To whom it may concern:
May 10, 2016
Company name:Inabata & Co., Ltd.
Representative:
Katsutaro Inabata, Director, President(Stock code: 8098, First Section of Tokyo Stock Exchange)
Inquiries:
Kenichi Yokota,
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Director, Managing Executive Officer(Tel: 03-3639-6421)

Notice of Extension of Policy on Handling of Large-Scale Purchase(Anti-Takeover Measures)
The Company, taking into consideration the changes in circumstances, has been
continuously examining the status of the policy on the handling of large-scale purchases (hereinafter,
the “Current Policy”) (valid until the conclusion of the first meeting of the board of directors of theCompany to be held by July 31, 2016, following the completion of the 155th Ordinary General
Meeting of Shareholders scheduled to be held in June 2016), which was approved by theshareholders at the 152nd Ordinary General Meeting of Shareholders held on June 25, 2013 andextended by the resolution of the board of directors of the Company held on the same day, from theperspective of enhancing corporate value and shareholder value, including whether or not to extend
the Current Policy.
As a result of such examination, we hereby inform you that, at the meeting of the board of
directors of the Company held on May 10, 2016 (hereinafter, the "Board of Directors Meeting"), a
decision was made to extend the policy on the handling of large-scale purchases (hereinafter, the“Policy on Handling of Large-Scale Purchases”), subject to approval of shareholders at the 155th
Ordinary General Meeting of Shareholders scheduled to be held on June 23, 2016 (hereinafter, the"Shareholders Meeting"). At the Board of Directors Meeting, which decided the extension of the
Policy on Handling of Large-Scale Purchases, four (4) audit & supervisory board members(including three (3) outside audit & supervisory board members) who attended the meeting made astatement of opinion that they will approve the Policy on Handling of Large-Scale Purchases subject
to the condition that the policy shall be implemented in an appropriate manner in practice. Althoughsome parts of the Current Policy, such as the constitution and the members of the Independent
Committee, have been changed, the content of the Policy on Handling of Large-Scale Purchases isbasically the same as that of the Current Policy.
If this proposal is approved by the shareholders at the Shareholders Meeting, the Policy on
Handling of Large-Scale Purchases shall become effective upon a decision to be made to extend thepolicy at the meeting of the board of directors of the Company to be held by July 31, 2016, following
the completion of the Shareholders Meeting, and will be valid until the conclusion of the firstmeeting of the board of directors of the Company to be held by July 31, 2019, following the 158th
Ordinary General Meeting of Shareholders scheduled to be held in June 2019.
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Please be advised that the Company is not currently exposed to a hostile takeover bid.
Please refer to the following for (i) basic policy on party hat controls decisions on financial
and business policies of the Company, (ii) measures to improve corporate value, and (iii) the content
of the Policy on Handling of Large-Scale Purchases.

I. Basic policy on party that controls decisions on financial and business policies of theCompany
When a specific party tries to make a large-scale purchase whose purpose is to acquire
shares of the Company that give such buyer the power to influence decisions on financial andbusiness policies of the Company, the Company believes the decision of whether to sell sharesshould be left to the judgment of the shareholders of the Company.
However, the Company as a group has 55 subsidiaries and 13 associates at home and abroad
across Japan, Southeast Asia, Northeast Asia, the Americas and Europe, operating a wide variety ofbusinesses, mainly consisting of manufacturing and sale of products in areas such as IT &Electronics, Chemicals, Life Industry, Plastics, Housing & Eco Materials and others. For the
management of the Company, extensive know-how, abundant experience and a sufficientunderstanding of relations built with customers/employees and business partners (stakeholders) at
home and abroad are essential. If a party that controls decisions on financial and business policiesof the Company lacks sufficient understanding of these matters, shareholder value that can berealized in the future may be undermined.
When a large-scale purchase is suddenly made, it is essential that both the buyer and theboard of directors of the Company provide adequate and sufficient information so that shareholders
can make a proper decision within a short time on whether the proposed purchase price of theCompany’s shares proposed by the buyer is reasonable. Furthermore, even for shareholders who
consider continuing to hold the Company’s shares, details of the management policy and businessplans such buyer considers when participating in the management of the Company (effect of suchlarge-scale purchase on the Company, policy on relations with stakeholders of the Company, such as
employees, affiliates, customers and business partners) are important information in making adecision on whether to keep such shares. Similarly, the Company believes the opinion of the boardof directors on such large-scale purchases is also important information for shareholders of theCompany for making a decision.
Accordingly, for a large-scale purchase where the acquisition of the Company’s shares thatgive a buyer the power to influence decisions on financial and business policies of the Company isintended, the Company believes such buyer should, to support the judgment of shareholders, provide
necessary and sufficient information on such purchase to the board of directors of the Company inadvance and commence such purchase only after a certain evaluation period in accordance withcertain rules established and disclosed in advance by the Company (Please refer to III 1. below for
more details; hereinafter called the “Rules for Large-Scale Purchases”).
Of large-scale purchases, there may be one whose obvious purpose is misuse and that would
consequently cause irreparable harm to the Company and thus significantly undermine the interestsof all shareholders of the Company. The Company believes it is necessary for the protection of the2interests of all shareholders of the Company that the board of directors takes appropriate measuresagainst such purchase in accordance with the Rules for Large-Scale Purchases.

II.

Measures to improve corporate value

The Company has implemented measures to enhance the Company’s corporate value in themedium and long term such as the mid-term business plan described below. Although theCompany believes that efforts made by the Company’s management (i) to strengthen the corporate
governance system for the sustainable growth of the Company, and (ii) to implement other measureswhile continuing to aim for the achievement of the mid-term business plan, will lead to theimprovement of the Company’s corporate value, the Company also believes that making preparationof the Rules for Large-Scale Purchases in advance will be effective for enhancing the efficiency ofthese efforts against large-scale purchases of shares of the Company and thus contribute to thecommon interests of shareholders of the Company.
1.

