the funds will be managed in a dedicated bank account until they
are actually to be disbursed, from the perspective of effective use of cash
reserves the funds may, with the prior approval of the Planned Allottee, be
temporarily used as working capital.
4.

Views on the Reasonableness of the Usage of Funds
NDK will allocate the funds to be procured by the Capital Increase through
Third-Party Allotment mainly for the funds for the capital expenditure forrenovations, increases in production and replacement of manufacturing facilities
inside and outside Japan in order to establish a cost-competitive manufacturingsystem (for specific details, please see “3. (2) Specific usage of funds to be procured”
above) in order to obtain the mid-to long-term business opportunities of NDK. At thesame time, NDK will work to increase equity capital and strengthen the financialbase, with the aim to achieve stable and long-term growth of NDK’s business by
establishing framework for maintaining and improving the flexibility of fundprocurement, conducting continuous and stable transactions with financial
institutions, and reducing the financial costs as well as by increasing cash reserves.
Thus, the implementation of the Capital Increase through Third-Party Allotment
will contribute to further enhance NDK’s corporate value. Therefore, NDK believes
that the usage of funds as indicated above is reasonable.
5.

Reasonableness of the Terms and Conditions, etc. of Issuance(1) Calculation grounds for amount to be paid in and the content of calculation
In order to realize the fund procurement on terms most favorable to NDK,
after April 2020, taking into account matters such as NDK’s current severe
management environment and financial position, NDK’s need to raise a large
amount of capital funds and NDK’s current share price, NDK sincerely
consulted with the Planned Allottee and negotiated the methods and details of
the investment related to the Capital Increase through Third-Party Allotment.
Particularly, in light of the merchantability of the Class A Shares with the rightto request acquisition in exchange for common shares, as a result of the sincere
negotiation regarding the Subscription Agreement, which includes the specificcontents of the Conversion Restriction Removal Event in order to mitigate the11impact on the existing shareholders, NDK and the Planned Allottee agreed oncontents in the middle of June 2020 that they determined are reasonable andtherefore, the amount to be paid in per Class A Share was determined to be
1,000,000 yen. NDK believes that such amount to be paid in per Class A Shareis reasonable taking into account comprehensively the facts such as that the
Planned Allottee will bear substantial risk in the Capital Increase through
Third-Party Allotment in light of the merchantability of the Class A Shares, aswell as the above-mentioned background of negotiations and the situation
surrounding NDK.
However, as there are various views regarding the valuation of class shares,
NDK requested that PLUTUS CONSULTING Co., Ltd. (address: 2-5,
Kasumigaseki 3-chome, Chiyoda-ku, Tokyo; representative: Mahito Noguchi,
Representative Director) (“PLUTUS”), which is a third-party evaluation organ
independent of NDK, analyze the value of the Class A Shares, and obtained avaluation report for the Class A Shares (the “Valuation Report”) from PLUTUS.
In reference to certain assumptions concerning NDK’s actions (the exercise of
the call option for money until the expected maturity date, or other actions) andcertain assumptions concerning the Planned Allottee’s actions (the choice as towhether to exercise the right to request acquisition in exchange for commonshares or not if NDK exercises the call option, or other actions), based on theterms and conditions attached to the Class A Shares and certain assumptions(the NDK’s common share value, the period until the expected maturity date(June 30, 2026), i.e., approximately 6 years, volatility, the call option, the rightto request acquisition, etc.), PLUTUS has calculated the fair value of the ClassA Shares using the Monte Carlo Simulation, which is a general valuation
model for share options. The Valuation Report states that the price per Class A
Share is approximately 1,360,000 yen.
As described above, NDK believes that the amount to be paid in for theClass A Shares is reasonable. However, in light of the above valuation resultsin the Valuation Report of PLUTUS, NDK must determine that the amount tobe paid in for the Class A Shares (1,000,000 yen per share) is particularly
favorable for the Planned Allottee under the Companies Act. Therefore, NDK
decided to issue the Class A Shares on the condition that approval by a special
resolution of the general meeting of shareholders regarding an issuance ofshares with particularly favorable conditions be obtained, pursuant to Article
199, Paragraph 2 of the Companies Act, at the Ordinary General Meeting of
Shareholders.
(2) Grounds on which NDK determined that the number of shares to be issued
and the size of the share dilution are reasonable
NDK is financing a total of 5,000,000,000 yen by issuing 5,000 shares of
the Class A Shares. Considering the aforementioned purpose of issuing theClass A Shares and the usage of funds, NDK has determined that the number of
the Class A Shares to be issued is reasonable.
Although the Class A Shares do not carry voting rights at general meetingsof shareholders, existing shareholders may be affected by the impact of dilution
due to exercise of the right to request acquisition in exchange for common

12

shares, which is attached to the Class A Shares.
If the Class A Shares are allotted to the Planned Allottee through the Capital
Increase through Third-Party Allotment, assuming that the right to request
acquisition in exchange for common shares are exercised regarding all of theClass A Shares, the ratio to the total number of 195,949 voting rights related to
NDK’s issued common shares based on the shareholders’ register as of March
31, 2020 will be approximately 98.4%.
Although dilution of NDK’s common shares would occur if the commonshares of NDK are distributed by exercising the right to request acquisition in
exchange for common shares, which is attached to the Class A Shares, as
described above, in addition to the scheme, as described in 2. (2) above, which
the number of common shares distributed by exercising the right to request
acquisition in exchange for common shares is initially fixed and potential
dilution ratio will not increase according to the future stock price trend or
timing of exercise, as described in 2. (3) (ii) above, it has been agreed in the
Subscription Agreement that unless the Conversion Restriction Removal Eventoccurs, the Planned Allottee will not exercise the right to request acquisition in
exchange for common shares until June 30, 2023, thereby avoiding early
dilution of common shares and securing time to enhance corporate value
through realization of various measures and the Class A Shares are attachedwith call options for money that the Company is entitled to exercise at any timeon or after August 1, 2020. Considering these, this scheme is designed in sucha way that allows the Company to control the dilution caused by the exercise of
the right to request acquisition in exchange for common shares to a certain
extent by carrying out a mandatory redemption of the Class A Shares based on
its own judgment. As shown by the above, in consideration that NDK
implemented measures to lessen the potential impact of dilution on the existing
shareholders and the Third Party Allotment contributes to improvement ofcorporate value of NDK, NDK believes that the extent of the dilution by the
Capital Increase through Third-Party Allotment, which may affect the existing
shareholders, will be within a reasonable amount.
6.

Reasons, etc. for Selecting the Planned Allottee(1) Outline of the Planned Allottee(1) Name
Japan Industrial Solutions Fund II(2) Location
2-2-2 Marunouchi, Chiyoda-ku, Tokyo(3)

Grounds, etc. forincorporation

Limited Partnership Act for Investment(4)

Purpose of formation

Acquisition, etc. of securities(5)

Partnership formation
date

October 27, 2016

(6)

