Company name: JAPAN PURE CHEMICAL CO.,LTD.
Stock exchange listing: Tokyo
Stock code: 4973 URL https://www.netjpc.com
Representative: Representative Director and President Tomoyuki Kojima
May 20, 2025
Inquiries: Senior Director, General Manager of Corporate Planning Division and Finance Division
Motoki Watanabe TEL +81-3-3550-1048
Notice Concerning the Opinion of the Board of Directors on the Shareholder Proposal
The Company has received a shareholder proposal (the "Shareholder Proposal") from a shareholder (the "Proposing Shareholder") concerning the 54th Annual General Meeting of Shareholders (the "AGM"), which is scheduled to be held on June 20, 2025. At a meeting held today, the Board of Directors, including all Outside Directors, unanimously resolved to oppose the Shareholder Proposal, as set forth below.
Proposing Shareholder HIBIKI PATH VALUE FUND
Details of the Shareholder Proposal
Agenda
Revision of Remuneration, etc. for Granting Restricted Stock to Directors
Partial amendment to the Articles of Incorporation (Decision-making body for dividends from surplus, etc.)
Acquisition of treasury stock
Appropriation of surplus
Description of the Proposition and reasons for the proposal As described in the attached Shareholder Proposal Form.
The Appendix contains the original content of this Shareholder Proposal Letter submitted by the proposing shareholder.
Opinion of the Board of Directors on the Shareholder Proposal
Opinion of the Board of Directors
The Board of Directors of the Company opposes all of the Shareholder's Proposals.
Reasons for opposition
(i) Revision of Remuneration, etc. for Granting Restricted Stock to Directors
The process for determining the remuneration, etc. of the Company's directors
To enhance the objectivity and transparency of the procedures for determining executive compensation, the Company has established the Nomination and Compensation Advisory Committee as an advisory body to the Board of Directors. This committee is chaired by an independent outside director and consists of a majority of independent outside directors.
The Board of Directors consults the Nomination and Compensation Advisory Committee on matters
including the basic policy for executive compensation, the overall compensation structure, calculation methods, and individual compensation details. Decisions are made by the Board based on the committee's recommendations.
Furthermore, specific details of individual compensation for directors are determined by the Board of Directors within the scope of the total compensation amount approved by the General Meeting of Shareholders. These details are deliberated by the Nomination and Compensation Advisory Committee, and the Board makes final decisions based on the committee's report.
Review of the executive compensation system
The Company formulated and announced its Medium-Term Management Plan (https://ssl4.eir-parts.net/doc/4973/tdnet/2599113/00.pdf) (hereinafter, the "Medium-Term Management Plan") on April 28, 2025, covering the three fiscal years from the fiscal year ending March 31, 2026, to the fiscal year ending March 31, 2028.
Prior to this, at the Board of Directors meeting held on April 25, 2025, the Company resolved to revise its executive compensation system (hereinafter, the "Revised Executive Compensation Plan") based on the report of the Nomination and Remuneration Advisory Committee. The objective of this revision is to realize sustainable growth through the implementation of the initiatives set forth in the Medium-Term Management Plan, and to further enhance directors' motivation to contribute to the Company's performance and the enhancement of medium- to long-term corporate value.
The Revised Executive Compensation Plan is designed with the following fundamental principles: (i) to emphasize the alignment between the Company's short-term performance and medium- to longterm enhancement of corporate value, ensuring that value can be shared with shareholders, (ii) to set compensation levels at a level that enables the Company to secure and retain talented individuals with a global perspective, and (iii) to establish a decision-making process for compensation that is objective and transparent.
Additionally, the compensation levels under the Revised Executive Compensation Plan will be determined using objective executive compensation survey data from external agencies to select a benchmark group of companies. This will ensure that the levels of fixed and variable compensation are set at a level that motivates the achievement of the goals in the Medium-Term Management Plan and enables the retention of talented individuals.
In addition, to motivate the Company to achieve the goals of this medium-term management plan and secure excellent human resources, the Company will select a group of benchmark companies using objective executive compensation survey data from an external organization. The level of compensation under this executive compensation system will be determined by comprehensively considering the fixed and variable compensation levels, among other factors.
In addition to "base remuneration," the executive remuneration system for executive directors includes "performance-linked remuneration" as an incentive for business execution and "stock-based remuneration" to further increase their motivation and morale. The stock-based remuneration aims to align their interests with those of shareholders by sharing the benefits and risks of stock price fluctuations, contributing to the improvement of medium- to long-term performance and corporate value.
Under the Revised Executive Compensation Plan, the compensation structure for executive directors includes a "basic salary," as well as "performance-based compensation" as an incentive for business execution, and "stock compensation" designed to enhance the motivation and morale for contributing to the improvement of long-term performance and corporate value by sharing the benefits and risks of stock price fluctuations with shareholders. The plan is designed such that, when the executive director achieves 100% of the set goals, the compensation will generally be structured as follows: 50-60% for the basic salary, 20-30% for short-term performance-based compensation, and 20% for stock compensation.
