Out Stock Certificate

～ Questions and Answers for the Dematerialization of Stock Certificates in Japan of Stock Certificates in Japan) ～ (Previous Title: The Transition to the Dematerialization Reform Promotion Center for Securities Clearing and Settlement System Japan Securities Dealers Association April 2005 Version “Reform Promotion Center for Securities Clearing and Settlement System” is an industry-wide project organization, established within JSDA in April 2002, to promote reform of securities clearing and settlement system in Japan. Please refer to our website (http://www.kessaicenter.com) for more details of our activities. Table of Contents 1. Introduction................................................................................ 2 2. Enforcement Date ...................................................................... 3 3. The Basic Scheme of the New Law............................................ 3 (1) Holders of Rights ........................................................................................................ 3 (2) Securities applicable to the New Law ....................................................................... 3 (3) Provisions concerning Stocks of Listed/Unlisted Companies ................................... 3 (4) Provisions concerning Stocks of Listed Companies .................................................. 4 4. Other Provisions ........................................................................ 6 Figure 1. New Book-entry Transfer system …………………………………………………7 Figure 2. Current System ………………………………………………….…………………. 8 5. Questions and Answers.............................................................. 9 (1) Background of introducing the New System............................................................. 9 (2) Outline of the New Book-entry Transfer System...................................................... 9 (3) Provisions concerning Security Interest for Stocks ................................................ 12 (4) Measures for transition to the New Book-entry Transfer System ......................... 13 Figure 3. Special Procedures before the "implementation date" ……………………….16 (5) Other Provisions....................................................................................................... 17 1 1. Introduction The law concerning dematerialization of commercial paper (CP), Japanese government bonds (JGBs), corporate bonds, beneficial rights of investment trusts, and other securities, had been sequentially enforced in Japan as of January 2003. Further, the “Law for partial amendments to the Law concerning Book-entry Transfer of Corporate Bonds and Other Securities for the Purpose of Streamlining the Settlement of Trades of Stocks and Other Securities June 9, 2004. (Note1) ” was promulgated on Under this law, the “Law concerning Book-entry Transfer of Corporate Bonds, Stocks and Other Securities (Note2) ” (hereinafter referred to as the “New Law”) was newly enacted by reforming the “Law concerning Book-entry Transfer of Corporate Bonds and Other Securities (Note3) ”, and also relevant parts of the Commercial Code and other related laws were amended. Thereby, measures to introduce a dematerialized book-entry transfer system of stocks and related securities will be implemented by June 8, 2009. It is the legislation’s objective that elimination of stock certificates will streamline and accelerate settlements of trades of stocks etc. and will reduce risks and costs of issuance and trading of stocks, etc. The new laws, which cap the development of a series of laws directed to the dematerialization of securities certificates in Japan, will contribute to an improvement in convenience for market participants, and will strengthen the infrastructure and bring it up to the standard of the global capital market. The Japanese title is “Kabushiki tou no Torihiki ni kakaru Kessai no Gouri-ka o hakarutameno Shasai tou no Furikae ni kansuru Houritsu tou no ichibu o kaisei suru Houritsu”. (Note2) The Japanese title is “Shasai Kabushiki tou no Furikae ni kansuru Houritsu“. (Note3) The Japanese title is “Shasai tou no Furikae ni kansuru Houritsu“. (Note1) Securities applicable to dematerialization under this law (enacted in June 2002 and enforced in January 2003) are as follows; corporate bonds, Japanese government bonds, municipal bonds, investment company bonds prescribed in the Law concerning Investment Trusts and Investment Companies (Toushi Shintaku oyobi Toushi Houjin ni kansuru Houritsu), corporate bonds issued by mutual companies prescribed in the Insurance Business Act (Hoken Gyouhou), specified corporate bonds prescribed in the Law Concerning Liquidization of Assets (Shisan no Ryuudou-ka ni kansuru Houritsu), rights that should be represented by bond certificates issued by companies under a special law, beneficiary rights of investment trusts or foreign investment trusts prescribed in the Law Concerning Investment Trusts and Investment Companies, beneficiary rights of loan trusts prescribed in the Loan Trust Act (Kashitsuke Shintaku Hou), beneficiary rights of special purpose trusts prescribed in the Law concerning Liquidization of Assets, rights that should be represented by bond certificates issued by any government or company in foreign countries. 