Total
amountinvestmentof 105 billion yen

13

Development Bank of Japan Inc.
limited Mizuho Bank, Ltd.
(7)
Sumitomo Mitsui Banking Corporation
MUFG Bank, Ltd.
Name
Japan Industrial Solutions Co., Ltd.
Location
2-2-2 Marunouchi, Chiyoda-ku, Tokyo
Overview of operating Name andtitle
ofpartner(8) (Mugen Sekinin Kumiaiin) representati Yuichi Hiromoto, President & CEO
ve(General Partner)
Description
Investment businesses etc.
of business
Capital100,000,000 yen
stock
Relationshi
p between No direct or indirect contribution has been madeNDK and to the said fund by NDK, parties concerned
thesaid with NDK, or companies of NDK.
Relationships of NDK fund(9) with the said fund and the Relationshi
p between There are no capital, personal, or transactional
operating partner
NDK andrelationships to be stated between NDK and thethesaid company.
operatingpartner*1 Overview of limited liability partners describes the major limited liability
partners. Capital contribution ratio of the limited liability partners is not shown as
it is not disclosed by the Planned Allottee.
*2 In the Subscription Agreement, the Planned Allottee has made representations andwarranties to the effect that the Planned Allottee and its unlimited liability
partners have no relationships whatsoever with antisocial forces, and at the sametime NDK obtained oral confirmation by the Planned Allottee that its limited
liability partners do not fall under the antisocial forces. In addition, NDK has
determined that, through the confirmation of the corporate history, officers, major
shareholders and the status of establishment of the internal control system, etc.
described in the annual securities report of each major limited liability partner of
the Planned Allottee and through interviews of operating partners of the Planned
Allottee, the Planned Allottee and its major limited liability partners have no
relationships whatsoever with antisocial forces, and submitted a confirmation
letter to that effect to the TSE.
Overview
ofliability partners(2) Reason for selecting the Planned Allottee
With respect to the reason for selecting the Planned Allottee, please see “2.
Purpose and Reason for Offering”
NDK has agreed between the Planned Allotee with respect to thecontributions to NDK and other certain matters in the Subscription Agreement,
and the outline thereof is as follows.
(i) Matters NDK must comply with
14

NDK has made the following covenants to the Planned Allottee:
If NDK decides or conduct a certain matters (including organizational
restructuring), NDK shall require prior written consent by the Planned
Allottee (provided, however, the Planned Allottee may not unreasonably
refuse such consent and shall notify whether or not it accept the relevant
matter within a certain period) and shall preliminarily report to that effectin writing to the Planned Allottee;(2) For the period three (3) to six (6) months after the payment date, NDK
shall formulate the action plan to be performed by the Group (including
the measures regarding the management of cash flow; the “Action Plan”)
upon consultation and agreement with the Planned Allottee; shall use its
best effort to implement the mid-term management plan and the Action
Plan; shall establish and hold the monitoring meeting regarding theimplementation status of the mid-term management plan and the Action
Plan; and shall report the summary of the results of the said meeting to
the Board of Directors of NDK;
(3) NDK shall employ a person appropriately perform the Group Risk
Governance Enhancement Project and appoint such person to a position
agreed with the Planned Allottee;(4) NDK shall use reasonable efforts to have an agenda to elect one (1)person designated by the Planned Allottee as the director of NDK
approved at each NDK’s general meetings of shareholders, the agenda ofwhich includes the appointment of directors, and shall permit a person
designated by the Planned Allottee to attend at the monitoring meetings,
the executive boards and other meetings of NDK; and(5) NDK shall manage the funds paid by the Planned Allottee though theThird-Party Allotment in the separate bank account and report the resultof cash flow to the Planned Allottee at the request of the Planned
Allottee.
(1)(ii) Restrictions on exercising the right to request acquisition in exchange forcommon shares
The Planned Allottee is not entitled to exercise the right to request
acquisition in exchange for common shares attached to the Class A shares fromthe payment date until June 30, 2023 (inclusive), unless the Conversion
Restriction Removal Event occurs.
(iii) Restriction on transfer
Under the Subscription Agreement, unless the Transfer Restriction Removal
Event occurs or unless approved by the Board of Directors of NDK, thePlanned Allottee may not transfer the Class A Shares to a third party during theperiod until June 30, 2023 (inclusive).
(iv) Conditions precedent to the payment obligation
The conditions precedent for the Planned Allottee’s obligation to pay for theClass A Shares are as follows:(1) All agenda necessary for the Capital Increase through Third-Party
15

(2)
(3)

(4)

(5)
(6)
(7)

(8)

Allotment including the Amendments to the Articles of Incorporation, theReduction of the Amount of Capital Stock, etc., and the Election of
Outside Director are approved at the Ordinary General Meeting of
Shareholders.
No material event of default, etc. occurs or is likely to occur with respect
to the material agreement to be executed by the Group.
NDK duly and validly files the securities report for the fiscal year ended
March 31, 2020 under the Financial Instruments and Exchange Act(except the case where legal submission deadline has not arrived).
NDK duly and validly files the extraordinary report on the Capital
Increase through Third-Party Allotment under the Financial Instruments
and Exchange Act.
If NDK changes the Mid-Term Management Plan, the consent by the
Planned Allottee on such changes is obtained.
NDK obtains necessary consent or provides necessary reports withrespect to agreements requiring consent or agreements requiring report.
NDK and the counterparty financial institutions agree on the existing
loan agreement, etc. with the contents reasonably satisfactory to the
Planned Allottee and the Planned Allottee reasonably confirms that cash
flow of the Group after the Capital Increase through Third-Party
Allotment will be stable.
After the execution of the Subscription Agreement, no such event occurs
nor is reasonably expected to occur or to be discovered, which gives
material adverse effect to the financial condition, operating results, cash
flow, business, asset, debt or profit plan or the prospect thereof of theGroup.

(3) Planned Allottee’s policies for holding shares
NDK has received an explanation from the Planned Allottee that they plan
to hold the Class A Shares over a medium term in principle.
The Planned Allottee is not entitled to exercise the rights to request
acquisition in exchange for common shares attached to the Class A shares until
June 30, 2023 (inclusive), unless the Conversion Restriction Removal Eventoccurs.
Although there are no restrictions on transfer of the Class A Shares,
pursuant to the Subscription Agreement, unless the Transfer Restriction
Removal Event occurs or unless approved by the Board of Directors of NDK,
the Planned Allottee may not transfer the Class A Shares to a third party during
the period until June 30, 2023 (inclusive).
NDK plans to obtain written confirmations from the Planned Allottee by thepayment date, to the effect that the Planned Allottee will agree that in the event
the Planned Allottee transfer all or part of the Class A Shares, which are shares
to be allotted, within two (2) years from the payment date, the Planned Allottee
will report in writing the details of the said transfer, such as the name andaddress of the transferee, the number of transferred shares, the transfer date, thetransfer price, the reason for transfer, and the method of transfer, to NDK
without delay, and that NDK reports the said contents of the report to the TSE

16and that the said details of the report will be made publicly available.
(4) Contents of confirmation with the Planned Allottee regarding funds required
for the payment
NDK obtained a report that the Planned Allottee would be able to complete
the preparation of funds required for the payment by the payment date. In
addition, NDK judged that the Planned Allottee would be able to securesufficient funds for the subscription to the shares to be allotted by the payment
date, upon checking financial reports of each limited liability partner of the
Planned Allottee.
7.

Major Shareholders after the Offering and Their Shareholding Ratios(1) Common shares
After the Capital
Before the Capital Increase through Third-Party Allotment
Increase through(as of March 31, 2020)
Third-Party
Allotment
Resona Bank, Limited.
3.21%
Toshiaki Takeuchi
3.00%
Saitama Resona Bank, Limited
2.93%
Marusan Securities Co., Ltd.
2.82%
Japan Trustee Services Bank, Ltd (Trust account)
2.70%
Hiroshi Takeuchi
2.54% Same as on the left.
The Master Trust Bank of Japan, Ltd. (Trust account)
2.34%
INTERNATIONAL CORE EQUITY PORTFOLIO
1.76%
DFA INVESTMENT DIMENSIONS GROUP INC
Japan Trustee Services Bank, Ltd (Trust account 5)
1.75%
J．P．MORGAN SECURITIES PLC
1.55%*1 Shareholding ratios in the table above are rounded down to the second decimal
place using the figures on the shareholders’ register as of March 31, 2020. There
are 1,133 thousand shares of treasury stock held by NDK, while they are notdescribed in the above table.
*2 The number of common shares to be distributed by exercising the right to request
acquisition in exchange for common shares, which is attached to the Class A
Shares (the number of dilutive shares of the Class A Shares) is not included in thecalculation of the major shareholders and their shareholding ratios of the commonshares after the Capital Increase through Third-Party Allotment, as it is difficult toreasonably estimate that number at this stage.
(2) Class A Shares
Before the Capital Increase through
Third-Party Allotment(as of June 19, 2020)