Strategies to achieve the goals in the mid-term business plan “New Challenge 2016”

The Company is making efforts to implement the six key strategies listed below to achieve
the goals in the three-year mid-term business plan “New Challenge 2016,” whose final year is the
fiscal year ending March 31, 2017. The Company will further strengthen the revenue base andcontinuously enhance the Company’s corporate value by securing implementation of these measures.
■ Key strategies
1. Further broadening and deepening of overseas business2. Focusing on markets and untapped fields with potential for growth
3. Laying and enhancing the infrastructure for global management
4. Investing for future growth
5. Further improving capital / asset efficiency and enhancing financial standing
6. Continued fostering of global human resources
2.

Measures to enhance corporate governance

The Company, in order to clearly define the management responsibilities towards theshareholders of the Company and assure the management’s capability to swiftly and appropriately
respond to changes in the management environment, shortened the term of office of the directors
from two years to one year at the 145th Ordinary General Meeting of Shareholders held on June 29,
2006.
Moreover, in order to ensure transparency and fairness of management and to enhance thefunction of supervision of the board of directors, the Company, subject to approval at each ordinary
general meeting of shareholders, will continue to appoint multiple numbers of outside directors whoare highly independent. Furthermore, in October 2015, the Company conducted an evaluation of
the board of directors (self-evaluation) for the purpose of enhancing the effectiveness andtransparency of the board of directors and to increase the Company’s corporate value. The
Company will make efforts to increase the Company's corporate value sustainably by acting upon theissues that were recognized from the results of this analysis/evaluation. The Company discloses
information concerning the implementation of the board of directors evaluation (self-evaluation) and
its future plans in response to the self-evaluation on the following website: http://www.inabata.co.jp.
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3.

Shareholder return policy

Shareholder return is one of the highest priorities among the Company’s policies. Effective
the fiscal year ending March 31, 2015, the Company’s policy on dividends has been changed with aview to placing an even greater emphasis on returning profits to shareholders and carrying out
shareholder returns with more clarity.
Specifically, the policy is now based on a total amount of shareholder returns consisting of
the amount of dividends combined with the amount of treasury shares acquired. The company will
target a total return ratio (*) that is mainly in the range of approximately 30% to 35%, and determine
it based on comprehensive judgments that take into account such considerations as medium- andlong-term investment for future enhancement of corporate value.
4(*) Total return ratio = (amount of dividends + amount of treasury shares acquired) ÷ consolidated
net income x 100
Status of shareholder return in the most recent fiscal years
Fiscal year ended
March 31, 2015
Dividends per share (JPY)33
Amount of treasury shares
604
acquired (JPY in millions)
Total return ratio
31.1%
24.1%
Dividend
payoutratio(reference)

Fiscal year ended
March 31, 2016
36
707
31.1%
23.7%

We will continue to make efforts to improve the return of profits to our shareholders.

III. Measures to prevent control by inappropriate parties of decisions on financial and business
policies of Company in light of basic policy regarding control of Company
As a measure, in accordance with the basic policy described in I above, to prevent control
by inappropriate parties of decisions on financial and business policies of the Company, theCompany established certain rules (the Rules for Large-Scale Purchases), as described below, thatmust be followed, when making a purchase of share certificates, etc.iii, of the Company for the
purpose of making the ratio of voting rightsii of a certain shareholder groupi 20% or higher, or apurchase of share certificates, etc., of the Company that results in the ratio of voting rights of acertain shareholder group being 20% or higher (in either case, excluding a purchase that the board of
directors of the Company approves in advance, regardless of specific methods of purchase, including
market trades and tender offers; such purchases are hereinafter referred to as a “Large-Scale
Purchases”, while such buyers are called a “Large-Scale Buyers”), and stipulates a policy on how tohandle cases with which a Large-Scale Buyer must comply with the rules and the measures to betaken in the case where a Large-Scale Buyer does not comply (the policy on the handling ofLarge-Scale Purchases of shares certificates, etc., of the Company described in this section III ishereinafter referred to as the “Policy on Handling of Large-Scale Purchases”).
1.

Details of Rules for Large-Scale Purchases(1)

Outline of Rules for Large-Scale Purchase

The Rules for Large-Scale Purchases established by the board of directors of the Company(i) require a Large-Scale Buyer to provide the board of directors of the Company with necessary andsufficient information prior to the Large-Scale Purchase, (ii) secure a designated review period forthe board of directors of the Company to review the information, and (iii) allow a Large-Scale
Purchase, if the board of directors of the Company determines that it is necessary and reasonable, orif the board of directors of the Company receives a recommendation from the Independent
Committee, but only after the procedures to confirm the shareholders’ intent are completed.
(2)

