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Policy on Act of Substantial Purchase of Kobe Steel Shares

April 27, 2006

Kobe Steel, Ltd. (the "Company") announced on April 27, 2006 that its Board of Directors (the "Board") adopted a policy on the act of a substantial purchase of the Shares amounting to 15% or more of the Voting Right Ratio (the "Rule"). This policy was implemented in order to maintain and further improve the corporate value and the common interests of the shareholders.

1.Purpose of the Policy

In the capital market in Japan, there have been not a few cases that the sudden purchase of a large number of shares occurs without adequate information on such moves to shareholders. In the event that the Company is targeted for such a large-scale purchase of its shares, such a large-scale purchase may result in damaging the corporate value and the common interests of the shareholders.

The final decision on whether or not to accept an acquisition bid ultimately rests on the shareholders. However, it is essential that shareholders receive sufficient information from both the Large-Scale Purchaser and the Board; have time to compare and consider such information, and have the opportunity to receive alternatives. Further, it is necessary to implement defense measures against a Large-Scale Purchase that could irreparably harm the Company or materially damage the corporate value and the common interests of the shareholders.

2.The Rule

	(1)Outline of the Rule

When the acquisition of the Shares begins, the Rule requires the Large-Scale Purchaser to provide sufficient information to the shareholders so that the shareholders can consider whether to accept the share acquisition offer. The Rule also secures an evaluation period during which the Board reviews and evaluates information provided by the Large-Scale Purchaser. Only after such an evaluation period has elapsed, may the Large-Scale Purchaser start the Large-Scale Purchase.


	(2)Independent Committee

To eliminate arbitrariness among the Board members and to secure objectivity, fairness, and rationality, the Company will establish an independent committee in accordance with the outline set forth in the Annex.
The Independent Committee judges whether information provided by the Large-Scale Purchaser in accordance with section (3) below is sufficient or not; recommends to the Board whether to implement or cancel defense measure as described in sections (5) to (7); and makes other judgments and recommendations as provided in the Annex.


	(3)Provision for Required Information

(a)

Aim

Before starting the Large-Scale Purchase, the Large-Scale Purchaser is required to provide information listed in (b) in accordance with the procedures set forth in (c) so that shareholders and the Board are able to evaluate whether the proposal of the Large-Scale Purchaser enhances the corporate value and the common interest of shareholders.

(b)

Required information

1) Requisite factors

The Large-Scale Purchaser is required to provide sufficient information to meet the aim provided in (a) ("Required Information"). The detailed items of the Required Information are basically as listed in 2), below. However, they are ultimately decided in a list provided by the Company since the Required Information may differ depending on the attributes of the Large-Scale Purchaser and the conditions of the Large-Scale Purchase.

2) Details of the Required Information

(i)	An outline of the Large-Scale Purchaser and its corporate group
(ii)	The purpose, method, and conditions of the Large-Scale Purchase, including the Voting Right Ratio that the Large-Scale Purchaser plans to acquire
(iii)	Whether the Large-Scale Purchaser has communication with any third party with regard to the Large-Scale Purchase
(iv)	The basis for calculation of the purchase price
(v)	Supporting information that the Large-Scale Purchaser has sufficient funds to pay for the intended acquisition, including whether there is a third party that provides such funds and if so, the name and outline of the third party
(vi)	The management policy, business plan, equity policy, dividend policy, financial plan, and plans to efficiently utilize assets that the Large-Scale Purchaser intends following the completion of the Large Scale Purchase
(vii)	The plan to enhance the corporate value of the Company and its group by the Large-Scale Purchaser, following the completion of the Large-Scale Purchase, and the basis that such plan enhances the corporate value of the Company and its group
(viii)	Whether the Large-Scale Purchaser plans to alter relation between the Company, its group and its stakeholders including employees, suppliers, customers, local community and if so, detail of intended alteration

(c)

Procedure to provide the Required Information

1)Submission of "intention letter" by the Large-Scale Purchaser

The Rule requires that the Large-Scale Purchaser submit to the representative director of the Company an "intention letter" when the Large-Scale Purchaser intends to commence the Large-Scale Purchase. In the intention letter, the form of which will be provided by the Company, the Large-Scale Purchaser is required to declare compliance with the Rule as well as to provide its name, address, governing law of incorporation or association, the name of its representative, the contact person in Japan, and outline of the planned Large-Scale Purchase.

2)The list of Required Information issued by Kobe Steel

Within five (5) business days of the receipt of the intention letter from the Large-Scale Purchaser, the Company will issue the list of the Required Information that the Large-Scale Purchaser is required to provide.