2 2. Enforcement Date The “Law for partial amendment of the Law concerning Book-entry Transfer of Corporate Bonds and Other Securities for the Purpose of Streamlining the Settlement of Trades of Stocks and Other Securities” shall be enforced as of a date within 5 years after the promulgation date (i.e. June 9, 2004) as prescribed by the Cabinet Order. (Note 4) 3. The Basic Scheme of the New Law (1) Holders of Rights The holders of rights attached to stocks and related securities, for which the book-entry transfer institution (hereinafter referred to as the “Central Securities Depository”) makes eligible, shall be determined based on the description or record in the ledger of book-entry transfer accounts with respect to transfer, pledge and issuance, etc. (2) Securities applicable to the New Law The following securities are newly covered by the New Law: (A) stocks (B) preemptive rights to new shares (Shinkabu hikiukeken) (C) subscription rights to new shares (Shinkabu yoyakuken) (D) corporate bonds with subscription rights to new shares (E) investment interests (Toushi guchi) prescribed in the Law concerning Investment Trusts and Investment Companies (F) preferred equities (Yuusen shusshi) and preemptive rights to preferred equity (Yuusen shusshi hikiuke ken) prescribed by the Law concerning Preferred Equity Investment in Credit Union-Based Financial Institutions (Kyoudou Soshiki Kinyuu Kikan no Yuusen Syusshi ni kansuru Houritsu) (G) preferred equities (Yuusen shusshi), preemptive rights to preferred equities (Shin yuusen shusshi no hikiuke ken), convertible specified corporate bonds (Tenkan tokutei shasai), and specified corporate bonds with preemptive rights to preferred equities (Shin yuusen shusshi hikiuke ken tsuki tokutei shasai), prescribed by the Law concerning Liquidation of Assets (3) Provisions concerning Stocks of Listed/Unlisted Companies (A) Listed/unlisted companies can apply for dematerialization of stock certificates by amending their articles of incorporation pursuant to approval by a special resolution (Note 4) The effective date for enforcement of this law is scheduled to be the same date as the “implementation date” of the dematerialization of the stock certificates of listed companies and the start date of the new book-entry transfer system. Please refer to part A18 for details. 3 of a general meeting of shareholders in accordance with the Commercial Code (Note 5) (B) If listed/unlisted companies provide the amended articles of incorporation in accordance with section (3)(A) above, those companies do not have to issue stock certificates even if the shareholders make demands for stock certificates. (4) Provisions concerning Stocks of Listed Companies (A) Transition to new book-entry ownership (a) Notwithstanding section (3)(A) above, listed companies will implement the dematerialization of stock certificates without any amendment to the articles of incorporation, because the corporate resolution for the necessary amendment to the articles of incorporation is deemed to have been legally passed as of the “implementation date”. (b) Under the new system, all the stocks of listed companies will be managed on the ledger of book-entry transfer accounts created by legally-defined “account management institutions”, such as securities companies, banks, trust banks and so forth, which will open accounts in the central securities depository. (B) Provisions concerning the list of shareholders (a) Under the new system, management of shareholders’ ownership interests will be unified in the list of shareholders (Kabunushi meibo) of the issuer, whereas prior to the amendments, it had been managed by both the list of shareholders and the list of beneficial shareholders (Jisshitsu kabunushi meibo) of the issuer. (b) Transfer of shareholder’s title shall be conducted based on “the notification of general shareholders’ list”, which the central securities depository will send to the issuer at certain times, such as fiscal year end. (c) Based upon said notification of general shareholders’ list, issuers will update the list of shareholders and identify the shareholders who can exercise shareholder’s rights. However, with regard to the exercise of minority shareholder’s rights, etc., identification of qualified shareholders should be determined separately based upon the continuous holding period, etc., on the records of the ledger of book-entry transfer account, and, accordingly, the central securities depository needs to separately send notifications to the relevant issuers upon the shareholder’s request. (C) Provisions concerning security interest pledge shall take effect through the relevant record in the column for pledge of the book-entry transfer account opened by the pledgee. (b) Taking into account the current business practice with respect to the “non-registered pledge” (Ryakushiki jichi), and in order to protect the anonymity (Note 5) (a) If stocks of listed companies are subject to pledge under the new system, such This amendment was made to article 227 of the Commercial Code and was enforced as of October 1, 2004. As for application of this provision, please refer to A21 and A22 for details. 