Provision of information
When a Large-Scale Buyer intends to make a Large-Scale Purchase, to begin with, it must
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submit to the representative director of the Company a “declaration of intent” stating that it willobserve the Rules for Large-Scale Purchases, specifying the name, address, law governing theincorporation, name of representative, and contact details in Japan of the Large-Scale Buyer, and an
overview of the contemplated Large-Scale Purchase. Within 10 business days after receipt of thedeclaration of intent, the board of directors of the Company will deliver to the Large-Scale Buyer an
initial list of information to be provided by the Large-Scale Buyer that is necessary and sufficient for
the Company’s shareholders and the board of directors of the Company to form an opinion(hereinafter referred to as the “Necessary Information”).
Details of the Necessary Information provided to the board of directors of the Company by
the Large-Scale Buyer may differ according to the nature of the Large-Scale Buyer and the purposeand details of the Large-Scale Purchase; however, some of the items to be generally included as
Necessary Information are stated below. For each item, the scope of the Necessary Information
will be limited to the extent that is necessary and sufficient for our shareholders to make a decisionand for the board of directors of the Company to form an opinion. If the Large-Scale Buyer doesnot provide any part of the Necessary Information, the Company will demand that the Large-Scale
Buyer provide a specific reason; and the fact that the information was not provided, as well as thereason therefor, will be examined by our shareholders and the board of directors of the Company inarriving at a decision and forming our opinion.
(i)

An outline (including information relating to the substance of the business of theLarge-Scale Buyer, capital structure and experience in businesses similar to theCompany’s business) of the Large-Scale Buyer and its group (including joint holders,quasi-joint holders and specially related parties);(ii) The purpose and substance of the Large-Scale Purchase (including, among others,amounts/kind of the consideration of the purchase, timing of the purchase, structure of
related transactions, legality of the means of purchase, and feasibility of purchase andrelated transactions);(iii) The basis for the calculation of the proposed purchase price for shares of theCompany and financial resources to ensure the purchase (including specific names ofthe financial providers (including ultimate financial providers), financing methods,
and substance of related transactions);(iv) Among others, the candidates for the management team (including information
regarding experience in businesses similar to the business of the Company and theCompany's group), basic management policy, business plan, financial plan, capital
policy, distribution policy, policy of utilization of assets, each as expected after theLarge-Scale Buyer participates in the management of the Company and the Company
group’s business; and(v) A summary of changes, if planned, in the Company’s relationship with theCompany’s and the Company group’s business partners, customers, and employees
after the completion of the Large-Scale Purchase.
If, after close examination of the information initially provided by the Large-Scale Buyer,
the Company finds the information to be insufficient, the board of directors of the Company will
request additional information until the Necessary Information is fully provided. We will disclose,
when the board of directors of the Company considers appropriate, the fact that a Large-Scale
Purchase was proposed and all or a part of the Necessary Information was provided to the board of
directors of the Company, if such information is considered necessary for the shareholders of theCompany to make their decision.
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(3)Review period for the board of directors of the Company

Depending on, among other things, the complexity of the assessment, of the Large-Scale
Purchase, the board of directors of the Company expects that, subsequent to full provision of theNecessary Information by the Large-Scale Buyer to the board of directors of the Company, the boardof directors of the Company shall be given a period of 60 days (in the case of a purchase of all theshares of the Company by way of a tender offer for cash only, in yen) or a period of 90 days (in thecase of other Large-Scale Purchases), to review, examine, negotiate, form an opinion, and seek
alternative plans (hereinafter referred to as the “Board Review Period”). Therefore, the Large-Scale
Purchase may be commenced only after the end of the Board Review Period; provided that, if theprocess to confirm the intent of the shareholders described in (5) below is to be followed, then the
Large-Scale Purchase may only be commenced after the completion of such process.
During the Board Review Period, the board of directors of the Company shall thoroughly
review and examine the Necessary Information it receives, with advice from outside experts, and will
carefully form and disclose its opinion. In addition, the board of directors of the Company may
negotiate with the Large-Scale Buyer in order to improve the terms of the proposed Large-Scale
Purchase or may offer alternative plans to shareholders of the Company, in the capacity of the boardof directors of the Company, as necessary.
(4)

Independent Committee

The Company has established an Independent Committee as a third-party institution,
independent from the board of directors of the Company. The Independent Committee keeps watch
over the board of directors of the Company so that the Policy on Handling of Large-Scale Purchases
is not used for the self-protection of the board of directors, and serves to prevent a purchase that may
undermine or damage the Company’s corporate value.
The Independent Committee consists of three or more members, and the members areelected from the outside directors and outside audit & supervisory board members who have satisfied
the “criteria for independence of outside officers” established by the Company. The names andbrief personal records of the members of the Independent Committee are as listed in Exhibit 2 hereto.
Please refer to Exhibit 3 hereto for an outline of the Independent Committee.
Whether or not any countermeasures should be taken is a decision that is ultimately made by
the board of directors of the Company. When making the decision, the board of directors shallfollow the procedure of consulting the Independent Committee and honor the recommendations fromthe Independent Committee to the extent possible, as the Independent Committee is designed toensure fairness of the board of directors’ decision. In addition, upon making the above decision, theboard of directors must first obtain the approval of the audit & supervisory board of the Company inorder to ensure the fairness of the board of directors’ decision. There are four audit & supervisoryboard members of the Company, and three of them are outside audit & supervisory board members.
(5)

Confirmation of intent of shareholders

After expiration of the Board Review Period, the Company, on taking countermeasuresagainst a Large-Scale Purchase, may ask the shareholders of the Company to determine whether or
not any countermeasures should be taken against the relevant Large-Scale Purchase, to honor the7intent of our shareholders. In this case, the Large-Scale Buyer must not commence the Large-Scale
Purchase until the procedures for confirmation of shareholders’ intent set forth below have been
completed. The procedures for confirmation of shareholders’ intent shall be carried out if (i) theboard of directors of the Company determines that it is necessary and reasonable to carry out theprocedures after considering, among other things, the details of the Large-Scale Purchase proposedby the Large-Scale Buyer, the Necessary Information provided by the Large-Scale Buyer,
circumstances in which countermeasures would be necessary, and the costs needed to carry out theprocedures, or (ii) the board of directors of the Company receives a recommendation from the
Independent Committee to carry out the procedures.
The intent of the shareholders of the Company shall be confirmed by a resolution of thegeneral meeting of shareholders of the Company under the Companies Act, or by other similar
procedures (hereinafter referred to as the “General Meeting of Shareholders”). If the General
Meeting of Shareholders is held, then the board of directors of the Company shall comply with theresolution of the General Meeting of Shareholders on whether or not any countermeasures should betaken against the relevant Large-Scale Purchase. The board of directors of the Company shallestablish a record date (hereinafter referred to as the “Record Date”) for the purpose of determining
the shareholders of the Company who are entitled to vote at the General Meeting of Shareholders.
The Company shall give public notice in accordance with the method prescribed in the articles ofincorporation of the Company two weeks or more prior to the Record Date.
(i)