3)Provision of information by the Large-Scale Purchaser and its disclosure

The Large-Scale Purchaser is required to provide the Board with the Required Information promptly after the Large-Scale Purchaser has received the list of the Required Information. The Board will then submit the Required Information to the Independent Committee for review. In the event that the Independent Committee reasonably judges that the Required Information provided by the Large-Scale Purchaser is insufficient or inadequate, the Independent Committee may request the Large-Scale Purchaser to provide additional information. When the Independent Committee judges that it has received sufficient information, the Independent Committee will disclose through timely and appropriate means.

The commencement of the Large-Scale Purchase and all or a part of the Required Information provided by the Large-Scale Purchaser may be disclosed when the Independent Committee reasonably determines that such disclosure is necessary for shareholders to evaluate the Large-Scale Purchase.


	(4)Evaluation by the Board

Depending on the difficulty to evaluate the Large-Scale Purchase from the date that the Independent Committee discloses its receipt of all the required information as set forth in section (3)(c)3) above, the Board has determined the Evaluation Period of the Large-Scale Purchase as follows: (i) 60 days in the case of a cash tender offer in Japanese yen for all of the Company's shares, or (ii) 90 days in the case of any other form of Large-Scale Purchase than (i).

During the Evaluation Period, the Board reviews and evaluates the Required Information, with the advice of outside experts if necessary. Then, the Board forms and discloses its opinion on the Large-Scale Purchase. The Board may negotiate with the Large-Scale Purchaser to improve conditions of the Large-Scale Purchase or come up with alternatives for shareholders, if the Board determines these steps are necessary.

During the Evaluation Period, the Independent Committee reviews and evaluates both information submitted by the Large-Scale Purchaser and the Board. Based upon its evaluation, the Independent Committee recommends to the Board whether the defense measure should be implemented or not.

If the Independent Committee reasonably judges that it is necessary to extend the Evaluation Period, the Independent Committee may extend the Evaluation Period for a reasonable time, and the Large-Scale Purchase may be commenced only after the extended Evaluation Period has ended. In this case, the Independent Committee discloses, immediately after its resolution, the reason for the extension, the term to be extended, and other pertinent matters.


	(5)Actions to be taken on the Large-Scale Purchase

(a)

If the Large-Scale Purchaser deviates from the Rule

If the Large-Scale Purchaser deviates from the Rule, regardless of the conditions of the acquisition, the Board will implement the defense measure as a general rule.

(b)

If the Large-Scale Purchaser complies with the Rule

1)Basic rule

If the Large-Scale Purchaser complies with the Rule, the Board, even when it opposes the Large-Scale Purchase, may only persuade shareholders by expressing its opposition opinion or offering alternatives. The Board does not implement the defense measure as a general rule. Shareholders decide by themselves whether to accept the proposal by the Large-Scale Purchaser or not, taking into consideration the proposal by the large-Scale Purchaser, opinions on the proposal, and alternatives given by the Board.

However, even though the Large-Scale Purchaser complies with the Rule, the Board may implement the defense measure as detailed in section (8) below in order to protect the corporate value and common interest of the shareholders if it is judged that the Large-Scale Purchase will irreparably harm the company or materially damage the corporate value and common interest of the shareholders.

In more specific terms, if the Large-Scale Purchase falls within the categories set forth in 2) below, the Large-Scale Purchase is generally determined to irreparably harm the company or materially damage the corporate value and the common interest of the shareholders.

2)Cases against which the defense measure is implemented

(i)	Acquiring the Shares (as defined in 5.(5) below) without the intention to participate in management in order to raise the Share price and sell the Shares to the parties concerned with the Company at a higher price (so called green mail)
(ii)	Acquiring the Shares to temporarily take control of the Company in order to transfer intellectual properties, know-how, trade secrets, important suppliers and customers that are indispensable for the Company's operation to the Large-Scale Purchaser or its group (so called scorched earth)
(iii)	Acquiring the Shares in order to divert the Company's assets as collateral for or repayment of debts of the Large-Scale Purchaser or its group
(iv)	Acquiring the Shares to temporarily take control of the Company to dispose of high-priced assets not immediately utilized for business operations including real estate and securities so that the Large-Scale Purchaser may cause the Company to temporarily distribute high dividends or sell the Shares at a temporarily higher price as a result of the high dividends
(v)	A method of acquisition of the Shares that deprives choices and forces shareholders to sell the Shares including a two-tier oppressive acquisition, which means acquisition including a takeover that does not acquire all of the shares at first, later acquires the remaining shares under disadvantageous or unclear conditions
(vi)	In the case that taking control of the Company by the Large-Scale Purchaser damages the interest of stakeholders including employees, suppliers, customers, and local communities and in turn such loss in stakeholders' interest materially damages corporate value and the common interest of shareholders in the long term
(vii)	In the event that conditions for the acquisition, including price and type of consideration, timing of the acquisition, legality, probability of acquisition, and treatment plans for stakeholders such as employees, suppliers, customers, are inadequate or inappropriate for the Company's intrinsic value