After the Capital Increase through
Third-Party Allotment

17

Japan Industrial Solutions
Fund II

Not applicable100%

8. Future Prospects
Although the funds to be raised as a result of the Capital Increase through
Third-Party Allotment will be used for the capital expenditure of NDK, the specificimpact on the performance of NDK is currently examining. Once the actual amountof the impact on the performance becomes clear, NDK will promptly disclose suchinformation.
9. Procedures for Corporate Code of Conduct
The Capital Increase through Third-Party Allotment will result in the dilution rateof 25% or more. Consequently, NDK plans to obtain an approval by a special
resolution at the Ordinary General Meeting of Shareholders as procedures forconfirming the intent of shareholders as provided for in Article 432 of the Securities
Listing Regulations set forth by the TSE.
10. Operating Results for and Status of Equity Finance Executed in the Past Three
Years(1) Operating results (consolidated) for the past three years
Fiscal year ended
Fiscal year ended
Fiscal year ended
March 31, 2018
March 31, 2019
March 31, 2020
Net sales
43,952 million yen
42,498 million yen
39,468 million yen
Operating(9,618) million yen
406 million yen(8,286) million yen
incomeIncome before(9,640) million yen(56) million yen(8,644) million yen
income tax
Net income(10,202) million yen(251) million yen(8,709) million yen
for the period
Net income
attributable to(10,202) million yen(251) million yen(8,709) million yen
owners of theparentNet
comprehensive
income for theperiod(9,732) million yen(460) million yen (9,376) million yen
attributable toowners of theparentBasic earnings
per share
attributable to(519.87) yen(12.80) yen(443.79) yen
owners of theparentDividend per
10.00 yen
0.00 yen
0.00 yenshare
18

Equity per
share
attributable toowners of theparent

769.84 yen

750.37 yen

272.59 yen(2) Current number of issued shares and dilutive shares (as of June 19, 2020)
Ratio to total number
Number of sharesof issued shares
Number of issued shares
20,757,905 shares
100%
Number of dilutive shares at thecurrent conversion price (exercise
price)
Number of dilutive shares atminimum conversion price (exercise
price)
Number of dilutive shares at
maximum
conversion
price(exercise price)(3) Recent share prices(i) Share prices for the past three years
Fiscal year ended
Fiscal year ended
Fiscal year ended
March 31, 2018
March 31, 2019
March 31, 2020
Opening
817 yen
665 yen
401 yenHigh
985 yen
707 yen
674 yenLow
607 yen319 yen
279 yen
Closing
666 yen
396 yen
339 yen(ii) Share prices for the past six months
DecemberJanuary
February
March
April
May
2019
2020
Opening
645 yen
523 yen473 yen
387 yen
335 yen410 yenHigh
674 yen
597 yen
526 yen
440 yen
408 yen443 yenLow
501 yen
477 yen
394 yen
279 yen
325 yen
384 yen
Closing
529 yen
497 yen
397 yen
339 yen
399 yen
416 yen(iii) Share price on the business day immediately preceding the date ofresolution authorizing the issuance
June 18, 2020
Opening
394 yenHigh
394 yenLow
379 yen
Closing
382 yen(4) Equity finance executed in the past three years
Not applicable.

1911. Terms and Conditions of Issuance
Please see Appendix I “Terms and Conditions of Class A Shares.”12. Schedule for Issuance of the Class Shares A(1) Resolution of the Board of
Directors and the execution of the June 19, 2020
Subscription Agreement(2) Resolution at the Ordinary
July 31, 2020 (scheduled)
General Meeting of Shareholders(3) Payment period
From August 1, 2020 through September
30, 2020 (scheduled)(Note)With respect to the Capital Increase
through Third-Party Allotment, it was
resolved that the payment period under theCompanies Act shall be from August 1,
2020 to September 30, 2020. The
resolution for such payment period wasmade because, regarding the satisfactionof a part of the conditions precedent forthe payment obligation of the Planned
Allottee related to the Class A Shares as
set forth in the Subscription Agreement,
the timing cannot be confirmed. In
addition, NDK and the Planned Allottee
are in agreement that, in principle, thepayment will be made on the date on
which three (3) business days elapse after
the date on which all of the conditions
precedent are satisfied or waived or on adate (which is limited to a date during thepayment period).

20

II. Cover of Deficit
1.

Purpose of the Cover of Deficit
The amounts of capital stock and legal capital surplus and appropriation of
surplus will be conducted in order to cover such deficit and coordinate the system
to be able to early provide the resumption of dividends.

2.

Detail of the Reduction of the Amount of Capital Stock and Legal Capital
Surplus
After implementing the reduction of the amounts of capital stock and legal
capital surplus in accordance with the provisions of Article 447, Paragraph 1 andArticle 448, Paragraph 1 of the Companies Act, NDK will transfer the reduced
amounts of capital stock and legal capital surplus reduced to other capital surplus.
(1) Amount of capital stock to be reduced
The 10,649,469,744 yen of capital stock is to be reduced to 5,596,291,657 yen
by 5,053,178,087 yen(2) Item and amount of capital surplus to be reduced
Legal capital surplus
The 2,504,760,057 yen of legal capital surplus is to be reduced to 0 yen by
2,504,760,057 yen(3) Item and amount of surplus to be increased
Other capital surplus
7,557,938,144 yen

3.

Detail of the Appropriation of Surplus
After transferring other capital surplus to retained earnings brought forward inaccordance with the provisions of Article 452 of the Companies Act, NDK will
cover a deficit.
(1) Item and amount of surplus to be reduced
Other capital surplus
7,538,730,814 yen(2) Item and amount of surplus to be increased
Retained earnings brought forward
7,538,730,814 yen

4.

Schedule for the Cover of Deficit(1) Resolution of the Board of
Directors(2) Public notice with respect tostatements of objection by
creditors(3) Final deadline for statementsof objection by creditors(4) Date of the resolution at the21

June 19, 2020
June 25, 2020 (scheduled)
July 25, 2020 (scheduled)
July 31, 2020 (scheduled)Ordinary General Meeting of
Shareholders(5) Effective dateJuly 31, 2020 (scheduled)5.

Future Prospects
The Cover of Deficit is a process of transferring to the accounts in the “netassets section” and will not change the amount of profit or loss and net assets of
NDK, and there will be no impact on the operating results.

22III. Partial Amendments to the Articles of Incorporation
1.

Reasons for Amendments to the Articles of Incorporation
In order to allow the Class A Shares to be issued, we will create the Class A
Shares as a new class of shares of NDK and establish new provisions regarding
the Class A Shares in the Articles of Incorporation. The Articles of Incorporation
will increase the total number of authorized common shares and the class sharesin preparation for the issuance of common shares by exercising the right torequest acquisition in exchange for common shares, which is attached to the ClassA Shares.
The Amendments to the Articles of Incorporation is subject to the conditions
that necessary approval of the following proposals is obtained at the Ordinary
General Meeting of Shareholders: (i) the Cover of Deficit (ii) the Capital Increase
through Third-Party Allotment, (iii) the Reduction of the Amount of Capital Stock,etc. and (iv) the Election of Outside Director.

2.

Contents of Amendments to the Articles of Incorporation
The contents of amendments to the Articles of Incorporation are as described inAppendix II “Contents of Amendments to the Articles of Incorporation.”3.

Schedule for Amendments to the Articles of Incorporation(1) Resolution of the Board of June 19, 2020
Directors(2) Resolution at the Ordinary July 31, 2020 (scheduled)
General Meeting of Shareholders(3) Effective dateJuly 31, 2020 (scheduled)23

IV. The Reduction of the Amount of Capital Stock, etc.
1.

Purpose of the Reduction of the Amount of Capital Stock, etc.
In order to establish a healthy financial position early and prepare for an agile
and flexible capital policy in the future, NDK decided on the Reduction of theAmount of Capital Stock, etc. in conjunction with the issuance of the Class A
Shares and to transfer the amount to other capital surplus which constitutes the
distributable amount.
The Reduction of the Amount of Capital Stock, etc. is subject to the conditions
that the payment with respect to the Capital Increase through Third-Party
Allotment is made, and that necessary approval of the following proposals is
obtained at the Ordinary General Meeting of Shareholders: (i) the Cover of Deficit,(ii) the Amendments to the Articles of Incorporation, (iii) the Capital Increase
through Third-Party Allotment and (iv) the Election of Outside Director.