The "stock compensation" will be provided in the form of restricted stock that is linked to the achievement of financial targets (ROE, TSR) set in the Medium-Term Management Plan. The total number of the Company's common shares issued or disposed of for the purpose of granting restricted stock will be a maximum of 24,000 shares per year, and the total compensation limit for restricted stock allocation will be capped at 60 million yen annually.
The Company believes that this balanced compensation structure, which emphasizes the alignment between short-term performance and medium- to long-term enhancement of corporate value, will serve as a foundation for securing and retaining talented individuals with a global perspective and will ultimately contribute to the sustained improvement of the Company's corporate value.
For further details regarding the Revised Executive Compensation Plan, please refer to the "Notice Regarding the Revision of Executive Compensation System" published by the Company on April 25, 2025. (https://ssl4.eir-parts.net/doc/4973/tdnet/2598931/00.pdf)
No need to introduce stock-based compensation in relation to this proposal
This is the Company's proposal No. 7: "To determine the amount and details of stock-based compensation for directors (excluding directors who are members of the Audit and Supervisory Committee and non-executive directors, including outside directors). The total number of common shares to be issued or disposed of will be up to 108,000 shares per year, with the maximum amount of compensation for allotment set at up to ¥270,000 thousand per year. The performance-linked compensation, including ROE and TSR, will be designed so that the stock-based compensation constitutes 50% or more of the total compensation.
As described in (a) above, the Company has designed the compensation structure for executive directors so that, if they achieve 100% of their targets, they will generally receive 50% to 60% of their base salary, 20% to 30% of short-term performance-linked remuneration, and 20% of stock-based remuneration. The Company believes this proposal is inappropriate, as it represents an excessive stock-based compensation plan that lacks balance between these elements.
In addition, if the compensation structure for executive directors is designed so that 50% or more of total compensation is based on performance-linked remuneration, including ROE and TSR, as proposed in this proposition, the structure will be excessively tilted toward performance-linked compensation. This may create a strong incentive for short-term improvements in ROE and TSR through temporary measures such as large dividend increases and share buybacks. As a result, we believe this proposal could lead to outcomes that are inconsistent with the intent of a remuneration system aimed at improving corporate value over the medium to long term, which we currently consider appropriate.
Summary
For the above reasons, the Board of Directors of the Company is against this proposal.
The Nomination and Remuneration Advisory Committee deliberated on the content of this proposal before the Board of Directors' resolution and submitted a report to the Board. The Board of Directors then resolved the Board's opinion based on the report from the Nomination and Remuneration Advisory Committee.
Partial Amendments to the Articles of Incorporation (Decision-making body for dividends from surplus, etc.)
In the business strategy outlined in the Medium-Term Management Plan, the Company has made "business expansion through investments" a key theme and plans to make various growth investments aimed at enhancing long-term corporate value (for details on specific growth investments, please refer to the reasons for the Board of Directors' opposition to agenda item (iii), "Share Buyback"). Regarding the distribution of surplus funds, the Company believes that establishing a shareholder return policy based on a comprehensive cash allocation strategy, which takes into account growth investment strategies to strengthen the management foundation, as well as capital efficiency, financial soundness, and the business environment surrounding the Company, will lead to long-term corporate value enhancement and contribute to the joint interests of shareholders. The purpose of the Board of Directors being the decision-making body for the distribution of surplus funds is as stated above, and it was not done with the intent to restrict shareholder returns.
In fact, since the change to the Articles of Incorporation, the Company has implemented flexible shareholder returns through decisions made by the Board of Directors, such as the additional commemorative dividend for the fiscal year ending March 2022, the buyback of treasury shares for a
maximum of 360 million yen in October 2022, and from the fiscal year ending March 2024, the application of a new shareholder return policy with a minimum dividend on equity (DOE) of 5% as a prime market-listed company, with the aim of maintaining a certain level of shareholder return that is not greatly influenced by short-term performance. Additionally, in the Medium-Term Management Plan, the Company plans to continue shareholder returns with a focus on a payout ratio of 50%, taking into account the sale of policy-held shares, and will consider implementing a buyback of treasury shares flexibly depending on the situation.
While the Company's track record and plans for shareholder returns are as described above, this proposal is a prerequisite for agenda items "(3) Share Buyback" and "(4) Disposal of Surplus Funds." If all of these proposals are approved, they will impair the Company's financial soundness and hinder the flexibility of growth investments, leading to a situation where the improvement of long-term corporate value is obstructed. For the above reasons, the Board of Directors of the Company is against this proposal.
Share Buyback
The Company has introduced a dividend on equity (DOE) ratio of 5% as a lower limit for shareholder return, with the aim of balancing capital efficiency and financial soundness while proactively providing a certain level of shareholder return as a prime market listed company, not greatly influenced by immediate business performance. The DOE will be applied starting with the year-end dividend for the fiscal year ending March 31, 2024.