	(6)Procedure to implement defense measure (to ensure fairness)

As written in section (5) above, upon determining whether the Rule is complied and whether the defense measure must be implement in the case that the Rule is complied, to ensure objectivity, fairness, and reasonableness, the Board inquires the Independent Committee. Based upon such inquiry, the Committee recommends whether the defense measure is implemented or not. The Board places the highest value on the recommendation of the Independent Committee.

The Independent Committee discloses, immediately after its resolution, the outline of the recommendation and other matters that the Committee determines appropriate.


	(7)Suspension or cancellation of the defense measure

Even after the Board has resolved to allot new share acquisition rights that do not require application by the shareholders (called in Japanese shinkabu yoyakuken musho wariate, hereinafter called "Allotment of Acquisition Rights") or the new share acquisition rights have been allotted among shareholders, the Independent Committee may, until such date that shareholders may exercise the new share acquisition rights, make another recommendation including suspension of allotment, or compulsory acquisition of the new share acquisition rights without consideration after the allotment, if the one of following events occurs. To be specific, after Board resolution, when (a) the Large-Scale Purchase ends, including the Large-Scale Purchaser withdrawing the Large-Scale Purchase; or (b) circumstances materially changes, (i) acquisition by the Large-Scale Purchaser no longer falls within any cases written in 2.(5) against which the defense measure is implemented, or (ii) the Independent Committee judges that it is unreasonable to make the Allotment of Acquisition Rights, the Independent Committee may make a fresh resolution, including suspension of the Allotment of Acquisition Rights or compulsory acquisition of the new share acquisition rights without consideration, and may make such a recommendation to the Board as the Independent Committee judges. In these cases, the Board also places the highest value on the recommendation of the Independent Committee and decides whether to suspend the Allotment of Acquisition Rights and compulsory acquisition of new share acquisition rights without consideration.

The Independent Committee discloses, immediately after its resolution, the outline of the recommendation and other matters that the Committee determines appropriate.


	(8)Details of the defense measure

If the Board decides to implement the defense measure against the Large-Scale Purchase in accordance with (5) and (6), based on its resolution, the Board will allot new share acquisition rights that do not require application by shareholders with conditions provided below (the "Rights"), including that the Large-Scale Purchaser, which includes the Related Shareholders Group in section (8), shall not exercise the new share acquisition rights. The Board will set a record date (the "Allotment Date") to determine the shareholders to whom the Allotment of Acquisition Rights is made.
The following conditions of the Rights are set in accordance with the Corporate Code scheduled to be effective on May 1, 2006.

(a)	Shareholders to whom the Allotment of Acquisition Rights is made and the number of new share acquisition rights to be allotted
	One new share acquisition right will be allotted without application by shareholders for each share held by shareholders registered or recorded in the last register of shareholders of the Company and Japan Securities Depository Center, Inc. as of the Allotment Date, except for shares held by the Company.

(b)	The number of shares to be issued upon the exercise of new share acquisition rights
	The number of shares to be issued upon the exercise of the new share acquisition rights will be decided by the Board. If the Company makes a share split or share consolidation, the number of shares to be issued will be adjusted accordingly.

(c)	Effective Date
	The Allotment of Acquisition Rights becomes effective upon the Allotment Date or such other date that the Board determines.

(d)	Type and amount of consideration to be paid upon the exercise of new share acquisition rights
	The type of consideration to be paid upon the exercise of new share acquisition rights is money, the amount of which is 1 Japanese Yen for each new share acquisition right.

(e)	Exercise period
	The exercise period will be determined by the Board; provided that it shall be no longer than 120 days from the effective date of the new share acquisition rights.

(f)	Restriction on transfer
	Any transfer of new share acquisition rights shall be subject to the approval of the Board.

(g)	Conditions on exercising new share acquisition rights
	The Large-Scale Purchaser may not exercise new share acquisition rights. Any party who acquires the new share acquisition rights without the approval of the Board also may not exercise the new share acquisition rights. The new share acquisition right becomes exercisable only 10 days after the date on which the Board publicly discloses the Large-Scale Purchase has consummated.