2.

Detail of the Reduction of the Amount of Capital Stock-, etc.
After implementing the reduction of the amounts of capital stock and legal
capital surplus in accordance with the provisions of Article 447, Paragraph 1 andArticle 448, Paragraph 1 of the Companies Act, NDK will transfer the reduced
amounts of capital stock and legal capital surplus reduced to other capital surplus.
(1) Amount of capital stock to be reduced
The 8,096,291,657 yen of capital stock after the Cover of Deficit and theCapital Increase through Third-Party Allotment is to be reduced to
5,596,291,657 yen by 2,500,000,000 yen(2) Item and amount of capital surplus to be reduced
Legal capital surplus
The 2,500,000,000 yen of capital stock after the Cover of Deficit and theCapital Increase through Third-Party Allotment is to be reduced to 0 yen by
2,500,000,000 yen(3) Item and amount of surplus to be increased
Other capital surplus
5,000,000,000 yen

3.

Schedule for the Reduction of the Amount of Capital Stock, etc.
(1) Resolution of the Board ofJune 19, 2020
Directors(2) Public notice with respect tostatements of objection by June 25, 2020 (scheduled)creditors(3) Final deadline for statementsofobjectionbycreditors July 25, 2020 (scheduled)(planned)(4) Date of the resolution at theOrdinary General Meeting of July 31, 2020 (scheduled)
Shareholders

24

(4) Effective date
4.

October 1, 2020 (scheduled)

Future Prospects
The Reduction of the Amount of Capital Stock, etc. is a process of transferringto the accounts in the “net assets section” and will not change the amount of profit
or loss and net assets of NDK, and there will be no impact on the operating
results.

End
This translation is provided only to assist our English-speaking stakeholders in better understandingof our original press release. Since this might include slight variation in meaning due to translation,please refer to the original linked to: https://twitter.com/usedhonda.

25

Appendix I
Terms and Conditions of Class A Shares
1. Name of Shares
Nihon Dempa Kogyo Co., Ltd. Class A Shares (the “Class A Shares”)
2. Number of Shares Offered for Subscription
5,000 shares
3. Amount to be Paid in for Shares Offered for Subscription
1,000,000 yen per share
4. Capital Stock and Legal Capital Surplus to be Increased
Capital Stock
2,500,000,000 yen (500,000 yen per share)
Legal Capital Surplus 2,500,000,000 yen (500,000 yen per share)
5. Total Amount to be Paid in
5,000,000,000 yen
6. Payment Period
From August 1, 2020 to September 30, 2020
7. Method of IssuanceThrough third-party allotment, all of the Class A Shares will be allotted to Japan
Industrial Solutions Fund II.
8. Dividends of Surplus
If NDK is to distribute dividends out of surplus to the holders of the commonshares (the “Common Shareholders”) or the registered pledgees of thecommon shares (together with the Common Shareholders, the “Common
Shareholders/Pledgees”), NDK shall make pecuniary distribution to theholders of the Class A Shares (the “Class A Shareholders”) or the registeredpledgees of the Class A Shares (together with the Class A Shareholders, the“Class A Shareholders/Pledgees”) entered or recorded in the latest
shareholders’ register as at the record date for the distribution of the relevant
dividends (the “Dividend Record Date”) in the amount per Class A Share, paripassu with common shareholders, equivalent to the amount obtained bymultiplying (i) the amount of the dividends per a common share by (ii) theamount obtained by dividing (a) the amount obtained by multiplying
1,000,000 yen (the “Amount Equivalent to Paid-in Amount per Class A
Share”) by 1.40 by (b) the acquisition price as set forth in 11. (3) and (4) below
as of the Dividend Record Date (the “Class A Dividend Amount”). If theamount obtained by multiplying the Class A Dividend Amount by the numberof Class A Shares to which each Class A Shareholder/Pledgee is entitledincludes any fraction less than one (1) yen, such fraction shall be rounded
down.
9. Distribution of Residual Assets(1) Distribution of Residual Assets
If NDK distributes its residual assets, NDK shall pay to each Class A
Shareholder/Pledgee the amount per Class A Share obtained by multiplying theAmount Equivalent to Paid-in Amount per Class A Share by the Redemption

26

Factor as set forth in 12. below per Class A Share (the “Class A Residual
Assets Distribution Amount”) in cash prior to the Common
Shareholders/Pledgees. In addition, in this 9., the Redemption Factor is to be
calculated by replacing the “Date of Redemption for Money” in the calculationof the Redemption Factor with the “Residual Assets Distribution Date.” If theamount obtained by multiplying the Class A Residual Assets Distribution
Amount by the number of the Class A Shares to which each Class A
Shareholder/Pledgee is entitled includes any fraction less than one (1) yen,such fraction shall be rounded down.
(2) Non-participation Clause
NDK shall not make distribution of residual assets to the Class A
Shareholders/Pledgees other than as provided for in (1) above.
10. Voting Rights
Unless otherwise provided for by law, the Class A Shareholders shall not be
entitled to vote at general meetings of shareholders.
11. Right to Request Acquisition in Exchange for Common Shares(1) Right to Request Acquisition in Exchange for Common Shares
On or after August 1, 2020, each Class A Shareholder may at any time request
NDK to acquire, in exchange for the delivery of such number of commonshares as specified in (2) below (the “Common Shares subject to Request”), allor part of the Class A Shares held by that Class A Shareholder (the “Request
for Acquisition in Exchange for Common Shares”), and NDK shall deliver the
Common Shares subject to Request to the relevant Class A Shareholder inexchange for the acquisition of the Class A Shares to which the relevant
Request for Acquisition in Exchange for Common Shares is related, to theextent permitted by laws and regulations.
(2) Number of Common Shares Delivered in Exchange for Acquisition of Class A
SharesThe number of common shares delivered in exchange for the acquisition of theClass A Shares shall be the number obtained by dividing the amount obtainedby multiplying (a) the amount obtained by multiplying the Amount Equivalent
to Paid-in Amount per Class A Share by 1.40 by (b) the number of the Class A
Shares concerning the Request for Acquisition in Exchange for Common
Shares, by the acquisition price as set forth in (3) and (4) below. If the total
number of common shares delivered in exchange for the acquisition of theClass A Shares to which the Request for Acquisition in Exchange for Common
Shares is related includes any fraction less than one (1) share, such fraction
shall be rounded down. In such case, NDK shall not make the delivery ofmoney as provided for in Article 167, Paragraph 3 of the Companies Act.
(3) Initial Acquisition Price
363 yen(4) Adjustment of Acquisition Price(a) Upon the occurrence of any of the events listed below, the acquisition priceshall be adjusted as follows:(i) If NDK is to implement a share split of its common shares or gratis
27

allotment of its common shares, the acquisition price shall be adjusted
in accordance with the formula below. In the case of a gratis allotmentof shares, “Number of issued common shares before split” and“Number of issued common shares after split” in the formula below
shall be respectively deemed to be replaced with “Number of issued
common shares before gratis allotment (excluding the common sharesthen held by NDK)” and “Number of issued common shares aftergratis allotment (excluding the common shares then held by NDK).”
Number of issued common shares before split
Acquisition price after adjustment＝

Acquisition price before adjustment

×
Number of issued common shares after split(ii)

The acquisition price after adjustment shall apply as from the day
following the record date for the share split or as from the effective
date of the gratis allotment of shares (or if the record date for the gratis
allotment has been set, as from the day following such record date), as
the case may be.
If NDK consolidates its common shares, the acquisition price shall be
adjusted in accordance with the formula below.

