Introduction of a stock compensation plan for directors

April 28, 2016

Kobe Steel, Ltd. (hereinafter the “Company”) announces that it passed a resolution at its Board of Directors meeting held today to revise the compensation plan for directors with the introduction of a new stock compensation plan, a Board Benefit Trust (BBT) (hereinafter the “Plan”). This proposal will be submitted for approval at the 163rd Ordinary General Meeting of Shareholders (hereinafter the “Shareholders Meeting”) to be held in late June 2016.

The introduction of the Plan is contingent on approval at the shareholders meeting for transitioning to a company with an Audit & Supervisory Committee, as announced in the “Announcement on transition to a company with an Audit & Supervisory Committee” on February 2, 2016.

1. Background and purpose of the Plan

The Company’s Board of Directors passed a resolution to introduce the Plan on the condition of gaining approval from shareholders at the Shareholders Meeting with respect to compensation for directors. This plan aims to further clarify the linkage between compensation for directors (excluding outside directors and directors who are Audit and Supervisory Committee Members, and hereinafter unless otherwise specified are the same) and executive officers and the Company’s business performance and stock value, for the purpose of contributing to and enhancing awareness to improve medium- to long-term business performance and increase corporate value.

2. Outline of the Plan

(1) Outline of the Plan

The Plan is a stock compensation plan under which money contributed by the Company is used as funds to acquire the Company’s shares through a trust. With regard to directors and executive officers (hereinafter “Directors, etc.”), in accordance with director stock benefit rules established by the Company, the Company’s shares and the cash equivalent to the amount converted from the market price of the Company’s Shares (hereinafter the “Company’s Shares, etc.”) are provided through a trust. In addition, Directors, etc. shall receive the Company’s Shares, etc. in principle every three years on a fixed date during the trust period.

Framework of the Plan

Framework of the Plan

  1. The Company shall at the Shareholders Meeting pass a resolution on the Plan for compensation of directors and establish director stock benefit regulations within the framework of approval received at the Shareholders Meeting.
  2. The Company shall entrust the money within the amount approved at the Shareholders Meeting as set forth in 1. (The trust established by a money trust is hereinafter called the “Trust.”)
  3. The Trust shall acquire the Company’s shares through the stock market with entrusted money used as funds, as set forth in 2.
  4. The Company grants to the Directors, etc. based on the director stock benefit rules.
  5. The Trust, in accordance with instructions from the independent trust administrator from the Company, shall not exercise voting rights concerning the Company’s shares in the Trust account.
  6. The Trust shall provide to those among the Directors, etc. who meet the beneficiary requirements stipulated in the director stock benefit regulations the Company’s Shares based on the number of points granted to beneficiaries in principle every three years on a fixed date during the trust period. However, in the case when Directors, etc. meet the requirements stipulated in the director stock benefit regulations, they shall receive in respect to a certain percentage of the points granted to them an amount of cash equivalent to the market price of the Company’s shares.

(2) Individuals Subject to the Plan

The Company’s directors (excluding outside directors and directors who are Audit and Supervisory Committee Members) and executive officers

(3) Period of the Trust

From August 2016 (tentative) to until the Trust ends. (With respect to the period of the Trust, the Trust shall continue without a specific ending period, continuing as long as the Plan continues. The Plan shall end if the Company’s shares are delisted and the director stock benefit rules are discontinued.)

(4) Amount of Money the Company will Contribute to the Trust

On the condition that the introduction of the Plan is approved at the Shareholders Meeting, the Company shall introduce the Plan targeting the three business years from the business year ending March 2017 to the business year ending March 2019. (Hereinafter the period of the three business years concerned and each three-business year period after the three-year fiscal period begins is called the “Covered Period.”) With regard to the first Covered Period, in order to provide benefits to Directors, etc. based on this Plan, 1.1 billion yen (of which 570 million yen is for the Company’s directors is) as the upper limit shall be contributed to the Trust as funds to acquire the necessary shares led by the Trust.

In addition, even after the first Covered Period, and during the time until the Plan ends, the Company shall for each Covered Period make an additional contribution to the Trust of an additional 1.1 billion yen (of which 570 million yen is for the Company’s directors) as the upper limit. However, in the case when an additional contribution is made, the last day of the previous Covered Period when the aforementioned additional contribution is made, when the remaining Company Shares (excluding Company Shares equivalent to the number of points provided to Directors, etc. that have not been provided to the Directors, etc.) and money (hereinafter Remaining Shares, etc.) are available, the value of the Remaining Shares, etc. (the book value of the Company’s Shares on the last day of the previous Covered Period) and the total amount of money for additional contribution shall be kept within the upper limit of this approved proposal.