4 of a pledgee, the central securities depository is generally required to notify the issuer of the pledger’s name etc., in stead of the pledgee’s name etc. in the notification of general shareholders’ list. the notification (Note6) . (c) “Security by way of assignment” (Jouto tanpo) on stocks of listed companies will also be imputed by the record of the security interest in the column for holdings of the book-entry transfer accounts opened by the secured party. The central securities depository will inform the issuers of the name etc. of the secured party in the notification of general shareholders’ list, unless the relevant secured party makes a special application otherwise. assignment”, will be notified as a shareholder. (D) Interim measures for transition to dematerialization (special exceptions) within the JASDEC system (shareholders who deposit stocks with JASDEC,) since their records on the ledger of customer accounts will be forwarded to the “Participant” (Note 7) account on the ledger of the book-entry transfer accounts as of the “implementation date”. (b) Shareholders may not demand the withdrawal of stock certificates deposited with JASDEC since the “implementation date” (Note8) . (c) Stocks, which have not been deposited with JASDEC as of the “implementation date”, should be maintained in the “special accounts” (Note9) . For the sale of such stocks, shareholders have to make a one-time transfer of stocks into their own book-entry transfer accounts in the account management institutions such as securities companies. (d) Stock certificates shall be invalid as of the “implementation date”. the list of shareholders of the issuer. However, the shareholders’ rights will not be forfeited so long as their names are recorded on (a) The smooth implementation of dematerialization is guaranteed for investors If a secured party makes such application, the name etc. of the party, who has created a “security by way of However, this principle does not apply to the case where the relevant pledgee requests that its name etc. be included in The person who gives notification of name etc. as a pledgee will be recorded on the list of shareholders, and the pledge will be treated as a registered pledge. (Note 7) “Participant”, which is legally prescribed to be “account management institutions” and “investors”, refers to “investors” here. (Note8) Please refer to section A19 for details. (Note9) “Special accounts” are book-entry transfer accounts established by issuers to ensure shareholders’ rights. Please refer to section A6 for details. (Note6) 5 4. Other Provisions (Note10) (1) In issuance of new stocks, subscribers (investors) of stocks should designate their book-entry transfer accounts in the form of a stock application certificate. Thereby new stocks will be credited to the subscribers’ book-entry transfer accounts (Note11) . (2) Stocks registered as lost stock certificates will be recorded, pursuant to the procedures of issuance of new stocks, in the book-entry transfer account designated by an applicant of the lost stock certificates registration or the special accounts opened by the issuers, on the date of deletion of the lost stock certificates registration, as a result of the application for deletion of the lost stock certificates registration by the relevant applicant, the assertions by stock certificate holders, or the lapse of one year after the lost stock certificates registration. (3) A safety net (a participant protection trust) is deployed to protect retail investors from certain contingent loss that is caused by an excess record on the ledger of the book-entry transfer accounts kept by the central securities depository or account management institutions. Associated with the promulgation of the New Law, the following amendments were made in the Commercial Code effective as of October 1, 2004: i) “The specific period closing system in the list of shareholders” to suspend transfers of shareholders’ titles was repealed, and “record date system” (to eliminate a suspended period) was adopted. ii) Subscribers for new stocks shall become shareholders on the “payment date for new stock”, changed from “the day following the payment date for new stock”. (Note11) Stock splits etc. shall be imputed based on the record on the ledger of the book-entry transfer accounts. (Note10) 6 Figure 1. < New Book-entry Transfer System > Figure 1. New Book-entry Transfer System Issuers ＜or Transfer Agent where applicable＞ List of Shareholders Separate Notices of the Exercise of Minority Shareholder’s Rights, etc. Notification of General Shareholders’ List Demand of Shareholders’ List at certain dates with justifiable purpose (e.g. Identification of Shareholders for shareholders special benefit plan.) Central Securities Depository Creation and Management in the Ledger of Book-Entry Transfer Account Management Institution ＜Direct Participant＞ Account Management Institution ＜Direct Participant＞ Accounts Account Management Account Management Institution ＜Indirect Participant＞ Institution ＜Indirect Participant＞ Investors (Shareholders） Account Management Investors (Shareholders） Institution ＜Indirect Participant＞ Investors (Shareholders） Investors (Shareholders） Book-entry Transfer between accounts 7 Figure 2. Current System Figure 2. Issuers ＜or Transfer Agent Where applicable＞ List of Shareholders List of Beneficial Shareholders “Notification of Beneficial Shareholders’ Name” “Request for registration of title transfer” Creation and Japan Securities Depository Center, Inc. (JASDEC） Management of Ledger of Customer Accounts Depositing of Depositing of Stock Certificates Stock Certificates Stock Certificates (held personally by investors or held by brokers, etc.) Participants （Securities Company, etc.） Participants （Securities Company, etc.） Depositing of Stock Certificates Depositing of Stock Certificates Shareholders （Investors within Shareholders （Investors within JASDEC system） Shareholders （Investors outside JASDEC system） JASDEC system） Book-entry Transfer between accounts 8 5. Questions and Answers (1) Background of introducing the New