The shareholders of the Company entitled to vote at the General Meeting of
Shareholders shall be those recorded in the shareholders register as of the end of theRecord Date.

(ii)

If the General Meeting of Shareholders is to be held, the notice of convocation shallbe sent to all the shareholders who are entitled to vote by the close of the day three
weeks prior to the date of the General Meeting of Shareholders.

(iii) Resolution at the General Meeting of Shareholders shall be adopted by the majority ofthe voting rights of such shareholders present at the same General Meeting of
Shareholders.
In the case where any material changes or the equivalent are made to the information thatwill be used by the shareholders of the Company in making their decision at the General Meeting of
Shareholders, the board of directors of the Company may change the Record Date or postpone orcancel the General Meeting of Shareholders, even after the Record Date for the General Meeting of
Shareholders has been confirmed.
2.

Policy on handling when a Large-Scale Purchase has been conducted(1)

If a Large-Scale Buyer complies with the Rules for Large-Scale Purchases

If a Large-Scale Buyer complies with the Rules for Large-Scale Purchases, the board of
directors of the Company will, even if it opposes such Large-Scale Purchase, only express its
dissenting opinion or present alternative plans to such purchase proposal, and thereby try to convince
the shareholders, but it will not take any countermeasures against such Large-Scale Purchase, in
principle. Whether or not to accept a purchase proposal by a Large-Scale Buyer is a decision to bemade by the shareholders of the Company after consideration of such purchase proposal, the8dissenting opinion expressed by the Company and alternative plans to such purchase proposal andother matters. However, even if the Rules for Large-Scale Purchases have been complied with, theboard of directors of the Company may take measures, as exceptional measures to the policy, that are
deemed to be appropriate in order to preserve the interests of the shareholders of the Company in thecase where it is recognized that such Large-Scale Purchase materially impairs the interests of allshareholders of the Company. For example:
1.
2.
3.
4.

The purchase, as determined from, among other things, the purpose of the acquisition, would
clearly impair the corporate value;
The structure of such proposal compels the shareholders to accept the purchase;
The conditions of purchase are substantially insufficient and inappropriate in light of theCompany’s corporate value;
The purchase impairs the corporate value by impairing the interests of stakeholders, such as
employees, customers and business partners.

Here, “1. The purchase, as determined from, among other things, the purpose of theacquisition, would clearly impair the corporate value” is meant to be, for example, cases where:(i)a Large-Scale Buyer purchases the shares simply to make parties affiliated with theCompany buy them back at a higher price without having any intention to actuallyparticipate in the Company’s management;(ii)

the Large-Scale Buyer purchases the shares for purposes of so-called “scorched-earth”
management by temporarily taking control of the Company in order to transfer to suchbuyer and its group companies intellectual assets essential to the Company’s
management, know-how, confidential corporate information, major business partners
or customers, and other matters;(iii) the Large-Scale Buyer purchases the shares with the intention of using the Company’s
assets as collateral for, or as a source of repayment of, the buyer’s and its groupcompanies’ liabilities after taking control of management; and(iv) the Large-Scale Buyer purchases the shares to gain temporary control of management
and sell high-value assets or the like, such as real estate and securities not immediately
related to the Company’s business, in order to use the profit from such sale (a) tomake the Company temporarily pay a high dividend, or (b) to use a temporarily highdividend as a device to sharply raise the share price and sell its shares at a profit.
However, the above exceptional measures may not be taken only for the reason that the intention of
the Large-Scale Buyer formally falls under one of these examples, and the above exceptional
measures shall be taken only in extraordinary circumstances.
In addition, “2. The structure of such proposal compels the shareholders to accept thepurchase” is meant to be, for example, the case where the purchase method of the Company’s sharesproposed by the Large-Scale Buyer is by way of a public offering or other means with unfavorable
second-tier purchase conditions or unclear conditions, without offering to purchase all of the sharesin the first-tier purchase (so-called “coercive two-tiered purchase”).
With respect to consideration to, and decision on whether or not such Large-Scale Purchase9materially impairs the interests of all shareholders of, the Company, the board of directors of theCompany shall, in order to be objective and rational, make sure to consult with the Independent
Committee, obtaining advice from external experts on the propriety of the exercise of exceptionalcountermeasures based on such Large-Scale Buyer and the detail of the Large-Scale Purchase(among other things, the purpose, method, target, kind and amount of consideration for acquisition),or the impact on the interests of all shareholders of the Company from such Large-Scale Purchase,and the Independent Committee will advise on the matters it is consulted on. Such advice will beannounced, and the board of directors of the Company will honor such advice to the extent possible.
Furthermore, for the details of such exceptional countermeasures on which the board of directors of
the Company must seek consultation, please refer to (2) below.
(2)