Acquisition price after adjustment＝

Acquisition price before adjustment

×

Number of issued common shares
before consolidation
Number of issued common shares after consolidation

The acquisition price after adjustment shall apply as from the effective
date of the consolidation of shares.
(iii) If NDK issues common shares or disposes of any of the commonshares held by NDK at a paid-in amount below the market value percommon share as specified in (d) below (excluding by way of gratis
allotment of shares, acquisition of shares or stock acquisition rights(including those attached to bonds with stock acquisition rights;
hereafter the same in this (4)) in exchange for the delivery of commonshares, exercise of stock acquisition rights to acquire common shares,
or delivery of common shares by virtue of merger, share exchange(kabushiki kokan) or demerger), the acquisition price shall be adjusted
in accordance with the formula below (the “Acquisition Price
Adjustment Formula”). If any property other than money is contributed,“Paid-in amount per share” in the Acquisition Price Adjustment
Formula shall be the appropriately appraised value of such property.
The acquisition price after adjustment shall apply as from the day
following the payment date (or if a payment period has been set, thelast day of such payment period), or if a record date for the allotment toshareholders has been set, as from the day following such record date(the “Shareholder Allotment Date”), as the case may be. If NDK is todispose of any of the common shares held by it, “Number of newly
issued common shares” and “Number of common shares held by NDK”
in the formula below shall be respectively deemed to be replaced with
“The number of common shares held by NDK to be disposed of” and28

“The number of common shares held by NDK before the disposition.”
Number of newly
issued common shares(Number of issued common shares- Number of common shares heldby the Company)
Acquisition priceafter adjustment＝

Acquisition pricebefore adjustment

×

Paid-in amount per
share＋
Market value per common share×(Number of issued common shares- Number of common shares held by the Company)+ Number of newly issued common shares(iv) If NDK makes an issuance or disposal of shares (including gratis
allotment of shares) which entitles the holders thereof to receive, by
having or letting NDK acquire such shares, the delivery of commonshares at an acquisition price per common share below the market
value per common share as set forth in (d) below, the acquisition priceafter adjustment shall be the amount calculated by causing “Paid-in
amount per share” in the Acquisition Price Adjustment Formula to be
substituted by the amount determined by deeming that all of the sharesissued or disposed of have been acquired in accordance with the initial
terms and conditions and common shares have been delivered on thepayment date for such shares (if a payment period has been set, on thelast day of such payment period; hereafter the same in this (iv)), or on
the effective date of gratis allotment of shares (or if a record date forgratis allotment of shares has been set, on such record date; hereafter
the same in this (iv)), or on the Shareholder Allotment Date, if any, as
the case may be. The acquisition price after adjustment shall apply asfrom the day following the payment date, or as from the day following
the effective date of gratis allotment of shares, of as from the day
following the Shareholder Allotment Date, if any, as the case may be.
Notwithstanding the foregoing, if the consideration for the commonshares delivered upon the acquisition has not been determined at theabove-mentioned time point, the acquisition price after adjustment
shall be calculated by deeming that at the time of determination of suchconsideration, all of the shares issued or disposed of will have beenacquired in accordance with the terms and conditions as of the time ofdetermination of such consideration and common shares will have beendelivered, and such acquisition price after adjustment shall apply asfrom the day following the date on which such consideration has been
determined.
(v) If NDK makes an issuance of stock acquisition rights (including gratis
allotment of stock acquisition rights) which entitles the holders thereof
to receive, by exercising or having NDK acquire such stock acquisitionrights, to receive the delivery of common shares at a price wherein thesum of the paid-in amount of such stock acquisition right per commonshare and the amount per common share of the property contributed
upon the exercise of such stock acquisition rights (if any property otherthan money is contributed, the appropriately appraised value of suchproperty; hereafter the same in this (v)) is less than the market value
29per common share as set forth in (d) below, the acquisition price after
adjustment shall be the amount calculated by causing “Paid-in amount
per share” in the Acquisition Price Adjustment Formula to be
substituted by the sum of the paid-in amount of stock acquisition right
per common share and the amount per common share of the property
contributed upon the exercise of stock acquisition rights, deeming that
all of the stock acquisition rights issued have been exercised or
acquired in accordance with the initial terms and conditions andcommon shares have been delivered on the allotment date of suchstock acquisition rights, on the effective date of gratis allotment ofstock acquisition rights (or if a record date for gratis allotment of stockacquisition rights has been set, on such record date; hereafter the samein this (v)), or on the Shareholder Allotment Date, if any, as the casemay be. The acquisition price after adjustment shall apply as from the
day following the allotment date of such stock acquisition rights, asfrom the day following the effective date of the gratis allotment ofstock acquisition rights, or as from the day following the Shareholder
Allotment Date, if any, as the case may be. Notwithstanding theforegoing, if the consideration for the common shares delivered upon
the acquisition or exercise has not been determined at theabove-mentioned time point, the acquisition price after adjustment
shall be calculated by deeming that at the time of determination of suchconsideration, all of the stock acquisition rights issued will have been
exercised or acquired in accordance with the terms and conditions as of
the time of determination of such consideration and common shares
will have been delivered, and such acquisition price after adjustment
shall apply as from the day following the date on which suchconsideration has been determined. Provided, however, that theadjustment of the acquisition price under this (v) shall not apply to any
stock acquisition rights to acquire common shares that are issued forthe purpose of granting stock options to any of the directors, statutory
auditors (kansayaku), executive officers (shikkoyaku) or other officers
or employees of NDK or any subsidiary of NDK.
(b) In addition to the events set forth in (a) above, if there is any circumstancefalling under any of (i) through (iii) below, NDK shall submit to the ClassA Shareholders/Pledgees a prior written notification to that effect, stating
the acquisition price after adjustment, the date of application and any othernecessary matters, and shall appropriately adjust the acquisition price.
(i) If an adjustment of the acquisition price is required for a merger, shareexchange (kabushiki kokan), acquisition of all issued shares in anotherstock company (kabushiki kaisha) by way of share exchange(kabushiki kokan), share transfer (kabushiki iten), absorption-typedemerger (kyushu bunkatsu), succession of all or part of the rights andobligations held by another company in relation to its business by wayof absorption-type demerger (kyushu bunkatsu) or incorporation-typedemerger (shinsetsu bunkatsu);(ii) Where two (2) or more events requiring adjustment of the acquisition30

price have occurred in succession, if the determination of the market
value to be used in the calculation of the acquisition price after
adjustment for one of the events needs to take into consideration theeffects of the other event(s); or(iii) If an adjustment of the acquisition price is otherwise required owing toa change in the number of issued common shares (excluding thenumber of common shares held by NDK) or the occurrence of any
event which may result in such a change.
(c) In the calculations needed for an adjustment of the acquisition price, theprice shall be calculated to the second decimal place below one (1) yen androunded to the first decimal place.
(d) The market value per common share as used in the Acquisition Price
Adjustment Formula shall be the average value (calculated to the second
decimal place below one (1) yen and rounded to the first decimal place;hereinafter the same) of the Volume Weighted Average Price (the“VWAP”) in ordinary trading of NDK’s common shares published by
Tokyo Stock Exchange, Inc. (the “TSE”) over 30 consecutive Trading
Days prior to the day from which the acquisition price after adjustment
applies (or if any event requiring an adjustment of the acquisition price ispublished through NDK announcements disclosure service provided by theTSE, the date of such publication). “Trading Day” means a day on which
ordinary trade in NDK’s common shares is conducted on the TSE, and it
does not include days where there is no VWAP announcement.
(e) If the difference between the acquisition price after adjustment and theacquisition price before adjustment as calculated for the purpose ofadjustment of the acquisition price is less than 0.1 yen, the acquisition
price shall not be adjusted. Provided, however, that any adjustment deemed
unnecessary under this (e) shall be carried over and taken into account in
the subsequent calculations for the adjustment.
(5) Place for Acceptance of Request for Acquisition in Exchange for Common
Shares
The shareholders register administrator’s office for handling of related affairs:
4-1 Marunouchi 1-chome, Chiyoda-Ku, Tokyo
Sumitomo Mitsui Trust Bank, Limited, Corporate Agency Division(6) Effectuation of Request for Acquisition in Exchange for Common Shares
A Request for Acquisition in Exchange for Common Shares shall come into
effect at the later of (i) the time when the documents necessary for the Request
for Acquisition in Exchange for Common Shares reach the place for
acceptance of the Request for Acquisition in Exchange for Common Shares asstated in (5) above or (ii) the intended effective date as stated in theabove-mentioned documents.
(7) Method of Delivery of Common Shares
After the effectuation of the Request for Acquisition in Exchange for Common
Shares, NDK shall deliver common shares to each Class A Shareholder which
has made the Request for Acquisition in Exchange for Common Shares byrecording an increase in the number of the book-entry transfer shares in the31

