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| Policy on Act of Substantial Purchase of Kobe Steel Shares |
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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. |
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| 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. |
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| 2.The Rule |
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(1)Outline of the Rule |
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| 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. |
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. |
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(3)Provision for Required Information |
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| (a) |
Aim |
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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. |
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| (b) |
Required information |
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1) Requisite factors |
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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. |
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2) Details of the Required Information |
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| (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 |
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| (c) |
Procedure to provide the Required Information |
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1)Submission of "intention letter"
by the Large-Scale Purchaser |
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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. |
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2)The list of Required Information issued
by Kobe Steel |
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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.
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3)Provision of information by the Large-Scale
Purchaser and its disclosure |
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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. |
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(4)Evaluation by the Board |
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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. |
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(5)Actions to be taken on the Large-Scale Purchase |
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| (a) |
If the Large-Scale Purchaser deviates from
the Rule |
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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. |
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| (b) |
If the Large-Scale Purchaser complies with
the Rule |
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1)Basic rule |
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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.
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2)Cases against which the defense measure
is implemented |
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| (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 |
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(6)Procedure to implement defense measure (to
ensure fairness) |
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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. |
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(7)Suspension or cancellation of the defense
measure |
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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. |
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(8)Details of the defense measure |
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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.
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| (a) |
Shareholders to whom the Allotment of Acquisition
Rights is made and the number of new share acquisition rights to be allotted |
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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. |
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| (b) |
The number of shares to be issued upon the
exercise of new share acquisition rights |
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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. |
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| (c) |
Effective Date |
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The Allotment of Acquisition Rights becomes
effective upon the Allotment Date or such other date that the Board determines. |
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| (d) |
Type and amount of consideration to be paid
upon the exercise of new share acquisition rights |
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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. |
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| (e) |
Exercise period |
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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. |
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| (f) |
Restriction on transfer |
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Any transfer of new share acquisition rights
shall be subject to the approval of the Board. |
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| (g) |
Conditions on exercising new share acquisition
rights |
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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. |
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| (h) |
Matters concerning compulsory acquisition
by the Company |
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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.
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| (i) |
Rounding down fractional shares |
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Any fractional shares less than one to be
issued upon the exercise of the new share acquisition right will be rounded
down. |
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| (j) |
Other matters |
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The Board will determine any other matters
necessary to allot the new share acquisition right not provided above. |
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(9) Suspension of exercise of the new share
acquisition rights |
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| 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. |
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| 3.Impact on shareholders and investors |
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(1)Impact on shareholders and investors upon
the adoption of the Rule |
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| 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. |
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(2)Impact on the shareholders and investors
upon the implementation of defense measure |
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| 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. |
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(3) Impact on the shareholders and investors
upon the suspension or cancellation of the defense measure |
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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. |
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(4)Procedures to be followed by shareholders |
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| (a) |
Registration of transfer of shares |
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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. |
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| (b) |
Procedure for application of the Rights |
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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.
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| (c) |
Procedure for exercising the Rights
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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. |
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| 4.Confirmation of shareholders intention |
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(1)Information regarding the Company |
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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. |
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(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. |
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| 5.Definition |
| "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. |
| "Large-Scale Purchaser" means a party making
the Large-Scale Purchase. |
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(3)Related Shareholders Group |
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| (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") |
"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). |
| "Shares" means shares and other securities as
defined either in Article 27-23 (1) or Article 27-2 (1) of the Law. |
|
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| 6.Other |
| Provision of the Required Information, any other notice
and correspondence made in connection with the Rule must be made in the
Japanese language. |
| 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. |
| 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 |
| 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. |
| 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 |
|
| 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. |
| (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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