If a Large-Scale Buyer does not comply with the Rules for Large-Scale PurchaseIn the case where the Rules for Large-Scale Purchases are not complied with by aLarge-Scale Buyer, regardless of the specific acquisition structure, the board of directors of theCompany may oppose a Large-Scale Purchase by issuing stock acquisition rights or taking othercountermeasures permitted under the Companies Act and other laws as well as the Company’s
articles of incorporation for the purpose of preserving the interests of the Company and allshareholders of the Company. In judging whether or not the Large-Scale Buyer complies with theRules for Large-Scale Purchases, the circumstances on the Large-Scale Buyer side will be
sufficiently considered to a reasonable extent, such as (i) the Large-Scale Buyer does not necessarily
hold detailed information in respect of the Company, or (ii) there are matters that are not expected to
be voluntarily disclosed under the purchase strategy of the Large-Scale Buyer (for example, specificfigures of profits, etc., after the purchase) and other matters, and, the Company will not conclude that
the Large-Scale Buyer is not in compliance with the Rules for Large-Scale Purchases only for thereason that the Large-Scale Buyer failed to provide the Necessary Information requested by theboard of directors of the Company. As to whether or not a Large-Scale Buyer complies with theRules for Large-Scale Purchases or not, and the possibility of exercise of countermeasures, theCompany will make sure to consult with the Independent Committee and take advice from external
experts into consideration, and the Independent Committee will advise on the matters it is consulted
on. Such advice will be announced, and the board of directors of the Company will honor suchadvice to the extent possible. As to the measures to be finally taken, the board of directors of theCompany will take such measures as it decides most appropriate at that time. The outline of thestock acquisition rights for the case of allotment of stock acquisition rights without contribution as a
specific countermeasure is described in Exhibit 1. However, if such stock acquisition rights are
actually to be issued, the Company may set certain limitations on, among other things, the exercise
period, terms of exercise, conditions of acquisition and terms of acquisition, that make the exerciseof the stock acquisition rights conditional on a party not belonging to a certain shareholder groupwith more than a designated percentage of voting rights, taking the effectiveness of countermeasures
into consideration.
(3)

Suspension of exercise of countermeasures

The board of directors of the Company may suspend the execution of, or change, thecountermeasures if the board of directors determines, with thorough respect for the opinion or adviceof the Independent Committee, that it is not appropriate to execute countermeasures in cases wheresuch Large-Scale Buyer has cancelled or changed the Large-Scale Purchase after the decision to
adopt countermeasures was made.
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For example, in the case of the allotment of stock acquisition rights without consideration asa countermeasure, if a Large-Scale Buyer cancels or changes a Large-Scale Purchase after theshareholders who will receive an allotment of such rights are determined, and the board of directors
determines that it is not appropriate to exercise countermeasures, the exercise of countermeasures
may be suspended as follows:(i) Until the effective date of the allotment of the stock acquisition rights without consideration,such allotment will be suspended following the advice of the Independent Committee.
(ii) After the allotment of the stock acquisition rights without consideration, and until thecommencement of the exercise period, the Company will acquire such stock acquisitionrights without consideration following the advice of the Independent Committee.
In the case where the execution of countermeasures is suspended as described above,
prompt disclosure will be made together with the announcement of the matters that the Independent
Committee deems necessary.
3.

Effects to shareholders and investors(1)

Effects of Rules for Large-Scale Purchases on shareholders and investors

The Rules for Large-Scale Purchases are intended to provide (i) the information required forthe shareholders of the Company to decide whether or not to accept a Large-Scale Purchase, and (ii)the opinions of the incumbent board of directors responsible for managing the company, to theshareholders of the Company, as well as to secure opportunities for the shareholders of the Company
to receive a presentation of alternative proposals. We believe this will allow the shareholders of theCompany to make an appropriate decision as to whether or not to accept a Large-Scale Purchase,based on sufficient information, thereby preserving the interests of all shareholders of the Company.
Accordingly, the establishment of the Rules for Large-Scale Purchases will ensure the appropriate
investment decision by the shareholders of the Company and the investors and contributes to theinterests of the shareholders of the Company and the investors.
In addition, as described in 2. above, the response of the Company to a Large-Scale
Purchase would be different depending on whether or not a Large-Scale Buyer complies with theRules for Large-Scale Purchases. Therefore, we would like the shareholders of the Company andthe investors to pay attention to the actions of Large-Scale Buyers.

(2)

Effects on the shareholders and investors when countermeasures are executed

In the case where the Company concludes that such Large-Scale Purchase would materially
impair the interests of all shareholders of the Company, even if a Large-Scale Buyer has compliedwith the Rules for Large-Scale Purchases, or in the case where a Large-Scale Buyer has not compliedwith the Rules for Large-Scale Purchases, the board of directors of the Company may takecountermeasures permitted under the Companies Act and other laws as well as the Company’s
articles of incorporation for the purpose of preserving the interests of all shareholders of theCompany. However, the Company does not, in any event, expect any special losses in legal rights
or economic prospects to be incurred by the shareholders of the Company (excluding a Large-Scale
Buyer violating the Rules for Large-Scale Purchases) by adopting the structure of suchcountermeasures. If the board of directors of the Company has decided to take specific11countermeasures, it will disclose such fact in a timely and appropriate manner in accordance with thelaws and regulations and the rules of the financial instruments exchanges.
Among the possible countermeasures, the procedures for the shareholders of the Company
in connection with the issuance of stock acquisition rights are as follows.
With regard to the issuance of stock acquisition rights, it is necessary for the shareholders to
pay a certain amount of money within the predetermined period in order to acquire new stock by
exercising stock acquisition rights. The details of such procedure will be separately notified inaccordance with the laws and regulations when stock acquisition rights are actually issued; provided,
however, that the shareholders of the Company must, in order to obtain stock acquisition rights, berecorded in the register of shareholders at the end of the allotment date of the stock acquisition rightsthat is separately determined and published by the board of directors.
The Company may cancel the issuance of the stock acquisition rights, or acquire without
consideration those that have been issued, upon the determination by the board of directors following
the advice from the Independent Committee. However, in such case, no dilution of share value pershare will occur, and, therefore, it is possible for the shareholders or the investors who have bought
or sold the Company’s shares on the assumption that a dilution of the Company’s share value would
occur, on or after the ex-rights date for the allotment of such stock acquisition rights without
consideration, to incur unexpected losses due to fluctuations of share price.
4.