“Shares Held” section of the transfer account book managed by Japan
Securities Depository Center, Incorporated or of any account management
institution designated by the relevant Class A Shareholder.
12. Call Option for Money
At any time on or after August 1, 2020, upon the arrival of the date separately
specified by the Board of Directors of NDK (the “Date of Redemption for
Money”), NDK may acquire all or part of the Class A Shares in exchange formoney by giving written notice (which shall be irrevocable) to the Class A
Shareholders/Pledgees at least 10 days prior to the Date of Redemption for Money(the “Notice Date”), to the extent permitted by laws and regulations (provided,
however, that partial acquisitions may be made only in increments of 1,000
shares) (the “Redemption for Money”), and NDK shall, in exchange for theacquisition of the Class A Shares subject to the relevant Redemption for Money,
deliver to the Class A Shareholders the amount of money calculated bymultiplying (i) the amount obtained by multiplying the Amount Equivalent toPaid-in Amount per Class A Share by the following redemption factors by (ii) the
number of the Class A Shares in respect of the Redemption for Money (provided,
however, if the Date of Redemption for Money is after July 1, 2023, (i) the
aforementioned amount or (ii) the amount obtained by multiplying (a) the total
amount of common shares distributed in exchange for the acquisition of therelevant Class A Shares calculated by deeming that the Request for Acquisition in
Exchange for Common Shares is conducted as of the notice date with respect to
the Class A Shares in respect of the relevant Redemption for Money by (b) the
closing price of common shares of NDK at the TSE (if there is no closing price on
the same day, the closing price on the immediately preceding day) on the dateprior to the Notice Date, whichever the higher). If the money delivered in
exchange for the acquisition of the Class A Shares subject to the Redemption for
Money includes any fraction less than one (1) yen, such fraction shall be rounded
down.
In the case of a partial acquisition of the Class A Shares, the number of Class A
Shares to be acquired from each Class A Shareholder shall be determined on a pro
rata basis or by any other reasonable method specified by the Board of Directorsof NDK.
“Redemption Factor” means the rate corresponding to the relevant category set
forth in the following items according to whether the Date of Redemption for
Money falls within any of the periods listed below:(i)
From August 1, 2020 to June 30, 2021 : 1.13(ii) From July 1, 2021 to June 30, 2022
: 1.25(iii) From July 1, 2022 to June 30, 2023
: 1.38(iv) From July 1, 2023 to June 30, 2024
: 1.52(v) From July 1, 2024 to June 30, 2025
: 1.68(vi) From July 1, 2025
: 1.85
13. Consolidation or Split of Shares; Allotment of Shares for Subscription(1) NDK shall not split or consolidate the Class A Shares.
(2) NDK shall not grant the Class A Shareholders rights for allotment of shares forsubscription or rights for allotment of stock acquisition rights for subscription.
(3) NDK shall not make a gratis allotment of shares or gratis allotment of stock32

acquisition rights to the Class A Shareholders.
END

33

Appendix II
Contents of Amendments to the Articles of Incorporation(Amendments are underlined.)
Current Articles of Incorporation
Proposed amendment
Chapter II Shares
Chapter II Shares
Article 6 Total Number of Authorized Article 6 Total Number of Authorized
SharesShares
The total number of shares that can be
The total number of shares that can be
authorized for issue by the Company
authorized for issue by the Company
shall be 40,000,000.
shall be 50,000,000 and the total
number of class shares that can be
authorized for issue by the Company
shall be as follows.
Common shares: 50,000,000 sharesClass A Shares: 5,000 shares(New)

Article 6.2 Class A Shares
1. The contents of the Class A Sharesissued by the Company shall be set
forth in the following paragraph to
Paragraph 7.
2. Dividends of Surplus
If the Company is to distributedividends out of surplus to the holdersof the common shares (the “Common
Shareholders”) or the registeredpledgees of the common shares(togetherwith
theCommonShareholders,the“CommonShareholders/Pledgees”),
theCompany shall make pecuniary
distribution to the holders of the ClassA Shares (the “Class A Shareholders”)
or the registered pledgees of the ClassA Shares (together with the Class A
Shareholders,the“ClassA
Shareholders/Pledgees”) entered orrecorded in the latest shareholders’register as at the record date for the
distribution of the relevant dividends(the “Dividend Record Date”) in the34amount per Class A Share, pari passu
with common shareholders, equivalent
to the amount obtained by multiplying(i) the amount of the dividends per acommon share by (ii) the amountobtained by dividing (a) the amountobtained by multiplying 1,000,000 yen(the “Amount Equivalent to Paid-in
Amount per Class A Share”) by 1.40
by (b) the acquisition price set forth inParagraph 5, Items (3) and (4) of thisarticle as of the Dividend Record Date(the “Class A Dividend Amount”).. If
the amount obtained by multiplying
the Class A Dividend Amount by the
number of Class A Shares to which
each Class A Shareholder/Pledgee isentitled includes any fraction less thanone (1) yen, such fraction shall be
rounded down.
3. Distribution of Residual Assets(1) Distribution of Residual Assets
If the Company distributes its
residual assets, the Company
shall pay to each Class A
Shareholder/Pledgeetheamount per Class A Shareobtained by multiplying theAmount Equivalent to Paid-in
Amount per Class A Share by
the Redemption Factor set forthin Paragraph 6 of this article
per Class A Share (the “Class A
Residual Assets Distribution
Amount”) in cash prior to the
CommonShareholders/Pledgees.
Inaddition, in this paragraph, theRedemption Factor is to be
calculated by replacing the35

“Date of Redemption for
Money” in the calculation of
the Redemption Factor with the“Residual Assets Distribution
Date.” If the amount obtainedby multiplying the Class A
Residual Assets Distribution
Amount by the number of theClass A Shares to which eachClass A Shareholder/Pledgee isentitled includes any fraction
less than one (1) yen, such
fraction shall be rounded down.
(2) Non-participation Clause
The Company shall not make
distribution of residual assets to
the
Class
A
Shareholders/Pledgees
otherthan as provided for in theimmediately preceding item.
4. Voting Rights
Unless otherwise provided for bylaw, the Class A Shareholders shallnot be entitled to vote at general
meetings of shareholders.
5. Right to Request Acquisition in
Exchange for Common Shares(1) Right to Request Acquisition in
Exchange for Common Shares
On or after August 1, 2020,
each Class A Shareholder may
at any time request theCompany to acquire, in
exchange for the delivery ofsuch number of common sharesas specified in the following
item (the “Common Sharessubject to Request”), all or partof the Class A Shares held bythat Class A Shareholder (the“Request for Acquisition in
ExchangeforCommonShares”), and the Company
shall deliver the Common
Shares subject to Request to the36relevant Class A Shareholder inexchange for the acquisition of
the Class A Shares to which therelevant
Requestfor
Acquisition in Exchange for
Common Shares is related, tothe extent permitted by laws
and regulations.
(2) Number of Common Shares
Delivered in Exchange for
Acquisition of Class A Shares
The number of common sharesdelivered in exchange for theacquisition of the Class A
Shares shall be the number
obtained by dividing theamountobtainedbymultiplying (a) the amountobtained by multiplying theAmount Equivalent to Paid-in
Amount per Class A Share by
1.40 by (b) the number of theClass A Shares concerning theRequest for Acquisition in
Exchange for Common Shares,by the acquisition price set
forth in Items (3) and (4) of thisparagraph below. If the total
number of common sharesdelivered in exchange for theacquisition of the Class A
Shares to which the Request for
Acquisition in Exchange for
Common Shares is related
includes any fraction less thanone (1) share, such fraction
shall be rounded down. In suchcase, the Company shall notmake the delivery of money asprovided for in Article 167,
Paragraph 3 of the Companies
Act.
(3) Initial Acquisition Price
363 yen(4) Adjustment of Acquisition37