The Company also believes that shareholder return policies, such as share buybacks and dividends, should be decisions made based on a comprehensive consideration of business strategies and financial targets aimed at increasing corporate value over the medium to long term.
In this medium-term management plan, the Company has set "business expansion through investment" as the keynote theme. The strategy focuses on (i) expanding the business through strategic investments and
(ii) strengthening the business through investment. (i) Expanding the business through strategic investments will include accelerating M&As, with the aim of maximizing the scope of the business through collaboration with multiple companies, actively entering into technology alliances and capital participation. The Company also aims to enter consortiums investing in intellectual property and intangible assets to strengthen its intellectual property portfolio. Additionally, the Company plans to acquire technologies related to pre- and post-plating processes, "gold" non-plating and non-gold technologies, as well as expand both overseas and domestic bases, develop customers in the semiconductor field, and accelerate its battery business. (ii) Strengthening the business through investment will include upgrading and expanding development facilities, enhancing development functions, including the use of AI to make R&D more advanced and efficient, reforming the sales strategy by introducing a CRM system to improve customer engagement, and developing the JPC brand. The Company will also improve advertising and publicity efforts, as well as enhance employee wellbeing. Through these measures, the Company aims to accelerate development in the semiconductor area, strengthen its sales function, enhance total process proposals, foster customer engagement, and improve employee performance. The Company believes that the steady implementation of these business strategies will lead to the long-term improvement of its corporate value.
Therefore, in line with the business strategies outlined in this medium-term management plan, the Company intends to make medium- to long-term growth investments. These investments will be funded not only by operating cash flow generated during the period of the medium-term management plan, but also by cash on hand and funds obtained through the liquidation of strategic shareholdings.
In addition, the basic policy for shareholder returns under this medium-term management plan is to balance capital efficiency and financial soundness, with the goal of achieving long-term growth, based on the business strategies and financial targets described above.
As described above, we believe that the best way to enhance our medium- to long-term corporate value is to steadily implement the business strategies outlined in this medium-term management plan. The funds currently on hand, along with the funds to be obtained through the liquidation of our strategic shareholdings, are best used to support the implementation of these strategies.
On the other hand, this proposal calls for a large-scale share buyback of 610,000 shares-equivalent to approximately 10% of the outstanding shares-for a total amount of 2.1 billion yen, to be executed within one year from the conclusion of this General Meeting of Shareholders. If approved, we believe the Company's ability to make growth investments based on the business strategies outlined in the medium-
term management plan will be impaired, thereby hindering the improvement of the Company's medium-to long-term corporate value.
In addition, while we recognize that realizing growth investments and optimizing the capital structure are important to achieving a 10% ROE in the fiscal year ending March 31, 2028, we believe that measures such as this proposal-which aim to temporarily boost ROE through short-term, large-scale shareholder returns-may undermine the Company's financial soundness and constrain its ability to execute growth investments. Therefore, we do not believe such measures will necessarily lead to a sustainable improvement in ROE.
For the above reasons, the Board of Directors of the Company is against this proposal.
Disposition of surplus fund
Based on the Company's traditional basic policy of returning profits to shareholders in line with earnings conditions, the Company intends to continue paying stable dividends, considering its business performance and the internal reserves necessary for future business development and strengthening its management base. In addition, starting with the year-end dividend for the fiscal year ending March 31, 2024, the Company has introduced a new shareholder return policy called the dividend on equity (DOE), with a minimum limit of 5%, and has set the dividend for the fiscal year ending March 31, 2025, at 126 yen per share (DOE: 5.2%).
As stated in the reasons for the Board of Directors' opposition to agenda item (iii), "Share Buyback," the Company believes that the best way to enhance its medium- to long-term corporate value is to steadily implement the business strategies in this medium-term management plan. The funds currently on hand, as well as funds obtained through the liquidation of shares held under this policy, should first be used to steadily implement these business strategies.
In contrast, this proposal calls for a dividend of ¥170 per share, which corresponds to a DOE of 7.0%, a level we believe is excessive given the appropriate DOE that should be maintained by the Company at this time. The proposal also requires maintaining this dividend at the same level for at least three years, which is significantly different from the shareholder return policy aimed at enhancing our corporate value. If this proposal is approved, we believe it will impair the flexibility of the Company's growth investments based on the business strategies outlined in this medium-term management plan, thus hindering the improvement of the Company's medium- to long-term corporate value.
Furthermore, we believe that achieving 10% ROE by the fiscal year ending March 31, 2028, requires realizing growth investments and optimizing the capital structure. However, we believe that measures such as this proposal, which temporarily improve ROE by providing short-term and large-scale shareholder returns, may damage the Company's financial soundness and constrain the execution of investments for growth. For the above reasons, the Board of Directors of the Company is against this proposal.
Original Shareholder Proposal Document
As the shareholder proposal is only available in Japanese, please refer to the Japanese disclosure document for its full content.