Effective period of the Policy on Handling of Large-Scale Purchase

The effective period of the Policy on Handling of Large-Scale Purchases shall end at theconclusion of the first meeting of the board of directors of the Company to be held by July 31, 2019,
following the completion of the 158th Ordinary General Meeting of Shareholders of the Company to
be held in June 2019. However, if the extension of the Policy on Handling of Large-Scale
Purchases has been resolved at the meeting of the board of directors subject to the approval of theshareholders at the 158th Ordinary General Meeting of Shareholders of the Company to be held in
June 2019, such effective period shall be extended for an additional three years and the same applies
thereafter. Even if the extension of the Policy on Handling of Large-Scale Purchases has been
decided, the board of directors will revise such Policy on Handling of Large-Scale Purchases fromtime to time, in accordance with any amendment to the relevant laws and regulations, including theCompanies Act, in view of enhancing the corporate value and the shareholders’ value. In addition,even during the effective period of the Policy on Handling of Large-Scale Purchases, (i) if theabolishment of the Policy on Handling of Large-Scale Purchases has been resolved at the General
Meeting of Shareholders of the Company, or (ii) the abolishment of the Policy on Handling ofLarge-Scale Purchases has been resolved at the meeting of the board of directors of the Company,
the board of directors of the Company shall abolish the Policy on Handling of Large-Scale Purchases.
The board of directors will immediately provide notice when it has been decided to continue, amend,or abolish the Policy on Handling of Large-Scale Purchases.
5. Policy on Handling of Large-Scale Purchases is in accord with basic policy on control overCompany, does not undermine common interests of shareholders and does not aim to maintainposition of Company officers and reasons therefor(1) Policy on Handling of Large-Scale Purchases is in accord with basic policy on control overCompany
12

The Policy on Handling of Large-Scale Purchases stipulates, among other things, details of
the Rules for Large-Scale Purchases, the policy of how to handle a case of an actual Large-Scale
Purchase, establishment of the Independent Committee and effects on shareholders and investors.
The Policy on Handling of Large-Scale Purchases requires a Large-Scale Buyer to provide
necessary and sufficient information on a Large-Scale Purchase to the board of directors of theCompany in advance and allows the commencement of such purchase only after a certain evaluation
period, and specifies that the board of directors of the Company would take appropriate
countermeasures against a Large-Scale Buyer who fails to comply with these rules.
In addition, the Policy on Handling of Large-Scale Purchases stipulates that when the Rules
for Large-Scale Purchases are followed but the board of directors of the Company determines that a
Large-Scale Purchase made by a Large-Scale Buyer significantly undermines the interests of allshareholders of the Company, the board of directors of the Company may take appropriate
countermeasures against such Large-Scale Buyer in order to protect the interests of all shareholdersof the Company.
As such, the Policy on Handling of Large-Scale Purchases is designed to align with the ideaof the basic policy on control over the Company.
(2) Policy on Handling of Large-Scale Purchases does not undermine common interests ofshareholders
As mentioned in I above, the basic policy on control over the Company is based on thepremise that the common interests of shareholders of the Company is respected. The Policy on
Handling of Large-Scale Purchases is designed in line with the idea of such basic policy on control
over the Company and aims to provide information necessary for shareholders of the Company todecide whether to accept a Large-Scale Purchase, offer opinions of the board of directors of theCompany and guarantee an opportunity to receive an alternative proposal. We believe that the
Policy on Handling of Large-Scale Purchases contributes to the common interests of shareholders of
the Company rather than undermining it.
Furthermore, the Policy on Handling of Large-Scale Purchases is valid for three years, andits effectuation and extension require the approval of the shareholders of the Company. The Policy
on Handling of Large-Scale Purchases expires if its extension is not approved at a General Meetingof Shareholders, and a General Meeting of Shareholders of the Company or the board of directors
consisting of directors elected by a General Meeting of Shareholders may abolish the Policy on
Handling of Large-Scale Purchases before its expiration date. The Policy on Handling ofLarge-Scale Purchases is not a dead-hand type of takeover defense measure (i.e., an anti-takeovermeasure that cannot be stopped even when a majority of members of the board of directors are
replaced) or a slow-hand type of takeover defense measure (i.e., an anti-takeover measure that takes
time to stop as members of the board of directors cannot be replaced simultaneously). These
guarantee that the Policy of Handling of Large-Scale Purchases does not undermine the common
interests of shareholders of the Company.
(3) Policy on Handling of Large-Scale Purchases does not aim to maintain position of Company
officers
13