Price(a) Upon the occurrence of anyof the events listed below,
the acquisition price shallbe adjusted as follows:(i) If the Company is toimplement a share splitof its common shares or
gratis allotment of its
common shares, theacquisition price shallbeadjustedinaccordance with theformula below. In the
case
of
a
gratisallotment of shares,“Number of issued
common shares before
split” and “Number ofissued common shares
after split” in theformula below shall be
respectively deemed tobereplacedwith“Number of issued
common shares before
gratisallotment(excluding the commonshares then held by theCompany)”
and“Number of issued
common shares aftergratisallotment(excluding the commonshares then held by theCompany).”
Acquisitio
n priceafter=
adjustment

Acquisitio
n pricebefore×
adjustment

Number of issued
common shares
before split
Number of issued
common shares after split

The acquisition priceafter adjustment shallapply as from the day
following the record
date for the share split
38

(ii)

Acquisition
price
=
after
adjustment

or as from the effective
date of the gratis
allotment of shares (orif the record date for thegratis allotment has
been set, as from the
day following suchrecord date), as the casemay be.
If
theCompany
consolidates
its
common shares, theacquisition price shallbeadjustedinaccordance with theformula below.

Acquisition
price×
beforeadjustment

Number of issued
common shares
before consolidation
Number of issued
common shares
after consolidation

The acquisition priceafter adjustment shallapply as from theeffective date of theconsolidation of shares.
(iii) If the Company issues
common shares ordisposes of any of thecommon shares held by
the Company at a
paid-in amount below
the market value percommonshareasspecified in (d) of thisitem (excluding by wayof gratis allotment ofshares, acquisition ofsharesorstockacquisitionrights(including
thoseattached to bonds withstock acquisition rights;

39

hereafter the same inthis item) in exchange
for the delivery ofcommonshares,exerciseofstockacquisition rights toacquire common shares,
or delivery of commonshares by virtue ofmerger, share exchange(kabushiki kokan) or
demerger),theacquisition price shallbeadjustedinaccordance with theformula below (the“Acquisition
Price
Adjustment Formula”).
If any property other
than
money
is
contributed,“Paid-inamount per share” inthe Acquisition Price
Adjustment
Formula
shall
be
the
appropriately appraisedvalue of such property.
The acquisition priceafter adjustment shallapply as from the day
following the payment
date (or if a payment
period has been set, thelast day of suchpayment period), or if arecord date for the
allotment
toshareholders has beenset, as from the day
following such record
date (the “Shareholder
Allotment Date”), as thecase may be. If theCompany is to disposeof any of the commonshares held by it,“Number of newly40

issued common shares”
and“Numberofcommon shares held by
the Company” in theformula below shall be
respectively deemed tobe replaced with “The
number of commonshares held by theCompanytobedisposed of” and “The
number of commonshares held by theCompany before thedisposition.”
Number of newly
issued common shares(Number of issued
common shares- Number ofcommon shares heldby the Company)

×
Paid-inamountper share

Market valuecommon share
Acquisition
price
after
adjustment

Acquisition
price
beforeadjustment

per(Number of issued common shares- Number ofcommon shares held by the Company) +Number of newly issued common shares(iv) If the Company makes
an issuance or disposalof shares (including
gratis allotmentofshares) which entitles
the holders thereof toreceive, by having or
letting the Company
acquire such shares, thedelivery of commonshares at an acquisition
price per common share
below the market value
per common share as
set forth in (d) of this
item, the acquisition
price after adjustment
shall be the amountcalculated by causing“Paid-in amount per

41

share”
intheAcquisition
Price
Adjustment Formula tobe substituted by theamount determined bydeeming that all of thesharesissuedordisposed of have beenacquired in accordancewith the initial terms
and conditions andcommon shares havebeen delivered on thepayment date for suchshares (if a payment
period has been set, on
the last day of suchpayment
period;hereafter the same inthis (iv)), or on theeffective date of gratis
allotment of shares (orif a record date forgratis allotmentofshares has been set, on
such
recorddate;hereafter the same inthis (iv)), or on the
Shareholder Allotment
Date, if any, as the casemay be. The acquisition
price after adjustment
shall apply as from thedayfollowingthepayment date, or as
from the day following
the effective date ofgratis allotmentofshares, of as from thedayfollowingtheShareholder Allotment
Date, if any, as the casemaybe.
Notwithstanding
theforegoing,iftheconsideration for thecommonshares

42

(v)

43

delivered upon theacquisition has not been
determinedattheabove-mentioned time
point, the acquisition
price after adjustment
shall be calculated bydeeming that at the timeof determination of suchconsideration, all of thesharesissuedordisposed of will havebeen
acquiredinaccordance with theterms and conditions as
of
the
time
of
determination of suchconsideration
andcommon shares will
have been delivered,and such acquisition
price after adjustment
shall apply as from the
day following the date
on
which
such
consideration has been
determined.
If the Company makes
an issuance of stockacquisitionrights(including
gratisallotmentofstockacquisitionrights)which
entitlestheholders
thereoftoreceive, by exercisingor having the Company
acquire such stockacquisition rights, toreceive the delivery ofcommon shares at a
price wherein the sumof the paid-in amount ofsuch stock acquisitionright per common shareand the amount percommon share of theproperty
contributed
upon the exercise ofsuch stock acquisitionrights (if any property
other than money iscontributed,
theappropriately appraisedvalue of such property;
hereafter the same inthis (v)) is less than themarketvalue
percommon share as set
forth in (d) of this item,
the acquisition priceafter adjustment shall be
the amount calculated
by causing “Paid-in
amount per share” inthe Acquisition Price
Adjustment Formula tobe substituted by thesum of the paid-in
amountofstockacquisition right percommon share and theamount per commonshare of the property
contributed upon theexerciseofstockacquisitionrights,deeming that all of thestock acquisition rights
issuedhave
been
exercised or acquired inaccordance with theinitialterms
andconditions and commonshareshave
beendeliveredontheallotment date of suchstock acquisition rights,
on the effective date ofgratis allotment of stockacquisition rights (or if
a record date for gratis
allotmentofstockacquisition rights has

44

been set, on such record
date; hereafter the samein this (v)), or on the
Shareholder Allotment
Date, if any, as the casemay be. The acquisition
price after adjustment
shall apply as from thedayfollowingtheallotment date of suchstock acquisition rights,
as from the day
following the effective
date of the gratis
allotmentofstockacquisition rights, or as
from the day following
theShareholder
Allotment Date, if any,as the case may be.
Notwithstanding
theforegoing,iftheconsideration for thecommonsharesdelivered upon theacquisition or exercise
has not been determinedat the above-mentioned
time
point,
theacquisition price after
adjustment shall becalculated by deemingthat at the time ofdetermination of suchconsideration, all of thestock acquisition rights
issued will have been
exercised or acquired inaccordance with theterms and conditions as
of
the
time
of
determination of suchconsideration
andcommon shares will
have been delivered,and such acquisition
price after adjustment45