System Q1) What benefits would dematerialization of stock certificates provide? A1) Dematerialization of stock certificates allows investors to eliminate the risks associated with loss, theft and forgery of stock certificates. It will also reduce the costs associated with printing, safekeeping and issuing of stock certificates, and simplify procedures regarding stock splits or reverse splits. As a result, it will contribute to making Japanese securities markets more efficient and secure. (2) Outline of the New Book-entry Transfer System Q2) How will the shareholder’s title be transferred on the lists of shareholders under the new book-entry transfer system? A2) The renewal of the lists of shareholders for listed companies shall be conducted based on the notification of general shareholders’ list (Note12) that is sent by the central securities depository to the issuers, at certain times such as the fiscal year ends, ends of fiscal half years and record dates for stock splits or reverse splits. If issuers have justifiable reasons, such as the identification of shareholders for shareholder special benefit plans, etc., issuers can make demands to the central securities depository that it provide a notification of general shareholders’ list at certain dates at the issuers’ own expense. Q3) How will the handling of sole shareholder’s rights or minority shareholder’s rights change under the new book-entry transfer system? A3) To exercise some sole/minority shareholder’s rights, such as proposal rights concerning shareholders’ representative action, shareholder’s suggestion rights, or convocation rights with respect to general meetings, shareholders may be required to have a continuous 6-month holding period. To meet this requirement, shareholders should have been registered in the list of shareholders for a period of 6-months or longer at the time of exercise. Under the existing JASDEC system, the continuous holding period is calculated from the time when the shareholder’s title is registered on the list of beneficial shareholders of the issuer based on a notification of the beneficial shareholders (Note13) . On the other hand, under the new book-entry transfer system, the holding period Issuers receive notifications of necessary items, such as the names and addresses of shareholders, the number of shares, etc. in relation to all shareholders. (Note13) Since the notification of general shareholders’ list is sent by JASDEC at certain times, such as the fiscal year end, under the existing JASDEC system, the period between the acquisition date (when the title is recorded on the Ledger of Customer Account) and the following notification date of the beneficial shareholders, is not calculated. (Note12) 9 will be calculated from the time when the shareholder’s title is recorded on the ledger of the book-entry transfer account. For the exercise of sole/minority shareholder’s rights under the new book-entry transfer system, sole/minority shareholders should ask the central securities depository, through the account management institutions, to separately send notifications to the relevant issuers. notifications. Q4) How will the procedures of stock assignment or inheritance be carried out under the new book-entry transfer system? A4) In order to have a stock assignment (or endowment) be effective, the assignor should instruct its account management institution to transfer the stock to the account of the assignee. As for stock inheritance, the successor should make a request to the ancestor’s account management institution to change the title of the ancestor’s account to the successor’s name. Q5) How will rights of stocks in the form of a trust asset be perfected under the new book-entry transfer system? A5) Stocks in the form of trust assets under the new book-entry transfer system will be perfected by recording its status as a trust asset and by identifying the quantity of the underlying trust assets in the columns for holding/pledge of the account management institution acting as the trustee for the assets of the relevant book-entry transfer account. Q6) What are “special accounts” (i.e. shareholders’ book-entry transfer accounts opened by issuers)? A6) In order to maintain rights of shareholders represented by the stock certificates that are physically held by shareholders on the “implementation date”, the issuers shall open book-entry transfer accounts in the account management institutions designated by the issuers without delay after the “implementation date”. These accounts that are opened by the issuers are referred to as “special accounts” (Note15) . (Note14) (Note15) Accordingly, sole/minority shareholders may (Note14) exercise their rights within a certain period of time following these Details of this period shall be stipulated in the Cabinet Order. In order to transfer stocks in a “special account”, the shareholder shall open its own book-entry transfer account in an account management institution and then shall transfer the stocks from the special account into the newly opened book-entry transfer account, because the stocks in a “special accounts” may not be transfered to any third party’s book-entry transfer account. When stocks in a “special accounts” are inherited, the successor shall request the account management institution maintaining the relevant “special accounts” to change the title of the ancestor’s account to the name of the successor, with evidences of the proper succession (Details will be specified by the ordinance of the relevant Ministry). Please refer to A14 and A15 for details. 