As a reference, on the assumption of acquiring shares at a closing price of 95 yen on April 1, 2016, the initial Covered Period, the number of shares than can be acquired from funds with an upper limit of 1.1 billion yen is 11.578 million shares.

(5) Acquisition Method of the Company’s Shares

The acquisition of the Company’s Shares for the trust shall be carried out through trading markets as described in (4) above, using money contributed to provide funds.

(6) Specific Contents of Company Shares, etc. Granted to Directors, etc.

The Company shall provide Directors, etc. with points, the number of which is determined in response to the level of achievement, including their ranks and business performance, etc., based on the director stock benefit regulations.

Points granted to Directors, etc. shall be converted at 1 share of common stock for 1 point when providing Company Shares, etc. as described in (7) below. (However, following approval of the resolution of this proposal, the Company’s shares in the event of an allotment of shares without contribution and a stock consolidation, etc. will undergo a rational adjustment using a conversion rate based on that ratio.

Upon provision of the Company’s shares, etc. described in (7) below, the number of points for the Directors, etc., which is the standard, is the total number of points granted to the Directors, etc. until the time when the beneficiary requirements are fulfilled.

(7) Timing of Distribution of Shares, etc. to Directors, etc.

In the case of Directors, etc. who meet the beneficiary requirements established under the director stock benefit rules, the Directors, etc. concerned shall receive the granted points equivalent to the accumulated number of shares from the Trust in principle every three years on a fixed date during the trust period, through established procedures for the designated beneficiaries. However, in the case when Directors, etc. retire, they shall receive from the Trust after the period necessary for benefit procedures following retirement.

In addition, in the case of Directors, etc. who meet the beneficiary requirements established under the director stock benefit rules, Directors, etc. shall receive money in place of a certain portion of the Company’s stock benefit converted at the market price. For this monetary benefit to be provided, there may be cases when the Company will sell Company shares from the Trust.

(8) Exercise of Voting Rights

In accordance with instructions from the trust administer, the voting rights represented by the Company’s shares held in the Trust’s account shall not be exercised without any exception. Adopting this approach is aimed at ensuring neutrality in the management of the Company with respect to the exercise of voting rights represented by the Company’s shares held in the Trust’s account.

(9) Treatment of Dividends

The Trust shall receive dividends from the Company’s shares held in the Trust’s account and shall use them for payment to acquire the Company’s shares and for trust fees, etc. for the trustee of the Trust. In addition, in the event the Trust is terminated, dividends remaining in the Trust shall be distributed to Directors, etc. in office at that time, in accordance with the provisions of the director stock benefit rules.

(10) Treatment upon Termination of the Trust

The Trust shall terminate in the case of a delisting of the Company’s shares or the termination of the director stock benefit rules, etc.

Of the remaining assets in the Trust upon termination of the Trust, after the Company acquires the remaining Company shares at no charge, the Company plans to cancel them after resolution by the Board of Directors. Of the remaining assets in the Trust upon termination of the Trust, the remaining amount of money as described in (9) above excluding the money provided to Directors, etc. shall be distributed to the Company. (For the purpose of providing for expenses, etc. during the trust period and apart from funds for the acquisition of shares, Company plans to contribute only the remaining cash reserve.)

Outline of the Trust

1. Name of trust:
Board Benefit Trust (BBT)
2. Trustor:
The Company
3. Trustee:
Mizuho Trust & Banking Co., Ltd. (Re-trustee: Trust & Custody Services Bank, Ltd.
4. Beneficiaries:
Directors, etc. who meet the requirements as beneficiaries as stipulated in the director stock benefit rules
5. Trust administrator:
A third party having no conflicts of interest with the Company
6. Type of trust:
Money trust other than cash trust (third-party beneficiary trust)
7. Date of trust agreement:
August 2016 (tentative)
8. Date when money is entrusted:
August 2016 (tentative)
9. Period of trust:
From August 2016 (tentative) to until the trust ends. (The trust shall continue without a specific ending period, continuing as long as the Plan continues.)

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