shall apply as from the
day following the date
on
which
such
consideration has been
determined. Provided,
however,thattheadjustmentoftheacquisition price under
this (v) shall not apply
to any stock acquisitionrightstoacquirecommon shares that areissued for the purposeofgranting
stock
options to any of thedirectors,
statutory
auditors (kansayaku),
executive
officers(shikkoyaku) or otherofficers or employees of
the Company or any
subsidiaryoftheCompany.
(b) In addition to the events set
forth in (a) of this item, if
there is any circumstancefalling under any of (i)through (iii) below, theCompany shall submit to
the
Class
A
Shareholders/Pledgeesaprior written notification tothat effect, stating theacquisition
price
after
adjustment, the date ofapplication and any othernecessary matters, and shallappropriately adjust theacquisition price.
(i) If an adjustment of theacquisition price isrequired for a merger,
share
exchange(kabushiki
kokan),
acquisition of all issued
shares in another stockcompany(kabushiki46

kaisha) by way of shareexchange(kabushiki
kokan), share transfer(kabushikiiten),
absorption-typedemerger(kyushubunkatsu), succession of
all or part of the rights
and obligations held byanother company inrelation to its business
by
way
of
absorption-typedemerger(kyushubunkatsu)
orincorporation-typedemerger(shinsetsu
bunkatsu);(ii) Where two (2) or more
eventsrequiring
adjustmentoftheacquisition price haveoccurred in succession,
if the determination of
the market value to be
used in the calculationof the acquisition priceafter adjustment for oneof the events needs totake into consideration
the effects of the otherevent(s); or(iii) If an adjustment of theacquisition price isotherwise
requiredowing to a change in thenumberofissuedcommonshares(excluding the numberof common shares heldby the Company) or theoccurrence of any event
which may result insuch a change.
(c) In the calculations needed
for an adjustment of theacquisition price, the price

47

(d)

(e)

48

shall be calculated to thesecond decimal place below
one (1) yen and rounded to
the first decimal place.
The market value percommon share as used intheAcquisition
Price
Adjustment Formula shallbe the average value(calculated to the second
decimal place below one(1) yen and rounded to thefirstdecimalplace;
hereinafter the same) of theVolume Weighted Average
Price (the “VWAP”) in
ordinary trading of theCompany’s common shares
published by Tokyo Stock
Exchange, Inc. (the “TSE”)
over30
consecutive
Trading Days prior to the
day from which theacquisition
price
after
adjustment applies (or if
any event requiring an
adjustmentoftheacquisition
price
ispublishedthroughthecompany announcements
disclosure service provided
by the TSE, the date of such
publication). “Trading Day”
means a day on which
ordinary trade in the
Company’s common sharesis conducted on the TSE,
and it does not include days
where there is no VWAP
announcement.
If the difference between
the acquisition price after
adjustment
andtheacquisition price before
adjustment as calculated forthe purpose of adjustmentof the acquisition price isless than 0.1 yen, theacquisition price shall not
be adjusted. Provided,
however,thatanyadjustment
deemedunnecessary under this (e)shall be carried over andtaken into account in thesubsequent calculations forthe adjustment.
(5) Place for Acceptance ofRequest for Acquisition in
Exchange for Common Shares
The
shareholders
registeradministrator’s
officeforhandling of related affairs:
4-1 Marunouchi 1-chome,
Chiyoda-Ku, Tokyo
Sumitomo Mitsui Trust Bank,
Limited, Corporate Agency
Division(6) Effectuation of Request for
Acquisition in Exchange for
Common Shares
A Request for Acquisition in
Exchange for Common Sharesshall come into effect at thelater of (i) the time when the
documents necessary for theRequest for Acquisition in
Exchange for Common Sharesreach the place for acceptanceof the Request for Acquisition
in Exchange for Common
Shares as stated in theimmediately preceding item or(ii) the intended effective dateasstatedintheabove-mentioned documents.
(7) MethodofDelivery ofCommon Shares
After the effectuation of theRequest for Acquisition in
Exchange for Common Shares,
the Company shall deliver49

common shares to each Class A
Shareholder which has madethe Request for Acquisition in
Exchange for Common Sharesby recording an increase in thenumber of the book-entry
transfer shares in the “Shares
Held” section of the transfer
account book managed by
Japan Securities Depository
Center, Incorporated or of any
account management institution
designated by the relevant
Class A Shareholder.
6. Call Option for Money
At any time on or after August 1,
2020, upon the arrival of the dateseparately specified by the Boardof Directors of the Company (the“Date of Redemption for Money”),
the Company may acquire all orpart of the Class A Shares inexchange for money by giving
written notice (which shall beirrevocable) to the Class A
Shareholders/Pledgees at least 10
days prior to the Date ofRedemption for Money (the“Notice Date”), to the extent
permitted by laws and regulations(provided, however, that partial
acquisitions may be made only inincrements of 1,000 shares) (the“Redemption for Money”), and theCompany shall, in exchange forthe acquisition of the Class A
Shares subject to the relevant
Redemption for Money, deliver tothe Class A Shareholders theamount of money calculated bymultiplying (i) the amountobtained by multiplying theAmount Equivalent to Paid-in
Amount per Class A Share by thefollowing redemption factors by(ii) the number of the Class A
Shares in respect of the50Redemption for Money (provided,
however,
if the Date ofRedemption for Money is after
July
1,
2023,
(i)
the
aforementioned amount or (ii) theamount obtained by multiplying(a) the total amount of commonshares distributed in exchange forthe acquisition of the relevant
Class A Shares calculated bydeeming that the Request for
Acquisition in Exchange for
Common Shares is conducted as of
the notice date with respect to theClass A Shares in respect of therelevant Redemption for Money by(b) the closing price of commonshares of the Company at the TSE(if there is no closing price on thesame day, the closing price on theimmediately preceding day) on thedate prior to the Notice Date,
whichever the higher). If themoney delivered in exchange forthe acquisition of the Class A
Shares subject to the Redemption
for Money includes any fraction
less than one (1) yen, such fraction
shall be rounded down.
In the case of a partial acquisitionof the Class A Shares, the numberof Class A Shares to be acquired
from each Class A Shareholder
shall be determined on a pro rata
basis or by any other reasonable
method specified by the Board of
Directors of the Company.
“Redemption Factor” means therate corresponding to the relevant
category set forth in (i) through(vi) below according to whether
the Date of Redemption for Money
falls within any of the periods
listed (i) through (vi) below:(i) From August 1, 2020 toJune 30, 2021 : 1.13(ii) From July 1, 2021 to51

June 30, 2022 : 1.25
(iii) From July 1, 2022 toJune 30, 2023 : 1.38
(iv)From July 1, 2023 toJune 30, 2024 : 1.52(v) From July 1, 2024 toJune 30, 2025 : 1.68(vi)From July 1, 2025
: 1.85
7. Consolidation or Split of Shares;
AllotmentofSharesfor
Subscription(1) The Company shall not split orconsolidate the Class A Shares.
(2) The Company shall not grant
the Class A Shareholders rights
for allotment of shares forsubscription or rights forallotment of stock acquisitionrights for subscription.
(3) The Company shall not make agratis allotment of shares or
gratis allotment of stockacquisition rights to the Class A
Shareholders.
Article 8 Number of Shares per Article 8 Number of Shares per
Unit-Base
Unit-BaseOne hundred (100) shares shall
One hundred (100) shares shallconstitute one (1) unit-base for all
constitute one (1) unit-base of
purposes of transaction.
common shares of the Company andone (1) share shall constitute one (1)unit-base of Class A Shares of theCompany for all purposes oftransaction.

Chapter III Meeting of Shareholders

Chapter III Meeting of Shareholders(New)

Article 19-2 MeetingofClass
Shareholders
1 Provision under Article 13 shall beapplied to a meeting of classshareholders held on the same day as
an ordinary general meeting ofshareholders.

522 Provisions under Articles 15, 17 and19 shall be applied mutatis mutandis
to a meeting of class shareholders
3 Provision under Article 16.1 andprovision under Article 16.2 shallrespectively be applied mutatis
mutandis to the resolutions at a
meeting of class shareholders as set
forth in Article 324, Paragraph 1 of
the Companies Act and theresolutions at a meeting of classshareholders as set forth in Article
324, Paragraph 2 of the Companies
Act.
End of Document53