The Policy on Handling of Large-Scale Purchases is based on the fundamental principle thatwhether to accept a Large-Scale Purchase should be left to the decision of shareholders of theCompany, where the board of directors may request compliance with the Rules for Large-Scale
Purchases and invoke countermeasures, in order to protect the interests of all shareholders of theCompany. The Policy on Handling of Large-Scale Purchases requires advance disclosure in detailof a case where the board of directors of the Company invokes countermeasures, and suchcountermeasures are to be executed by the board of directors of the Company in accordance with therules of the Policy on Handling of Large-Scale Purchases.
When the board of directors of the Company assesses, examines and forms its opinions of a
Large-Scale Purchase, submits an alternative proposal, negotiates with a Large-Scale Buyer or
invokes countermeasures, the board of directors shall take advice from independent outside experts,
consult with the Independent Committee consisting of members who are independent of the
management team engaged in the business of the Company, and honor recommendations from such
Independent Committee to the extent possible. In addition, when recommendations are issued by
the Independent Committee in invoking countermeasures against a Large-Scale Purchase, theCompany shall confirm the intention of the Company’s shareholders concerning whether to invoke
such countermeasures. As such, the Policy on Handling of Large-Scale Purchases includes
procedures to ensure proper management by the board of directors of the Company.
Based on the above-mentioned overview, it is clear that the Policy on Handling ofLarge-Scale Purchases does not aim to maintain the position of officers of the Company.

Note i: A certain shareholder group means:(i) a holder (including a party deemed as a holder pursuant to article 27-23, paragraph 3 of
the Financial Instruments and Exchange Law; the same applies hereinafter) and any joint
holders (provided in article 27-23, paragraph 5 of the Financial Instruments and Exchange
Law, including a party deemed as a joint holder pursuant to paragraph 6 thereof; the same
shall apply hereinafter) of the share certificates, etc. (provided in article 27-23, paragraph 1of the Financial Instruments and Exchange Law) of the Company; or(ii) a party effecting purchases, etc. (provided in article 27-2, paragraph 1 of the Financial
Instruments and exchange Law, including any purchase, etc., made on a financial
instruments exchange market, regardless of whether or not such purchase, etc., is made by
the auction method) of share certificates, etc. (provided in article 27-2, paragraph 1 of the
Financial Instruments and Exchange Law) of the Company, and specially related parties(provided in article 27-2, paragraph 7 of the Financial Instruments and Exchange Law) ofsuch party.
Note ii: Ratio of voting rights means:(i) in the case of Note 1(i) above, the holding ratio of share certificates, etc. (provided inarticle 27-23, paragraph 4 of the Financial Instruments and Exchange Law; in this case, thenumber of shares certificates, etc., held (number of share certificates, etc., held as provided
in the same paragraph; the same applies hereinafter) of the joint holders in respect of theholder shall be taken into consideration in the calculation) of the holder of the sharecertificates, etc., of the Company; or(ii) in the case of Note 1(ii) above, the amount of the sum of the ownership ratio of sharecertificates, etc. (provided in article 27-2, paragraph 8 of the Financial Instruments andExchange Law) of such relevant Large-Scale Buyer and its specially related parties.
14

Further, in calculating the share holding ratio and the ownership ratio, the annual report, the quarterly
report or the treasury stock purchase report of the Company, whichever document has been mostrecently submitted to the authorities, may be referred to in deciding the total number of issued shares(provided in article 27-23, paragraph 4 of the Financial Instruments and Exchange Law) or total
number of voting rights (provided in article 27-2, paragraph 8 of the Financial Instruments andExchange Law).
Note iii: Share certificate, etc., means shares and other securities as provided in article 27-23,
paragraph 1 of the Financial Instruments and Exchange Law.

End of document

15

Exhibit 1

Outline of stock acquisition rights

1. Shareholders who are entitled to receive an allotment of stock acquisition rights andterms and conditions of issuance thereof:
One stock acquisition right shall be allotted to a shareholder for each share ofcommon stock of the Company held by such shareholder (excluding the shares of thecommon stock held by the Company) whose name is recorded in the register ofshareholders as of the end of the Record Date to be specified by the board of directorsof the Company, without any consideration.
2.

Type and number of shares to be acquired upon exercise of stock acquisition rights:

The type of shares to be acquired upon exercise of stock acquisition rights isshares of common stock of the Company, and the total number of such shares may be
up to the number obtained by deducting the total number of the issued and outstanding
shares (excluding the shares of common stock held by the Company) from the total
number of the shares issuable by the Company as set forth in the articles ofincorporation of the Company. The number of shares to be acquired upon exercise of
one stock acquisition right shall be separately determined by the board of directors of
the Company; provided, however, that such number shall be adjusted to the extent
necessary if the Company makes a stock split or a stock consolidation.
3.

Total number of stock acquisition rights to be issued:

The total number of stock acquisition rights to be allotted shall be separately
determined by the board of directors of the Company. The board of directors of theCompany may allot stock acquisition rights in installments.
4.

Pay-in amount for stock acquisition rights:
The payment of money shall not be required in exchange for stock acquisitionrights.
5. Contents and amount of assets to be contributed upon exercise of each stockacquisition right:
The amount of assets to be contributed upon exercise of each stock acquisitionright is the amount to be determined by the board of directors of the Company, whichmust be at least one yen.
6.

Restriction on transfer of stock acquisition rights:
16

Stock acquisition rights may not be transferred without the approval of theboard of directors of the Company.
7. Conditions of exercise, and provisions regarding call-rights and triggering event ofcall-rights regarding stock acquisition rights:
Certain conditions of exercise of stock acquisition rights shall be provided,
including a condition that a party belonging to a specific group of shareholders that
holds 20% or more of the ratio of voting rights (excluding Sumitomo Chemical
Company, Limited and any other with respect to whom the board of directors of theCompany admits that the acquisition or holding of share certificates, etc., of theCompany by such party is not against the interests of all shareholders of the Company;
the same shall apply hereinafter) may not exercise stock acquisition rights. Details of
the conditions shall be separately determined by the board of directors of the Company.
The Company may set the provisions regarding call-rights with respect to stockacquisition rights by the Company and triggering event of call-rights, and a party
belonging to a certain shareholder group that holds 20% or more of the ratio of voting
rights and other shareholders may be treated differently, or stock acquisition rights heldby a party belonging to a specific group of shareholders that holds 20% or more of theratio of voting rights are not subject to acquisition.
8.