(h)	Matters concerning compulsory acquisition by the Company
	The Company may compulsorily acquire new share acquisition rights upon the date the Board later determines. Provided that the Board may elect not to acquire the new share acquisitions right held by the Large-Scale Purchaser and a party who acquires the new share acquisition rights without the approval of the Board. In the case that the Board compulsorily acquires the new share acquisition rights, the Company may issue shares, the number of which will be determined by the Board, as a consideration for such compulsory acquisition.

(i)	Rounding down fractional shares
	Any fractional shares less than one to be issued upon the exercise of the new share acquisition right will be rounded down.

(j)	Other matters
	The Board will determine any other matters necessary to allot the new share acquisition right not provided above.


	(9) Suspension of exercise of the new share acquisition rights

Notwithstanding section (8) above, to the extent that the Company determines in good faith that some action will or need be taken to comply with law, which includes any foreign law in this section (9), the Company may, to the extent permitted by laws, suspend the exercise of new share acquisition rights for a reasonable period in order to take such action or comply with such laws. In such case, the Company will, as promptly as practicably possible, make an announcement that an exercise of the new share acquisition right has been suspended. The Company shall not be required to give any notice to the holders of new share acquisition rights or any other parties in connection with such suspension, unless otherwise required by applicable laws.

3.Impact on shareholders and investors


	(1)Impact on shareholders and investors upon the adoption of the Rule

Since the Company does not make the Allotment of Acquisition Rights upon the adoption of the Rule, this Rule will not have any direct impact on the rights and interests of the shareholders and investors.


	(2)Impact on the shareholders and investors upon the implementation of defense measure

Although the Board may make the Allotment of Acquisition Rights in order to maintain the corporate value and the common interests of shareholders, the Company does not expect that the Allotment of Acquisition Rights causes damage to shareholders, except those shareholders who may not exercise the Rights under this Rule, in legal and economic aspects due to the scheme of the Plan. The Board will make timely disclosure if it determines to make the Allotment of the Acquisition Rights.


	(3) Impact on the shareholders and investors upon the suspension or cancellation of the defense measure

As provided in 2.(7) above, even after the Board has resolved to make the Allotment of Acquisition Rights or the new share acquisition rights have been allotted among shareholders, the Independent Committee may make another recommendation including suspension of allotment, or compulsory acquisition of new share acquisition rights without consideration if new share acquisition has been allotted until such date that shareholders exercise new share acquisition rights.
In the case that the Allotment of Acquisition Rights is suspended after the Board has resolved to make the allotment or all the new share acquisition rights have been compulsorily acquired by the Company after the allotment, dilution of the value of the shares does not come about. Therefore, a shareholder who trades shares at such a diluted value may be unexpectedly damaged due to change of the share price.


	(4)Procedures to be followed by shareholders

(a)	Registration of transfer of shares
	In case that the Board has determined to make the Allotment of Acquisition Rights, the shareholders will not be entitled to the Allotment of Acquisition Rights unless they complete recording their holdings in the register of shareholders of the Company by the Allotment Date, except for shares deposited with Japan Security Depository Center, Inc. The shareholders are required to complete recording as promptly as possible after the board resolution.

(b)	Procedure for application of the Rights
	Shareholders need not apply for the Rights since the new share acquisition rights will be allotted among shareholders without application and shareholders registered or recorded in the last register of shareholders of the Company and Japan Securities Depository Center, Inc. as of the Allotment Date. They will automatically become new share acquisition right holders.

(c)	Procedure for exercising the Rights
	To exercise the Rights, the shareholders are required to pay 1 Japanese Yen for each new share acquisition right to a payment handling agent during the exercise period. If the Rights are issued with the condition that the Rights may be compulsorily acquired by the Company and if the Board determines to compulsorily acquire the Rights, the shareholders receive the Company's shares as consideration for acquired new share acquisition rights without any payment.

4.Confirmation of shareholders intention


	(1)Information regarding the Company

The Company amended its Article of Incorporation in 1999, which provides that the term of office of directors is one year. Shareholders elect directors at the general shareholders' meeting held in June every year.
At the board meeting held on April 27, 2006, the Rule was adopted with the unanimous approval of the directors. All statutory auditors, including outside statutory auditors, stated their approval on the Rule on condition that the Rule is applied in a fair and reasonable manner.


	(2)Confirmation of shareholders intention

A board meeting to be held after the conclusion of a general shareholders' meeting will decide whether to continue, amend, or abolish the Rule. Thus, continuation, amendment, or abolishment of the Rule will decided by the Board consisting of directors who are elected by shareholders at the general shareholders' meeting every year. The Board will promptly disclose its decision on the Rule.
The bill concerning election of directors presented at a shareholders' meeting will state whether each candidate approves or disproves the Rule.