10 The issuers must open “special accounts” under the names of shareholders recorded in the list of shareholders. If actual shareholders are not recorded in the list of shareholders, those actual shareholders cannot enjoy their rights with respect to the stocks in the “special accounts.” Therefore, shareholders, who will physically hold stock certificates on the “implementation date,” must have their names recorded in the list of shareholders prior to the “implementation date”. Q7) Will it be possible for shareholders to obtain a certificate of matters recorded on the ledger of the book-entry transfer account? A7) Any shareholder of a listed company, who is a participant under the new book-entry transfer system, may request the relevant account management institutions to issue a document (in writing or by electronic means) certifying the matters recorded on the ledger of the shareholder’s book-entry transfer account, subject to payment of certain fees. Q8) Will it be possible for issuers to request information on matters recorded on the ledger of book-entry transfer accounts? A8) Issuers, with justifiable reasons and upon payment of certain costs, may request the central securities depository to provide a notification of the general shareholders’ list. The “justifiable reasons” in the preceding sentence include implementation of a certain shareholder special benefit plan. Issuers, with justifiable reasons and upon payment of certain costs, may also request the central securities depository, etc. to provide certain matters recorded on the ledger of the book-entry transfer accounts of certain individual shareholders. The “justifiable reasons” in the preceding sentence include certain information of shareholders who have exercised minority shareholder rights with respect to the issuers. Q9) How will the risks arising from excess records in the book-entry transfer accounts be handled under the new book-entry transfer system? A9) In the case where excess records occur in the book-entry transfer accounts with the central securities depository or account management institutions, and thereby result in the bona fide acquisition of excess stock by a third party, the total amount of stocks of the issue recorded in the book-entry transfer accounts will exceed the total amount of stocks of the issue. In such case, the central securities depository or account management institutions will be obliged to acquire the equivalent of the excess shares and to abandon the rights on the acquired shares against the issuer, since those institutions are unable to claim the effects of excess shares against the issuer. To protect retail investors from the risks associated with the bankruptcy of 11 account management institutions etc. in this process, a participant protection trust (participants’ safety net) funded by the central securities depository and account management institutions has been established under the law. (3) Provisions concerning Security Interest in Stocks Q10) How will security interest in stocks of listed companies be handled under the new book-entry transfer system? A10) To create a pledge, a pledgor should transfer the stocks from “the column for holding of pledgor’s book-entry transfer account” to “the column for pledge of pledgee’s book-entry transfer account”, thereby completing the necessary procedures to effectuate the pledge as a “non-registered pledge” (Ryakushiki jichi). In this case, the pledgor’s name (instead of the pledgee’s name) will be notified to the issuer in the notification of general shareholders’ list sent by the central securities depository. However, if the pledgee requests the central securities depository, through its account management institution, to notify the issuer about the pledgee’s own name, etc., such notice is given to the issuer and the underlying pledge is treated as a “registered pledge” (Touroku jichi). To create a “security by way of assignment” (Jouto tanpo), a party who has created a “security by way of assignment” (a party granting the security interest) shall transfer the stocks from “the book-entry transfer account of the party granting the security interest” to “the column for holding of book-entry transfer account of a secured party”, thereby ensuring the effectuation of a “security by way of assignment”(Touroku jouto tanpo). If the secured party requests the central securities depository, through its account management institution, to notify the issuer of the name of the party granting the security interest as the name of a shareholder, such name is notified and the underlying security interest is treated as a “anonymous security by way of assignment”(Ryakushiki jouto tanpo). Q11) Will anonymity be protected with respect to security interest in stocks of listed companies under the new book-entry transfer system? A11) In case of a pledge, the name of the pledgor shall, in principle, be notified to the issuer in the notification of general shareholders’ list, thereby anonymity of the pledgee will be protected. In the case of a “security by way of assignment”, the secured party may request the central securities depository, through its account management institution, to notify the issuer of the name of the party granting the security interest, rather than the secured party, thereby the name of the secured party will not be disclosed. 