Exercise period regarding stock acquisition rights:

The day on which an allotment of stock acquisition rights becomes effective,the exercise period, conditions of acquisition and other necessary subject matter
regarding stock acquisition rights shall be separately determined by the board of
directors of the Company. With respect to the call-rights of the Company, theCompany may set terms and conditions to the effect that the Company may acquire
stock acquisition rights held by any party other than those for whom exercise of thestock acquisition rights is not permitted pursuant to the conditions of exercise as statedin 7. above, and one share may be delivered per one stock acquisition right.

End of document

17

Exhibit 2

Names and brief career summaries of the members of the Independent Committee

Shuichi Suzuki
Brief
Apr. 1989
careerMay 2005
summary Jun. 2010
Jun. 2011

Date of birth: September 4, 1957
Registered as Attorney
Established Yamada, Goya & Suzuki Law Office (partner) (present)
Outside Audit & Supervisory Board Member of the Company (present)
Outside Audit & Supervisory Board Member, Kawasaki Kinkai Kisen Kaisha,Ltd. (present)

Yoshitaka Takahashi
BriefApr. 1977
careerApr. 1995
summary Jun. 2001
Apr. 2007

Date of birth: October 14, 1954
Joined Honda Motor Co., Ltd.
Manager, Honda Transmission Manufacturing (U.S.)
Administration Manager, Guangqi Honda Automobile Co., Ltd. (China)
Manager, Business Management Department, Kumamoto Factory, Honda
Motor Co., Ltd.
Audit & Supervisory Board Member (Full-time), Yachiyo Industry Co., Ltd.
Advisor, Yachiyo Industry Co., Ltd.
Outside Audit & Supervisory Board Member of the Company (present)

Jun. 2009
Jul. 2013
Jun. 2014
Shinji Morimoto
Nov. 1975
Brief
careerMay 1980
summary May 1987
Jun. 1989
Jul. 1998

Apr. 2006
Jul. 2007
Jan. 2015
Dec. 2015

Date of birth: June 27, 1952
Joined Price Waterhouse & Co. (present PricewaterhouseCoopers Aarata)
Registered as Certified Public Accountant
Joined Aoki International Co., Ltd. (present Aoki Holdings, Inc.)
Managing Director in charge of Management Planning, Aoki International
Co., Ltd.
Joined PwC Consulting Service Co., Ltd. (present GBS Division, IBM Japan,
Ltd.)
Director in charge of Consumer Goods and Retail Industry
Joined Shinnihon Audit Corporation (present Ernst & Young ShinNihon
LLC)
Senior Partner, Shinnihon Audit Corporation
Established Office Business Inspire, Representative (present)
Outside Director, Lockon Co., Ltd. (present)

End of document

18

Exhibit 3

Outline of Independent Committee

1.

Members

The Independent Committee consists of three (3) or more outside directors or
outside audit & supervisory board members who have satisfied the “criteria for
independence of outside officers” established by the Company, appointed by the boardof directors of the Company.
2.

Term

The term of members of the Independent Committee expires at the conclusionof the first meeting of the board of directors of the Company held by July 31, which isimmediately after the completion of the Ordinary General Meeting of Shareholders forthe business year that ends within three (3) years after the assumption of office asmembers; provided, however, that if the extension of the Policy on Handling ofLarge-Scale Purchases is resolved at the said meeting of the board of directors, unlessotherwise resolved, the members be regarded to have been reappointed at the said
meeting of the board of directors, and the term shall be extended for three (3) years.
3.

Resolution requirements

In principle, all the incumbent members of the Independent Committee,
excluding specially interested parties, must be present, and resolutions of the
Independent Committee shall be adopted by an affirmative vote of a majority of themembers present at a meeting of the Independent Committee; provided, however, thatwhen there is any unavoidable reason, a majority of the members of the Independent
Committee must be present, and resolutions of such Independent Committee shall be
adopted by an affirmative vote of a majority of the members of the Independent
Committee present at such meeting of the Independent Committee.
4.

Matters to be resolved and other matters

The Independent Committee shall deliberate on and resolve (i) whether or not aLarge-Scale Purchase is deemed to significantly undermine the interests of allshareholders of the Company, (ii) whether or not a Large-Scale Buyer has compliedwith the Rules for Large-Scale Purchases, (iii) whether or not the exercise ofcountermeasures is necessary and reasonable, or such countermeasures should be
performed, (iv) whether or not the exercise of countermeasures should be suspended,and (v) the procedures for confirmation of shareholders’ intentions that should be taken
and other matters on which the board of directors has sought consultation, and shallprovide advice to the board of directors based on the details of such resolution. In the19case where the Independent Committee provides advice to the board of directors, theIndependent Committee must provide reasons therefor. Members of the Independent
Committee are required to faithfully carry out their duties solely from a viewpoint of theinterests of all shareholders of the Company, and such members may not perform suchduties for the purpose of securing their own interests or those of any third party(including management of the Company).
In order to ensure an appropriate judgment, in conducting the above-mentioned
actions, the Independent Committee shall make efforts to collect necessary andsufficient information, and, to the extent necessary, the Independent Committee may, at
the Company’s expense, obtain advice from outside experts, including financial
advisors, certified public accountants, lawyers, consultants and other experts.

End of document20