5.Definition


	(1)Large-Scale Purchase

"Large-Scale Purchase" means purchase of the Shares aimed for or resulting in the Related Shareholders Group holding 15% or more of the Voting Right Ratio.


	(2)Large-Scale Purchaser

"Large-Scale Purchaser" means a party making the Large-Scale Purchase.


	(3)Related Shareholders Group

(i) a holder (as defined in Article 27-23 (1) of the Securities and Exchange Law [the "Law"], including a party deemed as a holder pursuant to Article 27-23 (3) of the Law) of the Company's shares (as defined in Article 27-23 (1) of the Law) and any co-holder (as defined in Article 27-23 (5) of the Law, including a party deemed as a co-holder pursuant to Article 27-23 (6) of the Law); or (ii) a party who makes a purchase (as defined in Article 27-2 (1) of the Law, including a purchase made on a securities exchange market) of shares (as defined in Article 27-2 (1) of the Law) of the Company and its specially related parties (as defined in Article 27-2 (7) of the Law, the "Specially Related Parties")


	(4)Voting Right Ratio

"Voting Right Ratio" means either (i) in the case that the Related Shareholder Group is a holder or co-holder of the Company's share (as defined in Article 27-23 (1) of the Law) share holding ratio (as defined in Article 27-23 (4) of the Law, in calculating the ratio, the number of shares [as defined in Article 27-23 (4) of the Law] held by co-holder will be summed up) of such holders; or (ii) in the case that the Related Shareholder Group is a party who makes a purchase (as defined in Article 27-2 (1) of the Law, including a purchase made on a securities exchange market) of the Company's shares (as defined in Article 27-2 (1) of the Law) of the Company and its Specially Related Parties, the sum of the shareholding ratio (as defined in Article 27-2 (8) of the Law) of the purchaser and its Specially Related Parties of the shares.

In calculating the Voting Right Ratio, the Company may refer to the annual report, the semi-annual report, or the treasury stock purchase report which the Company has submitted latest in determining the total number of the voting right (as defined in Article 27-2 (8) of the Law) and the total number of issued and outstanding shares (as defined in Article 27-23 (4) of the Law).


	(5)Shares

"Shares" means shares and other securities as defined either in Article 27-23 (1) or Article 27-2 (1) of the Law.

6.Other


	(1)Language

Provision of the Required Information, any other notice and correspondence made in connection with the Rule must be made in the Japanese language.


	(2)Amendment of the Rule

The Board will review and amend the Rule from time to time considering enactment, amendment, or abolishment of the applicable laws and regulations in order to further enhance the corporate value and the common interest of shareholders.


	(3)Effective Date

The Rule goes into effective on May 1, 2006.

*This translation is for reference purpose only. The Japanese language version controls if there is any inconsistency or discrepancy between the English version and the Japanese version.

Appendix: Outline of the Independent Committee


	1. Members

The number of members on the Independent Committee is three (3) or more. The Board elects members among disinterested and independent attorneys, public certified accountants, certified public tax accountants, professors and corporate executives.


	2. Term of office

The term of office will expire upon the conclusion of the first board meeting held after the general shareholders' meeting. The members may be reelected.


	3. Power and responsibility

The Independent Committee makes judgments on the following matters based upon their resolution and makes recommendations on the matters (iv) - (vi) based upon its judgment. The Board finally decides matters placing the highest value on the recommendation of the Independent Committee.

(i)	Whether the Large-Scale Purchaser has provided sufficient information
(ii)	Analysis and evaluation of the Required Information given by the Large-Scale Purchaser and information given by the Board
(iii)	Whether the Evaluation Period needs to be extended
(iv)	Whether the Large Scale Purchaser has complied with the Rule
(v)	Whether the defense measure needs to be implement, which will be decided based upon analysis and evaluation set forth in (ii) and other relevant information
(vi)	Whether the defense measure needs to be suspended or cancelled
(vii)	Any other matters necessary to maintain and enhance the corporate value and the common interest of shareholders that the Board inquires to the Independent Committee


	4. Resolution

As a general rule, matters are resolved by the majority vote with the presence of all members of the Independent Committee. In an emergency case, a quorum is the majority of the members and matters may be resolved by majority vote of the members then present.


	5.Other

(i)	The Independent Committee may retain independent outside experts, including financial advisors, certified public accountants, and attorneys at the Company's expense.
(ii)	Even though an acquisition offer by the Large-Scale Purchaser has not been made, the general Independent Committee will convene semi-annually. At that meeting, members collect and review information necessary to make judgments set forth in 3. including circumstances and summaries of each business unit of the Company in the previous half fiscal year.

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