12 Q12) How will securities deposited with stock exchanges or clearing institutions etc., as margins or clearing funds etc., be handled under the new book-entry transfer system? A12) How to handle these securities which securities companies and financial institutions, as participants, deposit with stock exchanges etc. has not been determined at this moment. Details of the handling rules will be decided in the future based on deliberations among relevant parties. (4) Measures for transition to the New Book-entry Transfer System Q13) How will procedures for transition to the new book-entry transfer system be handled when stock certificates are deposited with securities companies for safe custody? A13) In the case where such stock certificates are deposited with JASDEC as of the “implementation date”, the stock will automatically be recorded on the new book-entry transfer system without following any special procedure under the New Law. In the case where such stock certificates are kept in the safe custody of securities companies in Japan rather than with JASDEC, the stock will automatically be recorded pursuant to the above procedures since securities companies in Japan can legally deposit these stocks with JASDEC beginning from one month before the “implementation date” to the day before two weeks prior to the “implementation date” (Note16) . In this case, securities companies in Japan are obliged to immediately provide the relevant notifications to the shareholders. Q14) How will the transition procedures for the new book-entry transfer system be handled when stock certificates are physically held by shareholders? A14) Under the new book-entry transfer system, stocks will be managed in the book-entry transfer accounts of account management institutions. In the case where shareholders physically hold stock certificates at home or in a safety-deposit vault etc. as of the “implementation date”, those stocks will be moved to the new system through “special accounts” opened by the issuers for maintenance of shareholder’s rights based on the ownership title recorded on the lists of shareholders. Accordingly, shareholders must record themselves as a recorded holder on the lists of shareholders of the relevant issuers before the “implementation date”. Q15) If shareholders physically possess stock certificates of listed companies outside the JASDEC system, and their names are not recorded as shareholders on the (Note16) Please refer to figure 3 in Page17. 13 relevant lists of shareholders as of the “implementation date”, how can such shareholders maintain their shareholder’s rights? A15) If stocks have not been deposited with JASDEC by the “implementation date”, the rights of stocks shall be maintained in “special accounts” opened by the issuers under the names of the recorded holders on the lists of shareholders (the “nominal owners”). Since stock certificates become null and void as of the “implementation date”, non-recorded shareholders may lose their shareholder’s rights. Shareholders who have not taken the necessary steps may maintain their shareholder’s rights by taking one of the measures explained below against the issuers and by requesting the issuers to open “special accounts” under the shareholders’ own names. A shareholder needs to: (1) Apply in collaboration with the nominal owner (the recorded holder on the special account) for a change in the recorded holder of the special account, (2) Apply with the original text, or a certified copy, of the final court judgment, or such other document as prescribed by the Cabinet Order (Note17) , ordering a change in the recorded holder of the special account, or (3) Take other applicable measures stipulated by Cabinet Order or an ordinance of the relevant Ministry. As mentioned above, in order to avoid such complicated and troublesome procedures, shareholders are strongly encouraged to confirm the recorded holder of the stock certificates, and to have the names of the recorded holders properly adjusted, if necessary, before the “implementation date”. Q16) Will stock certificates of listed companies be collected due to the implementation of the new book-entry transfer system? A16) Stock certificates of listed companies will not be collected under the new book-entry transfer system (Note18) . Stock certificates of listed companies will automatically become null and void as of “the implementation date” under the New Law, and the records on the ledger of book-entry transfer accounts will represent the rights of shareholders. Q17) How will rights of odd lot stocks (Tangen miman kabu) and fractional shares of less than one share (Hakabu) be recorded on to the new book-entry transfer system? A17) Rights of odd lot stocks deposited with the JASDEC system will be recorded in the new book-entry transfer system without following any special procedure as Reconciliation documents and arbitration documents are planned to be prescribed as other documents. (Note18) The New Law does not demand the collection of stock certificates. (Note17) 14 described in A13. Rights of odd lot stocks, which are held by shareholders outside the JASDEC system, will be recorded in “special accounts” opened by issuers without delay after the “implementation date”, as described in A14. If odd lot stock certificates are physically held by shareholders under the current system, their rights can be recorded on the new book-entry transfer system by depositing those stock certificates in advance with JASDEC. Rights to fractional shares of less than one share are currently credited with fractional shareholder’s lists of issuers; therefore, those rights will be recorded in “special accounts” without delay after the “implementation date” and will be ensured a smooth transition to the new book-entry transfer system. Q18) How will the “implementation date” for stocks of listed companies be legally determined? A18) The “implementation date” for stocks of listed companies shall be a date within 5 years after the promulgation of the New Law (i.e. June 9, 2004,) and shall be designated by Cabinet Order. The “implementation date” shall be determined with due consideration given to the developments of system support and business progress etc. for smooth transition in the central securities depository, account management institutions, and related market participants. Q19) By when are shareholders able to deposit stock certificates with JASDEC, or to withdraw stock certificates from JASDEC, under the current system? A19) To avoid procedural gridlock just before the “implementation date”, which may be caused by overflow of deposits/withdrawals of stock certificates, shareholders as well as JASDEC participants are prohibited from depositing, or withdrawing, any stock certificates with, or from, JASDEC during a period of two weeks before the “implementation date” (Please refer to figure 3). Therefore, shareholders and JASDEC participants cannot demand withdrawal of stock certificates of listed companies from JASDEC since the first day of two weeks prior to the “implementation date”. Q20) What kinds of new measures are provided for pledgees under the new book-entry transfer system? A20) Under the current law (Note19) , pledgees are not permitted to deposit stock certificates for a pledge with the JASDEC system. However, as an interim measure (special exceptions) under the New Law, pledgees (Note19) This law is the “Law concerning Central Securities Depositary and Book-Entry Transfer of Stock Certificates and Other Securities”. 15 are individually able to deposit pledged stock certificates with JASDEC for preservation of their rights of pledge only within a fixed period of time beginning from one month before “the implementation date” to the day before two weeks prior to the “the implementation date” (Please refer to figure 3). transfer accounts” as of “the implementation date”. If a pledgee deposits such stocks with JASDEC based on this provision, the pledgee is obliged to immediately provide a notification thereof to the pledgor. Thereby such rights of pledge can be recorded in “the columns for pledge of pledgee’s book-entry Figure 3. One month before the “implementation date” Two weeks before the “implementation date” the “implementation date” *Creation of List of Shareholders (Immediately after the below notification) *Opening of Special accounts (Without delay after the implementation date) *Notifying issuers of the final contents of Beneficial Shareholders’ List (Immediately after the implementation date) Issuer (or Transfer Agent) * Consent to JASDEC for dematerialization of stock certificates *Official announcement of transition to the new book-entry transfer system JASDEC (Central Securities Depository) *Prohibition period to demand for deposit/withdrawal of stock certificates (Please refer to A19) JASDEC Participants (Account Management Institutions) *Special procedure period to deposit customer’s stock certificates with JASDEC (Please refer to A13) Financial Institutions *Special procedure period to protect rights of pledgees (Please refer to A20) 16 (5) Other Provisions Q21) Can a listed company take steps to dematerialize their stock certificates by amending the articles of incorporation through a special resolution at the general shareholders’ meeting prior to the “implementation date”? (Note20) A21) A listed company can make such an amendment in the articles of incorporation and consequently break away from the current JASDEQ system being predicated on the existence of physical stock certificates. However, since the rules of the stock exchanges are requiring listed companies to deposit their stock certificates with JASDEC, when breaking away from the JASDEQ system prior to the “implementation date”, the listed company cannot keep its stock certificates listed with the stock exchanges. Q22) How will stock certificates of unlisted companies be handled under the new system? A22) As for listed companies, their stocks will be moved to the new book-entry transfer system by way of recordation on the ledger of the central securities depository (JASDEQ) under the New Law. As for unlisted companies, their stocks will not be subject to the new book-entry transfer system. Unlisted companies can adopt, at their own option, the dematerialization of stock certificates by amending their articles of incorporation through a special resolution of the general meeting of shareholders under the Commercial Code. In assigning dematerialized stocks of unlisted companies that do not fall within the scope of the new book-entry transfer system, shareholders of such unlisted company can transfer their stocks by agreement with the assignee, but the assignee may not assert the transfer against third parties, including the issuers, without the records of the transfer on the list of shareholders. issuer by the stock assignor and assignee. In such case, in principle, a joint request for the recordation of the transfer must be made to the Please note that this document is provisional and may be revised. (Note20) As for the special exception concerning the article of incorporation, please refer to section 3.(4)(A)(a) for details. 17